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NXP faces mixed results post-acquisition

Posted: 11 Jan 2008     Print Version  Bookmark and Share

Keywords:NXP acquisition  Philips spinoff  Frans Van Houten 

Many in the high-tech sector are beginning to recognise that being acquired by private equity funds doesn't guarantee success. NXP Semiconductors, so far a relative success as an acquisition target, is still dealing with mixed results. The former Philips Semiconductors was acquired in 2006 by a consortium of private equity funds led by Kohlberg Kravis and Roberts.

Speaking to EE Times at the Consumer Electronics Show this week, Frans Van Houten, president and CEO at NXP, said, "We still think [going private] was a good idea and it's been a good experience."

Added Van Houten, "I am not saying it's been easy. They [private equity fund investors] always push me."

NXP reported Q3 2007 sales of Rs.6.95 crore ($1.76 million). Sequential growth from the previous quarter was 7.4 per cent, but the result was 2.8 per cent less than NXP's comparable growth in Q3 sales a year ago.

This so-so performance is perhaps hardly what the new owner of NXP had expected.

Van Houten cited a "slowdown of market" and an "adverse euro-versus-U.S. dollar currency exchange rate" as two big hurdles after the private equity funds took over NXP. Those two factors are "giving us a major setback" in the company's transformation, he said.

Van Houten always envisioned NXP as a fast-paced, growth-driven, highly competitive semiconductor company that would flourish after breaking away from its parent firm, the Dutch behemoth Royal Philips. "I would have liked us to grow faster," Van Houten added.

He noted that his team has made "many areas of improvements" and "overachieved in some," including decreased operational costs, quality improvements and instilling a "mentality to win" in the global market.

A sense of urgency to grow faster prompted NXP to acquire three companies over the past year: Silicon Laboratories' cellular communications business; Sharp Corp.'s Bluestreak MCU products; and GlovNav, a fabless GPS chip company.

Management changes
NXP has been making major changes in its management team, Van Houten said. "We've replaced 25 per cent of our management executives."

Key executive additions include: Marc Cetto, executive VP and general manager mobile and personal business unit, who was recruited from Texas Instruments Inc.; and Christos Lagomichos, executive VP and general manager of home business unit, who came from STMicroelectronics.

The new blood is helping NXP bring renewed focus in specific areas like cellular platforms and digital TV/set tops, according to Van Houten.

With the acquisition of Silicon Labs and new management executives, "We now have five teams working in parallel on a cellular platform," including ultralow-cost phones, feature phones, 3G, TD-SCDMA and Long Term Evolution wirelss technology, he explained. Few chip companies possess that much breadth and focus on a cellular platform, he claimed.

Van Houten said Lagomichos has delivered growth to NXP's customer base. While NXP was strong in the analogue TV market, it never had an equally dominant position in the DTV market. That's changed, according to Van Houten. "Three 'A' brands in consumer electronics are now embracing NXP's DTV chip solutions." In the set top market, NXP gained a design win in Sling Media's Slingbox and Sling Catcher product lines.

Philips accounts for 6 per cent of NXP's business, Van Houten said, adding that "none of our customers has more than eight per cent of our business." NXP's top four customers are Samsung, Nokia, Sony Ericsson and Philips.

NXP vs. Freescale
NXP is often compared to Freescale, which was also acquired by a private equity fund in 2006. But Van Houten noted that NXP's leveraged buyout (LBO) experience was very different from that of Freescale.

As a division of Royal Philips, NXP was never a publicly-listed company. For NXP, the LBO was a means to become independent of its parent company and achieve efficiencies. Since the acquisition, "We are telling our people to 'hold up your own pants', so to speak, and be accountable," said Van Houten. "We can no longer hide behind our parent company."

While NXP was under pressure to change its corporate culture through a buyout, Freescale was already an efficiently operated company, said Van Houten.

- Junko Yoshida
EE Times

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