NXP has announced a small profit for the last nine months of trading, a position which its new owners, a consortium of private equity funds led by Kohlberg Kravis and Roberts (KKR), may see as unsatisfactory in view of their plans for an IPO.
One wonders if NXP Semiconductors’ a net profit of two million Euros on sales worth 3.77 billion Euros in the first nine months of 2006 is going to satisfy its new private equity fund owners, a consortium led by Kohlberg Kravis and Roberts.
Or will the new owners start looking askance at the 737 million Euro R&D budget? This is going to be especially true if industry growth is lacklustre next year.
According to NXP’s CEO, Frans van Houten, the exit plan for the private equity owners is an IPO in about two years time.
By then, if the private equity people are to get their money back plus 30 per cent, which is a return these funds would normally be aiming at, the profitability of the group will have to be increased pretty steeply.
The chip industry makes a fortune in good times, and investing in it just before the good times start to roll is obviously the way to make a killing, but many see last year as the near-peak of the cycle.
So was it a good time to buy NXP (valued at $11.6bn) and Freescale (valued at $17.6bn)?
Or will these huge investments be looking rather silly this time next year?
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