Sometimes, though not often, one feels that top execs earn their large modern rewards packages.
At the STMicroelectronics annual results meeting this week one of the teenage scribblers (former UK Chancellor Nigel Lawson’s description of the analysts employed by financial institutions) asked: “Why is your gross margin 35 per cent when a year ago it was 35.4 per cent?”
It seems an utterly daft question when you consider the multitude of uncontrollable volatilities - markets, prices, costs, exchange rates, tax rates, interest rates etc – affecting the financial results of companies. ST's CFO responded manfully.
It brings home how much pressure these executives are under to deliver financial performance above all else.
Nowadays, adding to that pressure, is the advent of the private equity funds into the chip business. The private equity people appear to be ruthless in their pursuit of short-term profits.
If Philips still owned NXP, would NXP have pulled out of Crolles2? Never. Philips has invested for 40 years, in good times and in some very bad times, in microelectronics R&D, and has staunchly supported of European technology projects.
By consistently investing in fundamental R&D, Philips has maintained the technology prowess which allows NXP to be a great chip company today.
Now, a new generation of management at NXP and ST has decided to dump the legacy of leading edge technology given to them by earlier generations of managers.
In doing so, are NXP and ST guaranteeing themselves a declining future?
Almost certainly.
The teenage scribblers and the private equity funds are partly to blame, but the final decisions came from company managers.
When Europe slips back to the pre-1984 level of competence in microelectronics (about five years behind the US and Japan) which was the situation before Europe started cross-company microelectronics R&D collaboration, we will look back to January 2007 as the date the decline started.
By then, the managers who made those decisions will be comfortably retired, having cashed in on the investments of their predecessors, and having left nothing for their successors.
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