Challenged at the weekend by a reader to come up with a ten point plan for the recovery of NXP, here it is. The main problem is, of course, the $6 billion of debt loaded on the company by its private equity owners KKR, but it might be possible to find a way out of this debt burden, while establishing a strong trading position for the future.
1. Go to Philips and say: 'You own 20 per cent of NXP, if you want that to be worth something down the line, give us as many medium-term supply contracts as you can'.
2. Go to TSMC and tell them: 'The foundry industry is in trouble. Give us some medium term discounted rates on wafers with a guaranteed rate of price erosion over each node'.
3. Go to the Dutch government and the EC and say: "You've pumped hundreds of millions into us over the years. If you don't want to lose the value of that investment for
4. Go to the R&D people and ask: 'What have you got that's promising?' Then back a few brave hunches. And tell people about it.
5. Financial solutions:
a) Tell the auditors: 'Keep on putting out the worst figures you can to distress the value of the bondholders' debt as much as possible'. Do scary stuff like drawing down all available debt and spending wildly to frighten the bondholders to get them to sell their bonds and push down the price. For instance the 2014-maturing bonds are trading for below 30 cents on the $. Get the bonds down to ten cents on the $ then try and buy as many bonds back as possible to reduce the $480 million of annual interest payment owed to the bondholders.
b) Go into an administration in which the profitable parts of the company have pre-arranged acquirers on a debt-free basis, while the unprofitable parts are saddled with all the debt
6. On Gordon Moore's principle of: 'You'll never get well on the old products', accelerate new product development, by:
a) Bringing forward the completion targets for all new product development by 25 per cent and tell people they're expected to work harder and longer to achieve that.
b) Putting in place a scheme by which the people who define, design, develop and market new products get a directly related share in the profits which those new products generate.
c) Going to your many friends in the Taiwan OEM community and asking them what kind of a chip-set they want for netbooks. Then make one, bearing in mind it could be expandable to smartphones and lap-tops. Then bang the drum about the unlimited prospects for this new class of product.
d) Producing a $1 BOM solution to enable $10 handsets. OK NXP sold its wireless chip business but that doesn't mean it can't have a lean and mean wireless operation targeting niches.
e) Announcing a twelve month moratorium on redundancies for anyone directly employed on product development, that is the engineers and technicians who design, qualify, industralise and provide applications support for new products. There's no point in firing these people now: it would cost nearly as much in redundancy pay as to keep them working in NXP. Liberating these key people from the fear of losing their jobs in the near future would boost morale and motivation and would give the management the freedom to move resources to the most promising projects. At the same time, bring in contractors if key design skills are in short supply: a three month delay to a project or a costly redesign and new masks will hit you harder than shelling out for top-class designers who get it right first time.
f) Keeping only the best managers, the ones who can manage a department of twenty-five or thirty people employed on the core business functions like product development and selling products. The rest are not needed and are a lead weight in the business.
7. Get RF ID tags into airline baggage labels; high denomination currency bills; dog and cat collars; umbrella handles; gloves; scarves, hats etc etc (all things that get lost and left).
8. Institute P&L-based compensation for those with P&L responsibilities.
9. Eliminate management privileges, perks, and special treatment. Make people feel that everyone's in this together.
10. Suggested by Malcolm Penn, CEO of analysts Future Horizons: "Behave like a proper semiconductor company. Get out there and fight for the business. You've got super products, great technology, great designs, but it's all as flat as a pancake."
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A semiconductor company that has been in business as long as NXP has big patent portfolio; lots of the patents will relate to market areas in which they are no longer active. They should spin their IP into a separate business since an IP only company is in a much stronger position when trying to license patents.
The new business should hire a team of lawyers and consultants to build cases against everyone who is infringing their patents and start a litigation campaign. The object should be to make sure everyone selling mixed signal chips pays a tax to NXP to access their IP.
Semiconductor companies should be aiming to make 20% of their revenue from IP licensing, instead of no-cost cross-licenses with competitors they should insist on actual cash changing hands. This will drive the price of chips up by creating a large fixed cost for everyone in the market thus reducing the effect of competition on pricing. Right now chips are far too cheap compared with other products because there is no scarcity - patents are the legal mechanism to create scarcity.
Well Tom it's certainly a path which others have trod. But your bit about hiring 'a team of lawyers and consultants' sounds expensive and it could be, as we have seen, a lengthy process to get any revenues out of an industry which is going through tough times.
But you're right, it's certainly a way to go.
item 6, point a: people may walk away if you pay european salary and expect american performance.
it aint gonna work.
But item 6 b) gives them American style pay to compensate for the American style performance mandated in 6 a).
Item 1. Go to Philips and say: 'You own 20 per cent of NXP, if you want that to be worth something down the line, give us as many medium-term supply contracts as you can'.
David, that would be wishful thinking, if one knows the state of Philips Consumer Lifestyle business.
5(a) is an interesting point.#10 is rightfully the "must do'.
Thanks Bipin. Well there you then: No.10 was the point that came from the professional industry analyst.
Here's a 6.e)
Announce a twelve month moratorium on redundancies for anyone directly employed on product development, that is the engineers and technicians who design, qualify, industralise and provide applications support for new products. There's no point in firing these people now: it would cost nearly as much in redundancy pay as to keep them working in NXP. Liberating these key people from the fear of losing their jobs in the near future would boost morale and motivation and would give the management the freedom to move resources to the most promising projects. At the same time, bring in contractors if key design skills are in short supply: a three month delay to a project or a costly redesign and new masks will hit you harder than shelling out for top-class designers who get it right first time.
And a 6.f)
Keep only the best managers, the ones who can manage a department of twenty-five or thirty people employed on the core business functions like product development and selling products. The rest are not needed and are a lead weight in the business.
Thank you Fred. Two Excellent points. I have added them in as 6 e) and 6 f) to the original post.
6.g) Once you have developed your new products, make sure you advertise them. And this time, do it properly. Ditch the ridiculous "brand image" approach with the photogenic models and stretchy sheets. That method tells an engineer (your prospective customer) nothing of value whatsoever, except perhaps that you have no idea how he, your target audience, thinks. Instead, make sure you include product tables, summaries of relevant specifications and maybe an application circuit or two. If you don't know how to do this (and past experience tends to suggest that you don't) then take a look at adverts by, for example, Linear Tech or Maxim, who are established masters at this sort of thing.
Any such hints also for other companies ? Like Micronas ?
Thanks, Ann on a Moose, sounds good to me. I have added your 6.g) to the original post.
Yopu're right they've (either as Philips Semis or as NXP) never been much of a company for marketing
Thanks Despere, but I know almost nothing about Micronas. I went to see Micronas in Finland when thery first started, it must have been over 20 years ago, and I wrote my one and only piece about Micronas after that visit.
Since then there's been absolutely zero communication between us, though I remember the visit, and the people, and remember being very impressed by them.
Dear David,
Hardly original, but might be appropriate. Call it Project PhoeNiX, the misplaced initials of the company waiting to rise out of the other letters to be re-arranged into new NXP. The other letters, which make no sense how ever you arrange them, can be a symbol for the mess that KKR got them into.
Then send it to Mr Clemmer, because there are some excellent suggestions in your compilation.
Kind regards
Titanic Survivor.
Thanks Titanic Survivor, I appreciate your comments and I think that's a very good suggestion. The only sense I can get out of any re-arrangement of the other letters is EHOI which triggers a site called 'Exercise and Health Orkney Islands' - a very dubious sounding pleasure.
Maybe, if Mr Clemmer can restore NXP to its pre-KKR glory, the board should consider funding a trip for him to enjoy some EHOI.
The situation with NXP has been a long time coming and it is not going to be easy to resolve. Right from the Philips days.
Philips got a great price for the asset at the top of the market and, I may be wrong, but has written down the value of the remaining NXP shares, so the first item on the 10 point plan is unlikely to succeed.
The other ideas are also unlikely to yield results, for example keeping the best people, almost anyone who could have moved on has already done so, they tended to be the best.
But I accept that item 10 is the best idea, get more customers, more direct, more through distribution, Philips wasted a lot of money advertising semiconductors and medical devices to the general public on television. That money would have come in handy now, spend money on targeted promotions, design in support and whatever else works, including design contests etc...create a buzz about the company and the technology, offer ASICS and specialty ICs, and devices through distribution to everyone, even really small start-ups, they may just have an idea on how to use it to create the next big thing. Get more people away from their design environments and test benches and into the sales trenches. Sell to all and sundry.
BE PASSIONATE and HAVE A VISION.
I can truly say that I wish NXP would pull a miracle out of the bag, not only to survive the immediate future but to start expanding and take the electronics industry (their customers and market, not the semiconductor industry, their peers) by storm. In my opinion it is not too late for NXP, but if nothing positive is done, it may soon be.
Thanks, anon, one point on the 10 point plan - point No. 5a)- they've already started on is buying back the debt.
Earlier in the week NXP started swapping some of the debt for lower-cost debt which should reduce NXP's total debt burden and the $480m annual interest payment - perhaps the greatest of all the problems they have.