NXP's claim that its new strategy to focus on high performance analogue allows it to address an $85 billion market, has been questioned by Europe's leading semiconductor analyst, Malcolm Penn, CEO of Future Horizons.
"That's really good news", said Penn, "if NXP only get 20 percent of this TAM they can remain where they belong in the global top 10, except for one tiny little thing; the market's nowhere near that big!"
According to Future Horizons: 'Total semiconductor sales were US$249 billion in 2008. Take away discretes (US$22 billion) and opto (US$18 billion leaves US$ 209 billion. Now strip out Memory (US$46 billion and Micro (US$53 billion) and the rest (Logic and Analogue) totals US$ 110 billion, of which Logic is US$73 billion and Analogue US$37 billion, of which US$15 billion is standard linear leaving US$95 billion Display drivers and Standard Logic take a further US$ 27 billion out of this remainder leaving a TAM balance of US$ 67 billion. Even if 100% of this was 'high-performance analog and mixed signal ICs' - which it isn't - this is still way short of NXP's claim that high performance analogue and mixed signal ICs are a US$ 85 billion market.'
Well there we are. Of course NXP's figures may merely be to throw dust in the eyes of its private equity backers led by Kohlberg Kravis and Roberts who have proved that, by overpaying for NXP and loading it up with a $6 billion of debt, that they don't have much of a clue when it comes to numbers.
Oh me oh my! what's the world coming too, a semiconductor CEO telling marketing porkies.
I'd receptively suggest that this is just a little white lie compared to the Trident whopper. That said, I'm actually impressed with what Dick is managing to make out of the NXP mess. So in Dick's defense the big unknown in the NXP equation is RFID, not the chips alone but rather the whole infrastructure. Epurse is just beginning to gain traction, unfortunately RFID is not what the market wants to hear, so like all good CEO's he "added some color" for the benefit of the financial world.
And of course a largish percentage of high performance analogue goes into mobile phones which NXP got out of some time ago.
Power and lighting - high performance half to quarter micron maybe and a good market but hardly enough to keep a top 10 company going.
For years Philips had the best r.f. transistors for basestations but didn't develop them so others have overtaken that market. The same story in so many other areas. A sad demise.
Robert,-interestingly I have been looking into RFID and had some reps in recently to discuss the modules used. When they mentioned thatthe RF chips were made by NXP a shiver went down my spine and my enthusiasm dropped considerably.
After all given past experience with NXP (Now eX Philips) why would I want to use something that could well be dropped in a couple of years (if they don't go bust first).
Come back Mullard.... please!
Dr Bob, it is frighteningly horrible what KKR and its private equity partners have done to NXP. Presumable they don't realise that imposing $6bn debt on the company makes people question its prospects and, as you say, without long-term credibility what chance does a semiconductor company have?
Mike, as usual (with the exception of the 6th dimension) you are right.
Its a pity that a great technology company was mismanaged to this extent by KKR. Mr Kleisterlee was more than happy to handover his Semiconductor division ( which infact saved Philips from death in the 80's & 90's) to KKR. The over payed Finance executives of KKR with only theoretical knowledge of how to run a company ( I mean any company may be even a match box business) were suckered into buying a company with 6Billion debt. I am amazed that they were fooled by Philips into it.
Its a pity to see such wonderful talent in Europe and America to go wasted.
Now with the acquisition by Trident, its anyones guess what would happen. I cease to understand how Trident can make profit by gobbling up a company twice its size. Its going to be a battle by the executives of sold out Home unit and Trident to keep their jobs. But the home unit will be the loser since they wouldnt have any say in merger process. I suspect Trident will acquire the IPs and throw away the engineers- the acquisition does not make sense other wise. The best option for NXP would have been to spin off Home into another company and leave it to the company to survive. At least it would have died an honourable death.
Anonymous, KKR weren't suckered into buying a company with $6bn of debt, they imposed the $6bn debt by selling bonds secured on the company's assets to defray the cost of their purchase of 80% of NXP. NXP had to pay the annual interest charge of $480m (before some deby was paid down)and repay the capital out of its retained profits. This is why the deal was so iniquitous. Clobbering a semi company with debt just before the market turns down is folly on a dreadful scale.
Anonymous,
KKR's "MO" for deals such as NXP was always Win-win, by which I naturally means KKR wins whatever happens. So in this deal KKR adopted the tried and proven "fee factory" model. Basically put, KKR owns the management rights to NXP's future but the financial risk all rests with the Bond holders, the Limiteds and the employees.
Had the good times prevailed KKR would have gladly piled on fees at both ends of the transaction and probably walked away with a nice percentage of the IPO for almost no actual cash as risk. What's not to like about that deal.
If fault is to be assigned it rests with Bond holders who accepted such a lop-sided risk structure. As long as takeover capital is available on "no money down" terms there will be plenty of deal makers that are happy to provide a suitable conduit for the investors.
Thanks Robert, that teaches me a lot about how these so-and-sos operate. I hope in future people will see that it's an extremely discreditable act to sell a company to a private equity fund, and that governments will realise it is almost criminal to give private equity funds special tax treatment.
PE funds act against the public interest so should not be allowed their tax concessions.
The EC seems to have the right approach to the PE people and is proposing tighter regulation but, as usual, the UK government is trying to water it down.