Of the two big private equity semiconductor buy-outs – NXP by KKR and Freescale by Blackstone – Blackstone looks the more responsible owner.
NXP’s decision last week to look for a buyer of a majority stake in the digital side of its Home Business Unit, looks like the classic private equity strategy of buying companies then flogging them off in bits.
The process destroys the company, but makes good profits, in good times, for the private equity funds. In bad times, with a bad investment, it helps reduce the losses.
By contrast, Blackstone seems to have accepted that the best way to recover from the cock-up of paying too much for Freescale, then loading it with too much debt, is to try and manage it for the long-term. To do that they appointed a CEO with a semiconductor track record as a product strategist and a long-term grower of businesses.
KKR seems to have been less responsible. It appointed a CEO with a financial background with a track record in M&A. His predecessor, Frans van Houten, negotiated a superb deal for NXP in divesting the wireless business. It remains to be seen whether a good deal, or any deal, can be arranged for the Home Business Unit.
Meanwhile NXP is now saying it’s re-focussing on becoming a ‘high performance analogue’ company. It is already a top five analogue player with 6% market share.
Expanding the analogue business was a good strategy for TI when, in 2000 and 2001, it spent nearly $9 billion buying Burr-Brown and Unitrode which propelled TI to its current 14% analogue market share and its $5 billion of annual analogue revenues. .
And going analogue was a good strategy for Intersil back in 2002, when Intersil was re-positioned by Freescale’s current CEO, Rich Beyer, from being the No.1 WiFi player to becoming a high performance analogue company, buying Elantec, BitBlitz and Xicor in the process. Intersil had around $1.7 billion in cash gained from an IPO and a couple of big disposals to smooth the transformation.
But is this still a good strategy some seven to eight years after TI and Intersil effected their transformations?
And does NXP have access to the money required to make the necessary acquisitions?