mannerisms

Ruminations on the electronics industry from David Manners, Senior Components Editor on Electronics Weekly.

Frans van Houten Leaves NXP

So, Frans van Houten is to step down as CEO of NXP. For NXP this could be a good thing. I like Frans van Houten, but he’s not a semiconductor guy.

 

van Houten’s background is in systems. He seemed to bring to NXP the kind of big company management approach -  re-organisations, re-focussings, jiggering around with management structures, cost-cuttings, M&A - that sort of thing.

 

What a semiconductor company needs is someone who sees the future a few years out and is prepared to put his bollox on the block to develop the products which will thrive in that version of the future.

 

It takes deep understanding of where the technology is going, where the markets are going, and how to persuade engineers to buy into your version of the future.

 

It’s never easy because there are many versions of the future. To get your people to buy into your version of the future takes authority. Not the authority which derives from power and position, but the authority which comes from technological wisdom and understanding.

 

You can’t rely on your customers to tell you which version of the future is going to be the real future. They don’t know. Semiconductors determine the correct version of the future and it’s up to semiconductor people to make the right bet on the right future.

 

When companies are, like NXP, owned by private equity companies, the chances are they’ll make bad choices of CEO. They like people who are like themselves: conventional management types doing conventional management things: re-orgs, restructurings, re-focussing, cost-cutting, M&A etc etc.

 

But Blackstone, the private equity owners of Freescale, had the savvy to appoint a real semiconductor guy, Rich Beyer, as CEO of Freescale, and KKR, owners of NXP, have done the same with Richard Clemmer who replaces van Houten tomorrow.

 

Clemmer is undoubtedly a semiconductor guy having served more than two decades before the mast as a TI-er.  One of Clemmer’s claims to fame is that Google founders Larry Page and Sergey Brin suggested that Clemmer join them in the founding of Google.

 

Not seeing any way that anyone could make any money out of search, Clemmer declined the offer. 

 

HAPPY NEW YEAR  EVERYONE    -   Next post: January 2nd 2009 

Tags: company management, frans van houten, freescale, google, management approach, NXP, orgs, private equity companies

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74 Comments

  1. vitamin b
    October 05, 2009 12:42

    Really nice article!!! Thanks for sharing this!! I have found it very interesting and also great comments by readers.cynicism such as exhibited by Big Softie never brought anything forward.

  2. David Manners
    August 14, 2009 10:55

    Kafumu, this is still an industry of the future. The only thing for an individual is to choose your employer wisely. At the moment, having an Asian employer with a job based in Europe, is probably best. Asia is where the microelectronics industry growth is expected over the next decade

  3. Kafumu
    August 13, 2009 22:41

    I am student doing my traineeship at NXP for a year now. Have been there since July, 2008. I saw the whole ST/Wireless/Ericsson re-organisation saga. Actually 3 of my friends got fired. Horrible.
    I’ve heard so many stories of what caused the fall of NXP. Its sad that it might the case of too little too late now. Many talented people have left the company. That means zero innovation. No way of the hole.
    Now i wonder why i studied microelectronics! Oh boy.

  4. David Manners
    June 02, 2009 10:47

    Well Anonymous, it’s not ASML – the lithography company – which FvH is at, he is at ASMI -the production equipment firm – where he was appointed ‘temporary adviser’ with an anticipated tenure of 4-6 months. As to NXP’s problems, I think any organisation turning over $4 billion which is suddenly saddled with a debt of $6 billion – in return for which debt the company gets absolutely zero benefit – is bound to struggle.

  5. David Manners
    June 02, 2009 10:21

    Robert
    Yes we did a piece on that when it was rumoured to be about to happen. Here’s the link.
    http://www.electronicsweekly.com/Articles/2009/04/24/45968/kkr-may-help-nxp.htm
    I haven’t heard anything more about what happened.
    David

  6. Robert
    June 02, 2009 07:03

    David,
    Also on the NXP topic, Have you heard anything about KKR kicking in more money to keep NXP solvent?
    Friends on Wall Street politely suggest that pigs will fly before the new investors in KKR’s European funds let KKR prop-up the fund that invested in NXP with new money. This leaves KKR with a very distasteful option, namely using their OWN money to support NXP. Talk about sacrilege these guys want their deals just like their martinis, DRY.

  7. Anonymous
    June 01, 2009 17:12

    Hi David,
    What is FvH doing now ? Heard that he is with ASML.
    Why are so many heavy weight VPs not fired yet ? BU-Home is still shining despite their disappointing results. Money is leaking through R&D.
    How can such a big organisation is destroyed by their own people??

  8. David Manners
    January 30, 2009 15:39

    & of course, the great Oscar who said: ‘The cynic knows the price of everything and the value of nothing’

  9. Big Softie
    January 30, 2009 15:37

    It was the great George Bernard Shaw who is credited with saying The power of accurate observation is commonly called cynicism by those who have not got it.

  10. David Manners
    January 30, 2009 15:15

    But after all that’s happened – reckless bankers, shitty regulators, laissez-faire politicans, useless economists, Thain, Fuld, Madoff et al, are we not now set for a new Age of Cynicism?

  11. Anon
    January 30, 2009 15:03

    I can only say that cynicism such as exhibited by Big Softie never brought anything forward.

  12. David Manners
    January 26, 2009 20:08

    ….and then removing every other light bulb

  13. anonymousse
    January 26, 2009 19:58

    Actually, IEEE access hasn’t been completely withdrawn – if you work in the research labs in Eindhoven then you still have a subscription. It’s just us peasants who don’t need access (apparently). They’ll be collecting in the soldering irons next…

  14. David Manners
    January 26, 2009 19:35

    You’re right, Anonymous, it is the most commented on blog. A couple of weeks ago i did what you suggested and published a compendium of the comments on the Electronics Weekly newsite it’s on: http://www.electronicsweekly.com/Articles/2009/01/07/45222/what-are-nxps-problems-reader-comments.htm
    But I’ll put together an up to date compendium for the Mannerisms blog site.
    Good idea

  15. Anonymous
    January 26, 2009 18:54

    David I think that it is your most commented article isn’t it?
    Are you planning to produce a synthesis of all these comments?

  16. David Manners
    January 26, 2009 14:19

    Whatever next?

  17. Anonymous
    January 26, 2009 14:03

    Yes its true:-( no more access to IEEE papers!

  18. David Manners
    January 26, 2009 13:48

    Dear Titanic Survivor, first, congratulations on getting a liefeboat; second, thanks for summing up what is the tenor of so many remarks on NXP that it has great products – innovative and well-defined – but a layer of bureaucracy which stopped NXP reaping the just rewards of those products.
    Personally, I would put more emphasis than you do on the need to find $480 million a year to service the debts put on it by KKR. OK to service debt on borrowings which have been used to expand the company e.g. a debt incurred to increase spending on R&D, or new product development or more advanced manufacturing – but it must be soul destroying to service a debt that has just been dumped on you by an unscrupulous owner which has done nothing whatsoever to benefit the company.
    And I do agree, after 55 years in the top ten, to drop out two years after private equity takes you over says all you need to know about the benefits of being owned by private equity!
    Best wishes
    David

  19. Titanic survivour
    January 26, 2009 13:35

    Dear David,
    A late but perhaps not last comment.
    As an ‘early retired’Mullard/Philips Components/Philips Semis/NXP employee I find it sad to see an organization with a 50 year history, many of which were spent in the top 10 list, go down the tubes in just over 2 years. I am sad that an organization with talented people, excellent record of innovation and execution is sinking beneath the waves – because they built a Titanic, instead of a fleet of fast, stealthy patrol boats.
    I think that one thing missing from the launch of the new organization was a ‘start-up’, can do mindset. I see NXP as essentially a start-up with a long history. That mindset was certainly present when Philips Semiconductors split from the then Philips Components in the early 90′s, and from then on it was rarely out of the top ten ratings. Those were the days when anyone in the company might get a call or a visit from the CEO, even lunch with him.
    But we never learn from history do we?
    I fully agree with previous posts about about some senior managers, the so-called Top 100 VPs (who thought of themselves as VIPs), many of whom were elevated into their new positions even though they lacked the training, experience and proven track record that should have been a major requirement for their new functions. The result of this was to turn what was a flatish, fast,friendly organization with great ideas/products into a clunky, top-heavy hierachy with its what’s in it for me/watch your back culture-but still with great products.
    This is no way for any hi-tec company to go, let alone a new company with new owners, and with new challenges.
    Of course KKR et al and the global economic crisis has had a major impact on the company’s fortunes as it is having on so many around the World, but I can’t help thinking that a smarter, slimmed downed company structure with a savvy, go-for-it mentality, might just have figured out a way on how to better weather out the storm.
    They stll might and I sincerely hope they do – they have just got a major ID order from Germany, but sadly I think it is a case of too little, too late now as I agree that the iceberg man cometh.
    Kind regards,
    Titanic survivour.

  20. David Manners
    January 22, 2009 20:58

    Horrendous, Anonymous, it sounds like The Day of the Beancounters has come.

  21. Anonymous
    January 22, 2009 20:32

    A friend and former colleague of mine who stayed at NXP just told me that cost saving guys (so not engineering oriented minds) had shut down access to scientific papers/articles from IEEE without any consultation with the engineers who need them for their daily work.
    Pretty amazing isn’t it?

  22. David Manners
    January 22, 2009 15:04

    Dear lexadear, I didn’t pull it. It’s still up there on the site as far as I can see. If you can’t access it please let me know, David

  23. lexdabear
    January 22, 2009 11:39

    David, why did you pull your post “KKR’s shitty deals”?

  24. David Manners
    January 21, 2009 10:37

    Yes, Anonymous, the great CEOs put the company first, themselves second, Obviously CEOs tend to be the big ego type but that’s OK so long as their ego is served by making a success of the company. Once you see a CEO who’s in it just to make money for himself, you know the organisation is going to be in a bad way.

  25. Anonymous
    January 21, 2009 08:47

    I concur with the views of Big softie and David. Look at today’s management . If the management looks at safeguarding their back at the expense of others, you can imagine the fate.
    I agree to the fact that sometimes we need to take a hard Business call ; Decide from head instead of heart. At the same time, employees cannot be ultimately responsible and face the brunt for the mis management.
    Very gloomy situation !!!

  26. David Manners
    January 20, 2009 13:16

    Yes I’ve seen plenty of mindless conformists like that, Big Softie, the theory being that if you ape the behaviour of your seniors you’ll survive and thrive.
    The more I see of the semiconductor business the more it seems to me that the Noycean view to management was spot on i.e. recruit first class people, get them to internalise the company’s goals, give them responsibility early, and facilitate a free-flow of ideas, criticism and information.
    It is a knowledge-based industry and when managers try and run it like a hierarchical bureaucracy it’s not necessarily the bright ideas which get implemented.

  27. Big Softie
    January 20, 2009 12:00

    Maybe NXP Employee has the honour of serving in that layer of people we mentioned earlier, or is destined to get there.
    They are quite easy folks to spot. They generally leave a trail of disaster behind them, which somehow never sticks, and is only visible to the people below them in the hierarchy. They consistently spout the bleeding obvious, as though it is some great revelation they are bestowing on humanity. For them, the glass is perennially “half full”, and they spin everything as “positive”. Shutting fabs is a “good thing”. Decimating the sales organisation is a “vital step to recovery”. These are the people who “never look back, only forwards…”
    Unfortunately, with such people at the helm of middle management, it also means that the company is destined to make the same mistakes again…and again…and again…

  28. David Manners
    January 19, 2009 10:35

    Well I have to say that, of the many comments about the situation received from NXP people, nearly all are worried and concerned. The view of NXP Employee seems to be a one-off

  29. Anonymous
    January 19, 2009 10:11

    View of “NXP EMPLOYEE” could be one of its kind.Appreciate the optimism and energy radiated . Cannot represent the larger picture. The Employee Engagement Survey results does not reflect the same. The discussion here is on what needs to be on “high priority” list and not portray a hypocritical view / defend the past.

  30. David Manners
    January 13, 2009 00:01

    Yes indeed, NXP employee, I can certainly understand that may well have been the case.

  31. NXP Employee
    January 12, 2009 23:03

    Hello David,
    I am not saying that things go so well, but rather that they are not as bad.
    Next to this the departure of Frans may well have been that he was trying to protect NXP’s long term interest (aka semiconductor vision) against KKR’s short term requests (cost cutting), and lost that battle.
    Shades of grey, that’s life…

  32. David Manners
    January 12, 2009 22:20

    Thanks Anonymous. I’m sure you’re right that KKR chose t make money in semiconductors but, as it turns out, they’re losing money in semiconductors because:
    1. They valued NXP too highly at $11.6bn 2. They loaded it up with too much debt at $6bn 3. They ignored the Silicon Cycle.
    So KKR may have ‘chosen’ to make money in semiconductors but points 1,2, and 3 show they are too stupid to be able to do so.

  33. David Manners
    January 12, 2009 22:09

    Thanks, NXP employee. Very glad to hear your view. I’m surprised Frans van Houten left just when things are going so well.

  34. NXP employee
    January 12, 2009 19:47

    There is a lot of whining going in these pages, with a picture which is not fair nor balanced.
    1) In the current environment it is positive that the mobile business was sold as it was, would not all other Semi makers wish they had made that coup? Frans van Houten negotiated a golden deal
    2) Yes additionally many people were asked to leave, but frankly all those decisions were to my opinion at >90% justified by sound business or performance reasons
    3) The atmosphere at NXP is not as these pages paint it. I love coming to work every day, and that is because of my colleagues. The enthusiasm, competency, friendliness, openness, love of doing the right thing, are just fantastic!
    I never experienced unjust or arbitrary ratings from my managers, I have always been listened to and with an opportunity to have an impact. Beware of thinking that the grass is greener elswere. NXP colleagues: would you rather work at Infineon?? Of course not!
    4) I disagree that you need a techie to run a semiconductor company. You certainly need a manager who ensures that technical talent has the right position, but there is a clear difference between a CEO and a CTO. Philips Semiconductors / NXP was in much worse shape when the techies had free reins. Remember Nexperia? Do you honestly believe that Scott McGregor was a better Philips Semiconductors CEO than Frans van Houten?
    5) Frans has cleaned up the company, things are run much better than they were before him. Of course it is obvious that there is still much to do, in hindsight things coulda/shoulda/woulda but please be fair. Compare with the reality at other Semi makers, quite a number of businesses are in an excellent position at NXP.
    Clearly the company as it is today will be transformed, but in our quest to derive lessons from this, let’s be fair and realistic.
    NXP colleagues: let’s continue to work hard and do the right thing, the fundamentals always pay!

  35. Anonymous
    January 12, 2009 19:03

    Whoever comes to this company as boss will have to
    1) trim sales and administration, too big for a $4B company,
    2) trim middle level management especially at r&d;
    3) remove the “polder-nation” (agreement culture) as it does not fit the dynamic nature of semis and certainly not the philips-less nxp,
    4) enforce the boss-employee culture,
    5) reduce employee count but ensurue they are more comptetent, at 30,000 nxp is crowded for a $4B company,
    at the end I see nothing wrong with kkr being all about dollar. I don think Steve Jobs, Dirk Meyer or Irwin Jacobs (visionary technical leaders) are less about money. Point is kkr chose to make money in semis, naturally they have to act like a semis’ owner. Are they?.

  36. David Manners
    January 12, 2009 09:42

    I suppose that’s the good thing about blogging – you get all these diverse reactions from people which do reveal a very interesting picture of what’s going on inside an organisation.
    Thanks.

  37. Goody
    January 12, 2009 08:22

    Very interesting input to Clemmer in this blog. Hope Clemmer or MT see this blog. David, can you trigger Clemmer to take good input from this blog. Also, FVH should see this blog to know the improvement levers. Good job David !!!

  38. David Manners
    January 11, 2009 14:28

    Paradio, I fear you may be right. Whereas Blackstone, the owners of Freescale gave out the signal, by appointing Rich Beyer as CEO, that it wants to manage Freescale responsibly for the long-term, KKR, by appointing Clemmer, is putting out the signal that it wants a short-term financial solution – i.e. a break-up, sale or administration.
    I hope I’m wrong

  39. Paradio
    January 11, 2009 10:21

    Hi, David,
    Besides my above (previous) message, I would like to highlight the following points:
    1) A “good” company always treat the technical talent as an investment & treasure;
    2) IMHO, FvH treat the technical talent/engineers as a “cost”. I think you will agree with me, if you can review his behaviour when he was in CE and PS. Of course, he (or others) has the reason/excuse;
    3) KKR cares nothing but dollars. New CEO might be a suitable candidate, since he is so goooood at M&A. KKR doesn’t have any patient to wait, especially under current worldwide financial crisis—make money, and take money back asap.
    4) Anyhow, NXP so far is still an EU company, although KKR is the owner. KKR never believe that FvH can fully obey the “order” and put the gun on his European colleagues. That is also a key to have a new CEO I think.
    How do you think abt?

  40. David Manners
    January 10, 2009 15:11

    Thanks Anonymous, The question mark over Clemmer is that he’s a numbers guy, an ex-CFO and whether he has the vision to get the product strategy right.
    Blackstone at Freescale had the exceptional good judgment to get a semi guy with a great record in getting the products right – Rich Beyer – but KKR at NXP don’t seem to have chosen a person with such a record. Is that because KKR don’t want a guy with product vision? And because merely want a guy who can sell NXP off piecemeal for whatever he can get for it?

  41. David Manners
    January 10, 2009 15:04

    Very interesting, Anonymous, your point about the escalating cost of the software has come up before and is clearly a problem afflicting the whole industry, while your point about the management not fixing problems has been raised several times.
    You really do need a top-class guy at the top in the semi business, the judgments are still very largely technical.
    And there’s the old adage kicking in of first-class people appointing first -class people, second class people appointing third class people, and third class people appointing morons.
    I agree with you: NXP’s problems will take time to solve but how much time will NXP’s owners give them?

  42. Anonymous
    January 10, 2009 14:15

    I am ex-NXPian too. Regarding the inefficiency of the management. I always felt this is the problem localized to Bangalore where i used to work, looking at comments i am tempted to believe its a global problem(oh god! let this not be true). To my experience the employee morale has declined to a very low level since separation from Philips. This is clearly reflected in increased attrition in the company which was once envied for its low attrition in industry. Management here seems to have no interest in fixing managerial problems. As Big softie already told, they are interested in their own wellness and not of the company and its future. If Clemmer is thinking to bring back profitability then he should start with removing inefficient managers, else any amount of effort would go waste. Although there are many clients in pipeline to be engaged, the R&D cost has increased enormously because of customizing the too complex software/middleware. However there is lot of interest in simplifying things and getting back the software on track to increase profitability, but it would take lot of time before that happens(I hope investors are having enough patience for this). All the best NXP for your future.

  43. Anonymous
    January 10, 2009 10:43

    france did not do a good job. He continuesly promised but accomplished nothing at the end. semis is a high tech field and you need 1) detailed vision and 2) will; he lacked both.
    Clemmer seems a capable guy, he may either try to clean the mess which will take a while before he knows he cannot; or he already knows the bitter fact and will get ride of nxp piece by piece asap.
    philips left hi tech bcoz its management lacked the “will”. Perhaps bcoz they saw talent flow has been (long) disrubted to europe (netherlands). Best talent often ends up acorss the ocean.

  44. David Manners
    January 09, 2009 10:48

    Thanks Paradio, everyone seems to share your opinion of the new boss!

  45. David Manners
    January 09, 2009 10:47

    Thanks, Anonymous. That’s a grim story. I hope you get your wish and join ST or Infineon.

  46. paradio
    January 09, 2009 05:09

    FvH has not done a good job, from CE to PS+NXP;
    New CEO could be much worse than FvH, I do believe!
    Somebody perhaps still like PHILIPS, I should say: “me too”, since I served for PHILIPS from the beginning of last decade. But, but……., it is PHILIPS, who is well known and recognized in the world as a company with plenty of knowledge and deep+wide compentency, finally gave up hi-tech oriented approach, that is why now we are called [b] NXP [/b] ~~~~~ :-(

  47. Anonymous
    January 08, 2009 22:42

    First of all: happy and healthy new your to all.
    As an ex-NXP employe i want to make some comments;
    First of all after Philips sold the Semi-c in Nijmegen/Holland ,the most of the engineers losed their bleu heart (Philips-bleu), R&D went down (the profitmaker of the chip-industry), even the operators on the workfloor where not amused of the changing “workculture”, like i’am a boss and you work like in China. Holland is a polder-nation (agreement culture) this is not possible in this country.
    How can a manager permit himself, at a time of bear market to close a factory at 2010 when it is the most loaded fab!! So you are killing at first your profit and the most important the motivations of the engineers and operators.
    And there is more, because of the shutdown the processes had to be tranfered, is this possible; no way it would take at least 4 years to do so. This was unfurtionatly not written in the handbook of managers.
    So is FvH an insperational leader, i would say no.
    So must NXP be sold, i would say YES. Not to an private equity fund but to an other Semi branche like ST or Infeneon, and when i had to choose which fab i would buy, the dissicion would be very fast and clear!
    thanks for this possiblity to make the comments.
    with regards.

  48. David Manners
    January 08, 2009 11:12

    Robert, how right you are.

  49. Big Softie
    January 08, 2009 08:34

    Yes, that’s true in terms of profitability…but not in turnover, where the higher shares of revenue have by far come from mass market businesses like STB, TV, and telephony; key markets with large prestigious customers that play a pivotal role in driving the next wave of innovation and product development for the whole industry. Without the high volume/high turnover business a semiconductor player is reduced to either operating in a technical niche, or running a very modest “me-too” business at high risk of being assimilated by a bigger fish.
    With the divestment of the Mobile & Personal business, NXP started the move out of those areas in which the company had real potential and extensive tecnical experience, and where it had traditionally applied its R&D capability, which was always world class. The failure was in not being able to harness a long term view and manage the resources from a business perspective…which brings us back to David’s original point; there was nobody at the helm with sufficient vision and balls to do it.
    Investment in MMS activities may well improve the balance sheet in the short term but is hardly an inspiring prospect for long term market positioning and influence for a company that once lead the world with ground-breaking and inspiring technology that had a very real impact on people’s everyday lives.

  50. robert
    January 08, 2009 07:44

    My goodness, what a load of sanctimonious drivel!
    Anyone outside the Industry would think, upon reading this that the semi industry was a close kin to the boy scouts convention.
    Gimme a break!
    As an old boss of mine used to say, this is the only industry, he knows, of where some of the supposed smartest people in the world “go to the mattresses” for a few pennies. But it is those few pennies times a few million or Billion sockets which make it all worth while.
    Guys, nothing has changed, the only problem is that the last big down-turn (apart from 2001) was way back in 1990, so most of the industry has not lived through the periods of cyclically that characterized things in the 1970’s and 1980’s. BTW most semiconductor managers have not lived through the violent fluctuations that are now present in the industry, so it seems silly to me that they should be expected to act sensibly.
    Anyway, as I have said before, this is a huge opportunity, because instead of fighting for my place at the semi table, I suddenly find that my major competitors have started playing a private game of Russian roulette. Fortunately I was not invited to than party, but once it is over there’ll be another feast waiting for me.
    Robert

  51. Anonymous
    January 08, 2009 04:17

    As current NXPian, i totally agree with Big Softie’s comment. The middle and higher management is just rotten with no vision of any sort for the future. Most of the middle management are people who got promoted not because of their ability but because of the immediate requirements of that time. It will continue to ruin NXP.

  52. Hw
    January 07, 2009 13:08

    Just an info for Softie: most of NXP profit comes from simple multimarket chips from BU MMS and NXP is currently moving out of SOC chips, investing in BU MMS activities.

  53. David Manners
    January 07, 2009 09:02

    Thanks Anonymous, that’s a really interesting insight. Takes me back to the 70s where that was always the criticism levelled at the UK semiconductor companies -that there was little or no connection between the R&D department and the business departments.

  54. Anonymous
    January 07, 2009 07:18

    Bottom line improvements in semi conductor companies are largely contributed by optimizing the R&D cost, as the impact of other variables such as cyclicity and rising capital costs are almost uniform for all players. R&D cost in a typical semiconductor company is about 15-25% of the Top line. A 1% optimization in R&D costs translates into a 1.5 M$ savings for a 1 B$ company.
    NXP is a glaring example where the R&D team and Business team were not actively collaborating. In some of the Business Unit,the CTOs are mere “administrators”. They are neither updated with Technology nor aware of Business / market trends. Major activity for these CTOs are budget /resource number crunching !!The biggest challenge for Clemmer is to start from R&D team clean-up !!
    It is common to find only handful of projects contributing 70 to 80% of the company’s revenue,while there are a few thousand projects which are being pursued. As a result, companies are unable to take up “disruptive innovation” projects since most resources are engaged in projects of lesser strategic impact

  55. David Manners
    January 06, 2009 17:09

    Big Softie, I think you are 100 per cent right, and I don’t know anyone who has come up with an answer to this problem except, as you say, to charge more. But that’s horrendously difficult to do in the current industry conditions.
    Although, of course, the guys in the analogue business – selling standard chips to customer bases of thousands – do make nice margins. But that’s a very different proposition.

  56. Big Softie
    January 06, 2009 16:48

    David, I completely agree with your description of the “semiconductor-savvy” versus “management” type CEO.
    I believe there is another aspect which deserves inclusion here, and that is the disruptive effect that (embedded) software technology has had on the mass-market semiconductor business model.
    The unrelenting march of semiconductor integration means that most mainstream applications now consist of one large multi-core SoC device, and a huge stack of enormously complex software. In order to demonstrate and secure design-wins with these massive chips, semiconductor companies are forced into “bundling” significant amounts of software that is not accounted for in the traditional semiconductor pricing model, which is based on materials costs and processing.
    The only way that OEMs and product manufacturers can differentiate their own product based on such an SoC, in terms of functionality and feature set is by customisation of the embedded software. Since most are unwilling, or even unable to undertake all necessary software development themselves, the task falls back to the chip supplier. In short, fierce competition in the market forces chip vendors into supplying their customers with bespoke solutions, which have to be maintained over the total lifetime of the customer’s product. In return, the customer expects to pay a standard volume-based price, which erodes over time and total volume growth.
    Whilst many semiconductor companies are perfectly capable of creating such solutions, none of them seems willing or capable to achieve the revenue from the market that such a solution demands in order to represent a profitable long-term business. A business that supplies and supports customised products over lifecycles of many years at standard high-volume prices is not sustainable; the ongoing support costs are largely unknown, and not taken into account in the chip pricing.
    We have already seen several semiconductor companies withdraw from high-volume markets where the huge software costs render their business unprofitable. I believe we will see more of this over the coming years….unless that is the semiconductor guys also have the balls to either say “no”, or to ask their customers to pay the appropriate price for the products and bespoke service they are getting.

  57. David Manners
    January 06, 2009 14:55

    Tim, the sad fact is that so many people agree with you. Even the NXP-ers apparently have a sweepstake on how soon the company will be broken up.
    The good thing for NXP is its reputation for engineering and innovation which is second to none. There will be buyers for its expertise, IP and people.
    Also, I would imagine, the EC people will be very keen to see that NXP’s capabilities are kept alive for the sake of Europe’s technology future.
    But the short-term signs are not good. Unless Clemmer comes up with a rallying cry to point NXP towards a viable future – and how many ex-CFOs do rallying cries? – I’m afraid that the break-up option is the most likely.

  58. David Manners
    January 06, 2009 14:45

    Thanks, Utah.
    Isn’t this true of so many companies today – they don’t have semiconductor-savvy CEOs. A semiconductor-savvy CEO uses his technological judgment to determine what the market will need a few years out and figures how to produce a product to meet those needs.
    A ‘management’ type CEO goes to the customers and asks what they want, and the customers tell him the same as they tell every other supplier – so the customers get a load of suppliers with similar products, competing for the same sockets, and competing on price alone.
    Applying the ‘wisdom’ of MBAs and accountants to the semiconductor industry has always resulted in disaster.
    Good CEOs have to have the technical authority to make the right call on the future – and have the balls to pursue it through thick and thin.
    Easier said than done, of course, but the industry has had many great CEOs who have done exactly this.
    None of them, to my knowledge, ever attended Harvard Business School.

  59. utah
    January 06, 2009 13:01

    Happy new year !!
    As ex-NXPian, I want to share some views. I had attended leadership development programmes where Frans used to visit. I saw him very inspirational. At times, I felt quite proud of being part of such a company. Slowly I started realising that the company was being managed by a bad MT. No vision and no strategy !! Same set of power point were presented Quarter after Quarter. No major change !! The biggest white elephant was R&D. MT never did anything concrete to resolve the major problem of portfolio management.Major R&D investments were never fetching any concrete products / revenue. Yet no one was held accountable !!. “Highway to customer” never worked. There were still silos among various functions and they were fighting internally instead of taking on the external competition.Biggest flop was BU-Home !! Yet people are still pretty , flaunting flimsy wins and no one is accountable for the R&D debackles. Company is infected with politics to the core and victimisation is going on!! Big challenge for the new CEO. Need clean-up from the EMT.

  60. Tim
    January 06, 2009 12:31

    Happy New Year all!
    Having started to work with NXP in the last few months, I can see some changes from the old Philips Semi days, but too many of the ‘old guard’ still remain…and more importantly, the old thinking.
    NXP sold their wireless business ‘at the peak’ and got a good price. Their auto business is in pretty good shape, but if you keep selling the crown jewels, you’re left with the box (which is usually discarded, along with the instructions!).
    Private Equity companies cannot operate in a declining (semi) market, the burden of the debt placed on NXP is crippling – Clemmer is a money man, a KKR man, (a hatchet man?), and as such I don’t see any future for NXP.

  61. David Manners
    January 05, 2009 11:36

    Thanks Maxi, and all the very best for 2009. Having been, for a year, in a similar situation to NXP, with our parent company trying to flog off our bit of the company to private equity, I am aware how unsettling and worrying this kind of uncertainty can be.
    Fortunately for us, no one could get the money to buy us and we’re back in the fold pro tem.
    I’m sure you’re right that the owners of NXP now want to get out before the cash drain ruins the company.
    There’s so much quality at NXP that I would expect you’ll get industry ownership. Someone mentioned Broadcomm and you’d then get Scott McGregor back!
    I really hope things turn out well

  62. David Manners
    January 05, 2009 11:16

    Actually I’m beginning to think the same as you about Clemmer’s brief. It’s to get KKR out of its involvement with as little further loss as possible.

  63. David Manners
    January 05, 2009 11:11

    Yes I’m beginning to think the same – that Clemmer is there do do a deal to save what can be saved.
    NXP appears to be haemorrhaging cash and without a good trading year in prospect, and with the huge debt repayments ($450-500 million) required, the owners must be getting nervous about the company’s prospects of survival in its present form.
    Yes, putting it together with ST or Infineon would be best, but Infineon seems to have too many of its own problems (e.g. Qimonda and a billion dollar debt repayment) to be able to swallow NXP.
    That leaves ST which, if I was working for NXP, would seem the best solution.

  64. Oswald Fulcanelli
    January 05, 2009 10:42

    Interesting comments about the mergers. Mr Clemmer has been advertised in the announcement as having extensive experience in pulling off large mergers. Maybe to prepare us all for what will come?
    I do not see a merger with Qualcomm as Qualcomm is not active in, and does not want to be active in, the areas that the remainder of NXP is active in. Broadcomm is more diversified but probably does not need NXP. A merger with Broadcomm would have the amusing effect of putting Scott McGregor back in charge again.
    I would rather see a merger of NXP, or parts thereof, with ST or with Infineon. Those companies could use a boost in some of the areas that NXP still has competencies in.
    As to the remarks about the layer of ineffective managers at NXP. When Frans took over he removed the entire layer of managers reporting directly to him. It turned out that those people could leave without any negative effects to the company ;-)

  65. Paul
    January 05, 2009 10:39

    Hi David,
    Frans van Houten did not “leave” NXP, he was fired. I don’t share your optimism about Clemmer. If you read what he has done he is an M&A guy. He is certainly sent in by KKR to save what can be saved and sell what remains as fast as possible. He has worked in semiconductor but as a finance guy, not as an engineer. This is not somebody who plans to move to the Netherlands for a long time. He has a job to do and will finish the job in 6 to 12 months.
    To Big-Softie,
    One of the reasons I left Philips Semiconductors (even before it became NXP) was Frans van Houten. I did not find him inspirational at all, all his statements came straight out of management handbooks, I never detected a true vision.
    Paul

  66. Maxi
    January 05, 2009 08:49

    As a current employee of NXP, I have to thank you for your to-the-point analysis. Please keep it up. I personally don’t think FvH did a bad job under the circumstances. He focused the investment, cut out a bunch of unneccesary management and replaced more or less every key manager in the company. What he didn’t do is (exactly as you say) lay down a clear vision of where we are going, why this will beat the competition and how we are going to do it.
    I personally can’t see KKR taking any way forward apart from hiding as much debt as possible in the company and slicing and merging it to at least minimize the losses they made and then get out. Problem will be of course that no-one has cash to buy the slices at the moment. Maybe they will be forced to stick around for a while.
    Most dangerous is that employees are now in wait-and-see mode until they find out where they end up. We have had an office sweepstake for over a year now to predict how long the entity NXP will still exist. Even last year nobody wanted a date later than 2010 :-(

  67. David Manners
    January 04, 2009 15:29

    That’s very much in tune with what others have said. There seems to be a feeling that there’s a stultifying layer of incompetent managers at NXP left over from the Philips era. But that era ended in the autumn of 2006 when KKR bought NXP and, as a CEO under PE ownership, van Houten would have had pretty wide powers, as well as a duty, to get them to shape up or ship out.

  68. David Manners
    January 04, 2009 15:06

    The best result for the group would be to be bought by one of the major wireless players: Broadcomm, ST-NXP-EricssonMP, Mediatek, or Qualcomm.
    The worst result would be to be bought by a private equity group because, as we’ve seen with NXP, private equity companes can’t run chip companies.
    But who has loads of cash and has been trying get into wireless for a decade? Intel!

  69. Bob
    January 04, 2009 10:32

    Hi David. A happy new year!
    Which is your vision regarding the announcement made by Freescale with respect to the selling of its Cellular Products Group (CPG)?
    What do you foresee to be the CPG’s future? a new owner for it, a M&A, something else?

  70. Big Softie
    January 03, 2009 12:31

    An an ex-NXP’er I have to say I always found Frans an inspirational leader. I believe replacing him at this stage will not affect NXP’s future positively. By virtue of the cost cutting that has taken place, and the massive loss of competence already mentioned, what is left of the company is now set on a course that cannot change without significant investment, or divestment.
    Frans’ weakness was in not understanding the disparity that existed between the things he championed as our leader, and what actually took place at the working level….or maybe he knew it but was unable to change it. A disparity that sadly remains as a legacy of the Philips days and culture, whereby there exists a substantial layer of ineffective people promoted to a senior level that abstract the leadership from reality and add no value whatsoever…in fact quite the opposite. Far too many undeserving people ascend far too rapidly to this level through some mystical process which appears to take no account of their lack of knowledge or competence. Unfortunately for the company, the prime goal in life going forward for such people concerns only their own progression.
    The company morale started to decline during 2007, and over the last 12 months hit a very low level. It is a tough challenge for the incoming CEO!

  71. David Manners
    January 02, 2009 14:07

    Thanks.
    I expect there’s a tempation to do as you say and sell bits which are a going concvern while they are still going concerns.
    How long they can stay going concerns is anyone’s guess because the financial figures seem to have deteriorated so quickly.
    I see Philips valued its 20 per cent stake at 555m euros in Q3 which put a valuation of 2.8bn euros ($3.5bn) on the whole company – just 2 years after it was valued at $11.6bn for the sale to KKR et al.
    Debt at $4.5bn is partly off-set by cash of about $1.9bn but, as you say, in 2010 NXP has to start paying back the $4.5bn or re-negotiate the loans, and re-negotiation, unless the world economy is much improved, could be on very tough terms if not impossible.
    2009 trading conditions are going to be tough so it can probably be assumed the cash flow will be negative.
    So, as you say, NXP faces very stark choices and maybe it’s better to act now rather than later.
    It seems to me that the fairy-tale ending to this nightmare would be for Philips to buy back 80 per cent, or maybe only 31 per cent, of NXP. After all, Philips always appointed exceptional leaders of Philips Semis, and looked after the company when times were tough.

  72. Fresher
    January 02, 2009 10:28

    Happy new year David.
    So a new NXP is born (again) ? After two year’s
    getting rid of competence, how do you want to
    build the future ? Of course there is M&A but up
    to now it proved to be a way to fill the roadmaps
    and have something to sell.
    From inside, most of us are just expecting to be
    part of a branch that will be sold to someone else.
    That’s how we see the future: outside NXP.
    Things may change for sure. But it will take time
    and not sure KKR can afford this. And how will
    NXP pay back its debt meanwhile ? Either they
    re-nogiate the debt now, or they sell BUs or both.
    My bet: automotive & ID sold during first half of the year.

  73. David Manners
    January 01, 2009 14:54

    Thanks. I have no knowledge why he’s leaving, but my guess would be that the private equity people now see there’s no chance of getting a return on their investment for the foreseeable future, and that they now have to settle down to manage NXP for the medium to long term.
    For that, they may well feel they need an old semiconductor hand

  74. Oswald Fulcanelli
    January 01, 2009 01:44

    Happy new year to you as well David!
    The big question: What will his departure mean for NXP? Is he leaving because he is tired after four years? Is he leaving because he did not deliver what was expected of him? Or is he leaving so that Clemmer can take the next step in KKR’s plans for NXP?
    Van Houten probably did the best he could for NPX. But, having seen the company from the inside, I am afraid that in the end Philips’ good old bureaucracy won.