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

Fable: Waxing And Waning

Back at the end of the century before last, a couple of brothers started making light bulbs.

From light bulbs it was a short step to vacuum tubes from where it was a natural progression to transistors which lead it inevitably into ICs.


For over 30 years the company’s IC business was in or around the world’s top ten semiconductor companies.


When Konosuke Matsushita realised he needed microelectronics technology for the electrical company he founded, he turned to this company for help and there followed a 40 year collaboration.


But the chip business fell on hard times and the parent company sold it to moneymen who gutted it.


Moral: Fortune is a fickle mistress.

Tags: fickle mistress, microelectronics technology, parent company, semiconductor companies, waxing

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  1. David Manners
    January 24, 2012 17:13

    So a big vote of confidence in the future of NXP? Thanks for that Mark.

  2. Mark Inskip
    January 24, 2012 17:10

    Its the Philips UK Pension Fund which was worth £2.8 billion at the end of March last year. The NXP shares repesented 25% of the assets. However since then around £160 million worth of NXP shares have been sold.

  3. David Manners
    January 24, 2012 11:09

    Well the 20% opf NXP not bought by KKR and retained by Philips was put inrto the Philips pension fund, Peter, but I should imagine that the Philips pension fund is so ginormous that the NXP shares don’t make up a significant proportion of its value.

  4. Peter
    January 24, 2012 09:58

    And I believe the pension fund is stuffed with NXP shares…

  5. Terry
    January 23, 2012 16:06

    @Cheese, much of the NXP’s TV software was outsourced to India. Perhaps you mean East Asia but it won’t do as an argument for putting down European innovation.

  6. Mark Inskip
    January 23, 2012 13:25

    cheese – Asian based co’s churning out products?
    Trident, which took over NXP’s DTV and STB businesses, filed for bankruptcy protection early this month. Its key DTV SoCs are PNX85500 and PNX51xx designed in NXP days. The most recent design-in was announced a couple of weeks ago – pretty good for an SoC designed 3 to 4 years ago.
    Trident has failed in the two years since it took over the business to get a successor product into production using its chinese design centre.

  7. Bitter
    January 23, 2012 12:38

    It will be interesting to see how the masters of the universe will put down the two bloated and slow geese ST-Ericsson and Sony (Ericsson)?

  8. David Manners
    January 23, 2012 10:15

    So the wonder of it is, cheese, that Philips persuaded KKR it was worth $10bn.

  9. January 23, 2012 09:08

    Let’s be clear – The moneymen didn’t gut the business, there wasn’t much to gut in the first place. (Philips isn’t stupid to sell a goose that still lays golden eggs)
    Yes, Philips managed a huge up-sell of a semi-company with a great history, an uncertain present and little future. The golden eggs had all been laid, what was left was a goose that expected to be treated with the respect that it once deserved even though it had long moved away from laying any eggs at all…
    Actually, it’s pathetic to see yet again a lot of breast-beating on how great Philips Semi was and how KKR drove them to the doom.
    Some facts – Philips semi employed 500 odd people to develop software for their TV business – and today, a team of 50-60 people in asia do the same work, for the same (and new, more demanding) customers. Note that of-course there is more software to be written, and in even less time than before. The same is true about SoCs and IPs, for TV, STB, Car entertainment, discretes, Identification technologies….Every BU and then the central CTO organization built HUGE empires of people whose productivity was measured in slideware and org-charts, rather than in innovation and business bottomlines.
    On an average, the asian Cos that have replaced Philips semi (or are competing with what remains of NXP) employ less than 10% of the work-force that Philips Semi did, while churning out products that sustain similar businesses. Let’s not even compare wages – fact is Philips Semi’s organization size and sloth brought it down. Plain and simple.
    Fortune might be a fickle mistress, but a fickle master deserves not a lot of fortune.

  10. Anonomouse
    January 22, 2012 14:54

    That is my understanding of how the industry works, but I am a
    semiconductor engineer, not a “financial engineer”.
    Commenter name: Anonomouse

  11. Leo
    January 22, 2012 14:51

    Agree, Mike, anonymouse and David.
    This explains a hell of a lot of mergers/acquisitions. It takes us a
    few blog entries to see the pattern. Why do all those so called
    financial experts that get pursuaded to invest don’t get it? Or do
    they, but some personal financial incentive has convincing counter
    Commenter name: Leo

  12. Anonomous
    January 22, 2012 14:48

    Leo, the financial experts don’t have any incentive to get it right,
    indeed, they would probably be out on their ear if they refused a risk
    because someone else would take it on and make a short term profit -
    and whose to care, particularly if you are the sort of amoral person
    who will get to the top in such an industry?
    Just thinking about the US antitrust cases – Why hasn’t Goldman Sachs,
    for example been broken up, or at least investigated by antitrust
    regulators? If an organisation is “too big to fail” it is too big,
    full stop.
    Commenter name: Anonomouse

  13. David Manners
    January 22, 2012 14:25

    Ah, that expalins, presumably, why these deals go wrong, Anonomous, the incentive is all on the side of getting the deal done, not on the side of analysing the deal properly
    Edit | Reply David Manners Fable: Waxing And Wanin

  14. David Manners
    January 22, 2012 14:23

    From Anonomouse: Furthermore, the individualswho took the decision for their employers to underwrite the purchase would have also made a profit; as they would get a commission bonus. Given the short-term nature of that sort of finance employment, they would probably be working for a different employer by the time that the deal began to sour. (1 reply)
    Edit | Reply Anonomouse Fable: Waxing And Waning

  15. David Manners
    January 22, 2012 14:16

    From Anonomouse: Furthermore, the individualswho took the decision for their employers to underwrite the purchase would have also made a profit; as they would get a commission bonus. Given the short-term nature of that sort of finance employment, they would probably be working for a different employer by the time that the deal began to sour. (1 reply)
    Edit | Reply Anonomouse Fable: Waxing And Waning

  16. David Manners
    January 22, 2012 14:13

    Yes, of course, you’re right Mike, unlike Blackstone/Freescale, KKR put little money of their own up to buy NXP. The guys that put the money up were the bondholders and they were the banks and who bailed out the banks? You and I. So KKR stuffed us in order to gut NXP. What a miserable business.
    Edit | Reply David Manners Fable: Waxing And Wanin

  17. David Manners
    January 22, 2012 14:11

    From Mike Bryant: Rely on the fact that KKR has made a profit already – they work on commission. It’s the investors they persauded to put money in that have lost. (1 reply)
    Edit | Reply Mike Bryant Fable: Waxing And Wanin

  18. David Manners
    January 22, 2012 14:09

    From Anonomouse: Has KKR lost out when you take into account the management fees, the bond devalutions, as they only risked alittle of their money, and the debt is loaded onto NXP? (1 reply)
    Edit | Reply Anonomouse Fable: Waxing And Wanin

  19. David Manners
    January 22, 2012 14:06

    Well, Terry, only 14% of NXP was sold to the public at its Aug 2010 IPO. The price achieved was $14 a share which put a theoretical value on NXP of $3.5 billion. When KKR bought 80% of NXP in 2006, the price it paid valued the whole company at $10 billion. Today’s share price is a little under $20 giving it a market cap of $4.25 billion. So, as you say, NXP’s market cap is currently less than half the valuation KKR put on it back in 2006. But, KKR still owns 66% of NXP and, if NXP can trade so successfully that it can get the share price up above $50, then KKR could make a profit on its investment by selling or IPO-ing its 66% stake. But since NXP hasn’t grown for four years – not surprisingly after the gutting – there seems only a slender chance of the share price reaching $50 and KKR making a profit on its investment. (1 reply)
    Edit | Reply David Manners Fable: Waxing And Wanin

  20. David Manners
    January 22, 2012 14:04

    Published It seems a shocking thing [Anonymous] that Philips Semis and its employees and their families were put through all this misery just to keep wobbly shareholders happy – and I always thought the Philips family still had a large tranche of shares in the company which kept management partially insulated from shareholder wobbles. It’s a sign of our times that the dictates of finance-based metrics take such precedence over community, continuity, humanity and long-term company and national interest. I hope that a new generation of managers will move away from the view that the balance sheet is more important than anything else.

  21. Terry
    January 20, 2012 12:18

    The moneymen did indeed gut NXP, but my understanding is that they also lost money in doing so, selling the shares for little more than half what they paid for them.
    Lose lose for PE and the employees. Many were made redundant and many others quit of their own accord when it all became too depressing (I was one of them).
    Philips was the only winner in this, having sold semis for far more than it was really worth.
    The motivation for this as Anon states, was that Philips didn’t like the cyclical nature of the semis business.

  22. Mark Inskip
    January 20, 2012 11:26

    Philips Lighting is still going strong all those years later with first or second positions in its main market areas, Consumer Luminaires is the only real problem area. Philips has however struggled with its TV business for years though not alone in struggling in this market.

  23. Leo
    January 20, 2012 07:28

    It’s interesting to see the next chapter unfold in Philips. Next in line was the iconic television business of Philips. And I wonder what will be next. The lighting division?

  24. Anonymous
    January 20, 2012 06:15

    actually the reason for the split as I recall wasn’t directly related to “hard times”, but the shareholders of the original company didn’t like the cyclical nature of semiconductors. When semiconductor was only a small portion of the total business this was not an issue but due to the relative rise of semiconductor revenue towards the total, the share price of the entire company started showing big swings which was seen as unfavorable, since traditionally the company stock was eyed by long term investors. Semiconductor stock tends to attract “gamblers” ridding the cyclical waves, so it was decided to split the “long term” stable business and the cyclical semiconductor part.
    Both stocks suffered from there, although I don’t think it’s directly related.

  25. David Manners
    January 20, 2012 00:35

    Yes, Dick

  26. Dick Selwood
    January 19, 2012 19:25

    Philips & NXP