mannerisms

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

NXP Being Asset-Stripped By Private Equity Owners

NXP is being asset-stripped by its private equity backers led by Kohlberg Kravis and Roberts (KKR), according to Europe’s leading semiconductor industry analyst, Malcolm Penn, CEO of Future Horizons.

 

“It is now clear that KKR, aided and abetted by the NXP management, are stripping out the NXP heart and crown jewels into a variety of smaller entities that KKR ends up more or less controlling”, Penn told me today, “this is NOT a strategy to ‘slim down the operation to make it more competitive’ it is premeditated murder by a thousand surgical cuts for vested self-interests.  With all the good bits gone and all the baggage left behind, all that will be left of NXP is a highly bloated, downsized company with zero revenue growth prospects. Along with Wall Street et al’s bank bonus greed, this is yet another
e example of the dark side of capitalism.  The EU and the Dutch government
should be seething with rage.”

 

The EU and the Dutch government have supported Philips Semiconductor which became NXP for many years. For most of its existence it has been a top ten semiconductor industry company.

 

A large chunk of the IP being transferred to Trident and Virage has been created at the expense of the European taxpayer.

 

Since KKR bought NXP in 2006 and loaded it up with around $6 billion of debt, a process of selling off the company in bits has been followed.

 

First the wireless business was sold to STMicroelectronics; then the digital TV and set-top box business was transferred to Trident Microsystems in a deal under which NXP will receive newly issued shares of Trident common stock equal to 60% of the total shares outstanding post-closing, including approximately 6.7 million shares that NXP will purchase at a price of $4.50 per share, resulting in cash proceeds to Trident of $30 million. 

Trident estimated that, after the NXP deal, it will have a portfolio of consumer IP applicable to a range of markets, with over 2,000 granted and in-process patents including motion estimation/motion compensation and conditional access, as well as advanced 45nm SoC technology. 

 

Finally, this week, NXP transferred CMOS intellectual property (IP) and staff to Virage Logic. 160 employees will be moved from NXP to Virage as well as 25 patent families.

 

The last time I spoke to Richard Clemmer, NXP’s CEO, he told me KKR were in it for the long-term.

 

This seems a very odd interpretation of ’long-term’.

Tags: backers, dutch government, heart and crown, philips semiconductor, wireless business

Related Tech News

34 Comments

  1. L
    February 12, 2010 17:34

    Next shock at NXP, Hamburg.
    Logistics with app 95 employees fired till
    Q3/10.
    It is just a question of time until Hamburg
    is gone (history)….

  2. David Manners
    January 14, 2010 14:49

    I know, Anonymous, to think that all this pain is being visited on one of the industry’s greaterst companies is deeply shocking. The EC would be severely delinquent in its duties if it allowed KKR ,or any other private equity company, to behave like this in Europe again.

  3. Anonymous
    January 14, 2010 00:20

    I was just on filipsworld.
    There must be real terror and chaos beyond belief in this company NXP !
    The comments of employees “working” there, really shock me deeply.
    This business will end in a big mess..
    It is really unbelievable and not to express in words what KKR and management made of this
    company
    What a hell!!

  4. david manners
    January 08, 2010 13:38

    Horrendous, Robert, I suppose if European managements still insist on dealing with people like KKR the only hope is that the EC will step in and deter them from operating here. I understand EC legislation is being prepared to help achieve this.

  5. Robert
    January 08, 2010 04:32

    Looks like KKR, has learned nothing from its NXP experience and want’s another shot at high tech glory, by spinning out the Hearing Aid division of Siemens. I wonder if it will end differently? So far I haven’t heard of any EU bureaucrats taking any actions to stop this acquisition.
    I strongly suspect that the business case involves “workforce rationalization” because we have seen minimal innovation in hearing aids, in recent years.
    http://dealbook.blogs.nytimes.com/2010/01/06/buyout-shops-chase-siemens-hearing-aid-unit/

  6. david manners
    January 07, 2010 13:49

    Yes Anonymous, I well remember talking to loads of people in 2006 about the KKR takeover and the semi execs, like Wim Roelandts, said immediately it would end in disaster simply becasue KKR are private equity funds who don’t care about employees and long-term future of companies. I then read a book Merchants of Debt about KKR which showed what Wim and others said was absolutely right. Then I spoke to Frans van Houten who said KKR were interested in NXP for the long-term and were prepared to invest more in the business than Philips had ever done. I have to say I thought that view naive. Hopefully KKR won’t be allowed to deal with respectable managements in Europe ever again. The whole saga is a terrible lesson.

  7. Anonymous
    January 07, 2010 12:56

    “NXP finds out the consequences of having no control over its manufacturing, it may well find it has made a terrible mistake in closing down its fabs. ”
    The problem, David, is that KKR is absolutely not interested in any long lasting investments.
    They do not care at all about the future perspective of a business and the fates of their employees.
    They already know that the engagment for NXP
    was mistake, so they will take measures just to minimize the loss. Thats all.
    As already mentionned, the transfer to Asia as
    decision is already taken.
    By the way, it is an interesting detail that some employees of the closed fab here in Hamburg have a right on redundancy payments, although they will not loose their job because
    they can stay at GA GmbH.
    So management and their laywers are obviously
    not in a position to handle a redesign even from a legal perspective in a proper way.
    Here in Hamburg all hope is gone, it is really terrible !

  8. David Manners
    January 01, 2010 13:37

    Good Luck, Anonymous, i hope things work out well for you. The story of NXP should stop any European company selling out to privarte equity ever again. And when NXP finds out the consequences of having no control over its manufacturing, it may well find it has made a terrible mistake in closing down its fabs.

  9. Anonymous
    December 31, 2009 18:45

    Yesterday was my last day at NXP here in Hamburg.
    I can only consent to those colleages in filipsworld who speak of “the end is near”, “Drecksladen” and “all hope is gone”.
    At least we still get our redemption payments;
    it won´t be long till the money is gone….
    The hope/future for Hamburg is away anyway.
    The transfer to Asia just a question of time….

  10. david manners
    December 29, 2009 12:02

    Thanks Robert, I’ll try. Sorry to be late replying I’ve been in the wilds of Scotland without access to any radio signal of any kind

  11. Robert
    December 26, 2009 02:46

    David,
    If you want an idea for a blog on NXP Home Bu, as suggested by “noname” I’d expand on his idea and investigate why the new leaders in the HDTV area (and other consumer “home” style products) didn’t want to take over the NXP Home Bu.
    Why did MTK simply say “no thanks and hangup” why Broadcom’s CEO (ex NXP’er) apparently just walked away laughing, when the deal was suggested. Others were less gracious and gave the bankers an earfull when they called.
    If you can get people to talk than it could be very enlightening.

  12. David Manners
    December 23, 2009 16:12

    Egal, that is terrible. my heart bleeds for the NXP people. I hope things work out well for you..and I hope the EC passes laws which stop this sort of thing ever happening again. It is a terrible lesson showing us the price we pay for tolerating private equity companies.

  13. egal
    December 23, 2009 15:51

    Hi,
    hatte heute meinen letzten Tag. Schade um die vielen netten Kollegen, die zurückbleiben, orientierungslos, ohne Hoffnung, Motivation, Antrieb etc.
    Ein absolutes Desaster.
    Aber weder das Management von NXP, geschweige denn KKR, sind in der Lage, hier noch etwas zu bewirken.
    Na ja, wenigstens kriegen wir aus der ersten
    Runde noch unsre Abfindung.
    Übrigens David guter Artikel, der aufzeigt, wie ohnmächtig und überfodert die Managerkaste bei NXP/KKR ist.
    Es kann nur noch noch trauriger für die verbleibenden Kollegen werden !!!

  14. noname
    December 12, 2009 10:14

    what about a blog on trident’s plans to ,reduce, the bu home headcount.

  15. David Manners
    November 30, 2009 11:10

    Well I hope it won’t come to that, and I really don’t think it will. But this awful level of debt stuck onto NXP by KKR is a constant Sword of Damocles hanging over the company.

  16. Anonymous
    November 30, 2009 10:41

    Filipsworld is both – shocking and interesting.
    Won´t there be a point when suppliers and/ or customers will react in the sense of “no longer any deals with NXP” ?!

  17. David Manners
    November 18, 2009 11:53

    Agreed A, I’ve been there.

  18. A
    November 18, 2009 11:30

    J is right: most employees of NXP are in a wait and see mode. This brings down identification, efficiency and therefore productivity down to extreme lows.
    Everything extremely detrimental to NXPs future

  19. David Manners
    November 16, 2009 11:05

    Yes J, this does seem to be a recurring theme about NXP – that there is no money to pay redundancy packages. That is a shocking thing and, I would have thought, illegal in Europe. It just goes to show that the EU has to bring in laws which make it very difficult for these Wall Street private equity people to operate in Europe.

  20. J
    November 16, 2009 10:56

    David, this is rearly a realistic view on NXP and its “future”.
    As ex-developper of NXP I remember so many hours/days of discussion with colleagues of what the future may me.
    What this means should be quite clear: productivity goes down enormously and this in a business which is absolutely innovative.
    In the meantime the mood changed : first those who had to go were sad, meanwhile it is the other way round. Those who stay know/feel that the next time there will be no/little money left for any kind of redundancy payments.
    What a sad future ….

  21. David Manners
    November 12, 2009 11:08

    Well Harald, to me it looks more like a full-scale International War rather than a Civil War – The Wall Street-ers vs The Europeans – with both sides losing. The Wall Street-ers are losing their money, the Europeans are losing their jobs and their technology. What a mess.

  22. Harald
    November 11, 2009 18:09

    Mein Gott, herrscht da Bürgerkrieg ?!
    Filipsworld bietet ja ein erschaudernden Einblick in das besagte Unternehmen.
    (Kann kein Englich, Antwort also in Deutsch)

  23. David Manners
    November 11, 2009 11:41

    Thanks Stefan, I have just registered on filipsworld and will be watching it with great interest. Yes, I agree with you, the atmosphere must be horrible. My own company was threatened with being bought by a private equity company last year and, although it didn’t happen, it filled us with gloom. The PE people put out all that propaganda about how they’lll invest in their acquisitions for growth (that’s what they told NXP and us) and then they strip them of everything valuable and dump the employees. The EU must stop these people operating in Europe. They are destroyers. It was interesting that, back in 2006 when KKR and Blackstone bought NXP and Freescale, Xilinx’s then CEO, Wim Roelandts, said PE was a destructive force. How right he was.

  24. Stefan
    November 11, 2009 08:00

    I just found out that there is platform
    “filipsworld” in the web for NXP employees. The mood in this company must be horrible.
    This platform is an example of what private
    equity companies do with their businesses.
    It is obviously abhorrent.

  25. David Manners
    November 10, 2009 16:36

    That’s iniquitous Karl. Maybe the EC could impose some kind of fine, or impost, on KKR to cover the cost of any NXP redundancies. They could freeze KKR’s assets and bank accounts in Europe until all obligations to NXP’s workers have been met. Then they could legislate to make sure any other private equity firm wanting to come to Europe must give guarantees to the employees of any companies they buy. If such laws stop the Wall Street-ers coming to Europe – then it would be a good thing. They seem to do only harm.

  26. Karl
    November 10, 2009 16:10

    I fear, David, that NXP is too small to be in Focus like “Opel”.
    Moreover, why should an insane debt policy like the one of NXP, be backed/ supported by
    tax money ?!
    First managers of KKR/ private equity and NXP
    would have to be taken responsable.
    Everything a real dilemma for NXPlers who, in doubt, will loose there job with quite a long period of uncertainty before….
    Additionally, it may be assumed that managers of NXP will get some kind of money, in case that everything goes wrong !
    The normal workers later on not..

  27. David Manners
    November 10, 2009 15:41

    Oh dear, Karl, that does sound bad. I understand the EC is about to bring out legislation on how PE companies will be allowed to access the European market. Hopefully the new law will stop this sort of thing ever happening again. Meanwhile they might, hopefully, do something to protect European employees of NXP. I hope so.

  28. Karl
    November 10, 2009 15:14

    Redundancy/Redemption payments, David, are in Germany not at all guaranteed. There is not even a law that “prescribes” any kind of payment, in case that an employees looses his job.
    The money paid under those cicumstances is a result of negotiation between works council and mangement of the local site.
    In case that no solution after a certain period of time comes out, there is also the possibility that this may be brought to court for finding f.e a solution with regard to the height of redemption payments.
    Normally this is 0,5 wages per year of employment, but may go down to 0,2(!) wage per year in case of difficult economic situation .
    So, the employees are somehow trapped. Either they will accept a quite low redemption of perhaps 0,3 to 0,4 per year, offered by mangement.
    Later on (in case of no common solution found between works council and local mangement)the judge will go down to 0,2 per year.
    The fact that a company like NXP is dept-loaden
    in an extreme way because of the policy of
    private equity companies does not count.
    So I can only repeat what the first person said: in companies without future and visions like NXP it is always best to quit first !
    Moreover I assume that most of the people leaving first are those who have the best qualification, motivation and therefore strength to bring a business forward.
    Examples like “Quelle” show that even a contract with redemption payments laid down does not help in case that all the money is gone.
    Again: this is very negative and demotivating for NXPlers.

  29. David Manners
    November 10, 2009 13:48

    I fear you’re right Karl, though I assume the Dutch, German and French employees get reasonable state-guaranteed redundancy payments. I wonder if NXP management has been able to change the pre-existing (i.e Philips) employee rights. I don’t know. I expect those Wall Steeet so-and-sos would like to.

  30. Karl
    November 10, 2009 13:05

    Dear David,
    as a matter of fact, a semiconductor business is highly innovative, so it makes an essential difference whether you produce f.e. ice cream,
    different kinds of marmelade etc. These products- brought once on the market/ to the customers can last there for many years, sometimes even decades.
    In the semiconductors industry this is definitely not posssible- the employees have to have their brain “free” for innovative ideas.
    Taking the circumstances of NXP into consideration (extremely debt-loaden, massive sell of business parts just for beeing able to pay debts, absolutely no identification of management with local sites[ransfer to Asia is on the way and will not be stopped], no plan/strategy, thus future, for the location in Europe visible etc,), I doubt that the employees are still in a postion to be motivated at all.
    This is even from a psychological prospect (though I am no scientist) no longer possible,
    because all hope for NXP is gone.
    Moreover the ongoing deterioration of US Dollar would make it essential to load the European fabs with highly innovative/ new products for granting -at least- a midterm future. This does not happen, either.
    So again, those who lost their jobs first are at least in a position to get their redemption.
    Later on there will be just very small or even no redemption.

  31. David Manners
    November 10, 2009 11:26

    Put like that, Karl, it sounds very bleak indeed. I agree the prospects are bad. But sometimes, if there’s no obvious alternative, it’s better to hang on in there and hope something happens to make the situation improve. Though what that might be, I can’t imagine. KKR and its private equity partners pretty much put the kiss of death on NXP when they imposed $6 billion of debt on it. The PE people have much to answer for.

  32. Karl
    November 10, 2009 11:17

    Also mir tun die NXPler (ohne management) einfach nur leid.
    Die aus der ersten Welle bekommen noch die Abfindung. Die später gehen müssen und auch letzlich gehen werden, gehen (annähernd) leer
    aus.
    Was kann man daraus lernen: in Unternehen ohne Zukunft und ohne Vision (NXP) immer bei der ersten Welle der Kündigung dabei sein !!!!!!!

  33. David Manners
    November 10, 2009 09:03

    There could be other reasons than self-deception, Anonymous, the semiconductor industry has shrunk a lot in the last few years, and Europe has seen a lot of jobs go, and it may not be easy to get another job. Meanwhile there are also issues of loyalty, of enjoying doing interesting work and of being dedicated to trying to make a success out of a project.

  34. Anonymous
    November 10, 2009 00:03

    Wer kann da eigentlich noch motiviert sein?!
    Der Selbstbetrug der Belegschaft muss da schon ziemlich hoch sein, um da noch jeden Tag zu erscheinen….

Share your knowledge - Leave a comment