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Industry leader sees Asian business models evolve

Posted: 16 Oct 2006 ?? ?Print Version ?Bookmark and Share

Keywords:Hein van der Zeeuw? Philips? electronic business model evolution? electronics supply chain? Asian electronics business?

van der Zeeuw: ODMs are propelling the industry.

As an early player in Asia, Philips Semiconductors closely witnessed the region's ascent to electronics stardom over the last couple of decades. Hein van der Zeeuw, who joined Philips back in 1982, saw the evolution of manufacturing and design industries in Asia while working in various positions with the electronics giant.

Having spun off from its parent, the company now called NXP Semiconductors is more than ever committed to its Asian operations, especially in China and the Asia-Pacific region in general. One aspect of the company's portfolio that Asia will surely play a bigger role in would be its multimarket business, which comprises the standard and application-specific standard products that are used in applications ranging from automotive to mobile phones, computers to industrial control.

In his new role within NXP, Zeeuw is a member of NXP's Executive Management team headed by Frans van Houten. Now executive VP and general manager of NXP's multimarket business unit, Zeeuw has confirmed the company's continuing romance with Asia. He sat down with EE Times-Asia during his recent visit to the region and shared insights on the changing shades of the electronics business and how shifts in the electronic manufacturing service (EMS), ODM and OEM models are affecting the electronics supply chain.

EE Times-Asia: Please tell us about Philips' early days in Asia.
Hein van der Zeeuw: Philips Semiconductors, which has always viewed electronics as a global market, had already established itself in Taiwan when I first arrived there in 1984. At that time, we were mostly dealing with passive components and picture tubes. What helped the company decide to grow its operations in Asia was the fact that education here is very strong. Moreover, people here are entrepreneurial and have long-term vision, which are traits that Philips associated itself with. I've been impressed with the intensity and speed of the work done by engineers here.

A clear indication of Philips' commitment in Asia was its early investment in Taiwan Semiconductor Manufacturing Co. Ltd (TSMC), which has become the world's largest foundry. Philips began with a 40 percent stake in the fab, which went down to 16 percent over the years. However, the company still has a seat on the TSMC board and remains one of TSMC's top customers.

In the 1980s, we also saw South Korea emerging as a major force in the electronics world. We saw very early that Asia would become a significant region, so we tried to understand the market and how certain countries would develop. To become an early player in Asia, Philips felt the need to be part of the development of that region. It established long-term relationships with corporations and policy makers, and it facilitated the technology transfer.

What about mainland China?
Philips was one of the largest foreign investors in mainland China, with products ranging from medical applications to lighting devices and home appliances. One business that we moved to China was our transistor diode production, which used to be in England. We transferred the assets of our bipolar discretes wafer fab to Jilin City, China, where we established a joint venture with Jilin Sino-Microelectronics Co. Ltd. Later, the operation's business management, engineering and marketing were moved to Shanghai, with back-end assembly and test already being done in the Asia-Pacific region. We did this because of the engineering capabilities the Chinese had. We also wanted to foster development in the country so that we could have a business line there.

Does the company face any hurdles in China?
As a law-abiding company, we try to follow each nation's specific policies. We've been able to pursue our plans in close cooperation with local authorities in China. The company is satisfied with its courses of action. We took the right measures here to suit our needs over time. Our long history in Asia allows us to explore more opportunities.

Philips must have been a close witness to the ODM revolution that started in Taiwan.
I remember the days when I was an engineer working on color tubes. Upon finishing my work, I would have to drive a few miles to bring it to the next stage in production. But the days of such a linear business supply chain are gone.

The change first came through EMS firms, which originated in North America during the 1980s. These companies initially worked as "board stuffers" for large OEMs. They got better with time, added test services and eventually ventured into full-fledged manufacturing.

We've had to modify our supply chain models in the presence of EMS companies. This has led to more manufacturing and, because the resulting model is so dynamic, the whole electronics industry has learned to better manage inventories. EMS companies bring the manufacturing scale to a different level. Now, we see as many as 200,000 workers in one factory in China.

The EMS model has significantly contributed to the understanding of the supply chain. It has forced us to take control of it and closely monitor its flow.

The electronics industry learned over time that what could be done for manufacturing could also be done for design, hence the rise of ODMs. I think that ODMs should be taken as seriously as OEMs because they can act as a catalyst to product development and industry growth. ODMs are propelling the industry.

Philips Semiconductors, for its part, had been working closely with ODMs, providing them with reference designs and system solutions. It is important now+ for NXP to nurture its relationships with ODMs, and we need to work closely with them to maintain the quality of our products. This allows the country to develop their engineers' skills and their own industry, and differentiate their own products.

In the power market, for instance, Taiwan ODMs are strongholds in design development for power supplies and power management for notebooks. As Taiwan companies grow in design expertise, they debate and challenge our road maps.

And now, as some EMS companiessuch as Flextronics Corp. and Foxconn Electronics Inc.begin to offer design services, boundaries are starting to blur among EMS, ODM and OEM firms. This multidimensional supply chain has driven competition and lowered costs. NXP is considering where to add value in this equation. The company will complement these EMS/ODM/OEM entities because they provide many opportunities.

Does the company plan to migrate to smaller process geometries?
At this stage, NXP doesn't have plans to migrate to smaller nodes, but we can weigh our options when the time comes. We will consider options such as whether to have a total foundry or build on existing fabs, or if we'll look at some new local partners for these smaller nodes.

How is the company's product portfolio evolving amid these trends, especially their scope in Asia?
We are involved in several markets. The home market, which involves DTV and HDTV, has traditionally been our stronghold. We also have a large presence in telecoms, in which we invest a significant amount of our R&D resources. Two other key segments we're involved in are automotive and identification.

The multimarket business takes up about a quarter of our operations. Standard products, discrete components and logic ICs add up to 55 percent of our multimarket portfolio, while ASSPs, which are specific in application but apply to a generic field of products, take the other 45 percent. Multimarket products can be found in almost every application.

In Asia, while Taiwan is focusing on different areas of design, mainland China is more on the lower end of the spectrum. Companies are focusing on portfolio diversification, adding value to standard products and producing large scales of up to billions of products.

We are investing millions of dollars in capital in R&D in Hamburg and Shanghai for multimarket. Shanghai focuses on bipolar discrete products, applications and system engineering.

How does the future look for the discretes business?
The irony is that we integrate like crazy, yet the quantity of discrete components has doubled. The number of discrete components produced today has doubled the prediction that Philips made in 2000. This is due to their cost-efficiency, the proliferation of their portfolio and added functionality.

What are the company's plans in the microcontroller business?
Our market share in microcontrollers is about 2 percent. We are still making a play at this segment. Once we've established relationships with customers in this market, it remains a long-term relationship. Our 8bit LPC900 product family and 32bit ARM-based designs have been successful. With our current portfolio and customer base, we will continue to play in the MCU market.

In this line, we work more with system engineers than component engineers. The evolution of the former in Asia is amazing. Some very complex systems solutions being designed in Taiwan are at par with or even better than those designed in the rest of the world.

Asia is a magnificent force in the electronics industry, and NXP will only be increasing its investment and involvement here.

- Selena Salang
Electronic Engineering Times-Asia

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