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NXP gains from tactical fab-lite route

Posted: 16 Nov 2007 ?? ?Print Version ?Bookmark and Share

Keywords:fab-lite route? Crolles2 alliance? CMOS manufacturing? DSP? VoIP?

NXP gains from tactical fab-lite route

van Houten: The whole electronic goods supply chain is very much in Asia now, and we need to respond to that.

Going fab-lite is not synonymous with going fabless, and NXP Semiconductors will never take the latter route, asserts president and CEO Frans van Houten. Indeed, since moving out from under the wing of Royal Philips Electronics a year ago, NXP has been reducing the amount of chip production it outsources, albeit for tactical rather than strategic reasons.

In van Houten's view, fab-lite offers a company with a diversified product line a smart way to control its production capacity. In an exclusive interview with EE Times, he said the company is committed to its fabs in Nijmegen, the Netherlands and in Hamburg, Germany. After NXP closed its plant in Boeblingen, Germany, this year, "all the important equipment from there was transferred to the other European facilities, and we are working hard to use it so as to improve utilization at these fabs," van Houten said.

Nonetheless, he said, NXP's decision to quit the Crolles2 Alliance with STMicroelectronics and Freescale Semiconductor Inc. and "move into the open arms of our fab partner Taiwan Semiconductor Manufacturing Co. Ltd for advanced CMOS manufacturing was a necessary step to ensure competitiveness."

Vertical integration
"We have convinced ourselves and our owners that in the commodity segment, being vertically integrated makes competitive sense. I believe we will never be a completely fabless operation," the NXP executive said.

He noted the flexibility such a strategy affords. "Last year, we were 18 percent outsourced. Now, we have pulled that back to between 10-15 percent, as we are unfortunately seeing some slackness in the industry."

But the strategic aim remains the same: to increase the volume of manufacturing outsourced to TSMC to 30-40 percent as a higher percentage of products is manufactured in advanced CMOS.

In the past, van Houten said the company expected to reach that goal by 2010. Now, he concedes "the timescale is a moving target; it depends on how we perform, and to some extent how the markets we serve perform.

"We estimated the market would be growing at 10 percent currently. But the reality is we are growing at about half that, even though we are gaining market share, as IC Insights' most recent statistics indicate," he said.

NXP will work with TSMC to differentiate process modules covering such technologies as non-volatile memory, embedded processing and low power atop advanced CMOS platforms, van Houten said. Most of the basic R&D on process technologies will be done at the Interuniversity Microelectronics Center research facility in Leuven, Belgium, where the partners have access to the latest processing equipment.

Leaving Crolles2
While the decision to leave Crolles2 was a difficult one, "the reality is we should only spend money on process R&D where it adds value," van Houten said. "We did not think it prudent to re-create what was already available in the market, and on the whole!for us, at least!Crolles2 was not competitive enough."

He added that ST and Freescale each have their own equipment at the French facility and that "we plan to sell our Crolles gear. There is a strong secondhand market currently for 12-in. wafer-processing lines."

Moreover, van Houten said the plans for large-volume manufacturing at Crolles needed to be three to four times the scale that was being envisaged for it to make economic sense. As a measure of that scale, he confirmed that $1.4 billion had been spent on Crolles2 between April 2002 and end of 2005, with Philips picking up one-third of the bill.

Reflecting on his first year running NXP as a separate entity, van Houten said he was immensely proud of what had been achieved in that short time, despite a difficult semiconductor market environment.

"It has been a tough, challenging, but invigorating undertaking, separating out the chip unit from Philips, establishing new IT protocols, and setting up a new financial system and systems for collecting orders," he said. "This was a 400-person project across 60 countries, and none of the achievements can immediately give you a positive!only a negative!if things don't run smoothly. But we managed!and at the same time we brought in some significant cultural changes." He acknowledged the importance of the Philips legacy, but said NXP still "felt it was important to adopt a few different approaches to deal with competition, be a little bit more nimble, get products to market quicker, get closer to customers and win not just one but all of a customer's slots, and instill a feeling that it is important to fight and win and not get eaten by someone else."

Philips Semiconductors, he said, had been "just a little slow at times to see major opportunities, not always feeling the heat of competition or the need to bring in excellent financial result." He added that he had already made some cultural improvements under Philips but that the change of ownership had been a "catalyst" to speed up that process.

Throughout it all, NXP has managed to effect about $340 million worth of cost savings on the business side without reducing its nearly $1.3 billion R&D budget, and while undertaking fewer plant closures than its main competitors.

Slew of acquisitions
NXP has also made some important acquisitions over the past year. Just days after the Philips separation, the company bought the Singapore government's 17.5 percent stake in Systems on Silicon Manufacturing Pte Ltd, a joint venture between Philips/NXP and TSMC. Early this year, it beefed up its cellular business unit by spending $285 million in cash on the RF CMOS transceiver line of Silicon Laboratories Inc.

More recently, it acquired the BlueStreak MCU lineup of Sharp Microelectronics.

"We still have 600 million euros (approximately $816 million) in cash after paying back interest on debt, and we have not lost our appetite for acquisitions, provided the right opportunity comes up to extend our product lineup," van Houten said.

NXP has also divested its cordless and VoIP chip unit to the DSP Group in a $345 million deal that will give it a 12 percent stake in the Herzliya, Israel-based operation.

Any further acquisitions, however, will occur in tandem with a realignment of the company's product portfolio and a refocusing of R&D on a narrower but more promising range of parts in each business unit, after what van Houten described as a very thorough review.

Focus on Asia
"We have discontinued a few lines already, but a mix of 50 segments is probably still too broad," he said. "So we will increase our investment in about half the product segments, maintain current spending on 18 and discontinue six lines that do not look promising in terms of giving us a market leadership position."

The CEO revealed that NXP will no longer work on WLAN modules for mobile phones, or on power amplifiers or simple front-end modules for the same market.

"We could not see a clear way to compete in these segments on our own, so rather than burn money for nothing, such areas will be dumped in favor of, for instance, monolithic chipsets for 2.5G and 3G cellular platforms, advanced automotive devices and some analog/mixed-signal parts."

On the sales front, there will be an effort over the next year to increase turnover in Asia, specifically in Japan. A breakdown of 2006 revenue indicates that about 60 percent already originates in that region, and van Houten said he is keen to edge that figure closer to the 70 percent mark.

"The whole electronic goods supply chain is very much in Asia now, and we need to respond to that," he said.

- John Walko
EE Times Europe





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