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CES: Hard times evident in empty seats

Posted: 13 Jan 2009 ?? ?Print Version ?Bookmark and Share

Keywords:CES event? consumer electronics market? digital consumer industry?

These are not ordinary times.

Dutch giant Philips used to routinely fly 600 employees to the Consumer Electronics Show. This year, reportedly, there are two. The company, which last spring decided to license off Philips and Magnavox brands for TVs in North America to Funai, held no press conference and purchased no booth space on the show floor.

Cisco, with expanding business in the connected digital consumer world, was nowhere to be seen on the CES show floor, although it grabbed a few meeting rooms and held a press conference.

One technology supplier who usually comes here to meet with important customers12 in totalfound only three of them present. The rest cancelled.

CES President Gary Shapiro looked out at the audience for his opening keynote session and, for the first time in his ten-year reign, saw empty seats in the room.

Executives, engineers and marketers in the electronics industry are huddling on show floors and hallways at the CES, comparing notes to find out how others are coping with the economic crisis.

Jean-Laurent Poitou, managing director for electronics and high tech at Accenture, said everyone wants to know not only how others are reacting, but also where and how they are cutting costs.

During a downturn, Poitou said hard-hit businesses that invest strategically tend to show more sustainable growth over the following six to eight years. "Let's be careful. The strategy shouldn't be, Let's cut the cost across the board indiscriminately," he warned.

But for many technology suppliers, the issue goes far beyond cost-cutting measures.

"We can control cost. We can control strategies. But we cannot control the end market's demand," said Christos Lagomichos, executive VP and general manager of NXP Semiconductors' home business, during an interview Jan. 9 with EE Times.

Hurting most, said Lagomichos, is the industry's unpredictability. "Customers don't know what will happen." Unable to see ahead, they offer only "short-term" projection figures to suppliers.

Lagomichos added, "I've talked to everyone, including my friends at STMicroelectronics and Broadcom. They all say that they've not seen anything like this before." If it's any consolation, he mused, "at least, we are not the only ones."

Scaling down
Keenly aware of the current economy and NXP's position on the market today, Lagomichos stressed that "scale is the key."

In tough times like this, "Technology is important [but] scale is the key driver," he said.

Mergers and acquisitions will be rampant and "smaller guys are forced to be consolidated." Putting it more bluntly, Lagomichos added, "There are just too many guys [in the digital consumer segment] and nobody is making money."

Year of mergers, acquisitions
The consumer electronics chip industry has already seen a flurry of activity over the last 18 months.

NXP last spring bought Conexant's set-top business, ST completed its acquisition of Genesis Microchip Inc. a year ago, and Broadcom last summer acquired digital TV business from AMD.

Accenture's Poitou, predicting further "waves of mergers and acquisitions" over the next 18 months in consumer electronics and high-tech companies, observed that some players are loaded with debt while others are relatively solvent. "They are all over the map."

Those with higher financial profiles "will be in the best position to cherry-pick and acquire only the parts of those companies on sale that fit their needs," he said.

How NXP will survive in an even tougher environment in 2009 is far from clear, though.

The company has been shedding a variety of business units. The issue is whether that's enough. It is one thing to do "spreadsheet management," observed a veteran ex-NXP executive. "But it's another for the company to build a vision" beyond the businesses they already have, he said.

Some financial analysts speculate that newly appointed NXP chief Richard Clemmer, known among industry circles as "a hatchet man," will pick apart NXP's divisions further, and go for asset sales or another set of joint ventures.

However, Lagomichos, responsible for NXP's digital home business, was adamant during the interview: "Our group will be the consolidator, not the consolidated."

In the digital consumer market consisting of DTVs and set-tops, NXP today ranks a "solid third," said Lagomichos, as Broadcom and ST compete for first place. Lagomichos' mission now is to go for leadership.

And that's not an easy job.

There are hundreds of smaller companies in the same spacepresumably some may be worth considering for acquisitions. But Lagomichos said that first choice would be "organic growth," while he quickly added, "we are keeping all options open."

Lagomichos concedes that the biggest threat to his business in the digital consumer market today comes from Taiwannotably, MediaTek and Mstar Semiconductor.

To ride out the recession, Lagomichos' strategy is to leverage NXP intellectual property, especially in the area of up-converting picture quality, while aggressively pursuing more highly-integrated, low-cost digital consumer chips using a finer geometry process.

Jumping to 45nm
More specifically, NXP is betting on a new global DTV platform chip, called TV550, manufactured by using a 45nm process at Taiwan Semiconductor Manufacturing Co. Among all the DTV chips on the market today, "this will be the first IC based on 45nm," he said. In fact, at a time when NXP's competitors are rolling out 65nm DTV chips, NXP made a bold decision to skip the 65nm process entirely, and jumped to 45 nm.

Integration of Conexant's STB business has gone very well, Lagomichos reported. TV550 will now serve as a common platform for both DTV and set-tops, with 70 percent of IPs shared.

Lagomichos expects "the top three to four [companies] to shape" the digital consumer chip industry. But skeptics question whether that's enough to guarantee NXP's growth in the digital home business.

"The number three position [in any market] is just enough for any company not to die," said Mark Hamersma, senior VP, business development at NXP.

Clearly, to survive in the scale game, each business line at NXP needs to shoot for the number one or two positions, in his view.

Hamersma, a former partner at McKinsey & Co., a global consulting firm, joined Philips in 2004 and took over the position long held by Theo Claasen, the Dutch company's veteran, who retired last fall.

Harmersma said that NXP, which used to have 75 businesses, has slimmed down to 35. Half the company's business is multi-market semiconductors, while the rest consists of three application-specific businesses: automotive, identification and digital home. Each business is roughly the same size, but the identification business unit generates only 11-12 percent of total revenue.

Sure hits
While the electronics industry is bombarded with doom and gloom stories, there is a glimmer of hope for consumer electronics companies, said Kumur Puri, a senior executive with Accenture's consumer technology practice.

According to Accenture's recent consumer behavior study, there are three things consumers said that they are not going to cut their spending on. These are: Internet access; mobile applications/devices; and cable, high-definition entertainment. "This is actually good news for the CE industry," she said.

Looking back on 2008, Lagomichos said that a lot of people expected that 2008 would be a good year because of the Olympic Games and soccer. "But that did not happen." During the Q1 and Q2 of 2009, the electronics industry will be hip-deep in inventory correction. He added, "But everyone is hoping for recovery towards Q3 and Q4."

Is that wishful thinking?

Perhaps. But there are two trends on the current market, said Lagomichos. "Retail is depressed. But operators are stable."

In today's economic climate, "Stable is good," Lagomichos concluded.

- Junko Yoshida
EE Times

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