"This is a transformative step in our objective to become the industry leader in high performance mixed signal solutions," said NXP's president and CEO Rick Clemmer, pictured, who will hold both positions post merger. "The combination of NXP and Freescale creates an industry powerhouse focused on the high growth opportunities in the smarter world."
"Both companies have built leadership positions and have a sharp focus on delivering superior value to customers," added Gregg Lowe, Freescale's president and CEO. "Our combined scale, size and global reach will position our new company to deliver sustainable above market growth. It will also serve to accelerate the strategic plans in which both companies have invested, enabling us to deliver more complete solutions to customers."
Both companies have a similar history. Both were acquired by private investors within months of each other in 2006. Both suffered more than a bit of pain as the investors loaded their balance sheets with debt just as demand for semiconductors slumped. It has been a long road back for the two companies, both of which had been considered as being in 'intensive care' for a while.
With the bad times apparently behind them – but with the acknowledgement that Freescale is still carrying close to $5bn of debt – both companies are looking to a better future. The question is, of course, will combining forces take them to that better future?
One of the reasons for the merger – that's what it's being called – is the decline in the long term growth rates for the semiconductor industry. Once, companies would be disappointed if sales grew by less than 15% a year; today, that's more like 5%. Clemmer, talking to an audience of analysts on a conference call, claimed the merged company would grow revenues by '1.5 times the market'. But belts are being added to braces with the stated aim to reduce costs by $500million. How that will be done has yet to be decided, but NXP's chief financial officer Peter Kelly pointed to 'synergies' in administrative and support operations, as well as the ability of the larger company to cut better deals with its suppliers – which may well be a message to its foundry partners.
One of the reasons given by Clemmer for why the deal will succeed is that both companies have broadly complementary product portfolios. However, it will be interesting to see how the microcontroller line ups shake out as both companies offer broadly similar ranges of ARM Cortex based devices.
Whoever ends up being the sales director for the new organisation will be pushing two themes: 'solutions' and 'cross selling'. Clemmer said: "Within the automotive sector, the new company will be able to address a wider set of solutions. In the short term, we'll benefit from the increasing semiconductor content in automotive. In the longer term, we'll be positioned to become the thought leader in automotive systems."
Cross selling opportunities will come from a complementary approach to markets like the Internet of Things – known by Freescale as the 'Internet of Tomorrow' and by NXP as 'secure connections for a secure world'.
Here, Clemmer asserted that NXP's security expertise and Freescale's MCU portfolio would provide leading IoT solutions, particularly automotive security.
But will putting two similar companies together bring the growth for which Clemmer is looking? Time will tell, as they say. However, Renesas' experience of integrating NEC Electronics – another similar company – might give all concerned pause for thought.
