New Year, new ceo

Frans van Houten’s resignation as NXP’s ceo and the appointment of Rick Clemmer as his replacement has increased speculation that the semiconductor spin out from Philips might be entering a critical phase in its short history. The news came in a relatively terse communication issued shortly after the Christmas break. According to Sir Peter Bonfield, chairman of NXP’s supervisory board, van Houten did an outstanding job in establishing NXP as an independent company. “Under his leadership, NXP sharpened its portfolio focus, completed six M&A deals, became more cost effective, attracted new talent, and strengthened its position as a leader in its served markets,” he noted. Despite the glowing testimonial, van Houten seems to have been ‘pushed’. Clemmer inherits a company which is facing some financial challenges, although it is already in the midst of restructuring plans. Clemmer noted in the release: “I look forward to building on all that has been achieved at NXP. This is a company with a great history, great technology and a great future.” More than a few people may take issue with the last part of that statement. NXP is under pressure from at least two sides. On the one hand, it is being squeezed by the effects of the current financial crisis. In its latest financial statement, the company anticipated a decline in revenues of up to 14% in the last quarter of 2008. Previously strong markets such as automotive are under pressure. It also divested its wireless activities into a joint venture with STMicroelectronics, reducing its cash flow. On the other hand, it’s faced with handling the debt load created as a result of the private equity acquisition in 2006 led by KKR. NXP has about $6billion of debt on its books; not only does it have to meet the interest payments on this debt, but it will also have to start addressing repayment next year. Onlookers wonder how this might be achieved. Cutting 4500 jobs last year is one contribution. Is this the reason why Clemmer – already a member of NXP’s supervisory board – has been given the keys to the ceo’s washroom? In contrast to van Houten, Clemmer is a finance man through and through. He has an impressive CV, with ceo experience at Agere Systems and CFO experience with Texas Instruments’ semiconductors group. At Agere, he ‘masterminded’ the merger with LSI Logic. Will Clemmer ‘slash and burn’ or will he try to tough out the current economic problems in the hope that things will improve towards the end of the year? The jury is out for the moment. One other bullet point on Clemmer’s CV might help shed some light on his intentions: he’s a senior adviser to KKR. Has the lead investor decided that enough is enough and it’s time to get a return on the investment? If so, how might it realise that return? Could Clemmer break up NXP? Conceivably, but is there a market for such activity at the moment? Cutting in house manufacturing is an obvious target. The company already has a close relationship with foundries and van Houten was looking to increase the amount of product sourced from that direction, so that could be pushing an open door. And there is more cash available if NXP sold its remaining 20% share in the wireless JV with ST. But there remains continuing speculation that NXP may merge – not necessarily as the lead – with another semiconductor company. Clemmer has followed this route before; there’s no reason to assume that he doesn’t have this on his agenda now.