News & Analysis
NXP today: 'Practically a Chinese company'
Junko Yoshida
4/30/2012 10:20 AM EDT
NEW YORK – For anyone who has known NXP Semiconductors since it was the Dutch giant Royal Philips’ subsidiary, NXP today feels much transformed. Instead of pledging changes every quarter, NXP has grown into a company with its own distinct personality and disciplines.
Under the leadership of Rick Clemmer, NXP’s CEO, the company has drastically slimmed its product portfolio. The company’s management team has cherry-picked product lines that already have either a commanding market position or clear potential – showing “a path to become a leader,” Clemmer explained. “It’s all about focus.”
Further, there is another vital sign of the company’s transformation. Clemmer said last week in an interview with EE Times, NXP today is “practically a Chinese company.”
Say what?
NXP makes more money in China than in any other single country, said Clemmer. Moreover, the Dutch company employs 8,000 people in China, he added. “The only reason we are still a Dutch company is because we enjoy our tax breaks in the Netherlands.”
Indeed, to call NXP a European chip company is a little misleading, since NXP’s shipment-based revenue in Greater China has become twice as big as that in Europe, and one in every three employees at NXP is located in China.
Of course, nobody should be surprised. NXP has established a strong presence in China’s growing market because China is where a greater number of components are procured, designed into systems, and manufactured.
Rick Clemmer, CEO of NXP Semiconductors
Last week, EE Times sat down with Clemmer who was here for the announcement of the company’s first quarter financial results. With $978 million in revenue in the first quarter, NXP showed a five percent sequential growth. “We delivered near the upper end of our original guidance range,” Clemmer noted.
When asked how much of that growth owes to the cyclical upswing of the market, Clemmer responded cautiously. While saying that NXP is “in the early stages of a positive cyclical rebound,” Clemmer noted much of its growth actually came from company-specific design wins. The good news is that NXP is beginning to see “tangible results,” he said, of the company’s transformation.
Clemmer was particularly bullish about NXP’s Identification business, serving a range of markets including e-passports, transit ticketing, tags and labels, contact banking cards and e-wallets. In particular, Clemmer said, For NXP, the e-wallet segment – where NFC technology together with security components have been embedded in smart phones – has jumped by 30 percent in the first quarter, while the rest of the company’s identification business grew by 20 percent.
Intel-like market share
In fact, NXP, a frontrunner in NFC technology, claims a huge lead in NFC-enabled smartphones and tablets -- over such competitors as Qualcomm, Broadcom and Intel. NXP’s customers in NFC-featured smartphones and tablets are said to include: Apple, Nokia, and Samsung.
Noting that NXP’s NFC (its wireless technology and security components included) is being designed into 130 smartphone models, Clemmer claimed, “NXP has an Intel-like position” in the red hot e-wallet market. One third of those products are shipping today, he added.
As more consumers carry smartphones, transactions completed by simply by waving an e-wallet-enabled smartphone (without a physical credit card or cash) at the point-of-sale are fast becoming a reality. Contrary to the notion that it may take a long time before the NFC chips actually get inside smartphones, Clemmer said, a number of smartphones are already shipping with NFC in them, often without the user’s knowledge. The NFC feature is just waiting to be turned on as the payment infrastructure develops, Clemmer explained.
According to a recent research by Berg Insight, a Sweden-based market research firm serving the telecom industry, global sales of handsets featuring NFC increased ten times in 2011 to 30 million units. Growing at a compound annual growth rate (CAGR) of 87.8 percent, shipments are forecast to reach 700 million units in 2016, according to the firm.
Rare earth hiccups
Unlike its identification business, where NXP fell flat over the last two quarters, its lighting business was a key thrust of the company’s Internet of Things initiative launched a year ago.
By giving a unique IP address to every light bulb at home, NXP has been promoting an energy-saving future in which the user can turn lights on and off individually, dimming or creating scenes from his smartphone, tablet, PC or TV. Clemmer blamed a shortfall of projected revenue in the lighting business to a shortage of rare earth.
China's decision to shut down or nationalize dozens of rare earth metal producers drove up the cost of compact fluorescent light bulbs (CFLs), forcing CFL manufacturers to delay a plan to add IC drivers to their light bulbs. Such drivers would enable dimming, coloring or networking capabilities in each light bulb. As the price of CFL bulbs shot up, “CFL manufacturers couldn’t simply afford to add those IC drivers,” said Clemmer.
NXP’s GreenChip-enabled light bulbs, according to the company’s scenario, will operate on a wireless home sensor network being developed for energy metering, smart appliances and security systems. The JenNet-IP network layer software, designed to tie things together, enables ultra-low-power wireless connectivity in the GreenChip smart lighting solution.
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wilber_xbox
4/30/2012 1:07 PM EDT
“The only reason we are still a Dutch company is because we enjoy our tax breaks in the Netherlands.”
Dutch government must be pretty happy.
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junko.yoshida
4/30/2012 1:29 PM EDT
Curiously, New York Times had a very interesting story about:"How Apple Sidesteps Billions in Taxes":
http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html?pagewanted=all
This story comes with a great illustrative graphics, called "Double Irish With a Dutch Sandwich"
http://www.nytimes.com/interactive/2012/04/28/business/Double-Irish-With-A-Dutch-Sandwich.html?ref=business
Definitely worth taking a look!
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Duane Benson
4/30/2012 4:09 PM EDT
I don't begrudge any company profits. Companies are in business to make money. If they don't they go out of business and any tax revenues they had generated go away too.
However, I do believe in being good corporate (and private) citizens. Taking reasonable steps to reduce taxes is something everyone does and is fine, but to go to such lengths; twisting loopholes and such (Apple is far from the only company doing this) equates to not paying your fair share.
If companies are squeezing salaries, off shoring jobs and sheltering profits, then they are not creating the wealth that they often use as an excuse to push loopholes to such extremes.
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Zeev00
4/30/2012 5:09 PM EDT
"Taking reasonable steps to reduce taxes is something everyone does and is fine, but to go to such lengths; twisting loopholes and such equates to not paying your fair share."
Pray tell, could you define for us what going to "such lengths" is? And while at that, could you also define what one's "fair share" is?
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Simon7382
4/30/2012 11:38 PM EDT
As far as fair share: one can say (like the supreme court did about pornography) you know it when you see it. But seriously: highly profitable companies, like Apple, which would never have been successful without the US infrastructure, including the tremendous talent in Silicon Valley, should pay at least as much US taxes percentage-wise as the average middle class taxpayer does, which is around 20+ percent of earnings. Apple, same as GE and mopts other large companies fail to do this because they can. And, they can, because the GOP since Reagan convinced us the people (well to more gullible part of us) that government is bad and incompetent, by definition, and that taxes are bad no matter what they are spent on. Both of these are hogwash, but based on incessant repetition and no real fighting back from the other side made it "true".
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docdivakar
4/30/2012 5:33 PM EDT
@Junko: nice expose'! I like Mr. Clemmer's openness but I seriously doubt if he would do well as a politician... or for that matter, an Ethics Professor! How long can any corporation continue along these lines? Are they all working toward an end goal of uber profitability?
MP Divakar
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abraxalito
4/30/2012 8:35 PM EDT
Indeed a very interesting article - but it almost seems to be trying to imply that Apple is responsible for the demise of De Anza college through their (fairly extreme) tax avoidance. To me that looks like a piece of political propaganda!
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Simon7382
4/30/2012 11:40 PM EDT
In fact they would be if that (the demise of De Anza) happened.
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t.alex
5/1/2012 12:31 AM EDT
Perhaps for branding also. It is still a wellknown Dutch company.
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Gil Russell
4/30/2012 3:58 PM EDT
Thanks Junko. Corporate lack of community is now an issue. Wonder how many CFO's now consider it a potential lightning rod...,
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Frank Tu
4/30/2012 6:11 PM EDT
N X P = Netherlands eX-Patriot ?
1/3 employees in China sounds a bit high, but most chip companies these days have large eyes on China as a market.
Always be wary of anyone comparing themselves to Intel. You know they're not "like Intel".
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SiliconAsia
4/30/2012 6:59 PM EDT
If NXP is indeed practically a Chinese company, when would they have practical Chinese CEO?
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BobsUrUncle
4/30/2012 7:46 PM EDT
Thanks for letting us know, Mr. Clemmer. Now I'll lump NXP in along with all the other PLA companies I won't do business with. Don't want any products with Tibetan blood on them.
That goes for Apple too. Once the rebel brand, it now represents the very totalitarian regime it once decried. Fool me once...can't be fooled again!
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BobsUrUncle
4/30/2012 7:53 PM EDT
We are fooling our selves. The very profits these corporations are gathering are not going into hiring (at least not here). CNBC reports that corporations are planning to raise dividends or make acquisitions (mergers). We all know what happens after mergers -- L__offs. The rich just keep sticking it to the American Middle Class.
Look at Greece to see what America will be in a few years: http://www.bbc.co.uk/news/world-europe-17898561
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hm
4/30/2012 9:35 PM EDT
Does NXP also has design centre in China? To me it is ok. Honda also sells more two wheelers in India as compare to Japan. Suzuki also sells more car India and as compare to Japan.
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Patk0317
4/30/2012 10:11 PM EDT
I find it interesting that CFLs are not able to be manufactured due to rare earth manulation by China. Given that we can no longer buy incandescent bulbs in the USA in a few years, does that mean we will be using candles in ten years time?
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junko.yoshida
5/1/2012 3:55 AM EDT
No. CFLs are still being manufactured...but the price has gone up. That means any further efforts to add value to the current CFLs (i.e. adding IC drivers) have been delayed now.
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BobsUrUncle
5/1/2012 6:41 PM EDT
Rare earth is not really rare. It's just expensive to separate from the other materials in dirt. Watch NOVA's special on the periodic table -- very interesting and enlightening.
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moshannon
5/1/2012 12:03 AM EDT
Consider a company's cash flow as if the company were an electrical component and the cash were electrical current. The system has numerous inputs and outputs. But every bit of energy going into the system must eventually come out of the system in some form.
When a company finds ways to reduce its tax burden, this is equivalent to reducing the electrical load on a device. The result is that the device draws less current from its inputs (i.e. consumers can buy products at lower prices).
Conversely, a company that donates large sums to charities will eventually pass those costs along to consumers. There is no "free energy".
When a company offshores jobs, it provides wealth to people in other countries, while once again lowering prices for all consumers.
If a company employed only domestic workers and also gave large sums of money to charitable causes such as the Haitian earthquake recovery, many would call them heroes. But what we are praising is their willingness to supply current to a heavier load. That current (money) has to come from somewhere, and it comes from the consumers' pockets.
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CHATLIT
5/1/2012 3:14 AM EDT
Why blame Clemmer for being candid.That China has baited and exploited the greed of european and american corporates (manufacturers and Bankers) is known. How the western world was fooled and lulled into believing that they were putting China to fullest use.
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junko.yoshida
5/1/2012 3:49 AM EDT
I would like to set the record straight here. The purpose of this story is illustrating the reality many multinational corporations face. NO companies can do effective business without building a strong presence in the fastest growing market. I appreciated Clemmer's openness in embracing the reality.
In the past when I covered NXP, I was more concerned with all the product lines and teams the company no longer had. But the conversation with Clemmer's last week convinced me of much transformed NXP, more confident, open and comfortable with its own new self.
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mmmmh
5/1/2012 7:32 AM EDT
In 2008 A manager in NXP said 'at least we purify our blood' in comment to the redundancy of a female engineer who is originally from China. In 2011 he is promoted to department manager.
NXP effectively treats its Chinese customer and Chinese Employees as clown.
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Opey
5/1/2012 7:44 AM EDT
Unless we act to defend the moral standards that should define us, we are all responsible.
http://www.mycitizensnews.com/2012/01/letter-common-practices-for-all-citizens/
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chipmonk
5/1/2012 12:59 PM EDT
Three decades after the West started trading with China, it is still run by the Communists, if anything much stronger now at the expense of the smaller industrial countries like Japan & Western Europe. While hot companies like Apple have been making mega billions with cheap Chinese labor, those that stumbled like Motorola, Nokia or were lured to China with the promise of a huge market ( e,g. Siemens, GE, Kawasaki ) and yes NXP were reduced to agree to their open blackmail and then have had the "pleasure" of being eaten ALIVE ( their technology stolen ) like in a fine Chinese Banquet.
Within a decade large US corp.s like GE will also be owned by the Chinese Communist Party. The only way to stop the rot is to boycott. There are enough opportunities outside China ( as usual Intel is smarter and ahead =of the pack dominated by Wall St. shysters and have moved Assembly & Test to Vietnam )
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BobsUrUncle
5/1/2012 7:05 PM EDT
Try moving factories out of China -- can't be done. Why doesn't EE Times do a story on that?
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BobsUrUncle
5/2/2012 9:20 PM EDT
I don't mean business reasons alone for leaving China. There are legal roadblocks that the Chinese have put in place for why a company is stuck in China once they move there. For instance, foreign companies have to transfer their plant equipment to a Chinese owned entity. I know of one British manufacturer that tried to move their plant from China to Vietnam and they're still in court after 10yrs. The Chinese legal system is a sham controlled by locals.
Why doesn't the media explore the darker side of doing business in China.
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Neo1
5/1/2012 11:42 PM EDT
Avoiding china for any semiconductor company is suicidal, they have to go with the flow else perish like many others. In fact their efforts should be lauded for transforming themselves. Even though it's contribution to its parent country's tax bucket is reduced its way better than the company filing for chapter-11.
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yalanand
5/2/2012 3:12 AM EDT
@Neo1, I totally agree with you. I think all the companies should seriously consider entering both India and China markets because both of these markets provide excellent business opportunities to the companies.
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GREAT-Terry
5/2/2012 2:19 AM EDT
So even if NXP is highly profitable, it still can't help the weak economy of Europe as it is largely Chinese!
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yalanand
5/2/2012 3:09 AM EDT
It's sad to know that chinas control over Rare earth metals is hurting the sector. What is international community doing to tackle this matter ? Is it the reason why NXP shifted its base to China because it can have easy access to rare earth metal elements ?
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dvk
5/4/2012 1:46 AM EDT
40 Percent of Worlds population lives in India-China region. No company can call them global leader by neglecting this part of the world.
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microe
5/7/2012 6:23 PM EDT
it is interesting to see some hypocritical, western-oriented, cold war-minded comments here
The world (in terms of population, not wealth) is not blind on what is real justice and what is hypocritical...
will stop here, this is a technical place, don't want to bring in any more political stuff
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