Clemmer: NXP debt under control, focusing on design wins

NEW YORK—When NXP Semiconductor went public two years ago, the company was debt-ridden with $4.5 billion on its books and faced with the arduous task of streamlining its product portfolio to emerge as a formidable competitor in the electronics industry.

Fast forward to today and, well, NXP’s net debt is still a hefty $3.1 billion. But president and chief executive Rick Clemmer believes NXP has the opportunity in “a matter of quarters, not years to be below two-times EBITDA [earnings before interest, taxes, depreciation and amortization],” which puts it in an investment-grade position from a metric viewpoint.

Although the credit rating agencies might not put NXP in that category, the company is on the right track. In the last 12 months, NXP reduced its debt by $900 million by generating cash while securing key design wins and selling off nonessential businesses.

In fact, NXP is working on one design win that’s worth nearly $700 million in revenue over a three-year product life, Clemmer said in an interview here this week (July 25). Clemmer wouldn’t give any details about this potential customer. Still, it takes a number of those design wins to keep the engine running.

“We have company-specific design wins that will allow us to grow, even with a rather anemic economic environment,” Clemmer said.


NXP completed the sale of its Sound Solutions business for $855 million in cash to Knowles in July 2011. And more recently sold its data converter business for an undisclosed amount to Integrated Device Technology, even though it poured significant investments into the business over the last couple of years.  

NXP now can devote those resources to product lines in which it has real growth opportunities. Indeed, there are many. “The most significant decision in the semiconductor business is deciding what you are not going to do, so you have sufficient investment levels and resource requirements to be successful in those areas you do participate,” Clemmer said.

Clemmer’s efforts to keep NXP tightly focused on its core businesses buoyed his recent decision to split its high-performance mixed-signal (HPMS) into two separate units: Industrial & Infrastructure and Portable & Computing. Alexander Everke, executive vice president and general manager based in Europe, is leading the Industrial & Infrastructure business unit, which incorporates high-performance RF, power and lighting, TV front end and emerging businesses.

Dave French was brought in as the executive vice president and general manager for the Portable & Computing business unit, which manages microcontrollers, interface products and logic.

HPMS accounted for 73.4 percent of NXP’s second quarter revenue of $1.094 billion; its Standard Products division represented 20 percent.

Total 2Q 2012 revenue: $1.094 billion

NXP’s fastest growing segment in its most recent quarter was the identification business, which serves many different markets, including e-passports, transit ticketing, tags and labels, contact banking cards and e-wallets. Designed for smartphones and tablets, NXP’s key identification product is an NFC (near field communications) chip with a secure element and software. In fact, NXP is the only company able to offer those three critical elements in a single product. Clemmer is particularly optimistic about the future of e-wallet applications, as well as e-tailing, or selling retail goods on the Internet.

“Instead of just focusing on the electronics wallet, we think there’s an opportunity to drive e-tailing,” Clemmer said, adding that it forces users to look at online advertising.  “[That’s] the reason why Google has been so interested in this area, even though they’ve been driving the electronic wallet to be able to do that.”

Google last year introduced a Google Wallet mobile app, which securely stores a user’s credit card on his or her phone to quickly make purchases.

A number of cell phone carriers are trying to prepare for the actual implementation. They are requiring handset makers to have the NFC capability, but won’t enable it as they wait until the industry establishes standards, Clemmer said.

“A lot of them don’t want to use the Google wallet because they don’t want to do something that will facilitate Google,” Clemmer said. “They are trying to drive an installed base so that next year when Isis [Mobile Wallet app] comes out with their electronics wallet, with a simple upgrade they can implement this and have a large installed base associated with it.”