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EETE MAR 2015

business NXP, Freescale plan mega merger By Rick Merritt In one of the biggest consolidations in the semiconductor industry to date, NXP and Freescale have announced plans for a merger. If the deal is approved, they would create a top-ten chip maker and embedded processor giant with more than $10 billion in combined revenues. The deal would make the two companies the world’s ninth largest chip maker. It would leapfrog competitors STMicroelectronics and Renesas at $7 billion each and approach Texas Instruments at $12 billion, according to figures from IC Insights. The deal comes at a time of rapid consolidation as the semiconductor industry generally lumbers to single-digit growth rates. For its part, Freescale still carries significant debt but returned to profitability last year as it struggles toward a goal of 50% gross margins. In a smaller but similar deal announced in December, Cypress bid $4 billion to acquire Spansion. A year earlier, Avago bid $6.6 billion for LSI, then sold part of the company to Intel. For their part, NXP and Freescale stuck a definitive agreement for a deal they valued at $40 billion. They claim the combination would make them the largest supplier of automotive chips and general-purpose microcontrollers. Richard Clemmer, NXP’s chief executive and proposed CEO of the combined company, called the merged company “a leader in high performance mixed signal solutions…We fully expect to continue to significantly out-grow the overall market, drive worldclass profitability and generate even more cash, which taken together will maximize value for both Freescale and NXP shareholders,” said Clemmer in a press statement. NXP said the deal would add to the company’s non-GAAP earnings and non-GAAP free cash flow. NXP anticipates achieving cost savings of $200 million in the first full year after closing the transaction, eventually expanding to $500 million of annual cost savings. The cost cuts are relatively small for a merger of this size, suggesting any planned layoffs could be relatively small. Presumably competing business units that support overlapping ARM-based microcontrollers would be among those targeted for cuts. The companies scheduled a Monday morning conference call to describe the deal to analysts. Under the terms of the agreement, Freescale shareholders will receive $6.25 in cash and 0.3521 of an NXP ordinary share for each Freescale common share held at the close of the transaction. The purchase price implies a total equity value for Freescale of approximately $11.8 billion based on NXP’s closing stock price as of February 27, 2015, the press statement said. The transaction is expected to close in the second half of calendar 2015. NXP intends to fund the transaction with $1.0 billion of cash from its balance sheet, $1.0 billion of new debt and approximately 115 million NXP ordinary shares. Post transaction, Freescale shareholders will own approximately 32 percent of the combined company. The transaction has been unanimously approved by the boards of directors of both companies and is subject to regulatory approvals as well as the approval of NXP and Freescale shareholders. The NXP/Freescale takeover and automotive electronics WBy Christoph Hammerschmidt ill the planned acquisition of Freescale through NXP change the automotive semiconductor landscape? Obviously yes, since both companies are already massively involved in this market, and united they will certainly gain significance. But at whose expense? The die is cast: NXP will take over the highly indebted Freescale. The takeover will create a combined company with sales of more than $10 billion and catapult the company to the pole position in the automotive semiconductor race. Both NXP and Freescale hold strong positions in that segment, with plenty of expertise in success-critical areas such as signal processing, sensor fusion, security and (wireless) data communications. Without any doubt the combined company will occupy the strategic technology points in some of the hottest market segments like ADAS, autonomous driving and Connected Car. The same by the way holds true for non-automotive markets with high growth potential such as IoT and Industrial Internet - in particular if one includes the security requirements into the picture. Competitors in these segments have reasons to wrap up warmly, namely Renesas and Infineon. Both pursuit a more focused approach and cover specific niches. Infineon, for example, holds strong positions in the motor control and body electronics segment whereas Renesas dominates the infotainment sector. However, none of these two is positioned as broadly as a potential NXP / Freescale combo. Infineon keeps aloof of everything in the car that deals with graphics - instrument clusters, infotainment and modern HMIs. These applications however are among those with the strongest growth expectations. And in terms of wireless automotive connectivity neither Infineon nor Renesas can compete to the future Dutch-American duo. Perhaps Infineon now has to pay the price for having sold its wireless communication business to Intel years ago. However, there is a major business field where NXP even with Freescale on board has “Perhaps Infineon now has to pay the price for having sold its wireless communication business to Intel years ago.” 6 Electronic Engineering Times Europe March 2015 www.electronics-eetimes.com


EETE MAR 2015
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