The semiconductor unit of Philips Electronics is adopting a new name, NXP, as it becomes a stand-alone company and pursues a strategy that relies heavily on supplying chips to the fast-growing consumer market for advanced electronics products.
NXP, being adopted today, stands for Next Experience, the company said. The new
name is meant to suggest that the company will focus largely on chips to improve
the performance of the next generation devices used by consumers, including
digital televisions, multimedia cellphones, electronic passports and digital cash
and identification systems.
Last month, Philips Electronics agreed to sell 80 percent of its semiconductor
division to a group of private equity firms ? Kohlberg Kravis Roberts & Company,
Silver Lake Partners and AlpInvest Partners ? for 3.4 billion euros ($4.35
billion). Two weeks ago, two other private equity firms, Bain Capital and Apax,
joined the buyers? group.
As part of the deal, expected to close in the fourth quarter, the investors will
take on 4 billion euros ($5.12 billion) of the new company?s debt. The company
will be based in Eindhoven, the Netherlands.
The new name and the strategy, analysts say, bear the clear imprint of the chief
executive of the new company, Frans van Houten. He spent eight years as a senior
executive in the consumer electronics division of Philips before assuming control
of the semiconductor business in 2004.
Mr. van Houten?s experience in consumer electronics, analysts say, shaped his view
that the best future for Philips?s semiconductor unit would be to make chips for
what he refers to as ?connected consumer devices?: products for entertainment,
communication and commerce that typically can handle images and sound, and can
share information with other devices.
The market for consumer device chips is growing faster than that of chips for the
personal computer industry, which is maturing.
Mr. van Houten, 46, was often mentioned as the most likely successor to Gerard
Kleisterlee, 59, the chief executive of Philips Electronics.
The Philips semiconductor business, analysts say, has been somewhat hamstrung
inside the larger company. It was often trying to sell its chips to companies that
compete with the consumer electronics business of the parent company, like Sony,
Toshiba and Matsushita, which markets Panasonic products. These companies are
understandably reluctant to forge close partnerships with a supplier that is an
arm of a corporate rival.
As a separate company, NXP will no longer have to overcome that hurdle. Removing
that barrier could lift sales by 25 percent or so over the next few years,
estimates Richard Doherty, director of Envisioneering, a technology research firm.
With sales last year of 4.62 billion euros ($5.9 billion), the Philips
semiconductor business was among the world?s top 10 chip makers. In the last two
years, under Mr. van Houten, the business grew by 19 percent and moved from a loss
to profitability, with a pretax profit of 307 million euros ($393 million) last
The semiconductor business requires sizable capital investments and in the past it
has swung in unpredictable cycles. Mr. van Houten said he was intent on making the
business less volatile, delivering steady growth and pretax profit margins in the
range of 5 to 15 percent.
But the parent company decided it wanted to get out of the semiconductor business
to focus on what it regards as its two core strengths: health care products, like
medical imaging machines and defibrillators, and what it calls the lifestyle
market, with offerings that range from electric shavers to flat-screen
Mr. Kleisterlee has said Philips plans to drop ?Electronics? from its corporate
In using XP as corporate shorthand for ?experience,? NXP is following the lead of
another technology company, Microsoft. The version of its operating system
introduced in 2001 is called Windows XP.