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Story behind NXP’s Journey to Become a Leader in Auto Chip Market

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Aug. 29 2016, Published 10:42 a.m. ET

About NXP   

In this series, we saw that NXP Semiconductors (NXPI) expects revenue growth to remain slow in fiscal 2016 due to softness in the overall demand environment. The company is a leader in the automotive semiconductor and secure identification market. However, the company started its journey with digital logic circuits.

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History of NXP

NXP was formed under the name “Signetics” in September 1961 by a group of scientists and engineers from Fairchild Semiconductor (FCS). The company became a division of Philips Electronics in 1993 and then became NXP, an independent company, in 2006 after a group of private equity firms acquired the semiconductor division of Philips Electronics.

Today, NXP employs 45,000 employees, owns more than 9,000 patents, and earns $6.1 billion in annual revenue. In 2015, NXP acquired Freescale, which increased its annual revenue to $10 billion and put the company on the list of top five non-memory semiconductor companies in the world. Post merger, NXP became the largest automotive semiconductor company in the world, presenting tough competition to Texas Instruments (TXN) in the analog IC (integrated circuit) space.

NXP’s business

NXP manufactures mixed signal and standard semiconductors solutions for automotive and identification applications. The company has divided its business into segments based on applications:

  • Automotive: NXP’s solutions are used for in-car entertainment, ADAS (advanced driver assistance systems), safety systems, in-vehicle networking, car radios, passive keyless entry, and immobilization.
  • Secure Connected Devices: NXP and Sony (SNE) together invented NFC (near field communication), which enables secure mobile transaction. Many handset makers use NXP’s solutions for mobile transit application. Apple (AAPL) is NXP’s key customer in this space.
  • Secure Identification Solutions: NXP’s chips are used in several eGovernment applications such as electronic passports, RFID (radio frequency identification) tags and labels, and transport and access management. The company’s chips are also used in banking cards.
  • Secure Interface & Infrastructure: NXP provides digital networking and RF (radio frequency) products.

Business risks

NXP is exposed to several internal and external risks. Weakness in the European macroeconomic environment has softened demand. It faces strong competition from high-performance programmable logic device makers Xilinx (XLNX) and Lattice Semiconductor (LSCC). The consolidation in the telecom and semiconductor market remains a major headwind for NXP.

Many headwinds are slowly subsiding, but sales growth is likely to remain slow in fiscal 2016.

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