NXP reorgs for $550M in annual savings
By Ann Steffora Mutschler, Senior Editor -- 9/12/2008
To bring the company to a healthy financial situation and position it for future growth, Eindhoven, the Netherlands-based NXP Semiconductors said today it is launching a redesign program driven by a challenging economic environment, a weak US dollar, and the reduction in size of the company after moving its wireless business into a joint venture with STMicroelectronics.
As part of this plan, NXP said it will make a major reduction of its manufacturing base, central R&D and support functions and will affect approximately 4,500 employees globally, with expected annualized savings of $550 million. The restructuring costs are estimated to be $800 million.
As such, NXP said it will focus on its automotive, identification, home, and multimarket businesses, with the reorganization meant to “establish NXP with a strong base to achieve its mid-term targets to deliver profitable growth with 15% EBITA and positive cash flow,” the company said in a statement.
Commenting on reorganization, NXP CEO Frans van Houten (pictured) said, “This restructuring is a tough measure and it is regrettable that we need to let people go. However, the changes will make NXP a strong, profitable and growing company, with a positive cash flow. NXP is transforming into a globally competitive semiconductor company with scale and leadership in its core businesses. Measures include increasing the competitiveness of our manufacturing base and reduction in our work force, resulting in a leaner, customer focused company, well positioned for growth in our core businesses.”
Specifically, the company will migrate to more advanced production processes, reduction of excess capacity in older technologies, in an effort to ensure a more competitive operation, while maintaining a strong manufacturing presence in Europe.
NXP will consolidate the majority of its production to two European fabs in Nijmegen and Hamburg, as well as to SSMC in Singapore.
In addition, four factories will be sold or closed. NXP’s fab in Fishkill, NY will be closed in 2009 with two other factories planned to be closed by 2010: the “ICN5” part of the NXP facility in Nijmegen, Netherlands, and part of the “ICH” fab of the Hamburg facility, Germany.
NXP’s fab in Caen, France will be sold and the company said it is open to offers for this facility from prospective buyers, however, in the event that a buyer is not found, the facility could be closed during 2009.
These fab closures are aimed at increasing the loading in the remaining fabs to over 90%, and achieve expected savings of $300 million on a run rate basis by the end of 2010.
NXP said details will be confirmed in discussions with customers as the company plans for the transition of the production and are subject to consultations with unions and employee representatives.
In terms of R&D and support functions, NXP said it aims to have a more balanced global cost base with a reduced and more focused central R&D. As such, NXP said it has matched the requirements of its core businesses to its R&D and support resources in order to serve its customer needs at much lower operating expense levels. Changes are expected to affect employees primarily in the Netherlands, France and Germany.
Following the restructuring, NXP will invest 16 to 17% of sales in R&D, in line with other leading semiconductors companies. These changes are expected to lead to a reduction in annual operating expenses of $250 million and are expected to be implemented mostly during 2009. Further details will be communicated on a local country basis as part of the consultation process with employee representatives and unions, NXP noted.
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