The 'new Philips' vows to be more aggressive in semiconductors
Aiming at faster growth, Dutch chip supplier plans to increase investments in fabs, product R&D
By J. Robert Lineback
Semiconductor Business News
(10/05/00, 12:57:16 PM EDT)
NOORDWIJK, the Netherlands--Philips Semiconductors' president here today outlined an aggressive goal to accelerate growth and reach an annual revenue run-rate of 10 billion Euros ($8.8 billion) by the second half of 2002. If the chip unit of Royal Philips Electronics N.V. can do that, the semiconductor supplier will grow revenues by 54% compared to sales of 1.6 billion Euros in the second quarter of 2000, or an annual run-rate of about 6.5 billion Euros.
Historically conservative Philips is now willing to sacrifice a few percentage points of semiconductor profits in the coming years to invest more heavily in new high-growth chip applications, build factories faster, and potentially buy shares in other companies, said Arthur van der Poel, president and chairman of Philips Semiconductors.
"The aim is to grow the top line faster and enable that by reinvesting some of the profits," explained van der Poel, during a press briefing in this Dutch seaside resort community. He said the semiconductor subsidiary was given the green light by directors at Philips this year to invest more money in plants and IC product development for wireless communications, digital video and audio products, interactive platforms in the home, networking, and automotive infotainment systems.
Eindhoven-based Philips Semiconductors plans to increase investments by more than 200% to 2.0 billion Euros ($1.8 billion) in 2000 compared to 650 million Euros ($572 million) in 1999. The only thing to prevent Philips Semiconductors from spending 2 billion Euros on investments this year will be the inability of suppliers to deliver fab tools to its plants, promised van der Poel.
During the next few years, Philips Semiconductors plans to continue spending about 2 billion Euros annually to accelerate production and sales of new ICs aimed at emerging and converging markets, said the executive while fielding questions from journalist today.
When asked if Philips Semiconductors would still be part of Philips Electronics in 2002--when the chip unit hopes to reach its 10 billion Euro mark--van der Poel repeated his response to similar questions during the past year. He said he has always answered those questions by citing the differences between Philips Semiconductors and Infineon Technologies AG, which was spun out as an independent chip company from Siemens AG in Munich last year.
"But the answer is simple--there are no plans on the table for a spin-off," he said. "What the future will bring, the future will bring," added van der Poel," but today, let me be clear: there are no plans."
Top managers at Philips Semiconductors characterized 2000 as the beginning of a new era for the chip operation and its Dutch parent, which was nearly bankrupt 10 years ago. After a painful restructuring of Philips Electronics and narrowing down its focus in markets--including some semiconductor segments--the Eindhoven electronics giant has bounced back and appears to be taking a more aggressive position in its businesses.
As part of the "new Philips," the semiconductor operation is also taking a more aggressive approach to its business. It wants to maintain historical positions in "conventional chip markets"--such as commodity ICs for a range of consumer and other products--but it also is pumping more money into emerging-growth segments.
One example of the new chip strategy is an "architecture reuse" approach to system-on-chip designs. This strategy that targets "similar, but different" platforms with large blocks of design cores and processors at key market segments. The platforms, called Nexperia, embed intellectual property (IP) cores from Philips and outside suppliers.
The first Nexperia platform, called the pnx8500 home entertainment engine, contains a RISC processor core from Mips Technologies Inc. and Philips' TriMedia scalable very-long instruction word (VLIW) media processor. It was launched at the press event today to serve cable and satellite service providers with system-on-chip solutions that can be quickly tailored for advanced set-top box applications.
Other Nexperia architecture platforms are also planned for wireless communications (using RISC cores from Arm Ltd.), digital audio (also using Arm cores), and car infotainment (using Mips RISC processor cores), said Theo Claasen, chief executive officer of Philips Semiconductor. Eventually, as these applications converge, some of reusable platform architectures could begin to more closely resemble each other, Claasen suggested.
Philips Semiconductors is also aiming to significantly grow its presence in networking applications. "About three or four years ago, we saw great potential in networking applications, but we felt we were not strong enough in wireless communications. By doing two things at the same time, we ran the risk of failing twice," explained van der Poel.
But now that Philips believes its wireless semiconductor offering is as strong as any competitor, the company is ready to aggressively expand in network equipment applications. Philips' picked up about $100 million in networking chip sales when it acquired VLSI Technology Inc. in San Jose last year. Now the company is adding optical devices, cable modem ICs and other products to push its networking chip revenues to "hundreds of millions of dollars" with a growth rate of 50-100% a year, said van der Poel.
The Philips Semiconductors president said he believes his unit can stay solidly in the Top 10 of worldwide chip suppliers during the next several years. He added that the aim is to grow market share without acquisitions, but Philips "will continue to scan the market for proper acquisition opportunities," he promised.
In fact, Philips has changed its overall philosophy when it comes to looking outside itself for new concepts, product opportunities, and manufacturing resources. "We strongly believe that 'not-invented-here' does not fit in our industry in the year 2000. We replaced that NIH behavior a few years ago with what we call 'PFE'--proudly found elsewhere," said van der Poel. |
