Derek Boyd Interviews Frans van Houten, NXP - Sept 2006

Frans, with 37,000 employees, NXP is not a typical start-up. I guess part of what you want to do is engender a real start-up excitement in NXP. What do you see the main challenges in this and how you plan to address them?

For me, the journey already started 18 months ago when I launched my business renewal plan in what was then Philips Semiconductors. The business renewal has as a goal to dramatically improve the growth rate and financial performance of the company. So we had a mobilisation of the work force already in April 2005. And as you indeed hint in your question, it is not easy to mobilise 37,000 people. We have applied a recipe for that which we call Key Battle Meetings where we get people together to really debate where are we going with this company, what does it take to get into gear and make people really own the vision and be accountable for the results. This approach has a lot of traction within the organisation.

The key elements of business renewal have to do with creating a simpler market oriented organisation with a lower break even point, which performs with excellence, for example zero defects, first time rights, higher yields. With business renewal, we are becoming a company that acts more assertively in the market so having a 'Never surrender' attitude when it comes to winning deals. The asset light strategy is another element of the program in which we make our existing factories sweat, and we are very prudent with regard to new investments. And finally the end goal is to create scale where we have leadership positions in our portfolio. We do this by focusing our R&D to truly outpace the competition in the areas of focus which we call the key battles. So these elements are all part of business renewal, and we have been working hard to instil that mindset throughout the 37,000 people. And we are proud of the fact that people are very excited about the program.

Then comes the moment where we changed over from Philips to NXP. What we basically have done in the communication efforts is invigorated the organisation with the message that change is good, movement is good, there is a lot of energy, turn that energy to make our potential into a goldmine. We have plenty of potential, so it is really up to us to deliver on it.

And therefore in the way I talk about NXP, I say hey, you know, we have the energy of a start up company combined with the experience of a 53 year old veteran.

I've talked to several people in NXP since the launch and, as an impartial observation, I see that there is a bit of excitement at grass roots level in the organisation. I think that you have gone some way to achieving some of your goals there already.

Yes, I am glad that you also confirm that. We pride ourselves on having a communications effort that is very strong and very deep. For example, when we re-branded the company, what was it two weeks ago in Berlin, we had an extreme makeover, you know, these TV programmes with extreme makeover?

We did exactly the same for our company. We had a big bang, a makeover at midnight on the 1st of September where 37,000 employees got an information pack, all our customers, all our suppliers, all the web site changed, all the e-mail addresses changed, even company signage and everything, it was a big bang and it was changed. That makes an impact, people then see that we are able to move.

You also face external challenges in the market; how do you view these?

Well, the business renewal agenda that I outlined to you was formed on the basis of customer feedback as well as inputs from employees and analysts. We have basically formulated this in very simple words so that 37,000 employees can understand it, and it is really actionable.

For me a strategy does not have to be complicated, we know exactly what to do so the biggest challenge is in the execution. Of course the underpinning of execution is people, so people are the single most important element that we need to work on: their engagement, their talents, improving their competencies and especially improving teamwork. In a complicated industry like the semi-conductor industry, you really need to have seamless co-operation from your marketeers to the R&D to the manufacturing, supply chain and sales people. The company that does that better will be acting faster and will be more convincing in the eyes of the customer.

What are your views on acquiring new technology from other businesses?

We are just getting out from under the wings of Philips Electronics. Whereas Philips was a reasonably good home, it did not really cater for the opportunities to do acquisitions because that would have raised the size of semi-conductors within Philips. Philips wanted to reduce the exposure to volatile industries, therefore we have done the separation. Now that we are in new ownership and in a stand alone mode, we can start looking at and considering acquisitions as well. Regarding looking at small companies to acquire, I see that that is definitely a viable strategy but again, it is early days, it is really too soon to have concrete plans.

One of the things that you mentioned is an asset light strategy. What does that mean for your existing facilities and in particular for the ones in the UK?

Well, we will continue to be an IDM and so an asset-lite strategy is not an asset-less strategy. We want to make sure that our existing factories continue to be productive, and we will invest in these existing facilities to make sure that their break even point goes down sothey can compete effectively in the market. We want to make the best out of our existing asset base and invest to make that happen.

Let me talk about outsourcing. It is especially in the advanced CMOS nodes, 90nm and below where we would like to rely on foundry capacity so we can benefit from the high-scale factories in the Far East, such as with TSMC or UMC. Only when we would have a substantial demand build up would we consider a joint venture factory down the line. So that is what asset light means. To piggyback on somebody else's capacity until you really can afford your own capacity.

With regard to our existing sites, I have always said that each site needs to be competitive and usually people in a site know very well what that means. For example, last year in our Hamburg fab, we agreed with the work force that they will work longer for the same pay. It was an excellent move also on behalf of our employees to keep the site competitive and therefore make further investments economically justifiable.

I always believed that if everybody puts their shoulder underneath a problem then you can solve that problem. If people are defensive and stop acting but then still expect that there is job safety, I think they are mistaken.

One big challenge facing the industry is the continually escalating costs that must be invested in the development of future technology nodes. What are your thoughts on the challenges of scaling and the rapidly increasing costs involved there?

Yes, well in your introduction you already noted it, that the costs of doing business is going up and the R&D investments that have to be made require a certain scale of operation. I totally believe that so I am a proponent for building scale. You can do that in several ways, I mean we have for example partnered with ST and Freescale in Crolles2 and in that way we can pool our resources in the advanced CMOS nodes and together get more bang for the buck.

That is one way to reduce expenses in the so-called non-competitive areas which are basically only enablers. The other opportunity is of course that down the line maybe industry consolidation can be pursued.

There is one model of industry evolution suggests that it will be dominated by very few big players that can have economies of scale. Is that a future that you see emerging?

I think I have just said it.

How do you view the threat to European, high-cost economies from lower-cost economies in the Far East?

Well, it is a fact, indeed that the Euro is quite expensive and that the European salary base or salary levels are relatively high. That is why when we talked earlier about every site needs to be competitive I have argued that employees in those various locations need to ask themselves how they can contribute to being competitive. Now partly that can be through creativity and innovation, and I think there Europe has really a very good track record of inventing, being inventive. And I really find that a strong point of the European culture. The areas for improvement are in, for example, the 'Can-do' attitude and the hours people work in order to get higher productivity.

Do you see NXP really being in a good position to I guess leverage global presence in that way then?

Oh I see NXP having a great future. We are very excited about the name, the Next Experience. We are operating in the convergence area of the connected consumer, basically the triangle between entertainment at home, mobile multi-media and in-car infotainment. So we are operating in three markets that are having higher, above average growth. We have a huge IP base with over 25,000 patents and we have a global presence where already 60% of our revenue comes from Asia. I think NXP is positioned to become a leader in the world markets.

We deliver this vibrant media technology that will give the consumer a better product, a better TV, a better set top box, a better mobile phone. And I think we will make the world vibrant.

Well, I wish you and NXP every success. Are there particular ways in which you would encourage NMI to help?

In the European co-operation front, we have an organisation called ENIAC, and I am the chairman of ENIAC. We are lobbying the European Union, and I would like you to help make sure that the United Kingdom is a little bit more supportive of the ENIAC initiatives so that Europe can really stand up in the world versus the Albany or Asian regions that are trying also to be leaders in nano-technology.

That is an area we are very interested in and actively working on. We are partners in a European project, EPISTEP, to engage SMEs in the key European Technology Platforms such as ENIAC. We are frequently involved in lobbying at a political level and, finally, we are working with the IET on a conference here in the UK in February to promote European engagement within the UK.

Thank you very much for your time - NMI wishes you every success with the new company.

Next in the 'Meet the CEO' series will be announced in the near future - watch this space!