(FROM THE WALL STREET JOURNAL 3/3/15)
By Don Clark
The race to build smarter cars is prompting another race -- to
supply the chips that make those vehicles clever.
NXP Semiconductor Inc. stepped on the gas on Monday, agreeing to
buy Texas-based Freescale Semiconductor Inc. in a cash-and-stock
deal valued at about $11.8 billion. Both companies have strongholds
in the automotive-chip market.
The purchase would vault Netherlands-based NXP to No. 1 supplier
of chips for cars. Freescale currently ranks No. 4 and NXP No. 5 in
that market, according to researcher Gartner Inc. The research firm
estimated world-wide revenue for automotive chips at about $29.2
billion last year, up 9% from 2013.
That growth reflects an effort among auto makers to
differentiate their offerings by using advanced electronics to
handle everything from hands-free calling to parallel parking.
Newer cars incorporate as many as 100 chips controlling braking,
dashboard displays, fuel injection and backup cameras. Gartner
estimates that each new car sold last year contained about $334 of
semiconductors, up from $223 in 2001. It projects that the total
will reach $368 a car in 2018.
Much of this increasing demand is fueled by the rise in
so-called connected cars, which use Wi-Fi internally and cellular
connections to the outside world for features that include
navigation, traffic information and assisted driving. Google Inc.,
Daimler AG, Ford Motor Co. and others are promoting the even more
ambitious vision of cars that drive themselves, aided by video
cameras, radar and sensor chips.
"The car is going to become a computer on wheels," said Jen-Hsun
Huang, chief executive of chip maker Nvidia Inc., in a recent
interview. "This is going to be a large business."
Nvidia, best-known for graphics chips that generate images for
videogames, is currently offering a processor called the Tegra X1
for vision-related car applications. The company equates this
chip's performance with that of a 2000-vintage supercomputer.
Other companies are trying to play bigger roles in the auto
market, including Intel Corp., the largest supplier of chips for
personal computers, and Qualcomm Inc., the top designer of wireless
chips and processors for smartphones.
Entrenched players in the market historically located their
operations near major clusters of auto makers. In Japan, the big
domestic supplier is Renesas Electronics Corp., which currently
sits atop Gartner's ranking for auto-chip suppliers. The company
incorporates former operations of NEC Corp., Hitachi Ltd. and
Mitsubishi Electric Corp.
In Europe, major suppliers include Infineon Technologies AG and
STMicroelectronics NV, which also inherited long-standing
chip-making operations. So did NXP, a former arm of Dutch
electronics giant Philips NV, whose business dates to 1953.
NXP was spun off as part of a 2006 buyout and went public in
2010. It is known for chips used for car radios, in-vehicle
communications, keyless entry and other security functions based on
a technology called near-field communications, or NFC. The company
reported $1.14 billion in revenue from automotive chips in 2014, up
12% from the prior year.
Freescale, the biggest U.S. supplier to the auto industry, is
best known for simple processors called microcontrollers used in
applications like car powertrains. Sales of microcontrollers for
car applications totaled $1.89 billion in 2014, up 11.6% from the
prior year, the company reported.
Richard Clemmer, NXP's chief executive, stressed that automotive
applications are among many targets for the combined company, as
more everyday products are enhanced with sensing and communications
capabilities -- a trend Silicon Valley calls the Internet of
Things.
But car makers have been among the first to jump on that
bandwagon, he said, and they are now studying features to prevent
onboard chips from getting hacked. "What we'll be able to do by
putting these two companies together is to bring security to the
car," Mr. Clemmer said.
Under the agreement, NXP will pay Freescale shareholders $6.25
in cash and 0.3521 of an NXP ordinary share for each Freescale
common share. The Dutch company's share price has been boosted by
success in getting NXP chips into devices, including Apple Inc.'s
latest smartphones.
NXP's shares jumped 17% on Monday to $99.56 following the
announcement. Freescale's stock, which had run up recently on
reports of a possible buyout, rose about 12% to $40.36, both in New
York trading. NXP had estimated the value of the deal at $36.14 a
share before the rise in its stock on Monday.
---
Mike Ramsey contributed to this article.
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