NXP CEO: The semiconductor merger wave is not over yet
Latest update time：2021-09-03 00:14
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Source: The content is compiled by Semiconductor Industry Observer (ID: icbank) from " McKinsey ", thank you.
Kurt Sievers was named president and CEO of NXP Semiconductors in early March 2020, days before the COVID-19 pandemic began shutting down economies around the world. McKinsey’s Abhijit Mahindroo, Sven Smit, and Anupama Suryanarayanan spoke with Sievers about the challenges posed by the COVID-19 crisis, NXP’s evolving strategy, and the future of the semiconductor industry.
McKinsey: Your first day was spent managing the COVID-19 crisis at NXP. What have you learned about leading during these times?
Kurt Sievers:
It’s important to remember how a well-thought-out succession plan can help a company. I am the lucky one whose organization planned very thoughtfully. NXP had been working on that plan for at least two years before I took over in March, which also made it relatively easy for me to take the lead despite the pandemic and suddenly difficult environment. For my own succession day, I will do my best to replicate this plan.
Secondly, relationships are obviously important, and when I was appointed CEO, I was fortunate to have relationships with all the important stakeholders because I was not new to the company. I was not new to the investors, the customers, or the employees. When you have to rely on other people, you understand the importance of relationships.
During the pandemic, I made very timely decisions about work-from-home protocols, shutting out visitors and similar topics, so we moved faster than many governments or other institutions. NXP's actions were not just the product of my intelligence; I just had the courage to listen to my advisors and act quickly.
The pandemic is not over yet, but we have managed to keep the infection rate in our company very low. In addition to protecting the safety and health of our employees, we have been able to maintain business continuity. Because our decisions were timely, we did not have to stop R&D projects or close factories. Sometimes, I think it is better to make quick decisions, even if you don’t have all the context yet.
Cloud computing will continue to grow over the next decade, but it will be very strongly complemented by edge computing and edge applications. It's not just the processing itself, but everything that comes with it.
In the end, it’s about experience, not learning, and it’s amazing how far you can go if you manage to get your people involved. It’s amazing what an organization can deliver with people like that, even if they’re working remotely and apart from each other.
McKinsey: How will the post-COVID-19 world be different?
Kurt Sievers:
The use of digital tools will not lag behind after COVID-19 is under control, because we all learn to use them better. I don’t believe that all companies will maintain work-from-home practices for all employees, certainly not in our industry. The semiconductor industry, like many others, involves complex innovation, and it’s not a one-person job. It’s something you have to do together, and I think the power of invention and innovation is suffering because people are not in the same room together. That’s why I’m not sure corporate life will change much. I also believe that the focus will shift back to global trade issues and climate change, which are more lasting challenges than the pandemic.
McKinsey:
Let’s move from the macro environment to NXP. NXP has been a leader in the semiconductor industry—one of the first players in transistors and integrated circuits, one of the first integrated device manufacturers, one of the first to engage in large-scale semi-private equity investing, and the first to follow an asset-light model, among other portfolio realignment initiatives. Looking ahead, what is the path forward for NXP?
Kurt Sievers:
We do have a long history, given our acquisition of Freescale, and a lot of our technology leadership is our heritage from Philips and Motorola.
My vision for the future is based on the fact that growth in semiconductors is driven by very few absolute killer applications that keep coming. For example, between 2000 and 2010, the focus was on computers and laptops. Between 2010 and 2020, smartphones, tablets, and cloud computing were the big things. Over the next decade, cloud computing will continue to grow, but it will be complemented very strongly by edge computing and edge applications. It's not just the processing itself, it's everything that comes with it.
Over the last five years, we have put together a portfolio of products that address edge application needs. That's why we acquired Freescale. We need to address the portfolio to increase our capabilities. We also need connectivity, which is why we purchased the wireless connectivity assets from Marvell about a year ago. We have really good capabilities in low power, cybersecurity, and functional safety. We are building strength in artificial intelligence. These are the elements that are really needed to build a complete edge application.
I really think we've been lucky. Part of that is a result of the portfolio we've been building over the last few years, but it felt like the time was right to look for opportunities.
McKinsey:
NXP has done some significant restructuring of its business. Can you talk about the company’s evolution?
Kurt Sievers:
We deliberately left mobile communications on the modem side, and also products for digital consumers, including TVs, optical storage devices, and even audio products. These were good businesses from a market perspective, but we didn’t think sustainable growth with reasonable margins was possible. Instead, we focused on making cars, even though that didn’t exist at the time. We also built a position in the industrial sector, which was a well-kept secret but is becoming more and more popular, and we are now a major player in that industry.
We still have a focus in mobile, like contactless payments, public transit ticketing, hotel door opening. All of these are related to security, ultra-wideband technology, and the use of communications. Although I wouldn't say we are a mobile company, we are experiencing strong growth in this area because we use the mobile ecosystem to implement our technology, which ultimately ends up in smart watches and other applications. We still have the communications infrastructure, and we are clearly a leader in radio power. By the way, we have investments in 6G, but this is more of a focus.
Overall, you could say we really have just two big sectors, automotive and industrial, and some very well-defined focus areas, which is certainly very different from the past.
McKinsey: Now let’s dive a little deeper into some of these portfolio elements. Automotive electronics are proliferating at an unprecedented rate, fundamentally changing the driving experience. How do you envision the future of the car—in terms of the electronics that will be deployed—and the role that NXP will play in that transformation?
Kurt Sievers:
The future is clearly about advanced driver-assistance systems [ADAS] and electrification. This will not only dominate over the next two to four years. I believe it will keep us busy for a decade easily. On the surface, the growth of ADAS looks straightforward, but it has far-reaching implications for the architecture of the vehicle and the entire value chain. I still believe that autonomous driving is feasible, although this development is further down the road. When this happens, companies will need business models designed to facilitate transportation, such as fleet services, rather than models focused on meeting the needs of individual car owners.
Electronics will become the backbone of the car, and OEMs will need strong electronics and software to survive. I cannot emphasize the importance of software enough, as I think it will largely determine the roles in the value chain and the value created at different levels. OEMs will increasingly work directly with semiconductor and software companies to drive innovation.
This shift is obviously significant. Tesla has followed this model and it's part of the company's DNA. The rest of the industry is still trying to catch up and understand how to make the transition. Obviously, it's more difficult when you only have legacy systems and processes.
This is a prime time for semiconductor companies to help innovate, including innovations that improve safety and reduce emissions. The challenge, of course, is that the volume of new cars is relatively low. Typically, we deal with industries where the scaling factors for individual products are very high, but there is very little variation in terms of models. That allows semiconductor companies to put their products into a wide range of devices. However, in the automotive industry, only 85 million cars are produced in a good year. In 2020, it will probably be in the neighborhood of 74 million, due to the impact of COVID-19. Unless you have an application that is very common in cars, the market volume will be small. You will need either incredible market share or a very high level of standardization across the industry.
The good news is that trends like advanced driver assistance systems and electrification are driving strong growth in semiconductor content in automotive. One example is radar, which is in the ADAS space where we are already running at $500 million. This is obviously still nascent because there are a lot of cars that don't even have radar. We're going to see a threefold acceleration because all cars will eventually have radar. Many will get multiple radars, such as front radar for blind spot detection and side radar. The value of each radar system is going up because the performance requirements for accuracy and other features are increasing. NXP has a large market share in radar.
This brings up another point: automotive requirements are becoming incredibly complex, and this is going to be a problem. In the past, semiconductor companies focused on simple microcontrollers and analog products inside cars. Quality was important, but the products were relatively simple and the investment required was small. The business case for simple products was good because you could count on long-term demand. Now the equation is tilted because product volumes are small but the complexity of each application is skyrocketing. I don’t think the industry has decided how to address this challenge.
McKinsey: You’ve called industrial applications the industry’s best-kept secret. What are the challenges associated with the Industrial Internet of Things? How is NXP addressing them?
Kurt Sievers:
Industrial is completely different from automotive. The market includes Siemens, Schneider, and a few other large companies, but there are also a large number of relatively small companies, so you need to be present in the distribution channel to serve the market.
Small industrial companies often don’t understand electronics and are in great need of solutions. At best, they will need a reference design from us, and a very complete software development kit that will allow them to have a product in two or three months. Industrial solutions are also likely to be stickier than automotive solutions because no one wants to change designs in that market.
Small industrial companies usually don't understand electronics, so there is a big demand for solutions. Industrial solutions are probably stickier than automotive solutions because no one wants to change the design in that market.
NXP has the required solution capabilities, including security, connectivity and our MCU/processor capabilities. Connectivity was originally the missing piece for us, which is why we purchased the wireless connectivity assets from Marvell. The fact that most industrial applications are now connected through the cloud makes things even more interesting, and we know how to enable this.
Small industrial companies need people like us to facilitate relationships with large cloud vendors.
McKinsey: Let’s discuss your priorities, including your role in mobile payments. After driving semiconductor growth over the past decade, the mobile space is ripe for growth. What disruptions or innovations do you foresee coming from the industry?
Kurt Sievers:
As I mentioned, we are not a mobile player per se, but we have built a position in mobile wallets over the last six to eight years. Mobile payment applications typically have three anchors: hardware-based network security, near-field communication (NFC) radios, and a lot of security software. NXP’s role in mobile wallet software may be a well-kept secret, but we are definitely more than just a hardware company. If we didn’t provide a large portion of the required software, we would never be able to help the smaller companies that lagged behind the larger companies that entered mobile wallets early.
We are interested in extending mobile payment technology to other use cases, such as public transportation ticketing, and we have made significant progress in ultra-wideband radio, which NFC is one of the enablers of. The UWB chip is just a different radio, and it will be an enabler for completely different use cases. Just like we use mobile payments to get rid of coins and cash, we can use ultra-wideband technology to get rid of mechanical keys for cars and houses (if it is embedded in a smartwatch, phone or other device). The principle is the same as mobile payments, you need security at a personal level. NXP is already deeply involved in the Internet of Things, and we are working with lock companies to create electronic door locks.
McKinsey: Recently, a number of large M&A deals have been announced within the semiconductor industry. If they continue as they are, we could see another wave of consolidation by 2021. What does this trend mean for NXP and the broader industry?
Kurt Sievers:
Overall, I think the semiconductor industry has not yet reached the end point of the required consolidation. At the same time, I do believe that geopolitical issues may complicate M&A.
I believe that many companies are involved in transactions because of their very high valuations. It's just that they have a new currency called equity, so they are taking advantage of that - it's not uncommon. We open our eyes and know what others are doing, but we don't let that lead us astray and only trade with purpose. We know where we are going.
McKinsey: Let’s expand on the geopolitical issues you mentioned. In 2020, we also saw unprecedented geopolitical issues, which had a significant impact on the semiconductor industry. How do you think about this in 2021 and beyond?
Kurt Sievers:
A lot of the trade tensions are really about technology ownership. That's historically true and will continue to be true. Economic leadership over the next decade, twenty, or thirty years is going to be very dependent on technology.
An industry like semiconductors requires global scale, which is why geopolitical issues become so inhibiting. At worst, they force companies to spend a lot of money and slow down innovation that could help the world solve problems like climate change and poverty. That's the tragic downside of all of this.
McKinsey: What advice would you give to people just starting out in the semiconductor industry?
Kurt Sievers:
My advice is completely independent of semiconductors. Ideally, you should have the courage to take the time to find out what you really want to do. That’s not a naive statement. Sure, you’ll get up in the morning and not be particularly passionate about your day, but you should be in a field that plays to your strengths, fuels your passion, and ideally, is more than just a major for you. That’s my most important advice, to have the courage to do that.
It is important to learn from others. Lessons in books are not what counts. It is what life teaches you in professional and non-professional situations, and that really has to do with the individuals you interact with. There is a little bit of luck involved in finding good leaders to use as role models. It is not always easy. I have been lucky enough to work with many different good leaders. I can choose what appeals to me from each one.
The semiconductor industry is small; you'll run into the same people over and over again. Learning from mentors and growing through character is essential to staying on top of your game (and hopefully on top of it) and sustaining your life. If you don't have character, you might get a lot of quick wins, but no sustained success.
In the end, if you want to lead others, you need to truly love the people who follow you. They will do so because they like you. This doesn’t mean you are everyone’s favorite, but people get to know you because you are authentic and feel trustworthy. It all comes down to building your persona and being a real person.
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