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STMicroelectronics is not the only European semiconductor company to have been caught out by the upturn. NXP’s Q2 earnings report states:
‘Our overall demand, bolstered by our increased design wins, is greater than our current capacity. Additional capacity to meet the demand is underway, however this will have only limited impact in the third quarter. Therefore our expectation is that total comparable sales will be relatively flat on a sequential basis.’
In another section of the Q2 report, NXP states:
‘Our wafer factory in Caen, France was sold in June 2009, and our production facility in Fishkill, New York was closed in July 2009, and in January 2010 we closed parts of our front-end manufacturing facility in Hamburg, Germany. We have also initiated process and product transfer programs from our ICN5 and ICN6 facilities in Nijmegen, the Netherlands, which are scheduled to close in 2010 and 2011, respectively. ‘
And now the company is saying demand is greater than current capacity and additional capacity is underway.
What a surprise.
Even Jérôme Ramel from Exane BNP Paribas has said publically that NXP has it all wrong despite generally being supportive of ‘fab-lite'(sic)
I do know that, Malcolm, you’ve been predicting the capacity crunch for nearly 18 months and it makes you wonder how CEOs at ST, NXP, TI, National, ADI et al have got so hopelessly caught out by it. I’m inclined to believe that these guys are under continual pressure from Wall St analysts to cut costs, and NXP’s list of fab closures in its Q2 earnings report reads almost as if it is proud of the cuts. If Wall St advice is to blame, it says a lot about the pliability and softness of the current breed of CEOs. If only there were more Bob Swansons about who are prepared to tell Wall St where to go when Wall St suggests measures that would harm LTC’s customers, product lines and employees.
Hi David … as you know since April 2009, we have been warning the industry each month in our Global Semiconductor Monthly Update Report and at our seminars and Forums that there would be a major capacity crisis in 2010, possible stretching into 2011 as well. Our message was clear – industry was closing and cutting back capacity too deeply whilst simultaneously failing to invest in net new capacity. We further warned that ‘fablite’ was not the solution; it would just exacerbate the capacity and IDM’s problems.
Our Monthly Report, targeted at the industry C-Level and other key execs, is very widely distributed, including the top execs at NXP. One or more of these executives ought to have raised concern about these issues I was raising. Whilst I obviously do not expect any firm to run their business based on what I say, if the capacity crunch did take NXP and others by surprise, they either failed to recognise the significance of the data I was drawing their attention to simply decided to ignore it.
This has clearly backfired and they now face a flat sales growth quarter in the traditionally busiest quarter of the year! How to shoot yourself in the foot in one simple lesson … no capacity … no sales, yes it really is that simple! This is the single biggest fablite (and fabless) business risk and incidentally the reason why the FSA (now GSA) was formed in 1996. The chickens have come home to roost. How tragic.
They go from one cock-up to the next, ex-NXPer, this must be the most destructive story of industrial mismanagment since George Simpson ruined Marconi.
Not the wisest move by Rick and his KKR bosses. It looked like a great saving to the bean counters at the time but probably hasn’t saved any real money yet (after restructuring costs are factored in). And now of course its stopping NXP sales rising. Not the best strategy when you’ve got huge debts to pay down.
Another interesting aside, when NXP announced their Home division would be sold to Trident Microsystems last October the transaction included purchase of some Trident shares for $4.50, when those shares were trading at close to $3, today Trident shares are around $1.50.