December 7, 2015 / 1:16 PM / 2 years ago

NXP completes deal to buy Freescale and create top auto chipmaker

A man works on a tent for NXP Semiconductors in preparation for the 2015 International Consumer Electronics Show (CES) at Las Vegas Convention Center in Las Vegas, Nevada January 4, 2015.Steve Marcus

FRANKFURT (Reuters) - NXP has completed its nearly $12 billion deal to buy Freescale, doubling the proportion of auto-related revenue to 40 percent to create the world's top maker of automotive electronics, it said on Monday. Faltering demand in computer and phone markets, once semiconductor industry mainstays, have fueled a year-long merger wave as firms look to formerly unappealing areas like auto electronics for sales growth.

NXP automotive unit chief executive Kurt Sievers said in an interview that the combination will allow the company to assemble a range of discreet automotive applications into more complete systems running on top of Freescale processors. It propels NXP into new application areas in cars including powertrain, safety and body electronics, Sievers said, building on its existing leading positions in audio infotainment, security and vehicle networks. It also aims to build security into critical car systems to guard against hacker threats. NXP grew out of Dutch consumer electronics giant Philips, the co-developer of CDs and DVDs, and also had historic roots in Silicon Valley. Freescale was spun out of cellphone and walkie-talkie pioneer Motorola.

Now with $10 billion in annual revenue, NXP has told investors it aims to grow 50 percent faster than the overall automotive chip market in the next few years, a modest goal given that NXP grew two to three times the market recently.

"If you had semiconductor automotive growth of 5 or 6 (percent), we'd grow at 8 or 9 (percent) and I think we can do that," NXP Chief Executive Rick Clemmer told Reuters, adding this will only happen once Freescale is more fully integrated.

NXP's merger bolsters its position not just in cars, but other fast-growing chip markets, including home automation, wearable devices and health monitors, while also capitalizing on the company's strength in security and payment chips.

The cash and stock deal, excluding debt, valued Freescale at $11.86 billion, based NXP's closing price on Friday. Freescale shareholders will own about one-third of the combined company.

One new product category NXP expects to develop using Freescale technology is a single integrated radar chip.

It is betting this single chip can replace current ultrasonic radar devices used in advanced vehicle safety systems, posing a challenge to automotive chip specialist Elmos' existing ultrasonic chips, Sievers said.

A second product category will be multimedia processors that can allow NXP to expand its strong position in audio information systems into other areas of infotainment including video display dashboards.

Editing by James Regan and Tom Heneghan

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