The recent acquisition of Freescale Semiconductor by NXP Semiconductors would catapult the merged entity into the world's eighth-largest chipmaker, positioning the newly minted giant for an even more formidable presence in key industrial sectors, according to IHS (NYSE: IHS), the leading global source of critical information and insight.
Prior to the merger, NXP ranked 15th in revenue and Freescale 18th. With combined revenue last year of approximately $10 billion, the resulting new company would have surpassed Broadcom. Only Intel, Samsung Electronics, Qualcomm, SK Hynix, Micron Technology, Texas Instruments and Toshiba would have been bigger, as shown in the table below.
"The merged company's strength will be especially apparent in automotive-specific analog applications," said Dale Ford, vice president and chief analyst at IHS. "Automotive products clearly will be the biggest convergence resulting from a merged product portfolio of the Dutch-based NXP and its smaller U.S. rival."
The amalgamated NXP-Freescale would place the company in second place in the area of microcontroller units (MCUs), which are integrated circuits for embedded and automatically controlled applications, including automotive engine-control systems. The merged company could also affect the digital signal processing (DSP) market, where Texas Instruments reigns supreme. DSPs are an important component in the audio and video handling of digital signals used in myriad applications, including mobile-phone speech transmission, computer graphics and MP3 compression.
"While both NXP and Freescale boast diverse portfolios with complementary products, the high-performance lines of the two chipmakers have very different target solutions," said Tom Hackenberg, senior analyst for MCUs and microprocessors at IHS.
Freescale has been a key strategic provider of high-reliability automotive, telecomm infrastructure and industrial solutions, including both application-specific and general-purpose products that go after high-performance applications. NXP's broad portfolio, by comparison, has strategically targeted precision analog and low-power portable-device applications, most of which are directed at portable wireless, automotive infotainment, consumer components and a complementary base of industrial components, including secure MCUs for smart cards. Even in the auto industry, where the two companies both focus on infotainment, their technologies harmonize: NXP dominates the radio market, while Freescale fills a large demand for low- to midrange center-stack processors and instrument cluster controllers.
"The most significant processor competition will likely occur in low-power connectivity solutions, where both chipmakers offer competitive connectivity MCUs," said Hackenberg. "In particular, the newly merged company will be well-positioned to make groundbreaking advances in the human-machine interface market."
Freescale recently began developing its portfolio of vision-related intellectual property with Canadian maker CogniVue, used in advanced driver assistance systems (ADAS). For its part, NXP has solid voice-processing expertise. Both companies overall have strong sensor fusion intellectual property, with each maker tending toward different applications. "The resulting combination could offer strategic symmetry in combined vision-, voice- and motion-controlled systems," Hackenberg added.
Another important aspect of the merger is that Freescale is a near-exclusive source for power architecture processors and processor intellectual property. Although its market share overall is small compared to x86 and ARM, Freescale plays a significant role in the military aerospace industry, where many high-reliability equipment controls rely on power architecture. "While the acquisition of Freescale by a foreign owner is unlikely to be a deal breaker, the development could have some bearing on the approval process in the military, as it will now involve a non-U.S. company possessing ownership of its primary source of military aerospace specific Power Architecture," Hackenberg noted.
