NXP, Freescale plan mega merger

March 02, 2015 // By Rick Merritt
In one of the biggest consolidations in the semiconductor industry to date, NXP and Freescale have announced plans for a merger.

If the deal is approved, they would create a top-ten chip maker and embedded processor giant with more than $10 billion in combined revenues.

The deal would make the two companies the world’s ninth largest chip maker. It would leapfrog competitors STMicroelectronics and Renesas at $7 billion each and approach Texas Instruments at $12 billion, according to figures from IC Insights.

The deal comes at a time of rapid consolidation as the semiconductor industry generally lumbers to single-digit growth rates. For its part, Freescale still carries significant debt but returned to profitability last year as it struggles toward a goal of 50% gross margins.

In a smaller but similar deal announced in December , Cypress bid $4 billion to acquire Spansion. A year earlier , Avago bid $6.6 billion for LSI, then sold part of the company to Intel.

For their part, NXP and Freescale stuck a definitive agreement for a deal they valued at $40 billion. They claim the combination would make them the largest supplier of automotive chips and general-purpose microcontrollers.

Richard Clemmer, NXP’s chief executive and proposed CEO of the combined company, called the merged company “a leader in high performance mixed signal solutions…We fully expect to continue to significantly out-grow the overall market, drive world-class profitability and generate even more cash, which taken together will maximize value for both Freescale and NXP shareholders,” said Clemmer in a press statement .

NXP said the deal would add to the company’s non-GAAP earnings and non-GAAP free cash flow. NXP anticipates achieving cost savings of $200 million in the first full year after closing the transaction, eventually expanding to $500 million of annual cost savings.

The cost cuts are relatively small for a merger of this size, suggesting any planned layoffs could be relatively small. Presumably competing business units that support overlapping ARM-based microcontrollers would be among those targeted for cuts.

The companies scheduled a Monday morning conference call