NXP Semiconductors outlines its new strategy following failed merger with Qualcomm Inc.

NXP Semiconductors outlines its new strategy following failed merger with Qualcomm Inc.


Senior executives at NXP Semiconductors (NXPI) outlined their new strategy after proposed merger with Qualcomm Inc. didn’t go through.

CEO Rick Clemmer along with other executives said the company wants to keep its dominant position in delivering automotive chips and boost sales in the range of 5-7 percent on annual basis through 2021. The given growth percentage is nearly 50 percent more than the expected growth rate of the chip industry.

The Eindhoven, Netherlands-based chipmaker plans to boost its gross margins to 55 percent by the end of the next year and up to 57 percent by the end of 2021, as compared to the existing level of around 53 percent. The company plans to achieve this goal by likely selling slow growing or low-margin units.

This is the first time the company has laid out its strategy after anticipated $44 billion merger with Qualcomm collapsed in July, as Chinese regulators didn’t approved the deal amid trade tensions with the United States. Subsequently, NXP launched a $5 billion share repurchase program in the same month. It also recently initiated a quarterly dividend of 25 cents per share.

The deal between the two companies remain pending for nearly two years and NXP didn’t held any quarterly conference call with investors during that period.

Managing director at Stifel equity research, Tore Svanberg said the company will need a long time to regain its lost momentum. A bigger buyback and quarterly dividend isn’t sufficient to restore the confidence of investors.

Investors have been pressurizing NXP to lift its gross margins above 60 percent, similar to rival Intel Corp. However, Clemmer said in an interview that those margins are not essential to accomplish the company’s growth and cash return targets.