Paul van Gerven
4 May 2020

The automotive chip market was poised to become the place-to-be in the semiconductor industry. But right now, the corona pandemic is throwing a wrench in the gears, as NXP is experiencing.

Ever since taking the helm 11.5 years ago, Rick Clemmer has worked to reposition NXP in two ways. One: he wants the company to exclusively operate in growth markets. And two: he wants to be the market leader in those markets by a large margin, or at the very least in significant sub-segments. In the cutthroat semiconductor industry, life is a lot easier when demand is a given and competitors can only follow at a respectable distance.

And so Clemmer has been chipping off units left and right over the years. These weren’t at all bad businesses; they just didn’t fit the philosophy. This purposeful focus has served the company well in recent years, but it’s turning into a weakness now that the corona pandemic is disrupting markets.

NXP radar
NXP is a pioneer in automotive radar technology, used for blind-spot detection and automatic emergency braking, among other things. Credit: NXP

Left in the dark

This is particularly the case for NXP’s crown jewel, its automotive business. With cars increasingly fitted with electronic functions and electric cars gaining momentum, the automotive chip arena seemed like a very attractive place to be. KPMG, for example, last year projected a compound annual growth rate (CAGR) of 7.7 percent through 2040, outpacing the semiconductor industry as a whole by quite a margin.

But, obviously, this all hinges on cars being actually built – and sold. Now that car factories and their suppliers all over the world have been forced to halt operations, NXP is getting hit hard. The automotive unit, which accounts for almost half of the company’s annual revenue, saw a sequential sales decline of 9 percent in Q1 and another 25-30 percent drop is expected for Q2.


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These are exceptional numbers, and NXP is left in the dark about how long it will feel the squeeze. “This crisis is unlike anything previously experienced by the semiconductor industry,” Clemmer told analysts during a teleconference discussing Q1 results. “We currently find ourselves attempting to make accurate projections of true OEM customer demand.”

Short-term, Chinese car factories and their suppliers were the first to close and are now the first to resume normal operations. “It’s fair to have some optimism about the industrial automotive activity in Q2 in China,” said soon-to-be CEO Kurt Sievers on the same call. However, “It’s really, really hard to say how this is going to play out in Europe and the US,” he admitted.

Longer-term, the economic consequences of the pandemic will likely impact car sales. Again, China inspires a little hope, as late-April car sales are above those in the same period last year. “We also hear reports of people buying their first vehicle, as they don’t want to go back to mass transit with the fear overhanging from the virus,” said Sievers. These trends might emerge in other markets as well, though clearly a worldwide economic recession – which seems unavoidable – isn’t good for car sales.

No knee-jerk decisions

So far, NXP hasn’t announced any cost-cutting measures or layoffs. In fact, the Eindhoven chip maker is staying the course, for now. “We aren’t making knee-jerk decisions by taking an active review of all areas of discretionary spending, while simultaneously maintaining critical investments in areas that will assure NXP’s long-term success. Our business model is solid and we continue to have ample financial liquidity and strength to weather the current unpredictable environment,” Sievers commented.