NXP Semiconductors (formerly Philips Semiconductors) has announced a redesign program that will bring the company to a healthy financial situation and position the company for future growth. The changes come in response to a challenging economic environment, a weak US dollar, and the reduction in size of the company after moving its wireless business into a joint venture with STMicroelectronics.

This program is expected to affect approximately 4,500 people globally and will result in annualized savings of $550 M. The restructuring cost will result in an estimated cash out of $800 M. NXP will do its utmost to redeploy affected employees into different positions, but sees redundancies as inevitable. The company has initiated consultations with unions and employee representatives with regard to the implications and implementation of the proposed measures. NXP plans to implement these measures between now and 2010.

Moving forward, NXP will focus on its Automotive, Identification, Home and MultiMarket businesses where it has a high share of innovative products and market leadership positions. The redesign measures will establish the company with a strong base to achieve its mid-term targets to deliver profitable growth with 15 percent EBITA and positive cash flow.

Changes to the manufacturing operations reflect NXP's long-term asset-light strategy, the need for a balanced geographical cost base and commitment to ongoing customer programs. The program entails the migration to more advanced production processes, reduction of excess capacity in older technologies, together ensuring a much more competitive operation, while maintaining a strong manufacturing presence in Europe. NXP plans to consolidate the majority of its production at two higher capability European fabs: Nijmegen, Netherlands and Hamburg, Germany, and to SSMC in Singapore.

As a result four factories are planned to be sold or closed. The fab in Fishkill, NY, US, will be closed ultimately in 2009. Additionally, two other factories are planned to be closed by 2010: the ‘ICN5’ part of the NXP facility in Nijmegen and part of the ‘ICH’ fab of the Hamburg facility. NXP's fab in Caen, France will be put on the market for sale. This plan targets to increase the loading in the remaining fabs to over 90 percent, as well as result in expected savings of $300 M on a run rate basis by the end of 2010.

The redesign program of NXP's R&D and support functions reflects the ambition to have a more balanced global cost base and reduced and more focused central R&D. NXP has matched the requirements of its core businesses to its R&D and support resources and as a result can effectively serve its customer needs at much lower operating expense levels. After the restructuring NXP will invest 16 to 17 percent of sales in R&D, which is in line with leading semiconductors companies.