Frans Van Houten, CEO of Philips Semiconductors, Delivers Semico Summit Keynote

Phoenix, Arizona March 23, 2006 - “The key features of a successful business: teamwork, strategy, passion and being fit,” stated Frans van Houten, CEO of Philips Semiconductors, in a keynote presentation delivered recently at the ninth annual Semico Summit. The companies struggling in the marketplace are the ones that have lost their passion, he added.

Mr. van Houten stated that evolutionary market pressures are creating a new landscape. There is an increasing dependence on semiconductors and the value at stake is getting higher. Value is created in intellectual property, in the chips, the embedded software and the enabling technologies. The electronics industry is seeing boxes get thinner and smaller, but margins are also flattening. Value is created through technology from semiconductor companies as well as from brands and new services from companies like Apple and Dell.

Product lifecycles are shorter. R&D bills are increasing. So, deverticalization means more risk and the need for higher investment from the chipmaker. And the development cycles of 1-3 years at semiconductor companies is now much longer than the 9-12 month cycles at set makers. As full system solutions replace single chip designs, so the position of semiconductor companies change. “What was formerly a simple value chain becomes a complex web or matrix of value creation,” said van Houten. “Evolution isn’t simply the survival of the fittest, but also survival of the smartest”.

Mr. van Houten predicted a pricing opportunity in the future: Chips will eventually become so small that you won’t be able to see them, so how will you charge for them? He stopped short of answering his own question, stating that the right business model for the future is open for debate. He emphasized that working together in ecosystems with companies with complementary skills is crucial to success as the value chain becomes more complex.

Switching gears to address Philips Semiconductors’ challenges in particular, he said the company has two goals: to create long-term value for Philips’ consumer electronics business, and the other is to become a top-five semiconductor company. This will require the right combination of growth and investments, as well as focusing on the right core competencies. He indicated that all options are open for Philips Semiconductors at this point, including a merger, IPO, or sale of the business. “Philips Semiconductors decided to take its future in its own hands,” he said. “Standing still is not an option. Whatever game you play, passion is what counts.”

Mr. van Houten described one opportunity for growth for the company: Near Field Communication (NFC). NFC is a short range wireless technology that is intuitive and easy for consumers to use. A combination of RFID and smart card technologies, it involves passing a mobile phone close to a reader at a checkout area to automatically pay for goods and services. He predicted that by 2010, 50% of all cell phones will contain NFC technology. There are already more than 70 members in the NFC Forum. This industry collaboration is an example of an ecosystem that encourages innovation and success across the value chain.

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Semico Research Corp is a marketing and consulting research company located in Phoenix, Arizona.
Semico was founded in 1994 by a group of semiconductor industry experts. We have improved the validity of semiconductor product forecasts via technology roadmaps in end-use markets.
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Semico Research Corp.
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