NXP to ship phone chips to Samsung

BERLIN Fri Aug 31, 2007 2:04pm EDT

A man uses his mobile phone in front of Samsung Group's main office in Seoul, August 6, 2007. NXP will start shipping its single-chip solution for ultra-low-cost phones to Samsung from the fourth quarter of this year, Chief Executive Frans van Houten told Reuters on Friday. REUTERS/Lee Jae-Won

A man uses his mobile phone in front of Samsung Group's main office in Seoul, August 6, 2007. NXP will start shipping its single-chip solution for ultra-low-cost phones to Samsung from the fourth quarter of this year, Chief Executive Frans van Houten told Reuters on Friday.

Credit: Reuters/Lee Jae-Won

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BERLIN (Reuters) - NXP will start shipping its single-chip solution for ultra-low-cost phones to Samsung (005930.KS) from the fourth quarter of this year, Chief Executive Frans van Houten told Reuters on Friday.

"The first single-chip solution is shipping in Q4. Samsung is a customer," van Houten said in an interview at IFA, Europe's biggest consumer electronics trade fair.

NXP acquired the technology that allows a whole mobile phone to be built on a single chip when it bought U.S.-based Cellular Communications Business from Silicon Laboratories (SLAB.O) for $285 million earlier this year.

The technology enables phone-makers to build GSM phones for under $25. Such ultra-low-cost phones are a fast-growing market in emerging economies.

NXP is the former semiconductor unit of Philips (PHG.AS). It was bought by a consortium of private equity firms last year.

NXP also launched on Friday what it said was the world's first video post-processor that removes the blurred "halo" effect from film shown on high-definition television. The effect is caused by the fact that HDTV has more frames per second.

The NXP processor creates and fills in the "missing" frames, creating a smooth effect.

Van Houten said NXP would be shipping the processor to a top-three TV maker from the first quarter of 2008. He declined to name the customer.

He said he expected the market for such processors could reach 100 million units per year and said NXP aimed to be the biggest player in that market.

HOME IMPROVEMENTS NEEDED

Van Houten said NXP urgently needed to improve execution in its loss-making home and consumer appliance chips business, and intended to speed up its product cycle to be more competitive.

"We have all the intellectual property we could wish for, yet profitability in that unit is not good enough," he said. "In the Asian marketplace we need to come out with products every nine months, not every two years."

He added that the mobile phone chips unit was "on the right path" but said it needed to expand, although more acquisitions were not on the cards until NXP has digested the Silicon Labs acquisition. "Our scale is not enough," he said.

NXP aims to be the biggest or second-biggest player in each industry in which it is active, he said.

The heavily indebted company is also outsourcing more and more of its production to cut costs, and van Houten he aimed to increase the proportion of outsourced production to 35-40 percent from 10-15 percent currently.

Van Houten said he was unconcerned about credit rating downgrades NXP received after the company reported a drop in sales and profits in the second quarter, since all its financing needs were covered by bonds.

NXP had net debt of 4.4 billion euros ($6 billion) at the end of the April-June quarter, during which it made an operating profit of 17 million euros.

Van Houten said the company remained happy with its forecast of low to mid single-digit sales growth in euro terms for the current quarter. He declined to give an earnings forecast.

Van Houten confirmed the view of other industry players that chip prices were firming after a steep decline in the first half, but said he could not give long-term forecasts.

"I wouldn't dare to make a forecast even for the fourth quarter."

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