By Eric Jackson
RealMoney Contributor
5/5/2011 1:00 PM EDT
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I had a chance to chat yesterday with NXP Semiconductor (NXPI - commentary - Trade Now) CEO Rick Clemmer from his Eindhoven, Netherlands office after his company's reported its quarterly earnings on Wednesday. The quarter beat analysts' estimates but the stock price sagged along with the rest of the market.NXP Semiconductor is a spinoff from Philips(PHG - commentary - Trade Now). It held an IPO last August after some big-name U.S. private equity firms bought it from Philips back in 2006. Clemmer was working with Kohlberg Kravis Roberts (KKR - commentary - Trade Now) - one of NXPI's investors - at the time, and he soon was installed as CEO. He previously worked at Agere when it was spun off from Lucent and at Texas Instruments (TXN - commentary - Trade Now).
The semiconductor company is most famous for its exposure to near-field communications (NFC). NFC is starting to explode this year with mobile handset makers as it allows users to securely make mobile payments with a tap of their phones. It will also allow for an amazing number of new applications that will allow users to get location-specific information (and advertising) on their phones down the road from wherever they are. Although that gets the lion's share of attention from investors, NFC is actually a tiny part of NXPI's overall portfolio of products.
Here are some highlights from our conversation:
- Debt. The company had $3.7 billion in debt at the end of the quarter but management is waiting on government approval to sell their Sound Systems unit. When this happens, they will immediately have another $880 million in cash, which they plan to use to pay down their debts. The focus is on continuing to shrink the amount they owe, but Clemmer says it will be much smaller a year from now.
- Mergers-and-acquisition (M&A) speculation involving NXPI. Clemmer said that he's never surprised when rumors pop up in the space. He sees that as normal. NXPI is focused on continuing to grow itself organically and not be distracted by rumors. He sees his job as continuing to ensure that the company's portfolio keeps growing above market rates. I asked him why we're seeing more semiconductor deals occur. He believes it is because the industry's growth is slowing and that is forcing consolidation. Many semiconductor companies will only see single-digits growth this year. Those are the ones that need to look for faster growing companies to acquire.
- Will there be more secondary offerings? Some of the private equity investors recently sold their shares to the public as the stock has tripled since the IPO last August. Clemmer claims the owners didn't want to sel,l but others were clamoring for a larger public float of NXPI shares to trade.
- How much does NXPI make from NFC? About $2-$3 per handset. This can be more or less but that's a rough estimate.
- Will NFC grow at the rates he's previously suggested? He's sticking with their prior estimates of 70 million NFC handsets shipped this year and 150 million next year. He wants NXPI to have Intel-like (INTC - commentary - Trade Now) market share (i.e., 70%-80%) in NFC.
- Which carriers are leading and lagging in NFC? Clemmer wouldn't call out the laggards. He said every time he talks to Google (GOOG - commentary - Trade Now), they want to double their orders.
- Do you worry about Qualcomm's (QCOM - commentary - Trade Now) progress in NFC?Clemmer said they have to cooperate and compete with Qualcomm. He also mentioned they compete with the privately-held Inside Secure, but that he felt that unlike Inside Secure, NXPI was able to present customers with a single-vendor solution that was appealing.
- Will there be any more sales of products in the NXPI portfolio? Never say never, but Clemmer is happy with the portfolio at the moment.
Clemmer didn't have any speculation about when Apple (AAPL - commentary - Trade Now) would enter the NFC market. That's a question a lot of NXPI investors have. Some are hoping that iPhone 5 will have it. Others have speculated NFC support won't happen until iPhone 6. Clemmer just said that Apple was definitely studying the space closely and wanted to do something special when they decide to incorporate NFC into its products.
Knowing Apple though, I find it hard to believe the company is happy to let Google keep doubling orders for its Android phones while it has NFC all to itself.
[At publication, Jackson was long NXPI and AAPL.]
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