A Frantically Innovative Standout

 | Aug 02, 2012 | 1:00 PM EDT  | Comments
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Even as the European economy goes from bad to worse, life at most large and medium-sized companies goes on as usual -- and innovation is continuing at a frantic pace.

One of the more interesting tech stocks to emerge on the continent in the past two years is NXP Semiconductors (NXPI), a spin-out from electronics giant Philips in the Netherlands. NXP sports $5 billion market capitalization, has logged more than 11,000 issued and pending patents and has 11 manufacturing sites worldwide.

The company's chips are used in everything from automobiles and lighting to computers and televisions. It counts among its biggest customers Apple (AAPL), Delphi (DLPH), Samsung and Bosch, among others.

NXP was established in 2006, but because it's a former division of Philips, the firm has more than 50 years of experience under its belt. CEO Rick Clemmer has been at the helm since 2009. An industry veteran, he previously spearheaded the turnaround of Agere Systems (now a part of LSI (LSI)), which was spun out from Lucent Technologies. Of course, Lucent was also a spinout of Ma Bell in the U.S. many years ago.

Despite being domiciled in the Netherlands, only about 3% of NXP's revenue is generated in its host country. China, which generates 36% of sales, is the biggest revenue generator, followed by Germany at 12%, Singapore at 9% and the U.S. at 8%.

The company is split into two major divisions, high performance mixed signal (HPMS) products and standard product solutions. Mixed signal circuits are integrated circuits that have both analog and digital circuits on a single chip.

These are typically high-level solutions and NXP meets client needs across eight functional application areas: automotive, identification, mobile, consumer, computing, wireless infrastructure, lighting and industrial. These chips are optimized and manufactured to meet specific performance, cost, size, energy usage and quality requirements of the applications for which they are designed.

Clients will engage NXP in the early stages of development, allowing the company's engineers to fully understand the specific needs of each application. In addition to creating a partnership that helps cement NXP as their provider of choice, this also provides for a seamless extension into any future product updates and modifications.

The company holds the No. 1 or 2 market position in many of the areas in which it competes. Among these, it's the leading supplier for automobile radios and keyless entry systems, government identification systems and near field communications.

Meanwhile, the standard product division is the No. 2 supplier of semiconductor components worldwide, with a broad customer reach. It provides solutions for energy efficiency and systems protection in voltage regulators, signal diodes and transistors, as well as high-speed switching applications, for example. Products from this division are commonly sold as separate components, but are often combined with HPMS solutions within the same systems.

NXP's huge patent portfolio is no surprise, as NXP spends more than $550 million per year on research and development, with 3,200 employees in 19 different locations dedicated to improving and creating new technologies.

NXP Semiconductors (NXPI)

Shares went public at $14, raising close to $500 million for the private equity consortium that participated in the buyout in 2006 from Phillips. At the time it represented the largest leveraged buyout in history for the semiconductor industry, at more than $8 billion. But, with shares up nearly 60% since going public, their loss has been a gain for investors.

Revenue stalled a bit last year but, thanks to margin improvements, the firm posted a 31% gain in operating income. Keep this one on your radar, and look for weakness for an entry point for a little-known chip giant with a large global impact. The world won't always be so troubled, and when growth emerges again I suspect NXP Semi will emerge as a leader.

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