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Why NXP is selling its RF power business for $1.8 billion (and why you should care)

May 28, 2015, 1:26 PM UTC
Rens van Miero Zero40

Dutch semiconductor conglomerate NXP said on Thursday that it would sell its RF power business to Chinese state-owned investment company Jianguang Asset Management Co. for $1.8 billion. The deal is an effort to ensure that the $11.8 billion buy of Freescale Semiconductor goes through, since both NXP and Freescale have significant market share in the RF power business.

NXP’s RF power business makes radio frequency power amplifiers used in cellular basestations. NXP said it would buy Freescale in March. It’s one example in a wave of semiconductor deals that continues to build as technology companies add computing abilities to objects such as thermostats and cars.

As the so-called Internet of things expands it gives those companies an incredible opportunity to sell both micro controllers—the brains of such battery-powered smart devices, radios—so they can communicate and sensors that give them they eyes and ears, so to speak, to understand the world around them.

Yet as chip firms seek to capitalize on this opportunity, many are realizing they need to manufacture all of the components, not just some, and gain a new set of skills to sell to a broader group of customers. The classic information technology business is not enough—now firms must strike deals with distributors and establish contacts at automotive companies, appliance makers, and retail chains.

For chip firms, it’s a brave new world—and that’s what NXP’s deal to buy Freescale is about. Meanwhile Broadcom’s acquisition this morning by Avago plays into the growing Internet of things, the expansion of cloud computing, and transitions in the data center market, which is seeing a bit of the opposite effect. There, the customer base is shrinking among a few highly demanding and powerful customers that operate big data centers.

Thus chip firms selling networking, storage, and other processors for the data center are consolidating as a means to cut costs and streamline their technical development and product lines for those mega-customers. The two trends are closely related, and as the consolidation continues on both the data center side and the end device side, we’ll continue to see the assets that are left-over or doubled up like the RF power business in this case spun out or sold off.

In conversations with developers and designers of connected objects, the big questions about the Freescale NXP merger isn’t about the RF power business, it has actually been about what happens to the microcontroller lines. So as NXP-Freescale acquisition closes, many customers have been eagerly looking to see which firm’s microcontrollers make the cut. That’s a sale or spin out I’d be curious to see, especially, since there are certain large chip firms such as Qualcomm that could really use a MCU line if it wants to get serious about the Internet of things.