Chips Are Down for Freescale As NXP Withdraws

By Douglas Friedli

FREESCALE Semiconductor, the electronics company, has been hit by the withdrawal of a key partner in a GBP 2bn project to develop the next generation of computer chips.

NXP, the former chip division of electronics giant Philips, will quit the Crolles Alliance which it set up in 2000 with ST Microelectronics of Italy and which was joined two years later by Freescale, then known as Motorola.

NXP’s surprise departure threatens the future of the Crolles research centre near Grenoble which develops the latest microchips for computers, cars and gadgets using CMOS (complementary metal- oxide-semiconductor) technology. The Crolles centre was seen as Europe’s answer to the growing power of Asia in the international semiconductor industry when the partners agreed to invest GBP 2bn there over five years.

Problems at Crolles could have a knock-on effect in Scotland, where the two remaining partners are significant players. Freescale employs 1,500 production staff and engineers at its factory in East Kilbride, and ST has a development centre in Edinburgh which it acquired when it bought Vision Group in 1999.

A Freescale spokesman said the three-way agreement would be terminated at the end of this year, but declined to say whether links between Freescale and ST would be renewed.

The spokesman said: “Free-scale has been assessing its technology strategy and remains committed to 300mm technology [developed at Crolles] and manufacturing. We are excited about our future technology roadmap. We expect to share details of our plans shortly.”

Industry sources claim IBM, the US technology group, will be brought into Crolles to shore up the alliance once NXP leaves at the end of the year.

Michel Mayer, Freescale’s chief executive, is a former director of IBM’s microelectronics division, and is understood to have been pushing for IBM to join the alliance. Philippe Geyres, who recently resigned as executive vice-president at ST, is thought to have wanted to bring Taiwan’s TSMC semiconductor company to join the partnership.

ST said that it was committed to remaining at Crolles. The Italian group said: “ST is pursuing an expansion of its portfolio of alliances and is now in discussions with major semiconductor companies to continue and reinforce technology cooperation in Crolles.”

Malcolm Penn, the semiconductor analyst, recently told Scotland on Sunday that Crolles was operating close to full capacity and that pressure on space there could lead Freescale to reopen the mothballed former Hyundai plant near Dunfermline which it owns.

Private equity group Blackstone last year led a GBP 9bn buyout of Freescale. The US-based company opened a software development centre employing 200 in Romania in June.

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