Philips 2005 Annual Report Download - page 45

Philips Annual Report 2005 45
Partnerships
Semiconductors recognizes the importance of teaming up
with other industry leaders to drive developments in the
market. In 2005, Philips and Microsoft entered into a set
oflong-termagreementstofacilitatetheseamlessowof
digital entertainment content between Windows®-based
PCs and products equipped with Philips Nexperia solutions.
The strategic partnership for process technology and pilot
manufacturing with STMicroelectronics and Freescale
Semiconductor in Crolles, France, was further strengthened
with a Library and IP Partnership (LIPP) agreement to
co-operate on the creation and validation of high-level SoC
intellectual property (IP) blocks. Extending Philips’ global
distribution network for standard products, a franchise
agreement was signed with the Digi-Key Corporation
of the USA, which specializes in fast time-to-market
component sourcing.
Sourcing
Inordertobemoreexibleandeffectivethroughoutthe
cyclical industry movements it encounters, Semiconductors
hasadoptedacapital-efcientmanufacturingstrategy,
which relies on a substantial (average around 20% of total
need) outsourcing of wafer production and assembly. This
allows better utilization of its own wafer and assembly
capacity. TSMC is Semiconductors’ main supplier of third-
party wafers, but other major foundries are used as well.
The division has a supplier management program through
which it strives to align the medium- and long-term needs
with its main suppliers’ roadmaps.
Strategy and 2006 objectives
Semiconductors’ strategy for 2006 and beyond will focus
on achieving leadership positions in its strategic market
segments: digital TV (for home entertainment, portable
and in PCs), cellular and cordless handsets, automotive
infotainment and in-vehicle networking. This will be based
onbothfullsystemsolutions(Nexperia)andspecic
components for customers that want to create their own
systems. In view of the announcement in December in
which Philips expressed its intention to create a separate
legal structure for Semiconductors, the division will explore
strategic options to strengthen its long-term performance.
Semiconductors plans to further increase its operating
margin (EBIT) within the targeted 5-15% range by:
reducing costs by EUR 250 million by the end of 2006
(on a run-rate basis); this is expected to be delivered
through a EUR 75 million reduction in selling, general
and administrative expenses, a EUR 50 million
improvement in the effectiveness of R&D spending, and
a EUR 125 million reduction in manufacturing costs
(excluding depreciation);
reducing depreciation in manufacturing by EUR 200
million, thus lowering the break-even point of the fabs;
growing the top line without a corresponding rise in
R&D and selling expenses;
improving operational execution to reduce waste,
improve yields, improve time-to-market and enhance
product quality.
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