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Vol. 20, No. 5◆◆ www.hansenreport.com June 2007 IBM Targets Consolidation Coming to Warranty Cost Infotainment Industry

Reduction Companies with Strong Brands Will navigation system, which usually requires Have an Edge a large, non-volatile memory, color display and a capable 32-bit microcontroller. But Warranty claims cost the global The absorption of , Xanavi and the price of navigation is fast declining in a staggering amount HCX Corporation into , com- the face of competition from makers of of money: $30 billion in 2007—about 1% pleted in January 2007, is an example of portable devices, which sell for one-third to 3% of a carmaker’s revenues. The per- the sort of consolidation that is in store the price of embedded navigation. PNDs centage can vary depending on who’s for makers of audio and navigation equip- are taking a large bite out of the infotain- making the vehicle and how complex it is. ment for carmakers. There are far too ment market. Market estimates from According to Warranty Week newsletter many competitors for a market that may Telematics Research Group, Tele Atlas (www.warrantyweek.com), GM alone be slowing as the penetration of electron- and Canalys give PNDs an 85% share of spent $4,463 million on warranty claims ics into vehicles levels to around 15% to navigation unit sales in Europe and North in 2006, or 2.6% of automotive revenue; 30% of the vehicle’s total cost. The per- America in 2008. Ford spent $4,106 million in 2006, 2.9% centage varies depending on the type of Founder and executive chairman of its automotive revenue. vehicle, but most are produced with 20% Sidney Harman has been off-loading his Warranty claims tend to be higher for to 25% of their cost from electronics. Harman stock at least since the spring of American and European carmakers than On April 26, 2007, Harman Interna- 2002, when he still held about 8% of the they are for Japanese carmakers. And, says tional announced it had entered into an company. Before the April LBO, Dr. IBM, warranty claims tend to be higher agreement to be acquired by Kohlberg Harman owned about 5% of the company. for vehicles with high electronics and Kravis Roberts & Co. (KKR), GS Capital After the buyout, his holdings will be software content, which means that war- Partners (GSCP) and others in a deal that about half that amount. ranty claims will continue to trend up- put Harman into the hands of private eq- Turn to Infotainment, page 2 ward as electronics and software content uity. Under the terms of the agreement, trend upward. which valued the company at about Infotainment Suppliers But because electronics and software $8 billion, Harman shareholders will be are two subjects that IBM knows a great entitled to receive $120 for each share of The convergence of the navigation industry deal about, the company is confident it Harman common stock they own. Prior to with the mobile audio industry has led to a can help carmakers get a grip on warranty the deal, the stock had been trading at hypercompetitive market with more sup- expenses. IBM believes carmakers can re- around $100 a share, down considerably pliers than the industry needs. Here, listed duce warranty expenses by 20% to 30% from its all-time high of $130 per share in alphabetically, are only the major players: just with solutions aimed at the dealer/ the fall of 2004. Seiki service network. The first solution ad- The stock price was soaring in 2004 Alpine dresses the speed with which major qual- after Harman locked up some significant Bose ity problems are first noticed, and the infotainment (audio integrated with navi- Delphi second aims at improvements in the way gation) business with Mercedes, BMW service problems are diagnosed and fixed and Audi. Since then, Harman booked Ten by the dealer. additional infotainment deals with PSA Harman International and Chrysler. But the market began to Hitachi (Xanavi, Clarion) Quality Insight and Early Warning question Harman’s ability to move much Kenwood “We propose to analyze warranty beyond Europe, beyond its German roots. Magneti Marelli claims data, field reports, call center infor- In 1995 Harman acquired German head- Electric mation and chat rooms to find the real unit maker Becker, the technically savvy technical root causes of quality problems,” organization responsible for much of the Pioneer said Erich Nickel, director of global auto- company’s success in infotainment. Siemens VDO motive market sales and services solutions The biggest part of the cost of Visteon Turn to IBM, page 8 infotainment systems comes from the Infotainment... Continued from page 1 Together with KKR and GSCP, two of motive Branding Study, Bose is ranked J.D. Power and Associates’ the world’s leading private equity inves- number one, while Harman brands, 2006 Automotive Audio Brand Scores tors, Harman International says it will Harman/Kardon, Infinity, JBL and Mark continue to execute its strategic plan, Levinson are ranked number 8, 10, 11 and Bose 665 which over the years has relied heavily on 13, respectively. Sony 636 acquisitions. Harman acquired at least 17 In that survey, Sony is ranked number Pioneer 571 companies, including Infinity, Temic two, both in the United States and Eu- Panasonic 558 Speech Engine and operating system de- rope, just behind Bose. Even more impres- Kenwood 543 veloper QNX, since 1981. More acquisi- sive, because it wasn’t limited to only the Blaupunkt 539 tions are likely. automotive audio product category, Sony Alpine 534 topped the list in the annual Harris Poll of Harman/Kardon 529 Yet Another Infotainment Player best brands for the seventh consecutive JVC 526 Despite the already overcrowded mar- year. In that survey of U.S. adults, respon- Study Average 523 ket, Bose Corporation seems intent on dents were asked which three, of all the Infinity 520 moving beyond its audio roots in speakers brands they knew, they considered to be JBL 518 and into infotainment. In the best. 509 March 2007, at the Geneva Auto Show, “Sony is a very strong, well recognized Mark Levinson 505 Bose debuted its new Bose Media System brand,” noted Jim Buczkowski, Ford’s top 505 on the Ferrari 612 Scaglietti. The system electrical engineer. “We decided, given 499 combines a 5.1 channel surround sound the success we’ve had with Sony in Eu- Clarion 497 audio system with FM/AM radio, color rope, that we wanted to extend our part- Delphi 493 display, multi-format disc player, XM sat- nership with Sony to North America.” Source: J.D. Power and Associates’ 2006 Global Automotive ellite radio, navigation system with hard “In Europe the take-rate on Sony- Component Branding Study drive and connectivity to Bluetooth, iPod branded audio has been 30% to 40%, non-navigation systems, the head unit is and USB 2.0 portable devices. Typical of which is higher than the typical 15% to supplied by Delphi, Visteon or . Bose, the system features a simple-to-use 20%,” said Don Courvisier, vice president The Ford Sync portable connectivity HMI. This device has two knobs, each and general manager of personal mobile platform is a peripheral that is connected with intuitive outer and inner controls. products for Sony. Customers pay an extra to the audio system. is respon- Reach for the far knob and its proximity few hundred dollars for the Sony-branded sible for Sync’s software and produced the sensor automatically changes the interface audio package. reference design. The hardware will be displaying only information that’s relevant Ford distributes its infotainment busi- supplied by Continental. ◆ to that control. ness among multiple suppliers. When Ford offers a Sony-branded audio system op- Sony Selected as Audio Supplier to Ford tion, Sony is responsible for only the au- One of the things that Harman and dio processing portion, which includes the © 2007 Paul Hansen Associates, 150 Bose have in common is strong brands, , the DSP and speakers. When it Pinehurst Rd., Portsmouth, NH 03801, which is part of the reason why these comes to navigation, Pioneer is the non- USA. Telephone: 603-431-5859. Fax: 603- companies have been successful. In J.D. branded equipment supplier. Pioneer’s sys- 431-5791. Email: [email protected]. Power and Associates’ 2006 Global Auto- tem includes the radio head unit. In All rights reserved. Materials may not be reproduced in any form without written per- Bose Media System Head Unit mission. The Hansen Report on Automotive Electronics is published 10 times a year, monthly; July/August and December/Janu- ary are combined issues. The annual print The new Bose system subscription rate is $747 (North America), features: $787 (elsewhere). Back issues are available ◆ 5.1 channel surround sound for $50 each. Index and multi-user electronic ◆ FM/AM subscription information is available at ◆ XM www.hansenreport.com. Paul Hansen Asso- ◆ Multi-format disc player ciates is a strategy and market research ◆ 200 hours hard drive firm consulting to the electronics industry. capacity ◆ Navigation Publisher/Editor Paul Hansen ◆ Bluetooth Managing Editor/ Brianne Wolfe Circulation Manager ISSN 1040-1105

Page 2, June 2007 The Hansen Report on Automotive Electronics, Portsmouth, NH USA www.hansenreport.com FY 2007 Roundup: Alpine, Denso, Hitachi, Fiscal year 2007 ended March 31, 2007. Denso’s largest business segment, ac- ($9.9 million), the third consecutive year counting for 31.5% of sales in FY 2007, of operating losses for AEC was Thermal Systems. Information and FY 2008 Forecast: ¥100 billion ($821.2 FY 2007 Net Sales: ¥265.1 billion Safety Systems, which includes body elec- million) in sales, with domestic sales ($2.18 billion) tronics, navigation-related products, falling 2.2% and overseas sales gaining Change from FY 2006: up 4.4% driver assistance products such as radar 10.8%. Operating income is forecast at FY 2007 Net Income: ¥5.7 billion sensors, plus safety-related sensors, actua- ¥1.4 billion ($11.5 million) ($46.8 million), or 2.2% of sales, com- tors and ECUs, accounted for 16.2% of pared with net income of ¥6.2 billion sales. Sales in this segment grew nearly Thirteen percent of Omron Corpora- ($50.9 million) in FY 2006 17% compared with the prior fiscal year; tion’s total sales come from the Automo- FY 2008 Forecast: ¥255 billion ($2.1 navigation system sales were up 14.3% tive Electronic Components business billion), a decline of 3.8%, with net year on year. Electrical and Electronics segment, whose main products include margin falling slightly to 2% of sales. The Systems together accounted for 17.8% of keyless entry systems, power window company has set a target of ¥300 billion Denso sales. switches, automotive relays, laser radar ($2.5 billion) in sales by 2010. In April 2007, Denso announced the and tire pressure monitors. establishment of a new company, Denso Despite production cuts by North The Audio Products segment ac- Electronics Corporation, in Chitose, American carmakers, major customers for counted for 49% of Alpine’s sales; Infor- Hokkaido, for the production of automo- Omron, sales in the region grew 33% and mation and Communications, 51%. In tive semiconductors. Production at Denso accounted for 41% of AEC sales in FY Audio Products, sales were nearly flat, due Electronics is scheduled to begin in April 2006, compared with 37% of sales the in part to the industry’s movement away 2009. Two other Denso plants currently prior year. The company attributes growth from stand-alone audio components to- produce automotive semiconductors. in the region to new product launches, ward integrated audio navigation systems, including wireless control devices and according to the company. Sales in the Hitachi Automotive Systems power window switches. ◆ Information and Communications seg- FY 2007 Consolidated Net Sales: ¥694.2 ment increased 8.7%, driven largely by billion ($5.7 billion) new products introduced in model year Change from FY 2006: up 19% ESC Installation Rates 2007 Japanese vehicles. FY 2008 Forecast: Sales are expected to Sales to U.S. carmakers declined, and increase 17% to ¥810 billion ($6.7 in Europe Alpine reported that sales of its Blackbird billion), based on Hitachi’s consolidation portable navigation system, introduced to of Clarion Co. Electronic stability control installation the U.S. market at the start of fiscal 2007, rates for new car registrations January– “failed to grow.” Hitachi Automotive attributes its sales June 2006, in France, Italy, Germany, Spain growth to new products for hybrid electric and the United Kingdom Denso Corp. vehicles and the consolidation of Clarion. By car sector FY 2007 Consolidated Net Sales: In November 2006, Hitachi concluded a Mini 15% ¥3,609.7 billion ($29.6 billion) ¥32 billion ($262.8 million) acquisition of Small 12% Change from FY 2006: up 13.2% Clarion shares, which increased Hitachi’s Compact 67% FY 2007 Net Income: ¥205.2 billion stake in Clarion from 14.4% to 63.7%. As Medium 90% ($1.69 billion) or 5.7% of sales, compared of January 1, 2007, Hitachi subsidiary Upper 100% with 5.3% margin the previous year Xanavi became a wholly owned subsidiary Luxury 99% FY 2008 Forecast: Denso estimates sales of Clarion. According to Hitachi, “pro- Source: Bosch will grow 5.3% in the current fiscal year, moting system development based on an to ¥3,800 billion ($31.2 billion). Net integrated approach by Clarion and margin is expected to fall slightly, to 5.4% Xanavi can strengthen the basis of the Read The Hansen Report Online of sales. Hitachi Group’s Car Information Systems (CIS) business.” If you haven’t yet checked out the Denso benefited from increased pro- Hitachi Automotive’s largest customer benefits of an E-Subscription to The duction volumes at its major customer, is /Renault. Hansen Report, we invite you to visit . Toyota Group, which accounted www.hansenreport.com and click on for 49% of Denso sales, increased world- Omron Automotive Electronic “Learn More.” wide production by 10% in calendar 2006. Components (AEC) Your user ID and password open the Regionally, Denso’s sales in and FY 2007 Net Sales: ¥93.3 billion archives of easily searchable Hansen the Americas were up approximately 11%; ($766.2 million) Report articles—a decade of auto elec- in Europe and Asia, sales grew at about Change from FY 2006: up 20.3% tronics knowledge not available from 22%. FY 2007 Operating Loss: ¥1.2 billion any other source.

The Hansen Report on Automotive Electronics, Portsmouth, NH USA www.hansenreport.com June 2007, Page 3 The Company Profile... NXP Semiconductors

Thumbnail Sketch NXP Sales by Year NXP Sales by Business Unit NXP Semiconductors in € millions 2006 Sales: €4,960 million Headquarters: Eindhoven, The Netherlands; Corporate and Other, 1.3% telephone +31 40 2745678; www.nxp.com IC Manufacturing Automotive & 2006 Sales: €4,960 million ($6,646.4 million) Operations, 3.4% Identification, 17.6% Operating Loss: €640 million ($857.6 million) 5,032 4,988 4,823 4,766 4,960 Multimarket R&D: 20% Semiconduc- Employees: 37,620 as of 3/31/07 tors, 27.1% Sales per Employee: €131,845 ($176,672) Mobile & Net Cash Flow from Operations: 2002 2003 2004 2005 2006 Personal, €760 million ($1,018.4 million) 31.6% 2002 to 2006 CAGR: -0.4% Home, 19.0% Working Capital: €765 million ($1,025.1 million) as of 3/31/07 Long-term Debt: €4,397 million NXP Sales by Region NXP EBIT by Business Unit ($5,892 million) as of 3/31/07 € Shareholder’s Equity: €3,403 million 2006 Sales: €4,960 million 2006 EBIT: 150 million, 3.0% of sales ($4,560 million) as of 3/31/07 North America, 9% 22.3% 2006 Automotive Sales: €804 million 20.2% ($1,077 million)* China, 35% Ownership: 80.1% private equity consortium, Europe, 2.7% 19.9% Philips Electronics 25% (5.9%) Automotive & Identification Business Unit Headquarters: Hamburg, Germany; telephone Mobile & Home Automotive & Multimarket Rest of Asia, 31% Personal Identification Semis +49 040 5613-0 2006 Sales: €872 million ($1,168.5 million)** came from Philips to NXP. The company 2006 R&D: 17.6% of the business unit’s sales 2005. The deal with KKR gave NXP an € Operating Loss: €105 million ($140.7 million) enterprise value of 8,275 million, includ- now has a total of about 6,700 engineers, € Products: Application specific semiconductors ing debt. The private equity consortium and we will be investing about 1 billion Key Applications: Entertainment, networking, paid for its share of NXP largely with in R&D annually.” In 2006, NXP invested access and immobilization, tire-pressure funds borrowed in NXP’s name. As of 20% of sales on R&D. monitoring, ABS sensors March 31, 2007, NXP had loaded up its Compared with three years ago, NXP Key Automotive Customers: Bosch, Delphi, balance sheet with €4,397 million worth has doubled its annual investment in au- Siemens VDO, Sony and Visteon of long-term debt. As a result, its new tomotive R&D, much of it focused on high-interest bond offerings, which it will zero-defect quality initiatives. Before the *The automotive market accounts for €804 million in use to pay off bridge financing, were rated spin-off, automotive received less than the sales, very roughly, €600 million of which is reported by Standard & Poor’s at BB+ and B+ giv- average the company spent on semicon- in the Automotive and Identification business segment. NXP’s other business units account for about €200 ing them junk (or non-investment grade) ductor R&D in other segments; after the million worth of power, small-signal discrete and other status. spin-off, automotive projects receive a semiconductors for automotive. The business that became Philips greater share than average. Less cyclical **Roughly €600 million of this comes from the Semiconductor was founded in 1953; it than other semiconductor markets, NXP automotive market. produced its first integrated circuits in has long-term interests in furthering its Background 1965. The company’s new name, NXP, is automotive business. NXP, with headquarters in Eindhoven, derived from “next experience: enabling Since the spin-off from Philips, NXP is The Netherlands, was spun off from the next generation of consumer enter- faster on its feet, according to Mr. Philips Electronics N.V. on September 29, tainment products.” Bulthuis. In March 2007, NXP acquired 2006. Philips sold 80.1% interest in its the cellular communications business of Semiconductors division to a group of pri- Targeting Automotive Austin, Texas-based Silicon Laboratories vate equity investors led by Kohlberg “Being from Philips we had an incred- Inc., and it is more open to making acqui- Kravis Roberts & Co. (KKR). After three ible amount of audio and video expertise sitions. “While it was not in the automo- years of losses, the Semiconductors divi- come with us,” explained Willem tive space, the acquisition of Silicon Labs sion had returned to profitability in 2004, Bulthuis, NXP vice president of automo- happened quickly. We are actively looking reporting income from operations of €430 tive sales and marketing. “Five hundred at acquisitions of companies in the auto- million that year and €307 million in people from research and 25,000 patents motive space, smaller companies with an

Page 4, June 2007 The Hansen Report on Automotive Electronics, Portsmouth, NH USA www.hansenreport.com The Company Profile Continued

Automotive & Identification NXP Automotive Sales NXP’s Top Automotive Customers Sales and Operating Income Ranked by Application 2004 to 2006 CAGR of sales: 11.1% 2006 Total Automotive Sales: Listed alphabetically: in € millions €804 million ($1,077 million) Alpine Kostal 872 Alps Lear 706 719 #1 Entertainment #2 Networking Becker Lite-On #3 Access & Immobilization Bosch* Magneti Marelli 159 168 Bose Marquardt (105) #4 Sensors #4 Power Clarion Continental Panasonic 2004 2005 2006 #5 Small signal discretes & logic Sales Operating Income Daewoo PLDS (formerly Delphi* Philips APM) Note: According to a company prospectus filed with Distinctions Claimed by NXP the SEC, automotive sales were up moderately in Denso Siemens VDO* ◆ Nine out of top 10 car radio makers use 2006, slightly above growth in the automotive market. Hella Sony* According to Strategy Analytics, the automotive NXP ICs Hirschmann TRW semiconductor market grew by 6.8% in 2006. ◆ #1 worldwide in car radio DSPs and tuners Hyundai Valeo ◆ #2 worldwide in audio power Johnson Controls Visteon* NXP Automotive Sales by Year, Roughly ◆ #1 worldwide in automotive networking ICs with every major carmaker using *Largest 2004 to 2006 CAGR: 10.6% ◆ 1.5 billion in-vehicle networking in $ millions NXP’s Top End-Use Customers transceivers shipped as of year-end 2006 While NXP sells its semiconductors to ◆ World’s first FlexRay transceiver automotive electronics suppliers, it ◆ #1 in keyless entry/keyless go silicon— maintains close relationships with the 880 960 1,077 50% of all new cars use NXP immobiliza- carmakers in support of innovation and tion technology cooperation in creating standards, such as ◆ Developed the world’s first single-chip 2004 2005 2006 the FlexRay in-vehicle network. immobilizer/RKE solution Largest, listed alphabetically: ◆ Four NXP ABS sensors used in 25% of established position in automotive semi- Audi cars produced worldwide in 2006 conductors,” he said. NXP’s strategy is to BMW ◆ #1 worldwide in automotive small-signal limit its portfolio only to products where DaimlerChrysler transistors and diodes it can be one of the top three suppliers. Ford ◆ #1 worldwide in 5V CMOS logic products Toyota for automotive market NXP Is First in Car Radio Others, listed alphabetically: NXP says it is the world’s top supplier General Motors of both car radio DSPs (digital signal pro- portfolio of IC products for multimedia, PSA Citroën cessors) and car radio tuners. Indeed, from the antenna to the speaker system, Nissan NXP’s Tuner + CarDSP system is designed the whole solution. The radio is the heart into radios produced by 15 of the top 18 of the infotainment system in the car— radio suppliers in the world. everyone wants a radio. So we build a lot How was that level of adoption of functionality around the radio, includ- the codecs,” noted Leland Key, senior di- achieved? “Our claim to fame over the ing connectivity [to portable devices], au- rector of automotive sales and marketing years has been quality radio reception,” dio amplifiers, power supply, and now for the Americas. “By that, I mean the noted Mr. Bulthuis. “And that is made video processing, an application that is way the processor robustly handles errors possible by such things as our phase diver- rapidly expanding.” in the data it receives, especially when the sity and multi-tuner solutions, which pro- Last month NXP announced that vehicle is moving.” The processor delivers vide excellent reception regardless of how selected NXP’s high-quality video through a combination fast the car is moving or how much the Nexperia PNX9520 media processor as of highly efficient video decoding, ad- RF signals bounce back and forth between the key component used to decode Sirius vanced video post-processing and graphics buildings.” Much of NXP’s capability here video broadcasts. Sirius Backseat TV will acceleration features. is embodied in software algorithms that be launched later this year in select 2008 “This multimedia device is one of our are embedded in the chips its sells. Chrysler, Jeep and Dodge vehicles. The core products. It combines audio, video NXP’s experience in entertainment PNX9520 has been designed into a Sirius and connectivity all in one flexible plat- applications goes well beyond radios. Mr. system from Delphi. “The main reason the form,” added Mr. Bulthuis. Bulthuis continued: “We offer a complete PNX9520 was selected is the quality of continued on following page

The Hansen Report on Automotive Electronics, Portsmouth, NH USA www.hansenreport.com June 2007, Page 5 NXP Semiconductors

The Nexperia PNX9520 media proces- Automotive Semiconductor Major Automotive Manufacturing Sites sor can support a great deal of functional- Supplier Rankings ity including: Total 2006 Market $17.53 million Front-end facilities ◆ DVD and CD playback Hamburg, Germany #1 Freescale ◆ DVD ROM playback Hazelgrove, England #2 Infineon Nijmegen, Netherlands ◆ HDD video and audio playback #3 STMicroelectronics Singapore ◆ Multi-speed CD ripping #4 Renesas Back-end facilities ◆ Dual video decoding #5 NEC Electronics Bangkok, Thailand ◆ JPEG photo browsing #6 NXP* Cabuyao, Philippines ◆ TV source decoding (DVB-T, #6 Calamba, Phillipines ISDB-T, 1-Seg) Kaohsiung, Taiwan *NXP has a 6% share of the market. ◆ USB stick audio/video streaming Suzhou, China Data: Strategy Analytics ◆ Audio streaming to headphones Regional automotive competence/support via Bluetooth NXP’s fastest growing customers is centers: Detroit, Michigan ◆ Wi-Fi audio/video streaming Harman/Becker, whose brands include Hamburg, Germany (DLNA compliant) Harman/Kardon and Mark Levinson. Munich, Germany NXP is the world’s number-two sup- NXP is working on a DSP radio plat- Shanghai, China plier of audio amplifiers for automotive form that can be customized for different Tokyo, Japan applications. “We accomplished that by markets and different features entirely knowing how to deal with digital audio through software—so-called software de- sal connector that is not specific to one and also how to fine-tune amplifier tech- fined radio. “You can adapt the radio to all brand of portable device.” nology,” pointed out Mr. Bulthuis. “One kinds of different formats, which are Wireless USB could be the next step of the things we are focusing on right now emerging very quickly all over the world,” in connectivity, and it could begin to pen- is Class D amplifiers, which are very pow- said Mr. Bulthuis. “Broadcasting standards etrate automotive applications in 2012. erful, generating up to 130 watts per chan- vary from region to region, and that But, because with wireless connectivity nel with limited heat. That is especially makes it difficult for the car industry, you can’t maintain a physical connection important because it allows you to inte- which must maintain inventories of a lot to the portable device to keep its battery grate the amplifier into the radio—you of different modules.” NXP’s Multi-Stan- charged, NXP is investigating wireless don’t have to have a separate module dard Audio Receiver will perform accord- charging. It is Mr. Bulthuis’ view that stuck under the seat or in the trunk.” ing to what NXP software it is running. wireless USB will co-exist with Bluetooth, NXP counts among its customers some The platform will address a range of fea- which today provides wireless connectiv- of the biggest names in car entertainment, tures and functions: analog and digital ity between portable phones and the including Sony, Panasonic, Alpine and radio, a variety of compressed audio and vehicle. Clarion, companies that normally are connectivity formats and audio enhance- more inclined toward buying semiconduc- ments. DLNA tors from Japanese suppliers. And one of NXP developed a lot of connectivity NXP is hopeful that its association expertise in its consumer electronics and with the DLNA (Digital Living Network portable device businesses and believes Alliance) will lead to further standardiza- NXP managers aim to create value by: that USB-based products will continue to tion of the way automobiles can safely ◆ Targeting market-share leading products move quickly from those markets into au- support the use of portable devices in the with fast-growing sales tomotive applications. “NXP is already vehicle. Mr. Bulthuis explained: “While ◆ Maintaining an “asset-light” manufactur- selling a lot of USB chips, and we are le- putting a USB chip into each radio is ing strategy through outsourcing (while veraging that experience with connectiv- quite easy to do, the challenge is how to manufacturing of automotive products ity into the auto industry, where we interface on a functional level with all the remains largely in-house) already have a couple of USB applica- different portable devices, which is why ◆ Consolidating its fabs tions,” said Mr. Bulthuis. He believes the we joined with Microsoft as one of the ◆ Reducing capital employed penetration of USB connectivity will founding members of the DLNA. We ◆ Reducing costs grow from around 10% of new vehicles in have formed and are chairing a dedicated ◆ Making some acquisitions 2006 to 50% by 2012. automotive working group within the ◆ Focusing on zero defects and other Mr. Bulthuis favors the USB connector DLNA to discuss with carmakers and Tier quality programs over the proprietary iPod connector be- Ones the standardization activity taking ◆ Improving R&D effectiveness cause the industry must make cars that place in the consumer electronics industry ◆ Aiming for 5% to 15% EBITA, depending last for ten years, and USB offers flexible and how we can leverage that in the auto- on which stage the cyclical semiconduc- functionality. “Carmakers want a univer- motive space.” tor market is in

Page 6, June 2007 The Hansen Report on Automotive Electronics, Portsmouth, NH USA www.hansenreport.com The Company Profile Continued

Products/Applications was chosen because of its speed—it is 20 Car Entertainment Sensor Applications times faster than CAN and may well be- Analog car radio ABS come a high-speed alternative to CAN. Digital IF car radio/audio DSP solutions Steering angle FlexRay offers less complexity when mul- Video and multimedia processors E-Gas tiple CAN buses are required. BMW has Audio and connectivity solutions Steering torsion Class AB and Class D amplifiers Window wipers said it plans to deploy FlexRay in all five Digital radio processors Crankshaft vehicle domains: infotainment, body, Connectivity Headlight adjustment powertrain, airbag and chassis. Power supplies Variable valve timing Thus far, no other carmaker has gone Automotive Networking E-throttle on record saying exactly when and in Transceivers EPAS motor positioning which vehicles it intends to put FlexRay CAN Active transmission into production. However, Nissan, GM, LIN Power DaimlerChrysler, and Hyundai FlexRay TrenchPLUS MOSFETs have all indicated that they would use CAN/LIN system basis chips Trench MOSFETs Car Access & Immobilization Known-good die and LFPAK FlexRay in high volume by 2013 at the Immobilization Intelligent power controller very latest. RF link Small-Signal Discretes NXP expects that once the market for FlexRay chips takes off, demand for Tire pressure monitoring Low VCEsat (BISS) transistors Remote keyless entry Resistor-equipped transistors (RETs) FlexRay components will begin to out- Keyless entry/go Complex discretes pace demand for CAN components—but Sensors BISS load switches that won’t happen for at least ten years. Magnetoresistive (MR) angle sensors Matched pair transistors FlexRay will initially be aimed at chassis MR rotational speed sensors MOSFET drivers control and safety applications and at hy- MR weak field detection sensors Low VF (MEGA) Schottky rectifiers Temperature sensors ESD protection diodes brid powertrain applications. Despite the higher cost of each In-Vehicle Networking To make its chips, NXP employs sili- FlexRay node compared with each CAN According to NXP, suppliers worldwide con-on-insulator technology using ad- node, “ultimately the total cost of systems shipped a total of 600 million CAN, LIN vanced bipolar-CMOS-DMOS processes will be lower with FlexRay than with and FlexRay nodes in 2006. Most of those to integrate different device types: power, CAN,” said Mr. Bulthuis. “With FlexRay were high-speed CAN nodes. NXP ex- analog and digital. Four out of five cars in you can simplify the network topology pects the global market will reach 1 bil- Europe use CAN chips produced by NXP. and reduce the number of nodes.” lion nodes in 2010, and by then FlexRay Among the three physical-layer options nodes will start to represent a significant of CAN offered by NXP—high speed, Access and Immobilization portion of the market. fault tolerant, and single wire—the de- Access and immobilization is NXP’s In-vehicle network ICs comprise mand for high-speed CAN is the greatest, third-largest automotive product group; NXP’s second-largest of five product seg- accounting for more than half of units 50% of all new cars use NXP immobiliza- ments; entertainment is the largest seg- shipped. The market for fault-tolerant tion technology. The company has ment. “We have one of the broadest CAN is leveling off. shipped more than 100 million RF tran- portfolios of networking products in the sponders used in remote keyless entry sys- industry,” declared Mr. Bulthuis. NXP says FlexRay tems and passive keyless entry systems. it’s the world’s top selling manufacturer of As a founding member of the FlexRay Most cars today come with keys that in-vehicle networking ICs—LIN and Consortium—together with Freescale, remotely unlock the vehicle from a few CAN transceivers, mostly—with more DaimlerChrysler and BMW—NXP was in meters away, using one-way communica- than 50% share of the market. By the end a good position to win BMW’s first-ever tions, but NXP is developing ICs that sup- of 2006, NXP had shipped a total of 1.5 order for FlexRay transceivers and system port two-way car keys where the car can billion network transceivers. Every major basis chips. The chips are used in the transmit information back to a display on carmaker uses NXP transceivers, says the 2007 BMW X5’s Adaptive Drive system, the key fob. “That could tell you, ‘yes, you company. Other networking ICs include a which combines active roll stabilization locked the car,’ or ‘the engine was able to CAN/LIN system basis chip, which is an with electronic damping control. remotely start,’ or ‘yes, there is enough integrated circuit that integrates several In 2000, when the FlexRay partnership fuel,’ or ‘it is safe to enter your car’” ex- functions that are usually part of an elec- was first announced to the world, the in- plained Mr. Bulthuis. Thus far one Euro- tronic control unit, such as transceiver, tention was to use the network in brake- pean top-tier supplier has selected NXP voltage regulator, reset circuit and a and steer-by-wire systems, given its time- for this application, and together they are watchdog circuit. triggered, deterministic characteristics. pursuing business with carmakers. ◆ But in the initial applications, FlexRay The Hansen Report on Automotive Electronics, Portsmouth, NH USA www.hansenreport.com June 2007, Page 7 IBM... Continued from page 1 for IBM. He observed, “Carmakers have region to region, it terabytes of warranty claims data just sit- could take up to two Warranty Claim Rates of the Big Five 2003 - 2006 ting in these data warehouses, and the years and several % of product revenue question is how to analyze such a moun- million dollars of 5.5% tain of data.” IBM’s approach to the prob- integration work be- 5.0% lem is a two-step process. Step one is fore you begin to get 4.5% DaimlerChrysler integrating all those sources of unstruc- the full results,” cau- 4.0% tured textual data, and step two is analyz- tioned Mr. Nickel. 3.5% ing the data with so-called text analytics, To make systems 3.0% Ford which is software that extracts concepts, integration less 2.5% General Motors facts, and relationships from text. costly, IBM suggests 2.0% Honda “Essentially we take raw data and de- using UIMA (Un- 1.5% estimates velop meaningful business information,” structured Informa- 1.0% Toyota said Mr. Nickel. “This is the strength of tion Management 0.5% IBM, dealing with mass data, having high- Architecture), which 0.0% performing systems, not just in hardware, is a common stan- 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q but our intelligent algorithms as well. We dard interface that 2003 2004 2005 2006 have very strong support from IBM Re- lets text analytics Data compiled by Warranty Week indicate carmakers are paying search at the Watson Research Center in components from warranty claims equivalent to the following amounts per vehicle: Hawthorne, New York.” multiple vendors Analysis of service and maintenance work together. A DaimlerChrysler $1,370 Honda $330 records provides early warning insight UIMA software Ford $585 Toyota $265 into product defects and service issues be- developer’s kit is General Motors $512 fore they become widespread, thus en- available from IBM abling quicker resolution and lower recall to the general public Data: Warranty Week from SEC data (www.warrantyweek.com) costs. without charge. Service Bay Diagnostics and Mr. Nickel elaborated: “Often the Information System dealer’s service technician simply replaces Parametric Analysis PSA is tackling the “no defect found” parts—sometimes two or three—until the IBM also wants to help carmakers and problem by means of a service bay diag- problem goes away, and after testing the commercial fleet operators set up com- nostics system, co-developed with IBM, returned parts you learn that with many of puter systems to analyze parametric data which controls the way service techni- them, there was ‘no defect found.’ But from the vehicle’s sensors while the ve- cians do their job. PSA only allows war- these parts that were not defective be- hicle is operating on the road. “For ex- ranty cost reimbursement to dealers who come part of the dealer’s warranty claim.” ample, we might want to analyze a car use the guided-diagnostics system. This is especially problematic when that malfunctions, not in the shop, but Guided by the fault code, the system dealing with distributed functions. “For only after it’s been running on the road for has the technician start with the lowest- example, in the MOST bus you have a a while, a situation that happens quite cost potential solution—for instance, a head unit, a navigation system, telephone, often, increasingly so in cars with high loose electrical connection—not by re- radio, DVD player and other parts, all electronics content,” said Mr. Nickel. placing an expensive part that might have connected to the bus. Then it is very diffi- IBM has developed a remote diagnos- failed. Another way the system saves cult to find the root cause of the problem. tics system for the U.S. Army to keep money is by focusing on the source of the In cases such as this, 60% to 70% of the track of combat vehicles. So far, that sys- customer’s complaint, directing the tech- replaced parts might be determined to tem involves a test fleet of fewer than 100 nician right to the malfunctioning area, have ‘no defect found,’” he said. vehicles. And IBM is working with without taking him through a long, The investment necessary to get up DaimlerChrysler on a system to monitor drawn-out diagnostics tree. and running with IBM’s quality insight a validation fleet of 50 fuel-cell vehicles The diagnostics system, which PSA and early warning system depends on how operating in California, Germany, Japan began installing at its dealers in 2004 after well integrated are the carmaker’s sources and elsewhere. That fleet is permanently two years in research, is now in operation of raw data. “We have done pilot projects monitored by means of black box data at all Peugeot dealers worldwide and is for the automotive industry that have recorders that can wirelessly transmit data implemented as each new vehicle model taken three to four months for a subset of as needed. IBM believes that near- or real- is brought to market. With the new the data. But at some companies where the time parametric analysis of malfunctions system, 90% of vehicle failures get diag- computer systems are not well integrated, can lead to faster corrective action and a nosed in the first-path analysis, which where they are not homogeneous from 5% to 10% reduction in warranty costs. takes less than 15 minutes to complete. For more information, please contact Erich Nickel at [email protected]. ◆

Page 8, June 2007 The Hansen Report on Automotive Electronics, Portsmouth, NH USA www.hansenreport.com