Motorola Supply Chain: Freescale
Interesting (Moto financial payment and restructured agreement) ...
• CEO Michel Mayer described the “challenges of our largest customer,” Motorola’s handset operation, which at one point accounted for ~80% of Freescale’s wireless IC revenues. Sales to Motorola have dropped so far below agreed-on contractual obligations, made when Motorola spun-out its semiconductor operations, that Motorola is making a substantial financial payment to Freescale. Although Mayer declined to be specific, he said the Motorola payment, combined with the sale of assets in Crolles, will provide Freescale with ~$500M in cash that can be spent on mergers, acquisitions,or in other ways this year. “We have not decided yet, but we welcome that cash injection. ... Sales in its networking, microcontroller and automotive IC units have been steady, showing little growth, while wireless IC sales have sharply dropped.
• The world's third-largest cell phone maker worked out a restructured supply agreement with Freescale that is expected to result in lower chip sales to Motorola over the next few years.
• Freescale sold $361 million worth of cell phone chips in the fourth quarter, down 13 percent from a year earlier. For the year, its cell phone chip sales totaled $1.22 billion, down nearly 18 percent. Because of those lower sales, the company took a noncash charge of $449 million reflecting the reduced value of its wireless chip business.
• Freescale spokesman Glaston Ford said that the deal with Skyworks calls for Freescale to transfer its PA designs and intellectual property (IP) to Skyworks, as well as inventory.
• CEO Mayer said Freescale may soon be able to announce a major wireless IC design. “We don’t want to reduce our research and development in the wireless area. That would impact the heart of our roadmap. We believe we should see, by this summer, shipments from a new design win that we have been working very hard on.”
• "It is going to be a painful year for Freescale," said analyst Will Strauss with Forward Concepts in Tempe, Ariz., who said he is hearing speculation that Freescale may have to sell off or shut down its cellular chip business as its sales to Motorola dwindle.
Whether or not Freescale stays in wireless ICs could well depend on whether ot not a significant design win materilizes. It sounds to me like Moto will provide little business for Freescale, leaving TI and QUALCOMM as the primary suppliers for baseband and apps processors other than for legacy platforms.
>> Freescale Seeks Growth After Tepid 2007
David Lammers
Semiconductor International
1/31/2008
semiconductor.net
Freescale Semiconductor Inc. (Austin, Texas) executives said yesterday that manufacturing capacity utilization has dropped to ~75% from >90% a year ago, the result of slumping wireless IC sales to Motorola Inc. (Schaumburg, Ill.) and equally poor demand from Detroit for Freescale’s automotive ICs.
Freescale CFO Alan Campbell said, “In 2008, we do have a plan to improve our utilization,” adding that the company now sources ~15% of its silicon from foundries. “We do have that lever also,” Campbell said, implying that some production could be pulled into internal fabs.
In a conference call following the release of earnings, Campbell said Freescale will keep its 2008 capital expenditures at the relatively modest level of 6% of revenues, consistent with 2007.
Freescale has assets to dispose, with plans to sell equipment and other assets from the Crolles, France, development fab, a 300 mm facility now used exclusively by STMicroelectronics Inc. (Geneva). Campbell said Freescale is “looking at its options” for the East Kilbride, Scotland, fab, a 150 mm wafer fab that went up for sale last autumn.
A gallium arsenide (GaAs) fab in Tempe, Ariz., is also for sale, Campbell said, following Freescale’s sale of its GaAs-based RF power amplifier (PA) business to Skyworks Solutions Inc. (Woburn, Mass.) last October. Freescale spokesman Glaston Ford said that the deal with Skyworks calls for Freescale to transfer its PA designs and intellectual property (IP) to Skyworks, as well as inventory.
The Tempe “CS-1” fab is a 150 mm GaAs wafer manufacturing facility with 38,000 ft2 of space, which started production in 1991. The spokesman said that as part of the Skyworks deal, Freescale retained certain assets, such as the buildings, property and some equipment, adding that “the factory continues to operate.”
With a 10% decline in sales in 2007 to $5.72B, Freescale is seeking ways to get back on the growth track. CEO Michel Mayer described the “challenges of our largest customer,” Motorola’s handset operation, which at one point accounted for ~80% of Freescale’s wireless IC revenues. Sales to Motorola have dropped so far below agreed-on contractual obligations, made when Motorola spun-out its semiconductor operations, that Motorola is making a substantial financial payment to Freescale. Although Mayer declined to be specific, he said the Motorola payment, combined with the sale of assets in Crolles, will provide Freescale with ~$500M in cash that can be spent on mergers, acquisitions,or in other ways this year. “We have not decided yet, but we welcome that cash injection. We want to grow, to invest in our business,” he said.
Freescale, the former Motorola semiconductor products sector (SPS), was acquired by a private equity consortium led by the Blackstone Group in September 2006 for $17.6B. Since then, revenues have been flat and the company has sought to reduce costs, laying off ~700 people last year. Sales in its networking, microcontroller and automotive IC units have been steady, showing little growth, while wireless IC sales have sharply dropped.
Mayer said Freescale may soon be able to announce a major wireless IC design. “We don’t want to reduce our research and development in the wireless area. That would impact the heart of our roadmap. We believe we should see, by this summer, shipments from a new design win that we have been working very hard on.”
In the automotive sector, Mayer said Freescale has “by far the largest market share among the Big Three in the United States, and everyone knows the struggles there. You can imagine that our U.S. automotive IC business has not been flamboyant.” ###
>> Freescale Reports $1.54 Billion in Q4 Sales, Down 5 Percent From A Year Ago
Analyst: 'It is going to be a painful year for Freescale.'
Kirk Ladendorf
American-Statesman
January 31, 2008
statesman.com
Freescale Semiconductor Inc. acknowledged Wednesday that it continues to look for ways to get its chip sales growing again.
The Austin company reported $1.54 billion in fourth-quarter sales, down 5 percent from a year earlier, along with $5.72 billion in year-end sales, down 10 percent.
The quarter was a lackluster finish to Freescale's first full year since it was bought by private equity investors for $17.6 billion in December 2006.
The chip maker also reported a net loss of $525 million for the quarter and $1.61 billion for all of 2007. The company said its net income figures give a negative impression of its business because of the accounting adjustments it must make in the wake of its huge leveraged buyout.
Freescale said things don't look extremely bright for 2008. Chief executive Michel Mayer said he expects single-digit growth for the semiconductor industry this year as electronics makers become affected by the likelihood of a slowing world economy.
"I am very comfortable with our financial footing and liquidity," Mayer said. "I am not happy with our growth profile."
He said Freescale has initiatives to reaccelerate growth but gave few specifics.
Growth probably won't come from Motorola Inc., Freescale's largest customer. The world's third-largest cell phone maker worked out a restructured supply agreement with Freescale that is expected to result in lower chip sales to Motorola over the next few years. Because of those lower sales, the company took a noncash charge of $449 million reflecting the reduced value of its wireless chip business.
Motorola paid Freescale an unspecified amount of cash in the fourth quarter to pay for part of its supply agreement.
Freescale said it expects to take in more than $500 million in cash in the first half of this year from the sale of chip manufacturing equipment that it owns in Crolles, France, and from future payments from Motorola.
The company has reacted to slower sales by cutting costs and jobs. It laid off 700 workers starting in May, and its Austin employment now totals 5,000, down 400 from a year ago.
"It is going to be a painful year for Freescale," said analyst Will Strauss with Forward Concepts in Tempe, Ariz., who said he is hearing speculation that Freescale may have to sell off or shut down its cellular chip business as its sales to Motorola dwindle.
Freescale sold $361 million worth of cell phone chips in the fourth quarter, down 13 percent from a year earlier. For the year, its cell phone chip sales totaled $1.22 billion, down nearly 18 percent. ###
- Eric - |
