Freescale looks to exit handset chips and break Motorola ties forever
Published: 6 October, 2008
READ MORE: Motorola | Semiconductor | Handset
Freescale Semiconductor, the former silicon arm of Motorola, says the scale needed to compete in the handset chip business is beyond its capabilities and it will seek a buyer or joint venture partner for this part of its operations.
The company would not comment on potential candidates, nor a price tag. The cellphone part of its business generated about $1bn in revenues last year and makes up about 20% of total sales, with automotive and networking equipment chips, where Freescale is the global market leader, being the strongest activities.
The cellphone chip activity has suffered from the split from Motorola in 2004 because the device maker has started to shop around for alternative suppliers for high value chips, notably Qualcomm, and Freescale has found it hard to replace the business, despite a high profile win at RIM and the claim of a third tier one customer, as yet unnamed. Also, Motorola retained many of the rights to software for the 3G products, and Freescale only recently licensed this - "too little too late", in the view of many analysts. And of course, Motorola itself has been in decline and so its orders have fallen even for chips where it still relies on Freescale.
In addition, when Freescale was taken into private hands in a $17.6bn leveraged buy-out in 2006, it was left with a heavy debt burden that has restricted its freedom to compete. For the quarter ended June 30, Freescale reported a net loss of $184m, revenue of $1.47bn and long term debt of $9.28bn.
Michel Mayer stepped down as CEO in February and successor Rich Beyer initiated a six-month strategic review, and at an early stage in this, said he would concentrate R&D on product lines that can deliver a market lead and/or high margins. In cellphone chips, Freescale only ranks number six in the market - after Qualcomm, Texas Instruments, MediaTek, Skyworks Solutions and Marvell - and the type of products that could improve its appeal, such as multifunction chipsets, would require high R&D investment that would be best shared with a partner.
"The fact of the matter is that the business is becoming more and more complex," Beyer told The Wall Street Journal. "The scale necessary to continue to compete at the level of some of the players that are larger than us" is beyond Freescale's capability.
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