Nearly four years after its spin-off by Motorola, Freescale Semiconductor could be spinning off itself the cell phone chip business that represented its best-known ties to the mother ship.
Freescale became the subject of the biggest tech buyout in history two years ago, when private equity firms Blackstone Group, Carlyle, Permira and TPG paid $17.6bn for the Texas-based company.
They brought in a new chief executive in March – Rich Beyer from Silicon Valley chipmaker Intersil – and he has taken a fresh look at the business.
“Scale is important in this [cellular] business, particularly as we are seeing consolidation, and Freescale simply doesn’t have the scale to grow back to be one of the true market leaders,” Mr Beyer told me this morning.
The consolidation he refers to is among handset makers, where the top five have more than 80 per cent of the market and Motorola’s market share has more than halved to less than 10 per cent.
They are demanding more complex chipsets and accompanying application software – an area where Qualcomm has become a master, but smaller chipmakers cannot make the level of investment to be competitive.
Motorola has been buying more chips from Qualcomm, hitting Freescale’s market share further and reducing its revenues from Motorola to below 25 per cent of its total chip sales.
Freescale fell from fourth to eighth position in the worldwide top ten of wireless chip suppliers in 2007, according to the iSuppli research firm.
It had 3.6 per cent of the market by sales, compared to 16.7 per cent for Texas Instruments and 19.1 per cent for Qualcomm, the market leader.
In an announcement, Freescale said it was exploring strategic options for its cellular business and intended to complete a sale, joint venture agreement “or other transformation in the coming months.”
Mr Beyer said bankers had been appointed and he expected an outcome in the next 90 days. He did not name any possible partners but STMicroelectronics, Infineon, NXP, MediaTek and Broadcom are other leading wireless chip providers.
Freescale will be focusing on its market leading businesses in networking and the automotive industry in future, in a strategy that Mr Beyer said his private-equity board members were fully behind.
With some major debt financing behind Freescale’s acquisition, I had to ask if the company was suffering any liquidity problems in the current financial crisis.
“At the end of Q2, we had about $1.3bn in cash, our debt service is in the $700m [a year] range, we are generating significant cash…so the company’s in very healthy shape from a liquidity standpoint,” he said.
