Freescale Semiconductor will use the money freed up by its impending exit from the wireless handset chip business to accelerate existing projects, fund identified, but so far unfunded, projects and increase the sales force in its other product areas.
“We’re reviewing the requirements of the business and re-allocating money to market development and new channel development," said Rich Beyer, chairman and CEO of Freescale, at the Freescale Technology Forum in Paris today, “there are product families where we can accelerate growth by investing in the channel and increasing our sales team. Second, we will fund some projects which we have identified but are not yet funded. Third we shall invest in more efficiencies in bringing products to market faster.”
Freescale Semiconductor has said it is looking to sell or place its mobile phone chipset business into a joint venture within months. The wireless handset chip business required R&D investments which were a higher proportion of revenues than the rest of Freescale’s product areas. The company remains in the business of making chipsets for wireless infrastructure. The value of Freescale’s sales of handset chips and infrastructure chips is approximately equal.
Beyer added that: “The objective of the corporation is to grow faster than our competitors in the target markets and to expand gross margins from the low to mid 40s of per cent to the low to mid-50s of per cent.”
“If we get on that kind of a vector, when the macro environment returns to health, and the semiconductor cycle moves into an upturn, we will have a healthy foundation for the company,” said Beyer.
Beyer shrugged off the disadvantage of having to spend $700m a year servicing debt payments to Freescale’s bondholders to whom Freescale’s private equity owners, led by Blackstone, sold off bonds for $9.5bn which are secured on Freescale.
“Our cash flow is well over $1bn – it was $1.3bn last year – we’re generating cash significantly in excess of the debt service and we still invest in the business at a very high rate,” said Beyer. R&D investment is currently running at 20% of sales.
“Come 2013, 2014, and 2016, when this debt needs to be repaid or converted into new debt we’ll have to think again," said Beyer, “but we are not making decisions to not invest successful businesses because of cash-flow.”
The credit crunch is not affecting Freescale directly, but has had an effect on one of its big market areas, the automotive business, as consumers are less inclined to spend on cars.
"The financial crisis is causing a loss of consumer confidence,” said Beyer, “it has affected the automotive industry and seems to be spreading to other areas like the industrial sector. The consumer market won’t be as robust as it was.”
However, the direct effects on Freescale are minimal. “$1.3bn of cash means we are not in jeopardy. We don’t need to borrow anything. We’re impacted only by the macro-economic environment.”
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