The woes of Freescale in moving from a $260m profit in Q206 five months before it was taken over by private equity funds, to a $288m loss eight months after it was taken over by private equity, can partly be explained by Motorola’s struggles in the cellphone market where it has now conceded the No.2 spot to Samsung.
It transpires that, for the first time, Samsung outsold Motorola in handsets by 37m to 35.5m handsets in Q2, and Samsung took in $5.5bn revenues with Motorola taking around $4bn.
When Freescale announced its drop in profits for Q2, it blamed a drop in demand from its largest wireless customer, which is, of course, former parent company Motorola.
Some thought orders from Motorola may have been impacted by Motorola’s purchase, earlier this year, of UK wireless chip firm, TTPCom.
But it appears there was a much weightier impact. It seems extraordinary that the inventor of the RAZR handset, the fastest selling mobile phone in history, could have lost market share to the extent it has allowed itself to be overtaken by Samsung for the first time.
The RAZR hit the market in November 2004, selling 50m units in two years, and driving Motorola’s market share up from 16.3 per cent in Q4 04 to 20.3 per cent in Q4 06.
Since then the market shares of Motorola and Samsung have been hovering at about 19 per cent each.
For Freescale, where capex as a proportion of revenues has been dropping from 9 per cent to 7 per cent, and now 5 per cent, since the takeover by private equity, the big question is whether to invest more in its wireless business to compete mote effectively with the likes of Qualcomm, Broadcom, Infineon and Texas Instruments, or to cut back on its spending on its wireless business to match revenues more proportionately with investment or, as suggested by Wall Street, sell the wireless business.
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