News

Freescale Announces ‘Progress’ in Q3 2012 Financials

October 25, 2012 by Jeff Shepard

Freescale Semiconductor, Ltd. announced net sales for the third quarter ended September 28, 2012 were $1.01 billion, compared to $1.03 billion in the second quarter of 2012 and $1.14 billion in the third quarter of last year. Operating earnings for the current quarter were $127 million, compared to $112 million in the second quarter of 2012 and $110 million in the third quarter of 2011. The net loss for the third quarter of 2012 was $24 million, or $.10 per share, compared to a loss of $34 million, or $.14 per share, in the second quarter of 2012 and a loss of $88 million, or $.36 per share, in the third quarter last year.

"Despite challenging market conditions, we made progress in key areas during the third quarter," said Gregg Lowe, president and CEO. "Revenues and gross margins were well ahead of the performance we experienced in previous semiconductor market downturns, we used $100 million in cash to reduce debt and we began implementing a new strategic framework that we believe will enable us to grow our business and regain market share."

Adjusted operating earnings for the three months ended September 28, 2012 were $127 million, compared to $136 million in the second quarter of 2012 and $200 million in the third quarter of 2011. Adjusted net earnings for the three months ended September 28, 2012 were $10 million, or $.04 per share, compared to $17 million, or $.07 per share, in the second quarter of 2012 and $72 million, or $.29 per share, in the third quarter of 2011.

Product Revenues

The company's net sales figures for the third quarter were as follows:

* AISG (which includes our microcontroller, analog and sensor products) net sales were $555 million, compared to $568 million in the second quarter of 2012 and $589 million in the third quarter of 2011.

* NMSG (which includes our networking processors, applications processors and radio frequency products) net sales were $368 million, compared to $335 million in the second quarter of 2012 and $404 million in the third quarter of 2011.

* Cellular net sales were $27 million, compared to $50 million in the second quarter of 2012 and $97 million in the third quarter of 2011.

* Other net sales (which includes intellectual property and foundry revenue) were $59 million, compared to $76 million in the second quarter of 2012 and $52 million in the third quarter of 2011.

Other Financial Information

* Capital Expenditures were $30 million;

* Cash and Cash Equivalents were $763 million;

* EBITDA* was $186 million; and

* Adjusted EBITDA* for the latest twelve months ending September 28, 2012 was $922 million.

Fourth Quarter 2012 Outlook

For the fourth quarter of 2012, the company expects:

* Net sales to be between $920 million and $960 million;

* Gross margins to decrease approximately 300 basis points on a sequential basis.

Strategic Direction

Following the appointment of Gregg Lowe as president and CEO of Freescale, the company began a detailed review of its strategic direction with the overall objective of identifying opportunities that would accelerate revenue growth and improve profitability.

"We conducted a thorough and extensive review of all our businesses, markets and regions during my first three months," said Lowe. "We gathered input from a number of internal and external sources with the objective of identifying our true differentiators and the markets where they would make us a leading force."

"Our goal was to identify areas where we can reinforce our strengths to drive top line growth and margin expansion, then reallocate our R&D resources toward those areas of high-value and high-growth," said Lowe.

Realigning Businesses: As a result of this analysis, the company is realigning its product groups as follows:

* Microcontrollers include microcontrollers for the company's Industrial and Multi-Market (IMM) and Metering, Medical and Connectivity (MMC) product groups as well as Multimedia Applications (MAD) processors:

Microcontrollers will also be the primary platform driver for our overall microcontroller portfolio, creating products and platforms that will eventually be deployed to our automotive MCU product group. Geoff Lees will run Microcontrollers. Lees joined Freescale in 2011 from NXP Semiconductor and previously served as Freescale's Vice President of the IMM product group.

* Digital Networking includes networking processors previously part of our Networking Products and Wireless Access product groups. The team's sharpened focus will include significant resource increases in both chip design and software resources for standard processors aimed at the networking and communications markets. Tom Deitrich will run Digital Networking. Deitrich has been with the company since 2006 and previously managed Networking and Multimedia Solutions.

* Automotive MCU includes the company's microcontrollers sold to the automotive market. Our focus will be to regain market share in automotive MCUs, capture new growth opportunities in Asia and Japan and expand our gross margin. Bob Conrad will run Automotive MCU. Conrad recently joined Freescale from Fairchild Semiconductor where he ran the company's analogue and low voltage discrete business along with technology development and strategy. Prior to that, he managed the Analogue Devices DSP group and was the Automotive Microcontroller Manager at Texas Instruments.

* Analogue & Sensors includes automotive analogue, mixed-signal analogue and sensor products. The focus of Analogue & Sensors will change from being primarily automotive focused to be more balanced between automotive and mixed signal analogue, with an emphasis on developing analogue products that complement our Microcontroller product group. We believe this will enable Analogue & Sensors to both grow top line revenue and improve gross margins. James Bates will run Analogue & Sensors. Bates recently joined the company, having previously held a similar position at Maxim Integrated Products.

* RF will include the company's RF power amplifiers. The focus of RF will be to utilize an increased resourcing pool to drive into new markets and accelerate top line growth. Ritu Favre will run RF. Favre joined Freescale as an engineer in 1988, and she has been the General Manager of RF since October 2010.

* Manufacturing Operations: Along with these changes, we will be combining all of our manufacturing operations under a single leader to drive a sharper focus on execution, efficiency and reduced manufacturing costs. David Reed is joining Freescale as the head of Manufacturing Operations, which includes the company's internal and external front-end and final manufacturing operations, planning, procurement, quality and technology organizations. Reed joins Freescale from GLOBALFOUNDRIES, where he spent the last two years leading Global's 28nm production in Dresden, Germany. Prior to that, he spent more than 20 years at Texas Instruments managing fabrication facilities, assembly and test and other operations supporting the analogue, digital and MEMS businesses.

* Reallocating R&D: Moving forward, the company is shifting its research and development investment to reflect its strategic focus on the product groups highlighted above. Our focus on these product groups will drive the company's investment and will account for nearly 90 per cent of total research and development spending by 2015.

* Redistributing Sales Resources: The company will begin shifting sales resources to align with industry growth in China and select opportunities in Korea, Taiwan and Japan. As a result, the company expects to increase the number of accounts covered and expand its presence in distribution.

"By reallocating our investments and focusing our efforts on high growth markets, we intend to expand on our leadership positions and accelerate our market share gain," said Lowe. "Combine that with our talented team of dedicated professionals and I am confident we can grow Freescale to be a truly great company."

* Charges Associated with Strategic Direction: In connection with re-allocating research and development expenses and re-distributing sales resources, the company estimates cash charges of approximately $35 million to $40 million. The charges relate to severance costs and the company expects the timing of the cash charges to occur primarily through the third quarter of 2013. The company expects annualized savings of $35 million to $40 million associated with these actions.