Freescale Looks to Sell Mobile Unit
Freescale Semiconductor Inc. plans to sell or find a joint venture partner for its cellphone chip business, a major supplier to Motorola Inc. that faces stiff competition from bigger chip makers.
The company would not comment on any discussions or put a potential price tag on the unit, which it estimates has more than $1 billion in annual revenue and accounts for about 20% of Freescale's revenue. Besides completing a deal, Freescale plans to restructure its operations to focus more on chips used in cars, other communications devices and radio-related applications.
Freescale, based in Austin, Texas, was spun off from Motorola in 2004 and later went public. It was taken private in a $17.6 billion leveraged buyout in 2006 that left the company with a heavy debt load. Freescale subsequently ran into other problems, including a decline in cellphone sales by Motorola.
Michel Mayer stepped down as chief executive in February and successor Rich Beyer vowed to focus the company on operations that can lead market segments and bring better returns. In an interview Thursday, Mr. Beyer said Freescale was No. 6 in cellphone chips and faces big hurdles in improving its position, including demands by customers for software and other sophisticated technology that would require the company to invest more in the business.
"The fact of the matter is that the business is becoming more and more complex," Mr. Beyer said. "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, he added.
Competitors include Qualcomm Inc., Texas Instruments Inc. and Marvell Technology Group.
The collapse of Motorola's cellphone business, which has seen its global market share drop from more than 20% to less than 10%, has hit Freescale hard. Last year, Freescale derived 94% of its wireless sales and 24% of its revenue overall from Motorola, according to Ping Zhao, analyst at research firm CreditSights.
When Freescale was spun off, Motorola initially agreed to make Freescale its preferred supplier, but since has moved to loosen ties by bringing in additional suppliers.
High costs and production delays at Freescale also have contributed to Motorola's inability to produce cutting-edge phones at competitive prices. In January, Motorola paid $276 million in cash to break certain minimum purchase obligations, and announced it would seek to increase purchases from Qualcomm.
Motorola is paying another undisclosed sum to relieve it of its remaining purchase obligations, Freescale disclosed. But Motorola will continue to buy products and design Freescale chips into future phones, Mr. Beyer said.
Analysts saw Motorola's appointment of former Qualcomm executive Sanjay Jha as a further sign of Freescale's waning position at Motorola. Mr. Beyer, however, said he believes that relations with Motorola actually have improved since Mr. Jha's appointment.
Freescale, for its part, has moved to find new customers, and supplies some components to BlackBerry maker Research In Motion Ltd., but sales have been modest. The company says that a third major manufacturer has designed its chips into their cellphones that have yet to be shipped to stores.
Mr. Beyer said the company was taking the unusual step of announcing the planned divestment of the business, instead of working exclusively through investment bankers, to avoid alienating customers who might hear of the plans through other channels.
Freescale has the leading market share among companies that supply chips for cars.
Write to Don Clark at don.clark@wsj.com and Sara Silver at sara.silver@wsj.com
