Freescale Looks to Unload Cellular Chip Business

Freescale Semiconductor is looking to unload its cellular handset microprocessors business after the chip company cited slowing order from Motorola–Freescale’s largest customer for mobile handset chips.

The news that Freescale would either sell off or develop a joint venture agreement for its handset chip business was first disclosed in a filing with the U.S. Securities and Exchange Commission Oct. 2. In the filing, Freescale said it would begin to see its cellular handsets decline in the fourth quarter of 2008.

The SEC filing did not give a specific time frame for when Freescale would spin off this part of its overall microprocessor business. However, the company did note that in exchange for cash, it would eliminate minimum ordering requirements from Motorola.

While the SEC filing from this week did not specifically indicate why Freescale decided to drop its chip handset business now, other paperwork with the SEC shows that Motorola has drastically cut back on its orders. In addition, Motorola is now turning to other suppliers, such as Qualcomm, for its handset processors. (A former Qualcomm executive, Sanjay Jha, also recently jointed Motorola, which appears to have accelerated the move away from Freescale chips.)

In one filing, Freescale executives wrote that revenue from handset products, which include baseband processors and power management integrated circuits, represented about 20 percent of the company’s net sales. In 2007 and 2008, Motorola was responsible for buying about 90 percent of all those cellular handset processors.

“During the past several quarters, our [Freescale’s] cellular product shipments have been negatively impacted by weaker demand from Motorola, our largest customer,” according to one SEC report.

At the same time, Motorola has begun to lose a significant part of its U.S. market share to other companies such as LG Electronics. In August, Motorola controlled about 26 percent of the U.S. market. While that means the company remains a leader in the market, it was also a 10 percent decline from a year ago.