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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.
Freescale Faced with Other Problems
In addition to its cellular business, Motorola has watched its sales slip in the automobile industry as sales of cars and trucks have also begun to slow. This has put additional pressure on Freescale’s bottom line.
Jim McGregor, an analyst with the In-Stat, said that part of the problem with Freescale is that Motorola drove much of the company’s product road map, which means Freescale could not grow or expand its handset business beyond what it produced for Motorola.
“In hindsight, this is a good move for Freescale since this has not been a stable business for them because the business depends on the needs of one customer and despite all their efforts they have not been able to break away from all that or break in with other customers,” said McGregor.
Freescale is also facing a number of other problems since its other chips, such as those still based on the Power Architecture, have lost ground to processors based on different microarchitectures such as x86. It could also mean more time for Freescale to find a buyer for its handset chip division considering the problems with the credit market in the United States.
It’s also not clear which of the other semiconductor companies might buy this part of the business. Texas Instruments and STMicroelectronics are possible suitors, or Motorola could buy the division and use the chip technology for products. Samsung might also buy the division to increase its visibility in the United States.
The news from Freescale comes at a time when the entire semiconductor industry saw its worldwide sales increase more than 5 percent from August 2007 to August 2008, according to a new report released this week. Part of that success is attributed to robust sales of cellular telephones and mobile devices such as notebooks.
In addition to the changes at Freescale, Transmeta, which once challenged Intel in the PC business, notified the SEC Sept. 24 that the company is now for sale. While Transmeta moved away from chip design, the company sustained itself on licensing out its intellectual property.