Automotive Sector Drives Freescales Profit

The semiconductor company offsets a loss in its telecoms unit by recording a small profit, the bulk of it driven by sales of automotive components.

Freescale Semiconductor Inc. recorded a small profit in its first official earnings reports, offsetting a loss in its telecoms unit.

The Austin, Texas-based semiconductor spinoff from Motorola Inc. reported earnings of $43 million on net sales of $1.46 billion following a "separation" charge of $41 million. Net income decreased from the first quarter, when Freescale reported earnings of $106 million; a year ago, the company reported a loss of $174 million.

Revenues increased 31 percent from the $1.12 billion that Freescale reported a year ago, and grew 5 percent from the first quarter of 2004, when the company reported $1.40 billion in sales.

Freescale began its initial public offering last week amid a bearish environment for chip stocks and a negative attitude toward telecommunications companies.

Perhaps fortunately, Freescales profits were driven by the far more mundane automotive sector. Although the company is known for its PowerPC products, sales of automotive components—the microcontrollers and sensors used in automotive powertrain, telematics and safety applications–drove the bulk of Freescales sales.

/zimages/2/28571.gifClick here to read about predictions of a semiconductor slowdown in 2005.

Freescales Transportation and Standard Products segment reported operating income of $60 million on revenue of $646 million, or 44 percent of the companys total revenue. The companys Networking and Computing Systems unit reported $71 million in income on revenue of $398 million, driven by sales of RF (radio frequency) components and the PowerQICC embedded processor.

But Motorolas Wireless and Mobile Solutions segment turned in a loss as customers apparently began holding back orders as telecommunications inventories continue to climb. The units loss narrowed from $153 million a year ago and $72 million in the first quarter of 2004. Still, the unit reported a loss of $43 million for the quarter, driven by the companys GSM (Global System for Mobile Communications)/GPRS (General Packet Radio Service) wireless chip sets and iDEN handsets.

"The Freescale team delivered solid results in the quarter with good momentum across all of our businesses," Michel Mayer, the companys chairman and CEO, said in a statement. Mayer was appointed as CEO in May.

"Our gross margins continued to improve sequentially and we remain focused on improving the operational effectiveness of the company," Mayer added. "Following the reorganization and IPO, we have a strong balance sheet with the liquidity and flexibility to invest for the future."

Freescale will hold a conference call Wednesday afternoon to describe its results to investors and financial analysts, the company said.

/zimages/2/28571.gifCheck out eWEEK.coms Infrastructure Center at for the latest news, views and analysis on servers, switches and networking protocols for the enterprise and small businesses.