Freescale Semiconductor posted its Q3 ’09 results on July 24 for the quarter ended June 30, 2009. Sales dropped two percent to $824 million sequentially, and 44 percent from $1,472 million in the year-ago quarter. Net income (loss) was ($459) million, or negative 58.7 percent of sales.
Much of the decline in sales over the past year appears to have come from the Cellular Products Division, which Freescale put up for sale in early 2008. According to Mitch Haws of Corporate Communications, potential buyers have had their own problems to deal with, and so Freescale will probably continue to support current CPD customers with little or no investment in new products. Freescale’s main cellular chip customers are now RIM and iDEN (i.e. Motorola Plantation), business that should continue for the next few years. According to Mitch, Freescale “took out much of the CPD headcount last April.” This helped the company to reduce expenditures by more than $500 million per quarter over the past several quarters.
With Motorola’s share of the cellphone market now around six percent and less than half of Motorola’s chipset needs supplied by Freescale, we believe that Freescale’s chipset sales probably did not exceed $100 million in fiscal Q3 ’09.
Freescale continues to do well in RF power devices for infrastructure (mostly LDMOS power transistors), in processors for communications infrastructure, in automotive electronics, and in microcontrollers. However, even with these strengths, it is not clear to us whether Freescale can remain viable much longer.
The real kicker will come in 2012, when the company will have to pay off about $550 million in mature debt, followed by $3.25 billion in debt due in 2013 and $3.1 billion due in 2014. Even if the company can increase sales at double digits rates per year and generate a healthy net income of ten percent or more of sales per quarter, making annual payments of more than $400 million would seem a very big challenge. This leads us to believe that the company will go through more product line divestitures and creative financing before coming out from under its current debt burden as a financially viable and stable entity.
LBO Debt Load Threatens Freescale's RF Business