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Freescale CEO sees no signs of chip sector recovery
January 11, 2013
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SAN FRANCISCO: Freescale Semiconductor Ltd’s chief executive painted a bleak outlook for chip demand, which has been hit by economic uncertainty and said his plans to refocus R&D resources on key businesses would likely pay off with gains in market share in 2015.

Gregg Lowe left Texas Instruments Inc to lead Freescale in June and has embarked on a restructuring that he expects will reverse losses in market share that the chipmaker has suffered in nine of the past 10 years.

Like other chipmakers, Freescale has struggled for over a year as a debt crisis in Greece, concerns about China’s growth, and fiscal uncertainty in Washington caused manufacturers of cars, computers and industrial machines to buy fewer semiconductors.

Lowe told Reuters in a telephone interview that if fourth-quarter global chip revenue falls year over year, as expected, it would become the sixth straight quarter of year-on-year declines. That would match the longest market decline seen in 25 years, he said.

“History would say that if you’ve got something that’s declined for so long, it would probably go up -but there’s no evidence for that,” Lowe said. “If the market rebounds that’s great, but it’s not something anyone can point to or forecast at this point.”

His cautious comments were in line with a chip industry report. Market research firm Gartner said it expects semiconductor revenue this year to dip 3 per cent instead of growing by 0.6 per cent as was previously forecast. It sees the industry growing 4.5 per cent next year.

Chips used in cars and trucks account for 40 per cent of Freescale’s revenue. Its semiconductors are also used in industrial equipment, cellphones and consumer products.

The company has been struggling with falling prices and shrinking margins, and its factories have been operating at reduced capacity.

Under Lowe, Freescale is combining manufacturing operations under a single management group to cut down on costs. He is refocusing R&D resources -which take up almost a fifth of revenue -on select product areas in the auto industry as well as microcontrollers and radio frequency chips.

“The issue we have on market share is straightforward: We’re trying to do too many things,” he said. “As we narrow the focus we’ll be able to spend that money much more efficiently and we’ll get a bigger bang for the buck.”

“My thought process is, 2013, we’re implementing the strategy, 2014, we’ll start to see some benefits, maybe holding share at that point, and in 2015 we start regaining share.”

Freescale was taken private in 2006 for $17.6 billion by a group of private equity firms including Blackstone Group LP, Carlyle Group and TPG Capital LP.

Reuters

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