Freescale Sees Higher Revenue

  • Stronger orders for computer chips
  • Was largest LBO of a technology company
  • Debt gives ‘outsized effect’ on earnings

Freescale Semiconductor Ltd, which makes chips for cars and machinery, forecast current-quarter revenue above analysts’ estimates as demand returns in its wireless and enterprise businesses, sister news service Reuters reported. Order trends strengthened through the fourth quarter and into the current quarter, Alan Campbell, the company’s chief financial officer, said on a conference call with analysts.

Slower telecom spending stemming from a weak global economy and stiff competition in the increasingly crowded mobile phone sector weighed on the results of equipment providers and handset manufacturers last year. “Looking ahead, we are cautiously optimistic about the wireless and enterprise capex trends in China and the U.S., and expect our sales to benefit from these trends going forward,” Campbell said.

Chips used in cars and trucks account for 40 percent of Freescale’s revenue. Its chips are also used in industrial equipment, cellphones and consumer products. The company expects first-quarter revenue of between $945 million and $985 million. Analysts on average were expecting revenue of $933.1 million, according to Thomson Reuters I/B/E/S. “It’s too early to say that things have bottomed but at the same time it’s kind of nice to see them both comment and guide above expectations, particularly in this environment,” Sanford C. Bernstein & Co analyst Stacy Rasgon said.

Bigger rival Texas Instruments Inc. last week also reported higher-than-expected revenue, but cautioned on uncertain demand. It said macroeconomic worries had caused customers to defer orders.

Freescale, which went public in May 2011, was taken private in 2006 for $17.6 billion by a group of private equity firms including The Blackstone Group LP, The Carlyle Group and TPG Capital LP. It was the biggest leveraged buyout of a technology company on record, but was criticized because it left Freescale with huge debt, hurting its ability to compete in the investment-intensive chip business.

“Because of the amount of debt that they carry on their balance sheet, even a little bit of revenue upside or even a little bit of gross margin upside can have an outsized effect on the earnings,” analyst Rasgon said. The company had $6.38 billion in long-term debt as of Dec. 31.

Chief Executive Gregg Lowe, who left Texas Instruments in June to lead Freescale, has embarked on a restructuring that he hopes will reverse losses in market share that the chipmaker has suffered in nine of the past 10 years. The company has been struggling with falling prices and shrinking margins, and its factories have been operating at reduced capacity.

The chipmaker said last quarter it would combine its manufacturing operations to cut costs, and focus research and development on select product groups. Freescale’s net loss increased to $35 million, or 14 cents per share, in the fourth quarter, from $6 million, or 2 cents per share, a year earlier. Excluding items, Freescale reported a loss of 15 cents per share. Revenue fell 5 percent to $957 million.

Analysts on average were expecting a loss of 18 cents per share, on revenue of $940.4 million. Freescale’s shares have risen about 38 percent since Oct. 25, when Lowe announced the restructuring.

Sruthi Ramakrishnan is a correspondent for Reuters in Bangalore