Freescale to Unload Cell Phone Chip Unit

SAN FRANCISCO -- Freescale is putting its cell phone chip business on the auction block, becoming the latest company to bow out of a business increasingly dominated by a handful of silicon giants.

The Austin-based chipmaker said Thursday that it is exploring strategic options for its cellular handset chip group, with the goal of completing a sale, joint-venture or "other transformation" in the coming months.

The move will allow Freescale, which went private in a $17.6 billion deal in 2006, to focus on making chips for the automotive, networking and industrial markets.

Freescale Chief Executive Rich Beyer that the cell phone chip business requires considerably greater scale to become a market leader and to thrive in the long term.

"You would need to increase the investment far in advance of the impact it would have on revenue growth," Beyer said in an interview with TheStreet.com.

On the other hand, he said, Freescale is already the top player in the market for automotive chips and network processors -- markets which are growing much faster than the cell phone chip market.

Beyer joined Freescale in March, replacing former CEO Michel Mayer.

The announcement did not come as a huge surprise following recent moves at the company to reshuffle products within its business groups and to segregate the operations of the cellular business, which had $337 million in revenue in the most-recently ended quarter, accounting for roughly 22% of total sales.

"When you take that, along with Freescale's position in the market, it was only a matter of time," says iSuppli wireless chip analyst Francis Sideco.

Much of the blame for Freescale's woes stem from its relationship with Motorola ( MOT), Freescale's former parent company and its only major customer for cell phone chips.

As Motorola's cell phone handset business hit the skids in recent years, Freescale has felt the repercussions.

In 2006, Freescale was the No.3 maker of cell phone chips in 2006. But the company had dropped to the No.8 rank in 2007, according to iSuppli.

And in a business dominated by behemoths like Texas Instruments ( TXN)and Qualcomm ( QCOM), many of the smaller players are throwing in the towel.

In January, Analog Devices ( ADI) sold its cell phone chip business to Taiwan's MediaTek for $350 million.

Earlier this year, NXP spun off its cell phone chip business by forming a wireless joint venture with ST Microelectoronics ( STM).

While past rumors have suggested that Freescale's cell phone business might combine with the ST-NXP venture, iSuppli's Sideco said he was not convinced that was currently in the cards.

The deterioration of the Motorola business - Freescale said Thursday that it has even reached an agreement ending the minimum chip purchases that Motorola was required to make - mean that Freescale has little value for an existing wireless player seeking to boost its market share.

The more likely appeal of Freescale would be to a company looking for a quick way to pick-up a large team of experienced engineers, or to a company that could fit Freescalle's baseband and radio frequency chips into its existing product portfolio.

"They might be attractive to someone like an application processor company or a graphics company who really wants to enter the handset market," Sideco said.

He didn't mention any companies by name. But the description certainly fits Nvidia ( NVDA), which recently began selling its own power-efficient application processor to help it branch out from PCs into the market for mobile electronic devices.

RealMoney.com

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