Freescale exiting mobile ICs, opens opportunity for Qualcomm

Freescale eliminates its minimum mobile IC purchase agreement with Motorola as part of the action.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 10/3/2008

In a move that exemplifies the further consolidation of the mobile IC industry and could open up more opportunity to Qualcomm, Freescale Semiconductor has announced that it is exploring options for its cellular handset chipset business that include the unit's sale or the formation of a joint venture.

Freescale said it is doing so as it aims to increase its investments in the automotive and networking markets, where it contributes automotive MCUs, communication processors, and RF ICs. Freescale said it will also increase its efforts and investments in the industrial and consumer markets, where it contributes MCUs, MPUs, application-specific processors, analog, power, and sensor ICs.

The Austin-based company’s cellular handset products business includes baseband processors, RF transceivers, power management/audio, software, and platforms for the cellular handset market.

“This strategic framework is the result of a thorough evaluation and planning process conducted since I joined Freescale six months ago," Rich Beyer, company CEO, said in a statement Thursday. "As the semiconductor market continues to consolidate, it is essential that we maximize our investment on growth opportunities that enable us to extend our market leadership and to ultimately create shareholder value.”

Freescale's action comes after considerable consolidation in the mobile IC market. In late August, STMicroelectronics announced it would buy out NXP's share of its ST-NXP Wireless venture, which had just begun operations on August 2, in a move that effectively saw NXP end its mobile IC work. ST then merged in Ericsson Mobile Platforms (EMP), forming a formidable competitor to the wireless industry’s mobile semiconductor kingpins including Texas Instruments and Qualcomm. 

Further, Motorola, Freescale's former parent company with which it continued to do mobile IC business with after its spin out, has announced changes to its handset operations. After repeated quarterly financial declines, Motorola stated in March that planned to spin out its mobile devices business. Despite that statement, Sanjay Jha in August left Qualcomm to head the Motorola unit, leading to industry speculation that Motorola and Qualcomm could be forming a closer working relationship.

As part of Freescale's move, the company announced it has updated its arrangement with Motorola whereby Motorola agreed to provide certain consideration in exchange for eliminating their remaining minimum purchase commitments. Freescale did not detail the consideration.

“In the cellular handset chipset market, it has become evident that this business needs considerably greater scale in order to achieve a position of market leadership and long-term success. We feel the investment required to achieve that scale by Freescale will be better served extending our product portfolios where we are the leader and expanding our application expertise in sensors, analog, power and multimedia processing,” Beyer continued.

While Freescale's sharpened focus on the markets Beyer noted could allow for possible benefits to the company, Freescale's decision to close the door on mobile ICs could also open a window of opportunity for Qualcomm, analysts believe.

"In recent reports, we have highlighted the theme of QCOM [Qualcomm] benefiting from rapid consolidation of the wireless semi industry," Tim Luke, a semiconductor market analyst at Barclays Capital (formerly Lehman Brothers), said in a research note this morning. "We view Freescale's confirmation that it is seeking strategic options for its wireless biz and the elimination of a minimum purchase agreement with MOT [Motorola] as an opportunity for QCOM. While street estimates for QCOM's December quarter may move lower and FY09 [fiscal year 2009] guide could conservatively come in below current street, we remain impressed by positioning."