Freescale Semiconductor, Ltd. (FSL)

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Freescale Semiconductor Ltd (FSL)

Q4 2013 Earnings Call

January 28, 2013, 5:00 pm ET

Executives

Mitch Haws - Vice President, Investor Relations

Gregg Lowe - President, Chief Executive Officer, Director

Alan Campbell - Senior Vice President and Chief Financial Officer

Analysts

John Pitzer - Credit Suisse

Jim Covello - Goldman Sachs

Craig Hettenbach - Morgan Stanley

Ross Seymore - Deutsche Bank

Harlan Sur - JPMorgan

Stacy Rasgon - Sanford Bernstein

William Stein - SunTrust Robinson Humphrey

Doug Freedman - RBC Capital Markets

Rajvinda Gill - Needham

Presentation

Operator

Welcome to Freescale's fourth and full-year 2013 results conference call. All participants are in a listen-only mode until the question-and-answer portion of today's conference. Today's conference is being recorded. If you have any objections, please disconnect at this time.

I would now like to turn the meeting over to Mr. Mitch Haws. Sir, you may begin.

Mitch Haws

Thank you, Sharon and welcome everybody to our fourth quarter and 2013 year-end earnings conference call. With me today are Gregg Lowe, our President and Chief Executive Officer and Alan Campbell, our Chief Financial Officer.

Before we begin today's prepared remarks, I would like to remind everyone that today's discussion contains forward-looking statements that are based on our current outlook. As such, they do include certain risks and uncertainties. Please refer to the cautionary statement in today's press release and review our 10-K and other SEC filings for more information on the specific risk factors that could cause our actual results to differ materially. The company does not assume any obligation to update any of today's forward-looking statements to reflect subsequent events or circumstances.

Finally, we will reference non-GAAP financial measures. We have posted the appropriate GAAP financial reconciliations at our website at freescale.com.

With that, I will turn the call over to Gregg.

Gregg Lowe

Thanks, Mitch, and good afternoon, everybody. I will spend a couple of minutes highlighting our Q4 and calendar year results, after which Alan will provide some additional insight into the financials and provide our Q1 2014 guidance. Following Alan's comments, we will take any questions you might have.

Now looking at the results, both Q4 and calendar 2013 show that we are starting to make good progress our goals of gaining share and increasing margins. We are still in the early stages of what we believe we can ultimately accomplish but we are building some good momentum.

Looking at Q4, revenues were $1.08 billion, modestly ahead of the upper end of our guidance and essentially flat with Q3. Core product revenues grew $11 million sequentially which is ahead of normal seasonality. Gross margins were 43.9%, up 30 basis points from Q3 and adjusted earnings per share of Q4 were $0.19.

For the year, revenues were $4.19 billion, 6% ahead of last year and revenue for our five product groups was up 9% compared to last year. Gross margins for 2013 were 110 basis points higher than they were in 2012. Overall, we had some good success in 2013. We gained market share, our gross margins increased in each of quarter throughout the year, each core product group grew faster than the market led by our microcontroller business which was up 17% in 2013.

Operating expenses declined as a percent of sale, even during the year, in which we added back variable incentive compensation. Adjusted net income grew $135 million from last year and adjusted EPS improved by $0.53. So overall, some pretty good progress but there is plenty left for us to accomplish. Our team is focused on continued improvements in both market share and margin.

With that, let me turn the call over to Alan.

Alan Campbell

Good afternoon and thank you again for joining today's call. Looking at the Q4 in 2013 now in more detail. Revenues were $1.08 billion, in line with the third quarter and 13% ahead of Q4 last year. On a year-over-year basis, revenues grew 6%. As Gregg referenced, revenues for all of our five product groups increased 9% over the same period last year.

Looking at the product groups in more detail. Our microcontroller sales declined 4% sequentially in line with normal seasonality. Compared to Q4 of last year, our microcontroller sales grew 12% and for the full-year sales grew 17%. In 2013, we saw strong growth in our 32-bit microcontrollers sold to both OEMs and distributors worldwide. In addition, sales of our application processors in to the automotive and distribution channels also grew year-over-year. Looking into 2014, we are optimistic about the continued growth opportunities in this business.

Digital networking revenues grew 3% from the prior quarter and grew 26% compared to Q4 of last year. Revenues had benefit from growth in wireless infrastructure spending, particular in China, as well as growth in enterprise. On a year-over-year basis, our digital networking revenues grew 7%. This year-over-year growth was broad-based with growth in service provider, enterprise as well as distribution for our general embedded products.

Our automotive microcontroller sales were essentially flat with the third quarter and were up 13% to Q4 will last year. For the full-year, our revenues grew 8%. The business has benefited from solid production and sales levels in North America and China and modestly improving conditions in Europe.

Analog and sensor sales were 5% ahead of our third quarter and 9% above Q4 of last year. Again for the year, analog and sensor sales grew 2%. The sequential year-over-year growth was due primarily to growth in our auto production during 2013.

RF sales grew 8% from Q3 and they were in line with the fourth quarter of last year. RF sales grew 16% year-over-year. The increase in RF sales was due to the growth in our wireless infrastructure investments, particularly in China.

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