Freescale Semiconductor, Ltd. (FSL)

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Freescale Semiconductor Holdings (FSL)

Q4 2011 Earnings Conference Call

January 26, 2012 5:00 PM ET

Executives

Mitch Haws – Investor Relations

Rich Beyer – Chairman and Chief Executive Officer

Alan Campbell – Chief Financial Officer

Analysts

Ross Seymore – Deutsche Bank

Stacy Rasgon – Sanford Bernstein

Jason [ph] – Oppenheimer

C.J. Muse – Barclays Capital

John Pitzer – Credit Suisse

Glen Yeung – Citi

Doug Freedman – RBC Capital Markets

Frank Jarman – Goldman Sachs

Jeff Harlib – Barclays Capital

Harlan Sur – JP Morgan

Ann Lee [ph] – BMO Capital Markets

Presentation

Operator

Welcome to Freescale’s Q4 and Full Year 2011 Results Conference Call. (Operator instructions) I will now turn the meeting over to Mr. Mitch Haws. Sir, you may begin.

Mitch Haws

Thanks Kim, and welcome to all of you to our fourth quarter 2011 conference call. With me today are Rich Beyer, our chairman and CEO; and Alan Campbell, our chief financial officer.

Before we begin the prepared remarks, let me remind everyone that today’s discussion contains forward-looking statements based on our current outlook, and as such does include risks and uncertainties.

Please refer to our press release, Form 10-K, or other filings with the SEC for more information on the specific risk factors that could cause our actual results to differ materially. Also, we will reference non-GAAP financial measures and we will post the appropriate GAAP financial reconciliation to our website at freescale.com.

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

Rich Beyer

Good afternoon and welcome to our fourth quarter conference call. Q4 marked another challenging quarter for Freescale and the rest of the semiconductor industry. Global macroeconomic conditions and demand continued to weaken in many markets, which negatively impacted sales and profitability.

Despite the pressure on the top line for Freescale, we executed well on gross margin, operating expense and earnings per share. Looking at some of the highlights, revenues of $1.013 billion represented a decrease of 11% sequentially. Adjusted gross margins were 43.9%, 220 basis point below Q3, but above the prior year and in line with our outlook.

This performance generated adjusted net earnings of $18 million, and adjusted earnings per share were $0.07.

Now Alan will provide additional insights into our financial performance in the quarter. I will then provide an update on some of our business highlights and our Q1 outlook, after which we will be happy to answer your questions.

Alan Campbell

Well, good afternoon again. Thank you for joining today’s call. As Rich said, Q4 was challenging, but we continued executing well on gross margins, operating expenditures and cash. As I review the results in more detail, please note that I will be focusing these results, excluding the impact of purchase price accounting and certain other items. We believe this is a more meaningful representation of our ongoing financial performance.

In addition, recall that we recently realigned our operations to create two new strategic product groups, the networking and multimedia solutions group, NMSG; and the automotive industrial multimarket solutions group, AISG. The newly created NMSG, which includes networking, multimedia, radio frequency products will be led by senior vice president and general manager, Tom Deitrich. The AISG product group, which includes microcontroller, analog, and sensors products will be led by our senior vice president and general manager, Reza Kazerounian.

We expect to report sales consistent with the two new product groups in the first quarter of 2012. Now looking at Q4 and 2011 in more detail, Q4 revenues were $1.013 billion, representing a sequential decrease of 11%. Sales declined by 14%, or $169 million compared to Q4 of last year.

For the full calendar year of 2011, net sales grew approximately 3% to $4.57 billion, and this compares to $4.46 million in 2010. In Q4, microcontroller product sales were $355 million, 10% below the third quarter and 14% below Q4 of last year. We saw automotive sales slightly decline in Q4.

Sales of our MCUs into the industrial markets were significantly down on both a sequential and year-over-year basis due to end demand and some correction in inventory. For calendar year, microcontroller sales grew 1% to 1.6 billion, reflecting strong sales of our auto and industrial MCUs in the first-half of 2011.

Networking and multimedia revenues were $279 million in the quarter, down 4% from Q3 and down 17% from Q4 of last year. Our networking revenues were negatively impacted by lower demand and pockets of elevated inventory mainly in the wireless infrastructure market. For calendar year 2011, our networking and multimedia sales declined 4% due primarily to lower capital spending trends in wireless infrastructure in the second half of the year.

RF, analog, and sensor product net sales were $292 million, 5% below Q3 and 2% ahead of last year. Sequentially, our RF business declined from Q3, given the slowdown in wireless CapEx spending in the second half of 2011. RF sales in Q4 2011 were essentially in-line with the prior year quarter.

Our sensor business is declining slightly from Q3, and improved on a year-over-year basis, benefiting from our growing presence in consumer devices. For calendar 2011, RF, analog and sensor sales grew 14%, benefiting from strong RF sales and higher sales of our sensor, and analog product to the consumer market. We also saw growth on a year-over-year basis in sales of analog and sensors into the automotive market.

Cellular product sales were $41 million, down 58% compared to Q3. This decline was consistent with our expectations. For calendar year 2011, our cellular product sales were $398 million, compared to 455 million in 2010. Finally other products, which consist primarily of foundry sales and IP revenue, resulted in quarterly net sales of $46 million. This compares to $52 million in the third quarter and $33 million in the same period last year. And for the full calendar year, other net sales grew 51% to $181 million, based primarily on higher IP revenue.

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