Freescale Semiconductor, Ltd. (FSL)

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Freescale Semiconductor(FSL)

Q3 2007 Earnings Call

October 23, 2007 5:00 pm ET

Executives

Mitch Haws - VP of IR

Michel Mayer - Chairman & CEO

Alan Campbell - CFO

Analysts

Lenny Zeltser - Merrill Lynch

Jeff Harlib - Lehman Brothers

Sundar Varadarajan - Deutsche Bank

Guy Baron - Credit Suisse

Patrick Wang - FCM Advisor

J. Montgomery - Morgan Stanley

Heather Campbell - from Barclays

Eric Rubel - MTR Securities

Robert Hopper - UBS

Presentation

Operator

Good afternoon. Welcome to the Freescale Semiconductor Third Quarter 2007 Earnings Call. All lines will be on a listen-only mode and the call is being recorded. If you have any objections you may disconnect at this time.

I would now like to turn the call over to Mitch Haws, Investor Relations.

Mitch Haws

Thank you everyone and welcome to our Third Quarter 2007 Conference Call. With me as always today are Michel Mayer, our Chairman and Chief Executive Officer, and Alan Campbell, our Chief Financial Officer. The earnings release and financial statements discussed today are available at the Investor Relation section of our website at www.Freescale.com. This call is being webcast live at our site as well.

Today, we will make certain forward-looking statements and these statements, as always, are based on our current expectations and assumptions. Because of the inherent risks and uncertainties, our actual results could differ materially from these statements.

Please review our filings with the Securities and Exchange Commission for a more detailed discussion of the factors that could cause our actual results to differ materially from the statements made today, as well as, other factors that could affect our results.

This presentation is being made on October 23, 2007. It includes time-sensitive information and the Company undertakes no obligation to correct or update any information presented on this call.

During this call we will also reference certain non-GAAP financial measures that we believe provide useful information about our ongoing operating performance. You will find on our website the required reconciliations to the most directly comparable GAAP number.

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

Michel Mayer

Thank you, Mitch. Good afternoon. Welcome to today’s call. As you have seen from the press release that we distributed to the audience, our third quarter results improved over the first half of this year mainly due to higher wireless revenues and I’ll discuss that.

Revenue earnings and cash flow were stronger sequentially, and we ended the quarter with over $770 million in cash. Like many of our competitors, and many have already announced their results ahead of us, our results are below the prior year. However, the semiconductor market continues to be somewhat challenging, and despite those challenging market conditions, we continue to perform well operationally with solid margins and cash flow.

We continue to make progress this quarter in strengthening our organization with the appointment of Henri Richard as our Head of Sales and Marketing.

Henri is respected in (inaudible) veteran. I am pleased, he joined the Freescale team. His expertise in developing customer solutions will accelerate our growth initiative and build on Freescale’s strong market position.

Now, let’s look at the quarter in more detail starting with TSPG Transportation and Standard Products. The TSPG revenue was $653 million down from last quarter and down from the prior year.

Now, the segment's revenue were impacted by lower overall IP revenues the planning of which can vary as you understand somewhat from quarter-to-quarter during the year. So if you look at TSPG’s revenue on a product basis, it was essentially flat year-on-year.

Now, if you look at the product revenue, the sales were negatively impacted on a sequential basis by the seasonal weakness in North American automotive production. That production, I remind you, declined 15% sequentially, North American production, as well as, had some softness in distribution. And this offset was consistent with either quarter by the growth that we experienced in Asia-Pac.

And our revenue in Asia-Pacific, automotive grew 27% from a year ago. So we continue to grow in Asia-Pacific. We continue also to see good performance in our 16-bit MCU's, up 18% year-on-year and sensors continued year-on-year growth of the [automobile] segment.

We are also starting to see traction in design wins including analog power management with both U.S. and Korean based companies and automotive microcontroller with some of the world’s largest Tier 1 suppliers. Overall our design win base is 15% above last year, 2006.

We continue to make investments in products and partnerships in TSPG to support future growth. For the consumer market, the RF entertainment control platform that we announced in Q2 has begun to gain traction. 13 of Sony's latest Bravia TV model, which you know are leaders in their segment, and are using these RF platform for their wireless remote control. The technology lab at our Freescale Technology Forum in Tokyo last month featured a Bravia TV with this technology and it generated significant interest from other consumer electronics companies.

We recently introduced the Flexis series of compatible microcontroller that serve as the 8-bit to 32-bit connection point on the Freescale Controller Continuum. The first product of that series which we received accolades in China. Readers of Portable Design China selected Flexis as the best MCU and the devices also received Electronic Engineering and Product award for 2007, plus the influential China Embedded System New Technology award.

In Q3, another 22 new ColdFire devices from the low end to the high end of the 32-bit performance spectrum lines were introduced. We have expanded our ColdFire MCU portfolio by 25% with this launch, which includes 12 high performance microprocessors for Linux application and 10 additional ColdFire MCUs with connectivity and ultra-low-power options for entry level applications.

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