Freescale Semiconductor, Ltd. (FSL)

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Freescale Semiconductor, Inc. (FSL)

Q4 2012 Earnings Call

January 29, 2013 5:00 p.m. EST

Executives

Mitch Haws – VP, IR

Gregg Lowe – President and CEO

Alan Campbell – SVP, CFO

Analysts

Jim Covello – Goldman Sachs

Ambrish Srivastava – BMO Capital Markets

Glen Yeung – Citi

Jeff Harlib – Barclays Capital

Ross Seymore – Deutsche Bank

John Pitzer – Credit Suisse

Steven Eliscu – UBS

Franklin Jarman – Goldman Sachs

Raji Gill – Needham & Co.

Ranjit Ramachandran – Sanford Bernstein

C.J. Muse – Barclays Capital

Doug Freedman – RBC Capital Markets

Presentation

Operator

Welcome to Freescale’s Fourth Quarter and Full Year 2012 Results Conference Call.

[Operator Instructions]. Today’s call is being recorded. If anyone has any objections, you may disconnect at this time.

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

Mitch Haws

Thanks, [Kim], and welcome to all of you to our fourth quarter and yearend 2012 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’d like to remind everyone that today’s discussion does contain forward-looking statements that are based on our current outlook, and as such, do include certain risks and uncertainties. Please refer to the cautionary statements 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 actual results to differ materially. The company does not assume an obligation to update any forward-looking statements made today to reflect subsequent events or circumstances.

Finally, in the course of today’s discussion we will refer certain non-GAAP financial measures and we have posted the appropriate GAAP financial reconciliations to our website at freescale.com.

With that let me turn the call to Gregg.

Gregg Lowe

Well, thanks, and good afternoon. I’ll spend a couple of minutes highlighting our Q4 and calendar 2012 results, after which Alan will provide some additional commentary and insight into the financials. Following Alan’s comments, we’ll take your questions.

Now looking at Q4 results, revenues were $957 million, modestly ahead of our outlook and down 5% from Q3. Gross margins were 39% and the adjusted loss per share was $0.15. For the year, revenues were $3.95 billion, 14% below last year. Gross margins for 2012 were 41.6%.

Our Q4 and 2012 results do reflect the impact of the weaker trends in the semiconductor market. Despite that we continued to make solid progress this year in improving our capital structure and building the foundation for future growth.

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

Alan Campbell

Yes, and good afternoon, thank you again for joining today's call. As I review the Q4 financial results in more detail, please note I will be focusing on the results excluding the impact of certain one-time items and adjustments. We believe this is a more meaningful representation of our ongoing financial performance.

In addition, as we highlighted in the earnings release, we have realigned our product groups and are now reporting revenues as follows: microcontrollers, digital networking, automotive microcontrollers, analog and sensors, RF, and other which primarily includes IP revenues and cellular handset revenues. We will post on our website the historical revenue trends based on this reporting format. This breakout out provides more detail than we've provided historically and we think the additional transparency will help you track our progress in our major product groups.

Now looking at Q4 in 2012 in more detail, revenues were $957 million, representing a sequential decrease of 5%. Sales declined by 6% compared to Q4 of last year. Microcontroller and RF revenues grew sequentially, offset by declines in digital networking, automotive MCUs, and analog and sensors. The IP and cellular revenues also declined from the third quarter. On a year-over-year basis sales declined by 6% compared to the same period last year.

Looking at the product groups now in more detail, microcontroller sales grew 3% sequentially and 15% over Q4 of last year. Sales benefited from the design win momentum we've seen in our 32-bit ARM-based MCUs sold in the industrial market as well as growth in our 8-bit portfolio sold into Asia Pacific through both distribution and OEM accounts. On a year-over-year basis MCU sales declined 11%. The decline in sales was attributable primarily to lower sales in the industrial markets which experienced lower demand in the first nine months of 2012. Additionally, sales of our application process has declined from the prior year.

Digital networking revenues declined 14% from the prior year and were 7% below the prior year. Enterprise and wireless spending, compounded by some pockets of inventory in the US and Europe, was weaker during the year, particularly in Q4. On a year-over-year basis, digital networking revenues declined 8%. Outside of investments in infrastructure in China, CapEx and wireless declined during 2012 compared to the prior year which was the primary driver of the decline over last year. Looking ahead, we are cautiously optimistic for both the wireless and enterprise CapEx trends in China and the US and expect our sales to benefit from these trends going forward.

Automotive microcontroller sales were 6% below Q3 of 2012 and 7% below Q4 of last year. On a year-over-year basis, sales were down 8%. The year-over-year sequential declines resulted primarily from lower European production volumes which offset more favorable trends in the US and China.

Analog and sensor sales were 3% below Q3 and 8% below Q4 last year. For the year, our analog and sensor sales declined 8%. The decline in sequential and year-over-year revenues was again based primarily on lower sales to automotive given the weakness in Europe.

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