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Investment Underground
Doug Ehrman
Articles (113)  | Author's Website |

Freescale - Demand for This Company's Products on the Rise

January 23, 2012 | About:

One share of Freescale (NYSE:FSL) costs $14.05. Its portfolio can be demarcated into three sections: Networking and Multimedia, Microcontroller Solutions, and Radio Frequency, Analog and Sensor. Freescale Semiconductor Holdings I Ltd. is an embedded processing semiconductors and solutions provider.

It foiled the market and rained on its estimates in 2011: Its second quarter profits were ahead of the market as demand for its analog, sensor and radio frequency chips went up. Analysts were expecting earnings of 25 cents per share and analysts are often frowned upon as being too optimistic: Freescale gave them 33 cents per share.

The chips produced by Freescale are used in cellphones, automobiles and consumer products such as Amazon’s Kindle electronic reader.

The 52-week price range for this stock is $9.43-$20.97 and its price at present sits somewhere in the middle. It has about 743,619 shares floating around the market and a market cap of $3.44 billion. It yields no dividend and has a negative earnings per share of $-2.37. It is sad in my book when, on the one hand, a company shows such marvelous progress, and on the other, its vitals leave something to be desired. Let us probe further and find out how it sizes up against its competitor, the famous Intel Corporation (NASDAQ:INTC). Intel has a market capitalization of $128.22 billion. It has 82,500 employees versus Freescale which has 19,000. Intel’s quarterly revenue year-on-year growth is 28.2% while Freescale’s is -.5%. Freescale’s net income is actually a loss of -$506 million while Intel showed a $12.76 billion profit. To make matters worse, Intel, though priced higher at about $25, yields a dividend of 3.3%.

Freescale, a company based in Austin, Texas, has operations the world over in the fields of manufacturing, sales, design, research and development.

The Automotive Infotainment and Telematics market is fast-growing and Freescale’s i.MX processors have sped up the pace for sure. Yes, there is a huge trend going on. The burgeoning demand for high-performance smart connectivity has refashioned in-car experiences. This has surely created a space for silicon providers to grow as they keep pace with the big asking for automotive-grade products. It has been 15 years that GM has used Freescale’s silicon for its OnStar platform and this will continue. The demands of the world’s top automakers are high. This highlights Freescale’s innate ability to keep up with the best of them.

This company received a downgrade from overweight to equal qeight early this year from Barclay’s Capital.

Freescale’s five-year expected price/earnings to growth ratio is 1. Its profit margin is -10.67% and operating margin is 6.69%. Its return on assets is 4.93%. Its quarterly year-on-year revenue growth is -.5%. It has a debt of 6.59 billion.

Freescale has a high price target of $20. If you came in now, you could expect a profit per share of $6 or so, assuming it does reach $20. Take a look at growth before you decide. For the past five years, there was no growth per annum. For the next five years, it is expected as 15% per annum, which is good, even giving room for the embellishments that sometimes happen in this area! One doesn’t feel too bad when one notes that the industry current quarter growth figures are -2.2%, and Freescale’s projections for the next five years are in keeping with the industry figures of 15.56% per annum.

When Freescale separated from Motorola, it was approached by many cities that would have liked it to house its headquarters. Upon an evaluation, Austin, Texas, was chosen as the center for this $5.7 billion enterprise. One of the main reasons they chose this location was because Austin is a hi-tech city with an admirable quality of life, offering a beautiful environment for the innovators of Freescale to use their creative license. Now it has three sites in Austin and 5,600 employees in all its businesses, namely, networking, transportation, wireless, research, design and manufacturing.

Demand for this company’s products seems to be on the rise. Six months or so ago, its i.MX 6 series of compatible processors became available and since then, strong acceptance has been noted across a wide range of applications. Freescale sure is keeping up and increasing its pace with the introduction of two new products that are in demand in many of the international fast-blooming markets. Volume quantities of this are expected to be shipped in the latter half of 2012.

Two more of this company’s competitors are Texas Instruments Inc. (TXN) and ST Microelectronics NV (NYSE:STM). Freescale was spun off from Motorola Inc. in 2004. It went private in 2006. It surely did come into its own after 50 years of being an appendage of Motorola, proving its mettle in its own right. It has a global presence as well, with operations in more than 30 countries.

About the author:

Doug Ehrman
Buy low and sell high is easier in theory than in practice– and that’s where we come in.

At Investment Underground, our editors are disciplined, independent thinkers who will inform you when to buy undervalued investments, recognize catalysts, and sell when full value is realized. We provide timely, detailed analysis of our value investing strategies and help you achieve your goals of a reduced-risk trading environment.

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