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Freescale to slash 10% workforce amid losses

Posted: 04 Nov 2008 ?? ?Print Version ?Bookmark and Share

Keywords:workforce? loss? market conditions?

Freescale Semiconductor has announced it would cut about 10 percent of its workers after charges dragged the firm to a $3.37-billion loss in Q3.

Suffering from non-cash charges in relation to the company's decision to divest its mobile products business and slowing down market conditions, the company reported the loss on net sales of $1.41 billion for Q3.

It added that it would reduce its global workforce by about 2,400 jobs as part of a restructuring program that Freescale believes will save more than $400 million per year.

The company recorded non-cash intangible assets and goodwill charges totaling $3.37 billion in Q3, an estimate that the company expects to be finalized in Q4.

"The $3.37 billion write-off is a recognition that the value of our company, much like the value of other companies, has come down, particularly in light of plummeting market valuations of peer companies," said Rich Beyer, Freescale chairman and CEO. He emphasized that the charge was a non-cash charge and added that Freescale's Q3 was a thoroughly decent quarter given the incredible macroeconomic environment.

Freescale reported Q3 net sales of $1.41 billion, down 4 percent sequentially from $1.47 billion in Q2 and down 3 percent year-to-year from $1.45 billion in Q3 07.

The company recorded earnings before interest, tax, depreciation and amortization of $387 million in Q3.

Worse scenario
Beyer expressed concern about the macroeconomic environment, suggesting the current chip industry downturn could be worse compared to the recent memory market. While all downturns share the same characteristics, Beyer said the recent downturn is different from the tech sector implosion of 2000. He added that as a more broad-based economic problem, this scenario can potentially be worse.

"I believe that the potential exists for it to be a deeper drop in revenues or a longer period in which the revenues stay down, or God forbid, both," Beyer noted.

Freescale said it has introduced a series of restructuring actions which will lower headcount in its supply chain, technology, marketing and general administrative functions. The company said it expects to incur about $175 million in restructuring charges. The moves, which include modest layoffs initiated in Q3, are expected to save the company more than $400 million per year.

The company announced Oct. 2 that it would leave the wireless handset chipset business to focus on other core products. Beyer said the company is involved in negotiations with interested parties over the unit and that the company continues to expect to reach a decision within the next 60 to 90 days. He recognized that Freescale may be unable to strike a deal with a buyer, but characterized that possibility as unlikely.

Looking ahead for the better
"We are both hopeful and confident that we will sell the business or a major part of the business," he said. Beyer politely declined to identify possible buyers or describe the kinds of companies that Freescale is negotiating with.

Officials said Freescale must resize its cost structure if it plans to divest about 20 percent of its revenue with the mobile business sale. In addition to layoffs, the company will have cost-cutting moves like the closure of its 6-inch fab in East Kilbride, Scotland. Freescale has said IC manufacturing there will cease by the middle of next year.

More focused strategies
But Beyer said, "Freescale is not just hunkering down and reducing its cost structure." In addition to making cuts, Freescale is putting more investment in areas that will drive growth, he added, like creating more sales and field applications roles. The company is also investing more in some areas of product development, he noted, like multicore platforms, media applications processors and some of the company's products for the automotive market.

During Q3, Freescale said it recorded reorganization costs, which had a net benefit of $139 million. This included a $296-million benefit from a Q3 settlement with Motorola, which was partially offset by $156 million in charges. The company said this included impairment of R&D assets, about $38 million for contract termination fees in relation to the canceling of the supply agreement for the company's wireless business, and about $57 million in employee severance costs associated with the closure of the East Kilbride facility.

"Net sales from its MCU product segment in Q3 decreased to $408 million, down from $460 million in Q2 and down from $465 million in Q3 07. RF, analog and sensor net sales were $261 million in Q3, down from $280 million in Q2, but up from $256 million in Q3 07," Freescale said.

Networking and multimedia products net sales were $307 million in Q3, down from $312 million in Q2, but up from $281 million in Q3 07. Mobile net sales were $344 million in Q3, up from $337 million in Q2 and down from $349 million in Q3 07, Freescale said.

Freescale's Q3 loss was more than 16 times the $202 million the company lost in the same period of 2007.

- Dylan McGrath
EE Times

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