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Freescale delivers top performance prior to NXP merger

Posted: 27 Jul 2015 ?? ?Print Version ?Bookmark and Share

Keywords:acquisition? M&A? merger? design win?

Backed by record-breaking gross margins, operating profits and design wins, Freescale Semiconductor showed strong second-quarter financial results prior to its acquisition by NXP Semiconductors.

"The strong execution on gross margins and disciplined operating expense led us to generate record operating cash flow and record free cash flow in the quarter," said Freescale CEO Gregg Lowe during the financial call.

The merger of NXP and Freescale is expected to close before the year's end, with regulatory approval currently "on track," according to Lowe. "It is rare" to see companies merge when both are at the top of their game, he observed during an interview with EE Times. He said, "NXP and Freescale are both performing well, increasing margin and market share."

Gregg Lowe

Lowe: This is as good as I've ever seen.

Freescale this week got the Marketing Team of the Year of the ACE Awards, sponsored by EE Times and EDN. NXP was named Ace Awards' Company of the Year; Lowe said these honours "highlight the power of the two companies."

Freescale's net sales for the second quarter of 2015 were $1.20 billion, compared to $1.17 billion in the first quarter of 2015 and $1.19 billion in the second quarter of 2014.

The company's operating earnings for the period were $226 million, compared to $179 million in the first quarter of 2015 and $180 million in the second quarter of 2014.

The Freescale CEO pointed out, in particular, that the company's Q2 gross margin, 48.1 per cent, is a new record, marking a sequential increase for 10 consecutive quarters. Freescale will have reduced its debt by approximately $1.4 billion since January 2014, he added.

Since Lowe joined Freescale in June 2012, the company set two key goals: to grow revenue to gain shares and to increase gross margins.

Asked what contributed most to Freescale's transformation, Lowe said, "When the employees are motivated and believe in their missiontop line revenue growth and margin expansionthey make discretionary efforts." No matter how little each effort might be, cumulative efforts by each of 17,000 employees at Freescale "could go a long way," he said. "It's a big deal."

Lowe paused a moment and added, "This may all sound a little too fluffy, but I believe in this sort of thing, wholeheartedly."

Natural language

Lowe isn't new to big mergers. When he was at Texas Instruments, he gained first-hand experience with the merger of TI and National Semiconductor. Asked how preparation for the integration of NXP and Freescale teams has been going, Lowe said, "This is as good as I've ever seen."


Acknowledging that any merger causes distractions for employees while uncertainty breeds fear among them, Lowe credited the relatively painless progress to NXP's decisive actions and the two companies moving quickly. Two leaders from NXP and one from Freescale initially elected to manage the integration process. Each company formed a team of 30 to 35 people dedicated to managing the merger. The companies have already decided who will lead sales and run operations in different regions.

Lowe added, "In fact, we are having NXP teams in town here in Austin today, holding leadership meetings." Besides working out mechanical processes, the teams are socialising. "We see these soft things as also very important," said Lowe.

While Freescale employees don't speak Dutch, the two companies share "the natural language" of getting things done, said Lowe. The cultures of NXP and Freescale are remarkably compatible as they are both "technology-oriented" and "results-oriented," he added.

In early June, both Lowe and NXP CEO Rick Clemmer, along with their automotive teams, visited their largest customers in the auto industry. "Those meetings have gone extremely well," said Lowe. The future of combining Freescale's strength in MCUs with NXP's expertise in identification and security is deemed extremely critical by carmakers, especially to prevent hackers from penetrating vehicles.

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