Private equity firm hungry for more IC makers

03/22/2007


Paul Grimme, senior vice president and general manager of Freescale Semiconductor's Transportation & Standard Products Group, told a gathering of industry analysts and business-to-business editors in Austin, TX that the group of private equity firms headed by The Blackstone Group that took Freescale private may still be on the lookout for semiconductor manufacturing companies to acquire.

"In the past, many LBOs had the goal of cutting costs, breaking up the company into parts, and selling them for a profit as a way of unlocking value," said Grimme. "In Freescale's case, we are a strong, well-run operation that could serve as base or framework for adding on other companies. It could be a platform for participating in the consolidation of the industry. The long-term exit plan for our private owners is likely an equity event. And everyone, our management team, our new board and the owners will be looking at ways to increase Freescale's value, including M&A activity."

Combining Freescale with one or more additional chip makers could create a large enough entity to support construction of a new fab that would take full advantage of the economies of scale and smaller circuit sizes enabled by a 300-millimeter wafer fabrication (fab) factory. Increased fab space would be good news for embedded system developers, who have an increasing need for devices incorporating smaller and lower-performance microprocessors combined with analog and power functionality.

When asked about new 300-mm semiconductor fabrication facilities, Grimme indicated that Freescale does not have any current plans to build a new fab. The $6.4-billion company meets its needs for 300-mm capacity through a jointly-owned fab in Crolles, France and contract manufacturing partners, called foundries. And to address advanced R&D requirements, Freescale recently announced it will join the IBM technology alliance for joint semiconductor research and development.

The spin-off of Motorola's Semiconductor Products Sector (SPS) in 2004 created Freescale Semiconductor as a public company, and ended Motorola's involvement in semiconductor manufacturing. Motorola had been a pioneering semiconductor company since 1953. Freescale continues SPS' tradition of developing and manufacturing advanced analog, digital, and mixed-signal ICs. Typical of the company's products are its line of 8-, 16-, and 32-bit microcontroller units carrying on-chip analog-to-digital and digital-to-analog converters as well as power electronics. In addition, Freescale provides software tools, such as CodeWarrior, that customers use to develop software to run on the hardware.

The Blackstone Group and its partners took Freescale private in what has been characterized as the largest leveraged buyout in semiconductor-industry history in order to create a larger company with "greater flexibility and agility to respond to new opportunities, and the ability to take a longer term view without being fixated on the current quarter," Grimme continued.

The strategy would make sense especially for acquisition of one or more of today's "fabless" semiconductor companies. These entities create designs for novel devices, and then contract with outside Fabs for manufacturing. They thus could complement Freescale's current product mix, bringing additional sales volume to the party without dragging along legacy manufacturing infrastructure.

For further information, visit Freescale Semiconductor's website .

—Control Engineering Daily News Desk
Edited by C.G. Masi , senior editor





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