Freescale Semiconductor Launches IPO

Freescale Semiconductor Holdings posted modest gains in early trading on Thursday after cutting the price of its initial public offering.

The semiconductor company's share price opened at $19, an increase of 5.6% from its IPO price of $18. Freescale sold 43.5 million shares, but the price was below its expected $22 to $24 range.

Freescale, which was a spin-off from Motorola in 2004, provides embedded processing semiconductors and systems, including microcontrollers, single- and multi-core microprocessors, applications processors, and digital signal processors. Freescale is the largest supplier of engine system microcontrollers in the world.

In 2009, Freescale launched its first ARM chips with Cortex-A8 micro-architecture targeted at providing cost-effective, yet high-performance netbooks. Last year, the company launched its i.MX508 applications processor that Freescale claimed provides twice the rendering performance of the company's previous e-reader processors, helping to reduce the price of e-readers by $30.

While Freescale has found some success in Kindle, its successes have been limited. Freescale used to be an innovator in the microprocessor market and its PowerPC microprocessors were previously used in Apple's PowerBooks and Mac mini products, until Apple's transition to Intel processors in 2006. It has yet to break into exploding markets such as microprocessors for the smartphones and tablets, and data center applications for networking and cloud computing. Plus, the company faces strong competition in the embedded processor market from Intel, Infineon Technologies, Texas Instruments, and others.

"The key question is although Freescale has a great history, it really needs the navigation and working capital to be able to realign itself with where the industry is going," said Sergis Mushell, principal analyst at Gartner, in an interview. "It's a very rapidly changing industry."

"What Freescale needs is to reassess, realign, and re-engage the market, he said. "I think that's what they're doing. They're looking at the market and recapturing what the market wants. However, they should not focus solely on technology, but rather on business processes and execution."

Freescale's IPO is being driven in part by $7.5 billion in debt accumulated in a 2006 leveraged buyout of the company. Since then, the company has struggled with its mountainous debt and saw its products being used less by the likes of Motorola, which has seen its cell phone sales sag over the years.

However, Freescale cut back on their proposed IPO terms Wednesday, a sign investor demand wasn't as strong as it had hoped. The company announced Wednesday it was selling shares at a 47% discount to what private-equity owners paid after cutting the price range in its initial public offering by 17%, according to Bloomberg.

"It's a relief of debt burden for them, but it's not the magic bullet for them either," said Tom Starnes, an analyst for Objective Analysis. "It was something necessary for them to move on, but it's not going to help them create more technology for smartphones or next video games or tablets or anything like that."

It's the booming markets of microprocessor technology that Freescale needs to focus on, rather than relying on small, steady growth in its core embedded technology industry, Starnes said. A new management direction and focus can certainly help.

"If you're growing slowly and not highly competitive, you will be devoured," Mushell said. "That's the nature of the semiconductor industry. They need to scale and be present in markets that are aggressive and drive revenues from those markets."

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