Freescale 2013 Strength Driven by Auto

1/30/2014 11:50 AM EST

Microcontroller company Freescale Semiconductor Inc. reported strong Q4 and 2013 results in its earnings call on Tuesday. Sales hit $4.19 billion in 2013, all five product lines were up 9% over last year, R&D spend went up, operating expenses went down, and it has boots on the ground in China. In other words, sticking to its one-and-half-year-old strategy seems to be paying off.

"Overall, we had some good success in 2013." said Gregg Lowe, president and CEO, during the earnings call. "Nobody is dancing in the end zone yet. We still have a lot of work to do."

The company is starting to look like the comeback kid. In 2013, net sales reached $4.19 billion, up 6% over 2012, with Q4 net sales at $1.08 billion. Adjusted operating earnings hit $616 million in 2013, or 15% of sales, compared with $504 million in 2012, which was at 13% of sales.

Microcontroller net sales rose 17% in 2013 to $826 million, topping 2012's $707 million. Freescale attributes the increase to 32-bit MCUs and applications processors sold to automotive market. Perhaps Freescale's policy to put auto-grade on its automobile-bound consumer chips makes a difference: the consumer chip moves up to auto-grade by default.

Five product groups

• Automotive microcontrollers grew by 8% year over year, netting $1.06 billion.
• Digital networking sales were up 7% to $915 million in 2013. "Multicore is now at roughly 30% of the digital networking business. So it's a sizable business that's growing very rapidly," said Lowe during the call.
• Analog and Sensor grew 2% in 2013, netting $736 million.
• RF sales grew 16% to $352 million in 2013. Growth was attributed to infrastructure investment, especially in China. "The RF business obviously has a pretty significant exposure to the base station market and certainly has great exposure to the China expansion," said Lowe in the Q&A portion of the call.
• Other net sales: IP sales, licensing revenue, and wireless handset sales declined 22% over 2012 as Freescale winds down its cellular handset business.

Freescale is bullish about MCUs. "It's a foundation business for the company," said Lowe in the call. "When customers think of us, they think of us as a microcontroller company." A year and a half ago Freescale restated its vows to the MCU as the core of Freescale's business. Part of this strategy is to invest R&D in only those key areas: by 2015 the company plans to fund 90% R&D in its key business areas. (See: Freescale CEO targets Q3 for new strategic plan.)

At CES earlier this month, Freescale released a wearables reference design that had an open-source component to it, to help developers deal with the fractured wearable design cycle. When asked how wearables fit in, Freescale's Lowe told EE Times, "We see these types of markets off and on," and wearables can benefit most from Freescales low-power products, as low power is key to that market. Lowe also agreed that another priority with reference designs is to make job easier for developers. "Simply, designers need what we do well: low power," he said.

Freescale also reduced its distribution channels from 3 to 2, which it says will save money, and grew its presence in China by opening 10 offices over last year. "We have always had strong technical capability in China. We have got multi-hundreds of design engineers and app engineers and so forth in China and now we are leveraging those folks with local field sales people to help drive growth," said Lowe in the earnings call Q&A.