Coming after the solid third quarter results that produced higher operating margins and improving cash flow, Freescale Semiconductor's CEO Gregg Lowe had every reason to be chipper and lively when EE Times caught up with him on the phone on Tuesday, October 28.
Freescale, during the first three quarters of 2014, increased its overall revenues by 14%. “In that same time period, each of our five businesses has grown at double-digit rates compared to the first three quarters of 2013,” Lowe said during an earnings call. “Microcontrollers are up 19%, Digital Networking is up 23%, Auto Microcontrollers are up 15%, Analog and Sensors is up 11%, and RF is up 52%.” The company's revenues were $1.21 billion, 2% ahead of quarter two and 12% above the third quarter of last year.
The storied semiconductor company, once described as an “intensive care” patient, appears to have rediscovered its groove — steadily, if not spectacularly.
Rejuvenating Freescale in recent quarters, according to Lowe, have been two factors: an “explosion of connected devices,” also known as the Internet of Things (IoT), and “cars so aware of their surroundings that they can't get into accidents.”
Of course, Freescale isn't alone in pursuing IoT. Nor is Freescale the only chip vendor enjoying the growth of semiconductor content in the automotive market. So what's so special about Freescale?
To provide possible answers, here's an excerpt of EE Times' interview with Lowe.
EE Times: You believe IoT is more than just a buzzword. You say Freescale is better positioned to mine the growing IoT market. How so?
Gregg Lowe: When you look at the IoT market, there are three important pieces. First is energy efficiency, second, scalability, and third, security.
Energy efficiency is important for every connected device. Whether it is a wearable or handheld device, it needs to consume less power. IoT needs to scale from small to larger devices — like a monitoring device that goes inside the backbone of the Internet.
But most important to IoT is strong security. If 25 billion devices are going to be connected, suggested by some in the next few years, they're creating that many opportunities for hackers to cause trouble. Security is the key.
EE Times: So, how do those three attributes translate to your product portfolio?
Lowe: We have the industry's lowest power MCUs, which are a part of our Kinetis family of 32-bit MCUs, addressing energy efficiency.
Our microcontrollers scale from relatively low cost, 50-cent MCUs to multi-core high-end processors.
As for security, although it may not be obvious, Freescale has long experience in developing encryption engines for network processors. It fits nicely into the security piece of the IoT market.
In essence, with our large product portfolio, we're covering an end-to-end IoT market, starting from the core of the network to the edges.
EE Times: IoT means a lot of things to a lot of people. In which segment are you seeing bigger growth?
Lowe: IoT can be medical devices, or it can be connected cars. At Freescale, in mining the IoT market, we're not picking end products to win.
If there are connected tennis shoes, we want to be a part of it. It there are monitoring devices for the elderly, we want a piece of that market, too. If someone is building an automatic dog feeder, we want that. We don't want to choose. We want to be everywhere.
EE Times: But that means that you will end up with a growing team of field engineers who must cover a really wide waterfront by supporting diversified IoT devices.
Lowe: We have a sizeable sales force of our own. But we also work with our distributors very closely.
Earlier this year, we made a significant change to our distribution strategy by narrowing from three to two global distributors. We're getting more attention from those two now.
I don't know about other companies but we have a philosophy that our distributors are our true partners. We train them just as we do with our own applications engineers. Our distributors provide thousands of feet on the ground. Our footprint in Asia, for example, is phenomenal.
Two or three weeks ago we held training. We saw a big increase in the number of application engineers who participated in the program.
I think it also helps that kinds of products we offer — scalability and energy efficiency in MCUs — are right up their alley. They're something their customers are asking for.
EE Times: I'd like to switch gears and ask you about the automotive market. I heard during the earnings call that the unit growth of cars has been a modest 3% in 2014. It's estimated to remain the same in 2015. So, automotive chip suppliers — not just limited to Freescale — are all betting their growth on the same thing: the increasing semiconductor content in cars. How do you see Freescale's automotive business differentiated from your competitors'?
Lowe: As you know, the automotive market has a longer life cycle. It requires a significantly longer time to ramp. The impact of failure [to meet the obligation of your customers] could be huge.
Forty-five percent of Freescale's revenues come from automotive-related business. As a long-term automotive chip supplier with a significant portion of our product portfolio tied to automotive, we think we've gained trust from carmakers and Tier One suppliers. We're different from other chip companies who are getting on the automotive bandwagon just now and who may or may not be interested in the automotive business five years from now.
EE Times: In which part of the automotive business are you seeing the highest growth?
Lowe: I think the automotive industry today is in the third phase of evolution. The first was fuel injection. The second was with safety movement with air bags and other [features]. Now, connected cars. Cars are connected to people and their surroundings.
People are interested in the quality of connectivity in cars. They're also interested in things like sensors and radar that make cars aware of what's happening around them. Eventually, that will turn into autonomous driving.
EE Times: You just mentioned autonomous driving. What's your view on it — in terms of the market's acceptance and its technology progress?
Lowe: I'm not sure if everyone is interested in climbing onto the backseat and letting the car drive. But I can assure you that people are interested in cars that can't get into accidents.
Imagine you have a 16-year-old who's just begun driving. I think people will pay more for a car that is nearly impossible to get into an accident. Cars that are aware of their surroundings will drive the semiconductor content inside cars.
EE Times: Financial analysts in the investment community have been extra cautious in the current earnings' season, due to the public statement made by one of your competitors [Microchip] predicting an “industry correction” on the horizon.
Could you tell us any signs you are picking up on the market or the industry outlook in the fourth quarter and in 2015?
Lowe: As I said during the earnings call, I think what we're seeing in the fourth quarter is the amplified seasonality. Customers want to make sure that they position inventory where they're going to be comfortable.
But in the semiconductor business, it's hard to predict the future beyond a quarter. Anything could happen and things could change quickly.
To read the rest of this article, visit EBN sister site EE Times.