Motorola Inc has filed for a $2bn IPO of its under-performing chip business in a move that demonstrates growing confidence in the market for new issues by technology companies.
The SEC filing comes only two months after Motorola announced plans to spin out the semiconductor operation. Preparation for the IPO has been so rapid that it has yet to come up with a name for the new company, which has been given the temporary name of SPS Spinco.
The number of shares to be issued has yet to be revealed, and Motorola plans to distribute those remaining to its existing stockholders, ending its interest in an operation that has been part of the company since 1953. The filing also diminishes prospects of a trade sale of the business to STMicroelectronics NV, which has had a long-rumored interest in buying the business.
Sales at the chip operation reached $7.9bn in 2000 but were flat at $5bn in the two following years as the company plunged deep into the red. In the first nine months of this year to September 28, revenue was down 4.6% at $3.49bn though the company cut its losses from $1.7bn to $400m.
It does not shrink from revealing its mistakes. In the late 1990s and early 2000, it said it made substantial investments in manufacturing facilities to support what at the time appeared to be extraordinary growth, particularly in the networking and wireless industries.
However, this predicted growth did not occur. As a result, we have undertaken a number of actions since the second half of 2000, including initiating our asset-light strategy, reducing the total number of our employees by 11,000 and reducing our manufacturing facilities from 22 to 10, it said.
The company targets three markets: automotive, networking and wireless communications. It quoted Strategy Analytics as saying it is market leader for semiconductors for automotive applications, while International Data Corp says it is market share leader for communications processors.
Analysts at IDC say it has the fourth largest market share in semiconductors for cellular handsets, though this is hardly an achievement since Motorola is the second largest handset producer.
Motorola is inevitably its largest end customer, comprising 26% of 2001 sales and 23% in 2002. It has kept at this level in the first nine months of this year. Despite huge cutbacks in the last three years, the chip business still employs 23,000 full-time employees in over 30 countries.
The new company said that a number of existing or targeted customers may be reluctant to make significant purchases from us while we are a division of Motorola because these customers compete with other divisions of Motorola.
Separation from Motorola will enable it to offer employee compensation more directly linked to the performance of its business. It also believes that it will be in a better position to pursue acquisitions when it can issue its own stock.
To help the company in its early years, Motorola has agreed to buy most of its cellular base band semiconductor requirements from the company up to 2006, provided it remains competitive.
This article is based on material originally produced by ComputerWire.