Freescale's outlook, debt plan send shares higher

SAN FRANCISCO Wed Jan 30, 2013 3:23pm EST

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SAN FRANCISCO (Reuters) - Shares of Freescale Semiconductor Ltd (FSL.N) surged on Wednesday after the chipmaker gave an upbeat revenue forecast and said it will seek to extend the maturity of $2.7 billion of its debt.

The company's stock was up almost 14 percent after it said late on Tuesday that it was cautiously optimistic about wireless and enterprise capital spending in China and the United States, increasing speculation about a recovery in chip spending, which has been hit by a slow global economy.

Also on Wednesday, the Austin, Texas, company said in a regulatory filing that it is seeking commitments for a new senior secured term loan facility of about $2.7 billion. The proceeds would be used to refinance outstanding term loans maturing in 2016 and 2019, extending the maturity to 2020.

The likelihood of Freescale soon extending its loan maturities has shaken short-sellers who had bet that more troubles in the global economy would make it difficult for the chipmaker to retire debt due in 2016, said RBC analyst Doug Freedman.

"By pushing out the debt maturities, you make the guys that are short your stock sit there and go, ‘When is the challenge?' Well, the challenge just moved out four years," Freedman said.

Freescale, which makes chips used in automobiles, consumer products, telecommunications infrastructure and industrial equipment, had $6.38 billion in long-term debt as of December 31.

Like other chipmakers, the company has struggled for more than a year as the debt crisis in Greece, concerns about China's growth, and fiscal uncertainty in Washington caused manufacturers of cars, computers and industrial machines to buy fewer semiconductors.

Tom Deitrich, senior vice president and general manager of Freescale's digital networking business, told Reuters on Wednesday that companies in China and the United States are showing signs of spending more to beef up their cellphone networks.

In the United States, AT&T Inc (T.N) said in November it would boost capital spending 16 percent to $22 billion a year for the next three years to upgrade its wireless and wireline networks.

"Clearly, there's a bit of a capex spend that can happen here in the U.S. By and large, it hasn't happened yet, but we can start to see the early signs of that," Deitrich said. "We still see relatively muted activities in Europe."

BRING YOUR OWN GADGET

Freescale is also benefiting from a trend toward office employees bringing their own tablets or other devices to work, which has increased demand for high-quality wifi routers made with Freescale's controllers, Deitrich said.

"Instead of having just one access point in one corner of the building, the whole building is lit up, the coverage is good and the capacity is good as people work from conference rooms and hallways more and more," he said.

A recovery in the semiconductor industry would give a bigger lift to Freescale's bottom line than to many of its peers because Freescale is highly leveraged, analysts say.

"In an environment where there's a clear path for gross margins to improve, where there's a cyclical recovery in the semiconductor industry, there's a lot of earnings leverage," said Rajvindra Gill, an analyst at Needham & Co.

Freescale went public in 2011 after being taken private in 2006 for $17.6 billion by a group of private equity firms including Blackstone Group LP (BX.N), Carlyle Group and TPG Capital LP.

It was the biggest leveraged buyout of a technology company on record, but was criticized because it left Freescale with huge debt, hurting its ability to compete in the investment-intensive chip business.

Freescale's stock was up 13.8 percent to $14.10 in afternoon trading on the New York Stock Exchange.

(Reporting By Noel Randewich; Editing by Tim Dobbyn and John Wallace)

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