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Based in Austin, Texas, Freescale Semiconductor (NYSE:FSL) is scheduling a $1 billion IPO with a market capitalization of $5.5 billion and a price range mid-point of $23 for Thursday, May 26, 2011. The full IPO calendar includes seven others totaling $3.25 billion.

Summary - FSL was a leveraged semiconductor buyout in 2006, and is still very highly leveraged. For the March 2011 quarter sales increased 17% to $1.19 billion from $1.02 billion in 2010, and losses decreased to -$150,000 from -$300,000. In the March 2011 quarter FSL broke even on an operating basis.

In 2010 FSL revenue was $4.46 billion and the loss was $1.1 million.

Industry Stock Trends - The seven semiconductor stocks we follow are down from their highs on average 23% in the last six months, and down 10% from their highs in the last month. So the former bull market in semiconductor stocks has turned bearish.

Valuation - At the price range mid-point FSL would sell for 1.2 times sales, which seems about right because FSL lost money while six of the seven made money in the March 2011 quarter. Only FSL has a negative book value. All the other companies have a positive book value.

FSL has a negative tangible book value, and only one other company also has a negative tangible book value - NXP Semiconductor (NASDAQ:NXPI) - which is another leveraged buyout. FSL’s gross margin of 41% is in the middle of the pack.

Conclusion - FSL can’t expect to be bailed out by a bull market in semiconductor stocks that has turned bearish. Even post-IPO FSL still will be highly leveraged, which will constrict growth plans when competing against competitors with stronger balance sheets.

If an investor wants to participate in the semiconductor business at this time, other companies may offer more upside with less risk.

6 mos

1 mos

30 day high

6 month high

high

high

May 18

% change

% change

NeoPhotonic (NYSE:NPTN)*

$20.55

$11.29

$9.06

-20%

-56%

Finisar (NASDAQ:FNSR)

$43.23

$28.48

$23.66

-17%

-45%

JDS Uniphase (NASDAQ:JDSU)

$28.16

$22.21

$20.42

-8%

-27%

NXP Semi NV (NXPI)

$34.18

$34.10

$28.68

-16%

-16%

STMicroelect (NYSE:STM)

$13.47

$12.50

$11.58

-7%

-14%

Texas Instum (NASDAQ:TXN)

$36.56

$35.50

$35.17

-1%

-4%

ON Semi (NASDAQ:ONNN)

$11.79

$11.79

$11.64

-1%

-1%

Total: 7 semiconductor cos

Average loss

-10%

-23%

*NPTN IPO'd Feb 2, 2011

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

Gross

annualizing Dec 3 mos

Cap (mm)

Sales

Earnings

BookValue

TangibleBV

Margin %

Texas Instum (TXN)

$41,130

3.0

15

3.9

4.4

54%

JDS Uniphase (JDSU)

$4,720

2.6

31

4.6

7.0

43%

Finisar (FNSR)

$2,120

2.0

28

3.3

3.4

34%

NXP Semi NV (NXPI)

$7,200

1.7

10

6.4

-2.6

42%

ON Semi (ONNN)

$5,180

1.5

17

3.5

5.6

41%

Freescale Semi (FSL)

$5,520

1.2

-9200

-1.3

-1.2

41%

NeoPhotonic (NPTN)*

$223

1.1

-28

1.1

1.4

28%

STMicroelect (STM)

$10,540

1.0

16

1.3

1.7

38%

*NPTN IPO'd Feb 2, 2011

FSL Valuaton Metrics

Business - FSL provides embedded processing semiconductors and solutions. In 2010 FSL derived 80% of net sales from products where FSL held the No. 1 or Nio. 2 market positions and had over 30% of the embedded processor market. FSL embedded processor products include microcontrollers, single- and multi-core microprocessors, applications processors and digital signal processors.

Leveraged Buyout Sponsors - On December 1, 2006, Freescale Inc. was acquired by a consortium of private equity including The Blackstone Group (NYSE:BX), The Carlyle Group, funds advised by Permira Advisers, LLC, TPG Capital and others.

Backlog - Backlog was $1.1 billion at April 1, 2011, and at December 31, 2010. Orders are placed by customers for delivery for up to as much as 12 months in the future, but for purposes of calculating backlog, only orders expected to be fulfilled during the next 13 weeks are reported.

Intellectual Property - FSL has a broad portfolio of approximately 6,100 patent families and numerous licenses covering manufacturing processes, packaging technology, software systems and circuit design. A patent family includes all of the equivalent patents and patent applications that protect the same invention, covering different geographical regions.

Competitors - Primary FSL competitors are other integrated device manufacturers such as Infineon Technologies AG (OTCPK:IFNNF), Intel (NASDAQ:INTC), Renesas Electronics (OTCPK:RNECY), STMicroelectronics, Microchip Technology (NASDAQ:MCHP), Atmel Corporation (NASDAQ:ATML), Analog Devices (NASDAQ:ADI), Cavium Networks (NASDAQ:CAVM) and Texas Instruments.

Use of Proceeds - FSL expects to net $944 million in IPO proceeds, allocated to repay debt.

Source: IPO Preview: Freescale Semiconductor