Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Hello, Mr. Chips

Tech geek that I am, you'd think I would know that there's more to the semiconductor business than Intel (Nasdaq: INTC  ) and rival Advanced Micro Devices (NYSE: AMD  ) . Alas, you'd be wrong.

The sad truth is that I've paid zero attention to Freescale Semiconductor (NYSE: FSL  ) , the former microprocessor business unit of Motorola (NYSE: MOT  ) . How. Incredibly. Stupid. Why, you ask? First, look at this chart. Second, look at this earnings report. For the first quarter of 2006, Freescale reported sales and earnings that rose 6% and 150% year over year, respectively.

That's an unusually wide gulf, I know. Blame margins. Freescale dramatically improved all of them. Net margin, for example, was up 8%. But even that's conservative, because last year's net income wasn't adjusted for options expense on the earnings report. A check of the relevant filing with the Securities and Exchange Commission (PDF file) shows that adjusted net earnings were $67 million in Q1 2005, resulting in a bottom-line margin of 4.64%. Compare that with this year's Q1 total of 13.89%, and Freescale improved 9.25% on an apples-to-apples basis. Nice.

Of course, the story doesn't end there. Freescale says it bought back 3.8 million shares during the quarter for roughly $100 million, or an average of roughly $26.30 per stub. That's a good sign, too.

You see, Freescale's stock currently trades for 18.6 times 2006 earnings estimates (on a normalized basis, per Capital IQ), while normalized per-stub income is expected to jump 27%. That leads me to believe that Freescale's stock is at worst fairly priced, and at best really cheap. Whichever ends up being the truth, one thing is clear: Management has invested capital where, at the moment, there is a reasonable chance for good returns. That's important for a notoriously cyclical business like Freescale. In fact, investors would be hard-pressed to ask for more.

So there, Freescale. You've got my attention. I just hope your next act is as good as this one.

Want further Foolishness with your chips?

High-tech. Biotech.Nanotech. Any tech. David Gardner and his Foolish band of analysts cover it all forMotley Fool Rule Breakers, and they're walloping the market's average return by more than 20% as of this writing. Find out which stocks are powering the portfolio by asking us for a30-day all-access passto Rule Breakers.

Fool contributorTim Beyersprefers the spicy salsa with his chips. Tim didn't own shares in any of the companies listed in this story at the time of publication. You can find out which stocks he owns by checking Tim's Foolprofile. Intel is aMotley Fool Inside Valuepick, while FormFactor is aMotley Fool Hidden Gemspick. The Motley Fool has an ironcladdisclosure policy.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 512932, ~/Articles/ArticleHandler.aspx, 10/27/2016 9:19:27 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 12 hours ago Sponsored by:
DOW 18,199.33 30.06 0.00%
S&P 500 2,139.43 -3.73 0.00%
NASD 5,250.27 -33.13 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:00 PM
AMD $7.29 Down -0.21 +0.00%
Advanced Micro Dev… CAPS Rating: **
FORM $10.25 Down -0.29 +0.00%
FormFactor CAPS Rating: ***
INTC $34.92 Down -0.18 +0.00%
Intel CAPS Rating: ****
MSI $73.58 Down -0.58 +0.00%
Motorola Solutions CAPS Rating: ***
SPSN $0.10 Down +0.00 +0.00%
Spansion CAPS Rating: **