The worldwide market for mobile wireless devices is enormous. An estimated 1.3 billion devices — most of them cell phones — will be sold this year despite a weakening global economy.

But there is no mercy in this business and little room for error. Phone makers unveil dozens of new models every year, and the lifetime of a successful model might only be several months. Cell phone makers can be riding high in April and shot down in May.

Witness Motorola Inc: A few years ago, it climbed to a strong No. 2 in the industry based on the success of its Razr model. But in the past two years, Motorola has been decimated by aggressive imitators, lackluster designs and changing consumer tastes.

The same relentless competition also goes on among the chipmakers that supply the world's top five cell phone makers — Nokia, Samsung, Motorola, LG and Sony Ericsson.

Phone makers are asking chip suppliers to develop not only more capable electronics hardware to run more advanced phones but also much of the software. The strain on chipmakers has been huge as they try to build their businesses so they have the revenue to pay for rising engineering costs.

The trend, analysts say, is to either find a way to grow the business — or get out of the race.

The latest victim is Austin's Freescale Semiconductor Inc., but its problems have been years in the making.

Freescale was spun off from Motorola only four years ago, and its big aim was to find a second large customer for cell phone chips to turn an unprofitable business into a moneymaker.

When Motorola's fortunes rose in 2005 and 2006, so did Freescale's, but when Motorola plummeted, it took Freescale's cell phone chip business with it.

Analysts say the Austin company's problems were part technical and part cultural. Other big phone makers were reluctant to tie up closely with a chip company that was so closely partnered with a tough rival. And even though

Freescale had the rights to sell the chips it developed for Motorola to other cell phone makers, it didn't have the right to sell the software Motorola developed to make the phones operate effectively.

Freescale spent heavily to develop its own communications "software stack" for its phones, but analysts doubt how successful its efforts were.

Analyst Will Strauss with Forward Concepts in Tempe, Ariz., estimates that developing an effective stack of communications software for advanced cell phones takes at least three years and $200 million.

Without the software it needed, Free-scale was unable to attract the big customers it needed to survive on its own. Motorola finally relented and licensed its cell phone software to Freescale within the past several months, Strauss says, but by then it was too late.

Motorola, meanwhile, decided late last year that it would buy its way out of chip purchase agreements it had made with Freescale at the time of the spinoff. It wanted to build closer ties to Texas Instruments Inc. and Qualcomm Inc. for advanced 3G (third generation) cell phones that can send and receive high-speed data transmissions as well as voice.

New Freescale CEO Rich Beyer and his executive team saw the handwriting on the wall and a month ago put the cell phone business on the sales block.

Last week, Beyer says Free-scale is talking actively with more than one potential buyer, and it expects to announce a deal to sell all or part of its cell phone business within 90 days.

Because the cell phone chip operation represents about one-fifth of the company's revenue, Freescale must get smaller. It announced plans late last week to shed 10 percent of its jobs over the next year to get its spending in line with expected smaller revenue. The company also is investing in developing more advanced products to serve the markets it will hold onto — automotive, communications networking and some areas of consumer electronics.

Even though the cell phone market is immense, only a handful of customers really count. The top five cell phone makers account for more than four-fifths of global sales.

"It is a big market, but there aren't that many customers," said analyst Cody Acree with Stifel, Nicolaus & Co. in Dallas. "And it requires a huge amount of R&D spending. About 75 percent of all phones have been built on a partnership basis (between chip suppliers and big phone makers). If you lose that partnership tie-up, you have to find another one, and there are only five."

Strauss says he thinks Free-scale's cell phone chip business will be sold in parts. The most valuable parts, he says, are its core group of several hundred engineers, its library of patents and its extensive development work on a proposed next-generation phone technology known as Long-Term Evolution, or LTE.

Freescale also last week took a $3.4 billion noncash charge against earnings as its best estimate of what the value of the company will be without the cell phone business.

The company now values its business assets at $11.1 billion, which is $6.5 billion less than private investors paid for it two years ago.

Source:statesman