FREESCALE SEMICONDUCTOR INC. (New York symbols FSL $27 and FSL.B $27; WSSF Rating: Extra risk) makes chips for a wide variety of products such as automobiles, computer networking equipment and wireless communication equipment. Motorola accounts for 30% of its total sales.

In the past few months, Freescale has done a good job of cutting its costs. That helps explain why its profit in the fourth quarter of 2005 jumped to $0.45 a share (total $192 million) from $0.01 a share ($5 million) a year earlier. The latest quarterly results included an $8 million reversal of a previous writedown, while the 2004 fourth quarter included $84 million in one-time charges related to the spin-off from Motorola. Revenue rose 3.5%, to $1.48 billion from $1.43 billion.

Like most technology companies, Freescale spends heavily on research, typically around 20% of its revenue of $13.80 a share.

This high commitment to research let it develop a new way to make chips using gallium arsenide, which conducts electricity about 20 times faster than silicon.

Silicon is more abundant and easier to work with than gallium arsenide, so gallium arsenide accounts for just 3% of the global chip market. But Freescale’s new method makes it easier for chipmakers to incorporate more of this material into their chips, using current manufacturing equipment. Wider use of gallium arsenide could lead to more powerful chips that also use less power.

Freescale’s strong balance sheet should let it fund the development of new products. It has $1.4 billion (or $3.30 a share) in cash, and $1.2 billion in long-term debt (0.3 times equity). Since the initial spin-off from Motorola, Freescale’s stock has more than doubled. But it still trades at a reasonable 16.2 times the $1.67 a share it will likely earn in 2006.

Freescale is a buy for aggressive investors. The multiple voting ‘B’ shares are the better choice.