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Fairchild Semiconductor Reports Q3

SAN JOSE, Calif. — {complink 1989|Fairchild Semiconductor International}, the leading global supplier of power and mobile products, today announced results for the third quarter ended September 26, 2010. Fairchild reported third quarter sales of $414.4 million, up one percent from the prior quarter and 25 percent higher than the third quarter of 2009.

Fairchild reported third quarter net income of $35.8 million or $0.28 per diluted share compared to $43.8 million or $0.34 per diluted share in the prior quarter and $2.7 million or $0.02 per diluted share in the third quarter of 2009. Gross margin was 36.4 percent compared to 35.0 percent in the prior quarter and 26.0 percent in the quarter one year ago.

Fairchild reported third quarter adjusted gross margin of 36.5 percent, up 130 basis points sequentially and 960 basis points higher than in the third quarter of 2009. Adjusted gross margin excludes accelerated depreciation and inventory reserve releases related to fab closures. Adjusted net income was $52.8 million or $0.42 per diluted share, compared to $51.3 million or $0.40 per diluted share in the prior quarter and $14.9 million or $0.12 per diluted share in the third quarter of 2009. Adjusted net income excludes amortization of acquisition-related intangibles, restructuring and impairments, gain associated with debt buyback, net impairment/gain on equity investments, accelerated depreciation and inventory reserve releases related to fab closures, write-off of deferred financing fees, charge for litigation, and associated net tax benefits of these items and other acquisition-related intangibles.

“We generated solid gross margin and earnings growth in the third quarter due to continued improvements in product mix,” said Mark Thompson, Fairchild’s president and CEO. “Our mix benefited from stronger sales of our mobile power and switch products as well as many of our high voltage products and we expect these trends to continue in the fourth quarter. We grew sales 1 percent sequentially as we reduced days of inventory in the distribution channel to a historic low for us. We delivered an adjusted gross margin of 36.5 percent and expect to increase this level again in Q4 to a record high.

End Markets and Channel Activity
“Demand was generally in-line with expectations for all segments except the computing and consumer end markets,” stated Thompson. “Our sales into the OEM channel were up 10 percent sequentially to support our key customers’ continued growth, especially in the mobile segment. We continue to closely manage distribution and reduced our shipments into the channel by 3 percent in Q3 even as sell-through increased 3 percent from the prior quarter. This resulted in a 1 percent reduction in channel inventory dollars or roughly a 2 day decrease to a very lean 7.7 weeks. Recall that our target for distribution inventory is between 7.5 to 8.5 weeks and we plan to exit the year at the low end of this range.” Third Quarter Financials
“We delivered another quarter of strong financial results as we continue to ship a richer mix of analog and power management products,” said Mark Frey, Fairchild’s executive vice president and CFO. “We increased adjusted gross margin for the sixth quarter in a row and our backlog indicates further margin expansion in Q4 on the strength of higher new product sales. R&D and SG&A expenses were $87.8 million and adjusted tax expense was $9 million or 15 percent of adjusted income before taxes, both in line with expectations. We paid off $123 million in debt and repurchased $8 million in stock while generating $58 million of free cash flow. At the end of the quarter, total cash and securities exceeded our debt by a record high $93 million. We grew internal inventory 4 days to just under 75 days.” Forward Guidance
“We expect sales to be $390 to $410 million in the fourth quarter,” said Frey. “Our current scheduled backlog is sufficient to achieve this range but we expect to manage distribution backlog lower to maintain our very lean channel. We expect to increase gross margin another 50 to 100 basis points due primarily to continued improvements in product mix. We anticipate R&D and SG&A spending of $85 to $87 million in the fourth quarter. Net interest expense is expected to be roughly $2 million per quarter going forward. The adjusted tax rate is forecast at 15 to 20 percent for the quarter. As with last quarter, we are not assuming any obligation to update this information, although we may choose to do so before we announce fourth quarter results.”

Adjusted gross margin, adjusted net income and loss and free cash flow are non-GAAP financial measures and should not be considered replacements for GAAP results. We exclude accelerated depreciation and inventory write-offs/reserves related to fab closures from GAAP gross margins to determine adjusted gross margins. To determine adjusted net income/loss, we exclude amortization of acquisition-related intangibles, restructuring and impairments, gain associated with debt buyback, net impairment/gain on equity investments, accelerated depreciation and inventory reserve releases related to fab closures, write-off of deferred financing fees, charge for litigation, and associated net tax benefits of these items and other acquisition-related intangibles. To determine free cash flow, we subtract capital expenditures from GAAP cash provided by operating activities. Fairchild presents adjusted results because its management uses them as additional measures of the company’s operating performance, and management believes adjusted financial information is useful to investors because it illuminates underlying operational trends by excluding significant non-recurring, non-cash or otherwise unusual transactions. Fairchild’s criteria for determining adjusted results may differ from methods used by other companies, and should not be regarded as a replacement for corresponding GAAP measures.

Fairchild Semiconductor

2 comments on “Fairchild Semiconductor Reports Q3

  1. papri1
    October 18, 2010

    The most disheartening message which I came to know that Fairchild has closed the Fab and its products such as switches, high-voltage products might survive after testing and evaluation but for further asic design and to carry-on with the modifications it has to co-operate with the other vendors. I personally have worked indirectly with the Fairchild semiconductors and has gone throgh their information sheet. Although I had worked with the image sensing division and the CCD devices and also Time Delay Integration devices were quite trustworthy. All the specifications I have personally tested comparing with their specification sheet and results were satisfactory. The packaging industry was quite challenging as their requirement was for space applications. It required a ceramic base and mounting devices (Si) on such a base was quite typical. I enjoyed the Company's products while I worked with Semiconductor Complex Limited in India, hope the fab will reopen and the sales will improve further.

  2. Barbara Jorgensen
    October 20, 2010

    Fairchild might be doing the same thing other semicondcutor makers are doing: investing in their “core technology.” Broadline chip makers like Motorola have siphoned off their businesses so each one can be “focused.” This has helped Motorola but has made it difficult for custoemrs who used to have a one-stop shop for parts that worked together because they were made by the same supplier.

    My impression is that Fairchild was one of the few broadline suppliers that still manufactured a wide portfolio of products. Sounds like I should take a second look.

     

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