Fairchild Semiconductor (NYSE: FCS), the leading global supplier of power semiconductors, today announced results for the first quarter that ended March 30, 2008. Fairchild reported first quarter sales of $406.3 million, down 6 percent from the prior quarter and 1 percent higher than the first quarter of 2007.
Fairchild reported first quarter net income of $17.1 million or $0.14 per diluted share compared to net income of $34.0 million or $0.27 per diluted share in the prior quarter and net income of $6.3 million or $0.05 per diluted share in the first quarter of 2007. Gross margin was 30.2 percent, 110 basis points lower sequentially and 250 basis points higher than in the first quarter of 2007.
Fairchild reported first quarter adjusted net income of $23.2 million or $0.19 per diluted share, compared to adjusted net income of $41.8 million or $0.33 per diluted share in the prior quarter and adjusted net income of $20.1 million or $0.16 per diluted share in the first quarter of 2007. Adjusted net income excludes amortization of acquisition-related intangibles, restructuring and impairments, purchased in-process research and development, System General purchase accounting charges, associated net tax benefits of these items and other acquisition-related intangibles, and tax benefits from finalized tax filings and audit outcomes.
“Bookings have been strong since Lunar New Year, which supports our expectation of second quarter revenue growth,” said Mark Thompson, Fairchild’s president and CEO. “Distributor sell-through also increased in March after a weak February and we expect channel sales to grow sequentially in the second quarter. Our continued supply chain discipline should allow us to quickly respond to improving demand. We also expect our new products to drive sales growth at strong margins. We reported record sales for our Smart Power Modules and anticipate this trend to continue in Q2. Sales of our latest video filters for set-top box applications jumped more than 35 percent sequentially in the first quarter and bookings were even stronger. We also increased our sales of high frequency voltage regulators for the handset market and expect solid growth across 2008.
End Markets and Channel Activity
“End market demand was roughly inline with our expectations with the exception of weaker distribution sales in China during February,” said Thompson. “First quarter sales into Europe and Korea were up about 9 percent while the Americas and Japan were flat to slightly lower sequentially. Our sales into the OEM channel were sequentially flat as increased new product revenue offset the normal seasonal decline in demand. Since the holiday period, bookings have been strong across a wide range of end markets. Distributor sell-through was down about 6 percent sequentially in Q1 due to the softer China demand in February, but has since rebounded solidly and is back to normal seasonal levels. We decreased our channel inventory by about $6 million from the prior quarter and remain within our target range for weeks of supply. Overall product pricing was down slightly more than 1 percent sequentially, which remains at a reasonable level. We held lead times within a stable range of 7 – 9 weeks during the quarter and expect to maintain this level during Q2.
First Quarter Financials
“We reported a modest decrease in gross margin as we lowered our factory loadings and shipments to reduce channel inventory dollars,” said Mark Frey, Fairchild’s executive vice president and CFO. “Gross margin was also impacted by planned seasonal increases in payroll and benefit costs as well as higher gold and copper related expenses. R&D and SG&A expenses were inline with our expectations in the first quarter. Cash and marketable securities increased $3 million to $465.1 million in the first quarter which reflected cash flow from operations of $38.4 million and capital spending of $30.7 million.
Second Quarter Guidance
“We expect second quarter revenue to be flat to up 3 percent in response to higher demand,” said Frey. “At the start of the quarter, we had about 89 percent of this sales guidance booked and scheduled to ship. We expect gross margin to be down 75 to 125 basis points sequentially due to the delayed impact of lower factory starts in the first quarter. We expect R&D and SG&A expenses to be approximately $89 to $91 million and net interest and other expenses to be about $5.5 million for the second quarter.”
This press release includes references to adjusted net income (which
excludes amortization of acquisition-related intangibles, restructuring
and impairments, purchased in-process research and development, System
General purchase accounting charges, associated net tax benefits of
these items and other acquisition-related intangibles, and tax benefits
from finalized tax filings and audit outcomes), statements of operations
prepared in accordance with generally accepted accounting principles
(GAAP) (which include these items), and a reconciliation from adjusted
net income to GAAP net income and adjusted gross margin to GAAP gross
margin. GAAP and adjusted results both include equity based compensation
expense. Adjusted results are not meant as a substitute for GAAP, but
are included solely for informational and comparative purposes.
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.