- Highest Gross Margin Since 2000
- Distribution Channel Inventory Reduced for Fifth Consecutive Quarter
- Cash and Securities Increase to $481 million, Exceeds Total Debt
SAN JOSE, Calif. — (BUSINESS WIRE) — April 15, 2010 — Fairchild Semiconductor (NYSE: FCS), a leading global supplier of high performance power and mobile products, today announced results for the first quarter ended March 28, 2010. Fairchild reported first quarter sales of $378 million, up 7 percent from the prior quarter and 69 percent higher than the first quarter of 2009.
Fairchild reported first quarter net income of $22.6 million or $0.18 per diluted share compared to net income of $13.1 million or $0.10 per diluted share in the prior quarter and a net loss of $51.1 million or $0.41 per share in the first quarter of 2009. Results for the first quarter of 2010 include $2.4 million in restructuring and impairments and $1.3 million of accelerated depreciation. Gross margin was 32.2 percent compared to 29.7 percent in the prior quarter and 15.2 percent in the year ago quarter.
Fairchild reported first quarter adjusted gross margin of 32.5 percent, up 220 basis points sequentially and 17 percentage points higher than in the first quarter of 2009. Adjusted gross margin excludes accelerated depreciation and inventory write-offs/reserve releases related to fab closures. Adjusted net income was $31.8 million or $0.25 per diluted share, compared to $29.9 million or $0.23 per diluted share in the prior quarter and a net loss of $40.1 million or $0.32 per share in the first quarter of 2009. Adjusted net income and loss excludes amortization of acquisition-related intangibles, restructuring and impairments, gain associated with debt buyback, charge/release for litigation, accelerated depreciation and inventory write-offs/reserve releases related to fab closures, and associated net tax benefits of these items and other acquisition-related intangibles.
“We reported significant sales and earnings growth in the first quarter as demand for our latest analog and power management solutions continues to accelerate,” said Mark Thompson, Fairchild’s president and CEO. “We grew sales 7 percent sequentially and further reduced distribution channel inventory in what is typically a down quarter due to the Asian holidays. The inventory of our products at distributors remains at record low levels while the mix of fast moving products to slow turning inventory improved again this quarter. We reported the highest gross margin since 2000 and we expect to continue increasing margins as we ramp a number of significant new design wins into production over the next few quarters. I am also pleased to report that we generated $35.7 million of free cash flow and our cash and securities now exceed debt for the first time in our history.”
End Markets and Channel Activity
“Demand remained robust throughout the quarter including better-than-seasonal order rates during the Asian holidays,” stated Thompson. “Demand strength is broad based with the greatest growth for our products targeted to the computing, power supply, industrial and automotive end markets. We are effectively managing our supply through capacity reservations in our advanced order management system to support our top tier customers, which represent roughly 75 percent of our sales. Our sales growth was evenly balanced between OEM and distribution channels.
“Distributor sell through increased 5 percent sequentially which is significantly better than normal seasonality,” said Thompson. “The upside in sell through drove a channel inventory reduction of about 2 percent from the prior quarter, resulting in a record low 7.8 weeks of inventory. This is the fourth consecutive quarter of sell through growth and fifth quarter of channel inventory reduction. If we add this channel inventory reduction to our sales, we estimate actual consumption demand was approximately $381 million for the first quarter.”
First Quarter Financials
“We continued to improve our product mix and cost structure to deliver another solid quarter of financial results,” said Mark Frey, Fairchild’s executive vice president and CFO. “We increased adjusted gross margin 220 basis points to 32.5 percent which exceeded our expectations and is now at the highest level since 2000. New products and mix improvements drove roughly two thirds of this improvement while leverage on higher factory loadings generated the balance. R&D and SG&A expenses of $80.7 million were higher than forecast due primarily to greater variable costs driven by the stronger than expected demand. Tax expense was $7.9 million or 20 percent of adjusted income before taxes. This was at the high end of our expectations due to some discrete tax items and a distribution of profits in higher tax jurisdictions. We generated $35.7 million of free cash flow and increased cash and securities by $29.5 million sequentially to $481.2 million, which now exceeds our total debt. We held internal inventory roughly flat at 69 days as sales growth offset the $9 million increase in our work-in-process inventories and raw materials.”
“Given our backlog position and new product momentum, we expect to
increase sales to $395 to $400 million in the second quarter,” said
Frey. “Our current scheduled backlog is sufficient to achieve the low
end of this range. We still have availability for certain packages in
the current quarter and we are working on numerous approaches to
optimize supply which combined could support sales at the high end of
the range or better. We expect to increase gross margin to 33 to 34
percent due primarily to a richer product mix as a number of new designs
ramp into production. We anticipate R&D and SG&A spending of $82 to $84
million in the second quarter, which at the mid-point is slightly under
21 percent of sales. We expect to hold this level of R&D and SG&A
spending until we reach our target of 20 percent of sales. Net interest
expense is forecast to be roughly $2 to $3 million per quarter this
year. The blended 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 second quarter results.”