Product category: Power Supply ICs and Controllers
News Release from: Fairchild Semiconductor
Edited by the Electronicstalk Editorial Team on 25 July 2002

Recovery on track at Fairchild

Fairchild Semiconductor has reported results for the second quarter 2002

Second-quarter sales were $360.5 million, up 7% from the first quarter of 2002 and down 3% from second quarter 2001. Second-quarter gross margins were 26.7%, 310 basis points higher than the first quarter of 2002. The company reported a net loss in the quarter of $13.0 million, or $0.12 per share, compared with a loss of $8.0 million, or $0.08 per share in the second quarter of 2001.

On 28th June, the company redeemed all of its 10.0625% senior subordinated notes that were due in March 2007 at a redemption price of 105.063% of face value.

In connection with this redemption, the company had one-time charges totalling $22.1 million, including $14.5 million for the call premium and other transaction fees, and a $7.6 million write-off of deferred financing fees associated with the original bond offering.

This redemption was made possible by the company's sale of common stock which raised $397.7 million.

On a pro forma basis, which excludes amortisation of acquisition-related intangibles, restructuring, impairments and other unusual items, Fairchild reported second quarter income of $7.5 million, up 29% from pro forma net income of $5.8 million in the second quarter of 2001.

Pro forma earnings were $0.07 per diluted share, compared with a First Call consensus estimate of pro forma earnings of $0.04 per diluted share, and up 17% from the pro forma earnings of $0.06 per diluted share in the second quarter of 2001.

"Our robust bookings period earlier this year was driven by an increase in our customers' end demand as well as their rebuilding of our backlog to support their longer term growth plans", said Kirk Pond, president, CEO and chairman of the Board.

"During the second quarter we saw our order rates begin tracking what we believe to be end market consumption rates.

Our book-to-bill ratio was above 1.1 to 1 and remained above 1 to 1 for the fourth consecutive quarter.

Our 26 week backlog grew 11% during the quarter, with much of the strength in our power products".

Highlights of the second quarter included: increased sales and gross profits sequentially in all product segments; positive book-to-bill ratios in communications, displays, consumer and industrial market segments; and the 14th straight quarter with positive operating cash flow.

"Orders from DVD, cell phone, displays and communications segments were up sequentially, while orders from PC motherboard and notebook suppliers weakened during the latter half of the second quarter", said Pond.

"Our continued focus on providing semiconductor products for power applications has improved our penetration into optical drives, displays, cellular handsets, power supplies, portable power adapters, printers, and networking segments.

Our strong presence in multiple end markets helped offset the significant drop in orders from the personal computer segment we saw in May and June.

Overall we believe the recovery that began in the third quarter of 2001 is on track, and we believe our investments in developing new power products, improving manufacturing efficiencies, and strengthening marketing and sales infrastructure are positioning us to improve revenues and earnings over the next several years".

"During the quarter we improved our balance sheet, raised our cash position, reduced our debt and improved our gross margins in every major product segment", stated Joe Martin, Fairchild's executive vice president and chief financial officer.

"We successfully completed a secondary offering and used the proceeds to retire all of our 10.0625% bonds.

Overall gross margins improved more than 300 basis points from the first quarter and were 120 basis points higher than second quarter of 2001.

Inventory turns and days sales outstanding also improved.

We are reaffirming our prior guidance for third quarter revenues to be flat to slightly up from the second quarter", said Martin.

"We entered the quarter with more than 80% of these guided revenues already on the backlog.

While we have continued to see weak order rates from the personal computer segment during July, we expect overall bookings to improve beginning late August and into September due to normal seasonality and the beginning of holiday builds for the computing and consumer segments.

We expect overall pricing on shipments to remain roughly flat in the third quarter, with improvements in mix and costs to help increase gross margins roughly 50 basis points.

For the third quarter and the remainder of 2002 we expect research, development, sales, marketing and administrative (R and D and SG and A) expenses to stay roughly flat as a percentage of sales.

We plan capital spending for 2002 to continue to be about 10% to 12% of sales, with spending focused on cost reduction and the expansion of assembly and test capacity for new power products.

I'm very pleased overall to point out that compared with our performance in the second quarter a year ago, all financial indicators are improving", said Martin.

"Profits, margins, cash and backlog are all higher, while R and D and SG and A expenses, inventories, and receivables are all lower.

We expect to deliver continued improvements in financial performance as we move through this recovery".

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