News Release from: Fairchild Semiconductor
Edited by the Electronicstalk Editorial Team on 21 October 2002
Sales and income up for Fairchild
Fairchild Semiconductor has reported results for the third quarter 2002.
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Fairchild Semiconductor has reported results for the third quarter 2002. Third quarter sales were $360.6 million, up 11% from third quarter 2001 and up slightly from the second quarter of 2002. Fairchild reported net income in the quarter of $4.3 million, or $0.04 per diluted share, compared with a loss of $19.1 million, or $0.19 per share in the third quarter of 2001.
On a pro forma basis, which excludes amortisation of acquisition-related intangibles, restructuring and impairments and other unusual items, Fairchild reported third quarter net income of $10.5 million, compared with a pro forma net loss of $8.8 million in the third quarter of 2001.
Pro forma earnings were $0.09 per diluted share, compared with a first call consensus estimate of pro forma earnings of $0.08 per diluted share, and compared with the pro forma net loss of $0.09 per share in the third quarter of 2001.
Third quarter 2002 gross margins were 25.0%, 500 basis points higher than the third quarter of 2001.
Operating cash flow was $50.2 million, positive for the fifteenth consecutive quarter.
Free cash flow (operating cash flow less capital expenditures) was $20.0 million.
"We're pleased to report quarterly sequential and year-over-year increases in both sales and earnings", said Kirk Pond, President, CEO and Chairman of the Board.
"We've made tremendous strides during the past year to increase sales, decrease costs, reduce debt, increase cash levels, and improve our balance sheet.
While visibility into near term demand remains limited, we are continuing to strengthen our business by introducing new products and lowering our overhead and reducing our manufacturing costs".
"Sales into cellphone, desktop PC, display, DVD, television, digital camera and set top box segments were all up slightly from the second quarter of 2002, while sales into automotive, power supply and industrial segments were down slightly", said Pond.
"Our broad market focus continues to limit our exposure to major demand swings in any particular end market.
In our distribution channels, which currently make up about 59% of our total sales, worldwide resales grew slightly from second quarter of 2002, while worldwide inventories decreased about 1-2%.
Distributor inventories, at about 13 weeks, dropped by about 2-3 days since the end of June 2002.
"Our customers and distributors remain cautious in their outlook and have slowed their longer term ordering activity, so a greater percentage of our business is now being requested for immediate or short-term delivery", continued Pond.
"While competition is aggressive for this short term business, our current fourth quarter backlogs for most products shows pricing within a few percent of third quarter shipment prices.
Our analogue and new power discrete product mix continues to improve, leaving less of our overall business exposed to this aggressive pricing".
"I'm pleased our management and employees have kept a tight focus on improving our balance sheet and reducing our cost structure", stated Joe Martin, Fairchild's Executive Vice President and Chief Financial Officer.
"During the quarter we increased our cash by $19 million, decreased inventory levels by $3 million and reduced inventory to about 68 days.
In addition, we reduced our research and development and selling, general and administrative (R and D and SG and A) expenses by more than 5% from the second quarter.
Our manufacturing cost improvements, which include insourcing production into our wafer fabs and assembly/test sites, have resulted in savings of more than $45 million this year through the first three quarters.
We expect the production ramp of our new assembly/test facility in China next year will begin during the first quarter and save an additional $4-6 million per quarter by the second half of 2003.
We remain committed to our goal of operating our business with gross margins in the 35% range by the middle of the industry cycle.
"Based on our quarter entering backlog, we estimate that our fourth quarter revenues will be down as much as 4-6% from the third quarter", said Martin.
"We entered the quarter with about 80% of these guided revenues already on the backlog.
If our turns business (orders that are received and shipped during the quarter) strengthens throughout the quarter, we believe revenues could be sequentially flat, although we expect that turns opportunities may be limited by our distributors' desires to exit the year with even lower inventories than they currently have.
While we remain in a very competitive and aggressive pricing environment, we've initiated additional cost reduction actions in October that we estimate will limit fourth quarter gross margin erosion to around 50 basis points and allow our fourth quarter operating margins (after R and D and SG and A spending) to remain nearly equivalent to third quarter operating margins as a percentage of sales.
We plan capital spending for fourth quarter to be about 10 to 12% of sales, with spending focused on continued cost reduction and the expansion of assembly and test capacity for new power products.
We expect to incur one-time charges in the range of $7 to $8 million during the fourth quarter associated with employee severance and other costs associated with the previously announced consolidation of our Interface and Logic and Analogue Divisions into the integrated circuit Group.
"We continue to improve our financial performance in the face of a challenging market environment", Martin continued.
"Compared with one year ago, we increased net income by more than $20 million on $35 million of incremental revenues.
We remain very positive about the robustness of our business model and expect to deliver continued improvements in financial performance as we move through this recovery".
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