Product category: Power Supply ICs and Controllers
News Release from: Fairchild Semiconductor
Edited by the Electronicstalk Editorial Team on 20 January 2003

Fairchild continues steady progress

Fairchild Semiconductor has reported results for the fourth quarter and full year ended 29th December 2002

Fourth quarter sales were $353.9 million, 9% higher than fourth quarter 2001 sales and 2% lower than third quarter 2002 sales. Fairchild reported net income in the quarter of $3.5 million, or $0.03 per diluted share, compared with a loss of $16.2 million, or $0.16 per share in the fourth quarter of 2001.

During the quarter Fairchild had unusual charges net of gains of $9.6 million which included severance payments for previously announced employee reductions.

The company also recorded a tax benefit for the quarter of $10.7 million.

Operating cash flow was $62.5 million, positive for the 16th consecutive quarter.

Free cash flow (operating cash flow less capital expenditures) was $20.5 million.

On a pro forma basis, which excludes amortisation of acquisition-related intangibles, restructuring and impairments and other unusual items, Fairchild reported fourth quarter net income of $11.9 million, compared with pro forma net income of $0.4 million in the fourth quarter of 2001.

Pro forma earnings were calculated using a 0% tax rate and were $0.10 per diluted share.

The lower tax rate was due to a shift in income to regions with lower tax rates.

If calculated with a 35% tax rate as reported by First Call in its consensus estimate of $0.07 per diluted share, pro forma earnings would have been $0.07 per diluted share, matching the consensus estimate.

2002 full year revenues were $1411.9 million, compared with 2001 revenues of $1407.7 million.

The company reported a net loss of $2.5 million or $0.02 per share in 2002, compared with a net loss of $41.7 million or $0.42 per share in 2001.

On a pro forma basis, Fairchild reported net income of $28.8 million or $0.26 per diluted share in 2002, compared with $23.5 million or $0.23 per diluted share in 2001.

"We continued our steady progress this quarter increasing design wins and growing new product sales", said Kirk Pond, President, CEO and chairman of the Board.

"While the market environment remains very competitive, we have continued to improve our competitive positioning by investing in new products and by developing our field sales force and our manufacturing technology capabilities".

"Orders from desktop PC, displays, notebooks, wireless networking, DVD players, digital cameras motor control, lighting, power supplies, battery protection, and engine management segments all grew quarter on quarter", said Pond.

"Our strongest segment was computing, followed by consumer and industrial.

Communications orders were up slightly, while automotive orders were flat".

"Average prices decreased about 4-5% in the fourth quarter, while unit shipments grew 4%", said Pond.

"Our combined unit shipments of power discrete, analogue and other integrated circuits reached an all time high this quarter.

In our distribution channels, which currently make up about 60% of our total sales, worldwide resales and inventories were both down slightly from third quarter of 2002.

Distributor inventories remained flat at about 13 weeks".

"We continued to enhance our sales capabilities to help drive higher margin design wins", said Pond.

"We signed an agreement with Macnica I and C, a Japan-based distributor, to help drive sales and design activity and have already seen our Japan design wins increase in DVD, battery, printer and television tuner applications.

We launched a global demand creation system for our distributors which utilises RosettaNet internet interfacing to ease design win registration for our sales force.

Our new product sales, which are sales from products less than three years old, topped $100 million, which is 25% higher than one year ago".

"During the first quarter of 2003 we plan to initiate a project which will double our advanced submicron PowerTrench process production capability in our 8in fab in Mountaintop, Pennsylvania", said Pond.

"Advanced mosfets built on our PowerTrench process typically generate gross margins that are two to three times higher than our older mosfet products.

This technology expansion will allow us to service a more profitable segment of the power mosfet market from a much more efficient facility and also allow us to close our older 6in Mountaintop fab during the course of the year.

The products currently built in this 6in fab are planned to be either upgraded into higher margin PowerTrench versions, or transferred to our Bucheon, South Korea facility.

Combined with other actions already taken in Mountaintop, total cost savings from this project are anticipated to reach $6-7 million per quarter by the fourth quarter of 2003".

"During the quarter we generated $20.5 million in free cash flow, increased our cash and marketable investments by $18 million and reduced our days sales outstanding to 39 days", stated Joe Martin, Fairchild's Executive Vice President and CFO.

"With our continuing efforts to insource epi production into our South Portland, Maine wafer fab and our planned production ramp in our new Suzhou, China assembly and test facility, plus the expansion of higher technology, lower cost manufacturing in Mountaintop, we expect to continue to drive higher efficiencies, lower costs, and better technical capabilities across our entire manufacturing base".

"Going forward we expect our revenues in the first quarter to be seasonally flat to down 5% from fourth quarter 2002 levels", said Martin.

"Entering the quarter we had 70-75% of the backlog in place to hit this guidance.

Backlog pricing for first quarter shipments is slightly lower than fourth quarter, so we expect gross margins to be in the range of 23 to 24% in the first quarter.

As per our long-term model, we expect R and D spending at around 6% of sales and SG and A spending to be around 10.5% of sales.

Related to the 6in fab closure and product transfers we anticipate restructuring and other non-recurring charges of approximately $8-10 million in the first quarter and an additional $12-15 million throughout the remainder of the year, subject to business conditions.

We plan capital spending for 2003 to be about 10 to 12% of sales".

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