SAN JOSE, Calif.—(BUSINESS WIRE)—October 16, 2008— Fairchild Semiconductor (NYSE: FCS), a leading global supplier of high performance products that enable energy efficiency, today announced results for the third quarter ended September 28, 2008. Fairchild reported third quarter sales of $428.3 million, up 2.3 percent from the prior quarter and 0.4 percent higher than the third quarter of 2007.
Fairchild reported third quarter net income of $26.7 million or $0.21 per diluted share compared to net income of $6.9 million or $0.05 per diluted share in the prior quarter and net income of $20.3 million or $0.16 per diluted share in the third quarter of 2007. Included in these results is a $1.8 million charge for restructuring and impairments primarily related to streamlining of warehouse operations. Gross margin was 29.9 percent, 130 basis points higher sequentially and 40 basis points lower than in the third quarter of 2007.
Fairchild reported third quarter adjusted net income of $34.0 million or $0.27 per diluted share, compared to adjusted net income of $21.5 million or $0.17 per diluted share in the prior quarter and adjusted net income of $34.1 million or $0.27 per diluted share in the third quarter of 2007. Adjusted net income excludes amortization of acquisition-related intangibles, loss on the sale of a product line, restructuring and impairments, purchased in-process research and development, charges for potential litigation outcomes, System General purchase accounting charges, costs associated with the redemption of convertible debt, associated net tax benefits of these items and other acquisition-related intangibles, and tax benefits from finalized tax filings and positions.
“We grew sales sequentially in the third quarter following a healthy increase in the second quarter,” said Mark Thompson, Fairchild’s president and CEO. “We benefited from record sales of our high frequency voltage regulators, analog switches and IntelliMAX™ load switches for handset applications as well as analog video filters targeted to the consumer electronics market. Our new products continue to gain traction with leading customers and we expect to continue this momentum through 2009.
End Markets and Channel Activity
“Sales were roughly in line with expectations in most end markets during the quarter,” said Thompson. “We also posted healthy sales into the handset market driven primarily by our growth in new products. Demand in the industrial and computing end markets decreased from the prior quarter. Distributor sell-through increased more than 1 percent from the prior quarter and we maintained our channel inventory at the mid-point of our target range. Overall product pricing was down between 1 to 2 percent sequentially and within our normal range. We maintained lead times within a stable range of 6 to 8 weeks during the quarter.
Third Quarter Financials
“We posted sales and margin growth even as we further reduced internal inventory,” said Mark Frey, Fairchild’s executive vice president and CFO. “We reduced internal inventory more than $7 million sequentially giving us one of the leanest supply chains in the industry. Gross margin was 29.9 percent, up 130 basis points from the prior quarter due to higher factory loadings, cost decreases related to product insourcing, lower material costs, and favorable currency exchange rates in Asia. R&D and SG&A expenses were significantly better than our plan due to strong cost management. Cash and marketable securities decreased $17.0 million to $419.3 million in the third quarter which reflected cash flow from operations of $48.9 million, capital spending of $44.5 million and net stock purchases of $12 million.
Fourth Quarter Guidance
“We expect fourth quarter revenue to be down 6 to 12 percent, sequentially.” said Frey. “At the start of the quarter, we had approximately 88 percent of this sales guidance booked and scheduled to ship. Order rates were below expectations in September resulting in a sequentially lower starting backlog position. We expect that gross margins will be approximately flat sequentially as we offset lower factory loadings with insourcing cost benefits, as well as favorable foreign currency and raw material cost trends. We expect R&D and SG&A expenses to be approximately $80 to $83 million and net interest and other expenses to be about $6.0 to $6.5 million for the fourth quarter.”
This press release includes references to adjusted net income (which excludes amortization of acquisition-related intangibles, loss on the sale of a product line, restructuring and impairments, purchased in-process research and development, charges for potential litigation outcomes, System General purchase accounting charges, costs associated with the redemption of convertible debt, associated net tax benefits of these items and other acquisition-related intangibles, and tax benefits from finalized tax filings and positions), 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.
