Fairchild Semiconductor announced results for the second quarter ended June 26, 2016. Fairchild reported second quarter sales of $350.0 million, up 7 percent from the prior quarter and 1 percent lower than the second quarter of 2015. Fairchild reported second quarter net income of $6.9 million or $0.06 per diluted share compared to $14.8 million or $0.13 per diluted share in the prior quarter and a net loss of $0.9 million or $0.01 per diluted share in the second quarter of 2015. Gross margin was 29.5 percent compared to 30.6 percent in the prior quarter and 30.9 percent in the year-ago quarter.
Fairchild reported second quarter adjusted gross margin of 29.9 percent, down 120 basis points from the prior quarter and 330 basis points from the second quarter of 2015. Adjusted gross margin excludes accelerated depreciation, inventory write-offs related to factory closures and acquisition-related costs. Adjusted net income was $15.6 million or $0.13 per diluted share, compared to $11.6 million or $0.10 per diluted share in the prior quarter and $13.9 million or $0.12 per diluted share in the second quarter of 2015.
“We grew sales strongly across a broad range of end markets in the second quarter,†said Mark Thompson, Fairchild’s chairman, president and CEO. “Sell through in our distribution channel was up 13% sequentially. Our starting backlog is higher than a quarter ago which should enable us to grow sales seasonally in the third quarter. We saw solid demand growth for our products serving the mobile, appliance, enterprise computing and industrial end markets. We expect demand in the mobile sector to be particularly strong in the third quarter as new models and additional design wins drive higher sales. We expect normal seasonal demand trends to continue in our other major end markets.â€
“Adjusted gross margin decreased sequentially as we continued to reduce inventory and recognize underutilization costs from the prior quarter,†said Mark Frey, Fairchild’s executive vice president and CFO. “We increased factory utilization in the second quarter in response to higher demand and expect gross margin to improve significantly in the third quarter. R&D and SG&A expenses, excluding acquisition-related costs, were roughly flat sequentially at $85 million as the impact of lower headcount and other cost reductions offset our merit increase and seasonally higher compensation expenses. Cash flow from operations and proceeds from the sale of property plant and equipment, less capital expenditures, was $58.3 million for the second quarter due primarily to higher net income and favorable changes in working capital. At the end of the second quarter our total cash and securities exceeded debt by $132 million.â€
Pending Acquisition Update As previously announced on November 18, 2015, Fairchild entered into an Agreement and Plan of Merger with ON Semiconductor, under which a wholly owned subsidiary of ON Semiconductor agreed to acquire all of the outstanding shares of Fairchild common stock for $20.00 per share in cash. As previously disclosed, Fairchild expects ON Semiconductor will dispose of its ignition IGBT business (which had 2015 revenues of less than $25 million) in order to satisfy remaining regulatory concerns. Fairchild and ON Semiconductor continue to work cooperatively and expeditiously to obtain remaining required regulatory approvals from the U.S. and China in connection with the transaction, which is expected to close around the end of August.
