Fairchild Reports Margins and Revenue Up
Fairchild Semiconductor today announced results for the first quarter ended April 2, 2006. Fairchild reported first quarter sales of $409.5 million, a 10% increase from the prior quarter and 13% more than the first quarter of 2005. Fairchild's first quarter of 2006 included 14 weeks instead of the normal 13-week fiscal quarter.
Fairchild reported first quarter net income of $26.6 million or $0.21 per diluted share compared to a net loss of $4.7 million or $0.04 per share in the prior quarter and a net loss of $10.4 million or $0.09 per share in the first quarter of 2005. Gross margin was 29.9%, 570 basis points higher sequentially and 680 basis points higher than in the first quarter of 2005. Included in the first quarter results are $5.3 million in total stock based compensation in accordance with Statement of Financial Accounting Standards (SFAS) No. 123(R) Share Based Payment, a $3.2 million net gain on the sale of the LED lamps and displays product line, and $3.5 million in net tax benefits related to certain finalized tax filings and audit outcomes.
Fairchild reported first quarter pro forma net income of $25.6 million or $0.21 per diluted share, significantly better than the pro forma net income of $13.6 million or $0.11 per diluted share in the prior quarter and the pro forma net income of $12.5 million or $0.10 per diluted share in the first quarter of 2005. Pro forma net income excludes amortization of acquisition-related intangibles, restructuring and impairments, gains from the sale of the LED lamps and displays product line, certain net tax benefits, litigation settlement proceeds, charges for potential settlement losses, impact of tax repatriation and other items. Pro forma results include stock based compensation expense.
"We set some aggressive operational and financial goals in the middle of last year, and I'm pleased to report that Fairchild has delivered impressive first quarter results, ahead of our expectations," said Mark Thompson, Fairchild's president and CEO. "We grew first quarter sales more than 10% sequentially, well above our initial expectations. Keep in mind that we had an extra week in the first quarter that explains as much as 7 - 8% of our sequential sales increase which was partially offset by a 2% reduction in sales related to the divestiture of our LED lamps and displays product line at the beginning of the quarter.
"Netting this out results in a 4 - 5% apples-to-apples sales increase compared to fourth quarter of 2005, which is well above our typical first quarter results for sales to be sequentially lower 2 - 3%. After spending most of last year reducing inventories and improving our channel management processes, we were able to resume shipping in line with end market consumption in the first quarter, which drove most of our above-seasonal sales growth. We also believe that based on the latest WSTS data, we have gained market share throughout the first quarter in both our analog and high value power discrete businesses.
"We increased gross margins 570 basis points sequentially, basically achieving our immediate goal of 30% in 2006, through a combination of better utilization, improved product mix and lower depreciation expense," stated Thompson. "I'm particularly pleased with our analog performance where we increased sales 18% sequentially and recorded gross margins of slightly more than 40%, the highest level since the bubble of 2000. We are just beginning to see this group perform to their potential."