Fairchild Reports Record Sales in Automotive in Q3

November 13, 2014 by Jeff Shepard

Fairchild Semiconductor reported third quarter sales of $381.1 million, up 3 percent from the prior quarter and 5 percent higher than the third quarter of 2013. Fairchild reported a third quarter net loss of $1.0 million or $0.01 per diluted share compared to net income of $17.8 million or $0.14 per diluted share in the prior quarter and $12.1 million or $0.09 per diluted share in the third quarter of 2013. There were $31.7 million in restructuring expenses and other charges related to Fairchild's manufacturing footprint consolidation included in the third quarter of 2014 results. Gross margin was 34.8 percent compared to 33.4 percent in the prior quarter and 31.5 percent in the year-ago quarter.

Fairchild reported third quarter adjusted gross margin of 35.3 percent, up 190 basis points from the prior quarter and 320 basis points higher than the third quarter of 2013. Adjusted gross margin excludes accelerated depreciation related to manufacturing line closures. Adjusted net income was $34.4 million or $0.28 per diluted share, compared to adjusted net income of $25.2 million or $0.20 per diluted share in the prior quarter and $21.4 million or $0.17 per diluted share in the third quarter of 2013.

"We executed well in the third quarter to deliver strong financial results," said Mark Thompson, Fairchild's chairman and CEO. "Sales were up seasonally and we reported solid improvements in our gross and operating margins. We posted record sales into the automotive market which were up 16 percent from the year ago quarter. We also maintained distribution channel inventory at a healthy level of less than 10 weeks. Fairchild generated strong cash flow in the third quarter and further improved our balance sheet."

"Looking forward to the fourth quarter, our guidance reflects the impact of lower demand from two large customers as well as some latitude to adjust shipments to keep distribution channel inventory flat in dollars exiting this year," said Thompson. "One large mobile and consumer-products customer is reducing demand again to exit the year with lower inventories. Another large consumer-products customer is significantly decreasing demand for a game platform now that they have the components they need for holiday builds. The impact of these two customers accounts for roughly half of the sequential sales decline we are guiding."

"Adjusted gross margin increased 2 points sequentially due to better product mix and higher factory loadings in the prior quarter," said Mark Frey, Fairchild's executive vice president and CFO. "R&D and SG&A expenses were $95.4 million, down 3 percent sequentially, due primarily to seasonally higher vacations, lower travel expenses and ongoing cost controls. Free cash flow was a positive $41.6 million for the third quarter. We ended the third quarter with total cash and securities exceeding our debt by $137 million which was up $17 million from the prior quarter despite repurchasing $25 million in stock

"We expect sales to be in the range of $340 to $360 million for the fourth quarter," said Frey. "We expect adjusted gross margin to be 33.0 to 34.0 percent due primarily to lower sales and the impact of reduced factory loadings in the prior quarter. We anticipate R&D and SG&A spending to be $95 to $97 million. The adjusted tax rate is forecast at 12 percent plus or minus 3 percentage points for the quarter. Consistent with our usual practices, we are not assuming any obligation to update this information, although we may choose to do so before we announce fourth quarter results."