Fairchild Reports Results for Second Quarter 2010July 18, 2010 by Jeff Shepard
Fairchild Semiconductor announced results for the second quarter ended June 27, 2010. Fairchild reported second quarter sales of $409.6 million, up 8% from the prior quarter and 47% higher than the second quarter of 2009.
Fairchild reported second quarter net income of $43.8 million or $0.34 per diluted share compared to net income of $22.6 million or $0.18 per diluted share in the prior quarter and a net loss of $24.9 million or $0.20 per share in the second quarter of 2009. Results for the second quarter of 2010 include $0.9 million of accelerated depreciation. Gross margin was 35.0% compared to 32.2% in the prior quarter and 23.2% in the year ago quarter.
Fairchild reported second quarter adjusted gross margin of 35.2%, up 270 basis points sequentially and 10%age points higher than in the second quarter of 2009. Adjusted gross margin excludes accelerated depreciation and inventory write-offs/reserve releases related to fab closures. Adjusted net income was $51.3 million or $0.40 per diluted share, compared to $31.8 million or $0.25 per diluted share in the prior quarter and a net loss of $3.5 million or $0.03 per share in the second quarter of 2009. Adjusted net income and loss excludes amortization of acquisition-related intangibles, restructuring and impairments, gain associated with debt buyback, net impairment/gain on equity investments, accelerated depreciation and inventory write-offs/reserve releases related to fab closures, and associated net tax benefits of these items and other acquisition-related intangibles.
"We delivered strong sales and earnings growth in the second quarter due to seasonally higher demand across a broad range of our product lines," said Mark Thompson, Fairchild’s President and CEO. "The investments we made in the last few years to ramp our high voltage power management solutions, coupled with our leading technologies in mobile analog and low voltage MOSFETs, are fueling this acceleration in sales and margin improvement. We grew sales 8% sequentially and maintained channel inventory at historically low levels. Adjusted gross margin topped 35% which is the highest level since the year 2000 due to a richer product mix on the strength of numerous design win ramps. We expect to continue this trajectory of growth and margin improvement and will provide an update to our target business model at our upcoming analyst day on September 16. I am also pleased to report that we reduced debt by $26 million this quarter and plan to pay off another $122 million at the end of this month. This will reduce our debt to roughly $322 million by the end of July which is the lowest level in our history and will add about $0.03 to annual earnings per share."
"Demand was strong across a broad range of end markets and in all regions," stated Thompson. "End market demand improved sequentially with consumer and handset order rates seasonally higher while industrial sales continued to be robust. Our sales growth was slightly stronger for OEMs than the distribution channel in the second quarter. Distributor sell-through increased about 5% sequentially which is slightly better than normal seasonality. We maintained channel inventory at about 8 weeks which is in the middle of our target range and expect to hold this level in the third quarter."
"We posted excellent financial results for the second quarter due primarily to a continued improvement in our product mix," said Mark Frey, Fairchild’s Executive Vice President and CFO. "We increased adjusted gross margin nearly 3%age points sequentially to 35.2% and our order flow and backlog momentum indicate continued progression in the second half of 2010. R&D and SG&A expenses of $85.1 million were slightly above our original forecast due primarily to higher variable compensation costs driven by higher sales and profitability. Adjusted tax expense was $5.2 million or 9% of adjusted income before taxes, which was lower than expected due to the distribution of profits in various tax jurisdictions. We paid off $26.3 million in debt and repurchased $10 million in stock while generating $54.5 million of free cash flow. At the end of the quarter, total cash and securities exceeded our debt by a record high $52 million. We held internal inventory roughly flat at 70 days."