Fairchild Reports Weaker-than-Expected Demand in Q2
Fairchild Semiconductor announced results for the second quarter ended June 28, 2015. Fairchild reported second quarter sales of $355.2 million, flat from the prior quarter and down 4 percent from the second quarter of 2014. Fairchild reported a second quarter net loss of $(0.9) million or $(0.01) per diluted share compared to net income of $1.1 million or $0.01 per diluted share in the prior quarter and $17.8 million or $0.14 per diluted share in the second quarter of 2014. Gross margin was 30.9 percent compared to 30.4 percent in the prior quarter and 33.4 percent in the year-ago quarter.
Fairchild reported second quarter adjusted gross margin of 33.2 percent, up 160 basis points from the prior quarter and 20 basis points lower than the second quarter of 2014. Adjusted gross margin excludes accelerated depreciation and inventory write-offs related to factory closures. Adjusted net income was $13.9 million or $0.12 per diluted share, compared to $13.3 million or $0.11 per diluted share in the prior quarter and $25.2 million or $0.20 per diluted share in the second quarter of 2014.
"We grew sales for our industrial, appliance and mobile products during the quarter and held our distribution channel inventory dollars flat sequentially," said Mark Thompson, Fairchild's chairman, president and CEO. "Demand was weaker than expected during the second quarter from some mobile and appliance customers, the wireless telecom sector as well as general market distribution. We expect to increase sales in the third quarter due primarily to higher mobile and wireless telecom demand. We completed a number of important milestones in our factory consolidation program and are on schedule to realize significant manufacturing cost savings in the second half of this year."
"Adjusted gross margin increased nearly two points sequentially due primarily to higher factory loadings and manufacturing cost controls in the prior quarter," said Mark Frey, Fairchild's executive vice president and CFO. "R&D and SG&A expenses were $100 million, up 6% from the prior quarter due to annual merit raises and equity vesting coupled with temporarily higher legal spending. We forecast this spending level to decrease noticeably in the third quarter.
â€œWe increased internal inventory about 8 percent to 111 days during the second quarter to support our manufacturing consolidation and the expected ramp in mobile sales in the second half. Free cash flow was $34 million and we repurchased more than a million shares of our stock in the second quarter. We ended the quarter with total cash and securities exceeding our debt by $95 million," Frey continued.
"We expect sales to be in the range of $355 to $375 million for the third quarter," said Frey. "We expect adjusted gross margin to be 34.0 to 35.0 percent due primarily to lower manufacturing unit costs and improved product mix. We anticipate R&D and SG&A spending to be $95 to $97 million due primarily to lower legal spending, normal seasonality and cost controls. 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 third quarter results."