Fairchild Semiconductor announced results for the first quarter ended March 29, 2015. Fairchild reported first quarter sales of $355.7 million, up 6 percent from the prior quarter and 3 percent from the first quarter of 2014. Fairchild reported first quarter net income of $1.1 million or $0.01 per diluted share compared to net losses of $42.7 million or $0.36 per diluted share in the prior quarter and $9.3 million or $0.07 per diluted share in the first quarter of 2014. Gross margin was 30.4 percent compared to 31.0 percent in the prior quarter and 30.3 percent in the year-ago quarter.
Fairchild reported first quarter adjusted gross margin of 31.6 percent, down 80 basis points from the prior quarter and 130 basis points higher than the first quarter of 2014. Adjusted gross margin excludes accelerated depreciation related to factory closures. Adjusted net income was $13.3 million or $0.11 per diluted share, compared to $11.9 million or $0.10 per diluted share in the prior quarter and $4.9 million or $0.04 per diluted share in the first quarter of 2014. See the Reconciliation of Net Income (Loss) to Adjusted Net Income exhibit included in this press release for more details on the other adjustment items.
"We grew sales in the first quarter at the high end of our expectations while maintaining flat distribution channel inventory," said Mark Thompson, Fairchild's chairman, president and CEO. "Sales into the automotive, industrial and appliance markets were robust. We also posted solid growth in our computing business as we continue to gain market share with power management solutions supporting server, storage and cloud applications. Demand from the mobile sector improved throughout the quarter as key customers began building their new smart phone models. Fairchild is also benefiting from higher content in these flagship models. Order rates remain strong and we have a higher backlog level than a quarter ago, which supports our guidance for the second quarter. Our manufacturing consolidation is on schedule to be completed early this summer and we expect it will drive significant improvement in our profitability going forward."
"Adjusted gross margin decreased sequentially due primarily to higher inventory unit costs attributable to lower factory loadings in the prior quarter," said Mark Frey, Fairchild's executive vice president and CFO. "R&D and SG&A expenses were $94 million, up 3% from the prior quarter but at the low end of our guidance range due to higher payroll-related expenses partially offset by ongoing cost controls and lower equity compensation. We increased factory utilization in the first quarter in response to higher demand, which supports our forward guidance for increased gross margin. We also built additional inventory to support our manufacturing consolidation but offset this with reductions in other areas to exit the quarter with internal inventory roughly flat in dollars while days of inventory decreased to 100. Free cash flow was a negative $29 million due to normal year-end cash compensation expenses. We repurchased 2.3 million shares of our stock for $39 million in the first quarter and ended the quarter with total cash and securities exceeding our debt by $80 million."
"We expect sales to be in the range of $360 to $380 million for the second quarter," said Frey. "We expect adjusted gross margin to be 33.5 to 34.5 percent due primarily to higher factory loadings from the prior quarter and improved product mix. We anticipate R&D and SG&A spending to be $97 to $99 million due primarily to the annual merit increase, higher variable compensation and temporarily higher legal spending in connection with upcoming patent trials. 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 second quarter results."
