Fairchild buoyant despite Q4 and year-end losses

Fairchild Semiconductor has reported results for the fourth quarter and full year ended 30th December 2001.

cFairchild Semiconductor has reported results for the fourth quarter and full year ended 30th December 2001.

Fourth-quarter trade sales, which exclude foundry revenues, were $313.2 million, up 3% from the third quarter.

Total revenues for the fourth quarter were $324.6 million, down 31% from fourth quarter 2000 and at the high end of the mid-quarter guidance issued by the company on 28th November 2001.

Fourth-quarter pro forma earnings (formerly called adjusted earnings), which exclude amortisation of acquisition-related intangibles, restructuring, impairments and other unusual items, were $0.4 million, slightly positive on a per diluted share basis, compared with First Call consensus estimates of a $0.04 loss per share, and down from $76.9 million or $0.76 per diluted share in fourth quarter of 2000.

During the quarter the company had unusual charges of $11.2 million which included a $4.0 million write-off of an equity investment and $7.2 million for charges associated with severance and other costs associated with employee workforce reductions.

Including amortisation of acquisition-related intangibles, restructuring, impairments and other unusual items, the company reported a net loss in the fourth quarter of $16.2 million, or $0.16 per share, compared with net income of $93.7 million, or $0.92 per diluted share in the fourth quarter of 2000.

"We continue to believe that we saw the low point for our trade sales in the third quarter and that we are moving through the early stages of a market recovery", said Kirk Pond, president, CEO and chairman of the board.

"By focusing on new products and design wins, while leveraging our penetration in computing and consumer applications, we increased trade sales sequentially this quarter, even in the face of aggressive competition in our end markets.

Our consistent focus on developing high performance semiconductors for power applications helped us grow our trade sales by 3% sequentially, and grow our power sales by 10% sequentially, despite the fact that our targeted industry-wide power markets increased only slightly from third quarter levels".

"Our new product sales percentage reached a new high this quarter, at 36% of trade sales, driven mainly by increased penetration in desktop and notebook PCs, set top boxes, DVD players and consumer applications", continued Pond.

"Sales from power components increased to 59% of total trade sales.

Our analogue revenues were up more than 8% sequentially, while our discrete revenues climbed more than 7% from the third quarter.

This improvement in our product mix, along with slightly better factory utilisation helped us improve our gross margins to 24.2%, an improvement of 420 basis points sequentially from the third quarter".

"We continue to believe our business is on an upswing", stated Pond.

"During the quarter our trade bookings improved 8% sequentially, and our trade book-to-bill ratio was greater than 1:1.

We turned 21% of our fourth quarter bookings into revenue during the quarter.

Visibility improved slightly, but remains low.

Our 13-week backlog remained flat through the quarter, while our 26-week backlog grew a few percentage points.

In general, pricing seems to be bottoming for most of our product lines, even though our market environment remains very competitive.

Because of the industry-wide drop in unit demand during 2001, we anticipate no real recovery in pricing for much of 2002".

"During the quarter we saw overall bookings increase sequentially for communications, computing, displays, and industrial segments, while automotive orders were down and consumer orders were flat", said Pond.

"Demand from the computing segment was strong throughout the quarter.

Wireless communications orders were strong in October and November and weakened in December.

Late in the quarter, we experienced increases in order rates from wireline communications, networking and power supply market segments, which have been very weak all year.

Resales in our worldwide distribution channels increased on a sequential basis, while distribution inventory levels dropped both on an absolute dollar basis as well as measured by weeks of inventory.

As we projected in our mid-quarter update, we have seen our bookings rates slow in mid-December through the first part of January, which is typical seasonally".

"Throughout 2001 we have kept our focus on our revenue and our cash balance", stated Joe Martin, executive vice president and chief financial officer.

"During the fourth quarter we had positive cash flow from operations for the twelfth straight quarter and we continued to strengthen our balance sheet.

We reduced our inventories and reduced our days sales outstanding in receivables.

We also successfully completed a $200 million offering of 5% convertible notes.

In addition to growing our trade sales, market share, and gross margins, we finished the year with a cash balance that tops $504 million, compared to $285 million at the end of the third quarter".

For the full year 2001 revenues were $1407.7 million, down 21% from full year revenues in 2000.

The company reported 2001 pro forma earnings of $23.5 million, or $0.23 per diluted share, compared with $282.5 million, or $2.79 per diluted share in 2000.

Including amortisation of acquisition-related intangibles, restructuring, impairments and other unusual items, the company reported a net loss of $41.7 million or $0.42 per share, compared with net income of $273.1 million, or $2.69 per diluted share in 2000.

"Our beginning backlog entering the first quarter was roughly equal to our beginning backlog entering the fourth quarter", continued Martin.

"However, due to the normal seasonal slowness we experienced during late December and into January, we expect our turns bookings in the first quarter to be lower than the fourth quarter.

We expect our first quarter revenues to be down about 3 to 5% from the fourth quarter which is in line with historical seasonality for our products.

We expect our first quarter trade sales to again increase as a percentage of our total revenues as our foundry revenue continues to decline.

Our backlog pricing for first quarter is slightly lower than fourth quarter due to the result of annual OEM contract negotiations, so we expect gross margins to be flat to slightly down in the first quarter".

"For the first quarter we expect to have sequentially flat R and D and SG and A expenses, and interest expenses in the range of $26-27 million", stated Martin.

"For the remainder of 2002, we expect moderate revenue growth to resume at historical seasonal rates, and expect to increase our gross margins gradually as we improve factory utilisation and continue selling our new products into the market.

While overall pricing seems to have bottomed, we believe currently available industry capacity levels will delay significant price increases for several more quarters.

We plan capital spending for 2002 to continue to be about 10 to 12% of sales, with spending focused on cost reduction and the expansion of our in house assembly and test capacity for new power products.

We continue to believe that we hit the bottom of the cycle in third quarter 2001, and are looking forward to improving market conditions throughout 2002 and beyond".

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