Product category:
Power Supply ICs and Controllers
News Release from: Fairchild Semiconductor
Edited by the Electronicstalk Editorial
Team on 21 April 2006
Fairchild surprises with Q1 growth
Fairchild Semiconductor has announced results for the first quarter ended 2nd April 2006.
Fairchild Semiconductor has announced results for the first quarter ended 2nd April 2006 Fairchild reported first quarter sales of $409.5 million, a 10% increase from the prior quarter and 13% more than the first quarter of 2005
This article was originally published on Electronicstalk on 28 Feb 2001 at 8.00am (UK)
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Fairchild's first quarter of 2006 included 14 weeks instead of the normal 13 week fiscal quarter.
Fairchild reported first quarter net income of $26.6 million or $0.21 per diluted share compared with a net loss of $4.7 million or $0.04 per share in the prior quarter and a net loss of $10.4 million or $0.09 per share in the first quarter of 2005.
Gross margin was 29.9%, 570 basis points higher sequentially and 680 basis points higher than in the first quarter of 2005.
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Included in the first quarter results are $5.3 million in total stock based compensation in accordance with Statement of Financial Accounting Standards (SFAS) No 123 Share Based Payment, a $3.2 million net gain on the sale of the LED lamps and displays product line, and $3.5 million in net tax benefits related to certain finalised tax filings and audit outcomes.
Fairchild reported first quarter pro forma net income of $25.6 million or $0.21 per diluted share, significantly better than the pro forma net income of $13.6 million or $0.11 per diluted share in the prior quarter and the pro forma net income of $12.5 million or $0.10 per diluted share in the first quarter of 2005.
Pro forma net income excludes amortisation of acquisition-related intangibles, restructuring and impairments, gains from the sale of the LED lamps and displays product line, certain net tax benefits, litigation settlement proceeds, charges for potential settlement losses, impact of tax repatriation and other items.
Pro forma results include stock based compensation expense.
"We set some aggressive operational and financial goals in the middle of last year, and I'm pleased to report that Fairchild has delivered impressive first quarter results, ahead of our expectations", said Mark Thompson, Fairchild's President and CEO.
"We grew first quarter sales more than 10% sequentially, well above our initial expectations".
"Keep in mind that we had an extra week in the first quarter that explains as much as 7-8% of our sequential sales increase which was partially offset by a 2% reduction in sales related to the divestiture of our LED lamps and displays product line at the beginning of the quarter".
"Netting this out results in a 4-5% apples-to-apples sales increase compared with fourth quarter of 2005, which is well above our typical first quarter results for sales to be sequentially lower 2-3%".
"After spending most of last year reducing inventories and improving our channel management processes, we were able to resume shipping in line with end market consumption in the first quarter, which drove most of our above-seasonal sales growth".
"We also believe that based on the latest WSTS data, we have gained market share throughout the first quarter in both our analogue and high value power discrete businesses".
"We increased gross margins 570 basis points sequentially, basically achieving our immediate goal of 30% in 2006, through a combination of better utilisation, improved product mix and lower depreciation expense", stated Thompson.
"I'm particularly pleased with our analogue performance where we increased sales 18% sequentially and recorded gross margins of slightly more than 40%, the highest level since the bubble of 2000".
"We are just beginning to see this group perform to their potential".
"We're off to a great start in 2006, and we look forward to building on this momentum", explained Thompson.
"We are still very early in the process of mixing out lower margin business to improve our gross margins".
"Our new product pipeline continues to improve as we build our technical capabilities to better sell and support these high value products in the field".
"We're managing lead times much more effectively on analogue and high value power discrete products, which we believe reduces the potential for excessive order rates".
"We actually reduced blended lead times during the second half of the first quarter to about 10 weeks, with lead times for our analogue and discrete power products generally below this level".
"I believe the impressive results we delivered in the first quarter offer just a glimpse of the improvement possible as Fairchild continues its transition to a higher value product portfolio in the fast growing analogue and power management markets".
"Sales continued to be solid in all the end markets with particular strength in products supporting industrial, handset and computing applications", said Thompson.
"Bookings grew steadily during the quarter resulting in continued backlog growth even as we maintained stable lead times".
"Order rates were at or above our fourth quarter 2005 levels in virtually all end markets while demand was strongest for our products serving the power supply, battery charger and desktop PC segments".
"We effectively managed our distribution channel to closely match our shipments in with distributor sales out", stated Thompson.
"Channel resales were seasonally down about 3% during the first quarter but were more than 17% higher than a year ago".
"We managed our sales into the channel to this level of resales, resulting in a slight decrease in absolute inventory levels for approximately flat weeks of supply in the channel compared with the prior quarter".
"We are winning designs and gaining new product momentum in many key markets", stated Thompson.
"We won designs with a variety of our leading power conversion products including our highly energy efficient FPS power switches and power factor correction solutions that helped to drive a significant sequential increase in first quarter power conversion sales at record margins".
"Our analogue switch products continue to win important designs in handset and computing applications enabling us to achieve record sales again this quarter while building a very solid backlog position".
"We recorded strong sales and bookings growth for our signal path analogue business led by our high margin uSerDes interface products and our highly integrated analogue video filters, drivers and amplifiers".
"We won a number of new designs with our highly integrated SPM line of power modules in a variety of air conditioner and industrial motor applications, enabling us to also ship record sales for these products in the first quarter".
"We are winning designs and gaining market share with our advanced low power MOSFET products targeted for LCD televisions, and we expect this market to continue growing at well above average rates".
"Our new product execution continues to improve, laying the foundation for higher sales at better margins in the future".
"We delivered excellent financial performance in virtually all aspects of our business, led by our significant improvement in margins", said Mark Frey, Fairchild's new Executive Vice President and CFO.
"Our strong sales growth, improved product mix and better utilisation and operational performance enabled us to increase gross margins to 29.9%".
"We effectively managed total pro forma operating expense to remain within our guidance, increasing $19 million sequentially due to bonus accruals, stock based compensation expense and the greater number of days in the quarter".
"Our underlying effective pro forma tax rate was 15.8% in the first quarter and reflects the benefits of generating profits in low tax jurisdictions as well as the usage of a portion of the US deferred tax assets that were reserved in 2005".
"These combined factors enabled us to record more than an 88% sequential increase in pro forma earnings and EPS in the first quarter".
"Internal inventories remain very lean and well within our target range given our higher sales level", stated Frey.
"Our $23 million in capital spending for the quarter keeps us within our annual budget of 6-8% of sales".
"We expect second quarter revenues to be flat to down 3% sequentially as we return to a 13 week second quarter from the 14 week first quarter of 2006", said Frey.
"We entered the second quarter with a stronger backlog position than a quarter ago which, coupled with continuing capacity additions, should allow us to sequentially increase our daily ship rates from less than $4.2 million per day in the first quarter to more than $4.4 million per day in the second quarter of 2006".
"This represents about a 6% sequential increase in our daily ship rates".
"We forecast gross margins to increase about 50-100 basis points sequentially due to expected improvements in our product mix and slightly better utilisation".
"Looking forward to the rest of 2006 and 2007, we expect to continue growing sales for our analogue and power discrete products at or above the market rate while maintaining our tight control of channel and internal inventories", stated Frey.
"We believe the combination of profitable sales growth and improved product mix through more new products and less low margin commodity business will allow us to make continued, steady progress towards our next goal of mid-30% gross margins".
"We expect operating expenses to remain flat with the first quarter as we selectively fund new product development opportunities while rigorously controlling infrastructure costs".
"Our underlying effective tax rate for 2006 is expected to remain at approximately the same level as the first quarter 2006".
"It is important to note that effective tax rates can vary as the regional distribution of income shifts during the year".
"We are forecasting our stock based compensation expense to be in the $6-7 million per quarter range for the rest of 2006".
"Our strong first quarter results and guidance for sequentially higher daily shipments and gross margin for the second quarter provide more evidence of the progress Fairchild is making at improving the quality of our business", said Frey.
"I'm personally excited to be part of this great team and to help lead the powerful transformation that is underway at Fairchild".
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