First quarter results for semiconductor veteran

Q1 results reflect recent acquisition of System General

Fairchild Semiconductor has announced results for the first quarter ended 1st April, 2007.

First quarter sales were US $402.6 million, down 3.7% from the prior quarter and 1.7% from first quarter of 2006, which included 14 weeks.

These results include $5.1 million of revenue from the System General acquisition for the period of February 5, 2007 to April 1, 2007.

Fairchild reported first quarter net income of $6.3 million or $0.05 per diluted share compared with net income of $8.7 million or $0.07 per diluted share in the prior quarter and a net income of $26.6 million or $0.21 per diluted share in the first quarter of 2006.

Gross margin was 27.7%, 130 basis points lower sequentially and 220 basis points lower than in the first quarter of 2006.

Excluding the purchase accounting charge of $2.1 million related to the acquisition of System General, gross margin was 28.2%.

Fairchild reported first quarter adjusted net income of $20.1 million or $0.16 per diluted share, compared with adjusted net income of $26.7 million or $0.21 per diluted share in the prior quarter and adjusted net income of $25.6 million or $0.21 per diluted share in the first quarter of 2006.

Adjusted net income excludes amortisation of acquisition-related intangibles, purchase accounting charges and in-process R and D related to the acquisition of System General, restructuring and impairments, reserves for potential lawsuit losses, net gain on the sale of the LED lamps and displays product line, associated net tax benefits of these items and other acquisition-related intangibles, and certain discrete tax benefits and charges.

"Order rates improved after Chinese New Year which enabled us to deliver solid sales performance in the first quarter and build a slightly higher starting backlog position for the second quarter", says Mark Thompson, Fairchild's President and CEO.

"We continued to tightly manage our supply chain in the first quarter and reduced channel inventories by more than a day sequentially while we maintained internal inventories well within our target range".

"While the first half of 2007 may be weaker than normal for the industry, our supply chain is well positioned and we are planning on a number of new product introductions and mix improvements that we believe will drive greater content and higher margins in the second half of 2007".

"Sales by end market were generally in line with our expectations with the exception of some selected weakness in the handset market", says Thompson.

"We recorded the biggest increase in order rates for our products supporting the industrial and notebook computer end markets while demand remained weak for our products targeting desktop computers".

"Distributor sell-through was higher than the prior quarter and we expect another modest sequential increase in the second quarter".

"Factory utilisation was sequentially lower in the first quarter, but we expect this to improve in the second quarter as we gradually increase loadings", said Thompson.

"Average lead times remained in the range of 9 - 10 weeks, with the longest lead times on our analogue power conversion and leading-edge functional power products that continue to experience strong demand".

"We've made many operational improvements in our cycle management, which enabled us to moderate the decline in sales and gross margins during this downturn compared to past cycles", says Mark Frey, Fairchild's Executive Vice President and CFO.

"We continue to tightly control production output to match end-market demand".

"This resulted in lower factory utilisation in the first quarter and caused adjusted gross margins to decrease 80 basis points sequentially".

"This adjusted gross margin includes a 20 basis point favourable impact from the acquisition of System General".

Internal inventories decreased $3.6 million from the prior quarter, excluding the $6.1 million from the System General acquisition.

Operating expenses were lower than the prior quarter, even with the addition of System General's results, due to spending controls, adjustments to the bonus accrual, lower than expected legal expenses due to the push out of the trial with Power Integrations and some nonrecurring credits to spending.

Net interest and other expenses increased to $4.7 million in the first quarter due to a reduction in interest income from our lower level of invested cash.

"Our first quarter results include System General for the period after February 5, 2007 when we became the majority stockholder", said Frey.

"Cash and marketable securities decreased $157.6 million to $428.8 million in the first quarter which reflected cash flow from operations of $24.0 million, offset primarily by our net cash payment of $171.8 million to acquire a controlling interest in System General".

"We expect second quarter revenues to be up 1% - 4% and gross margins to be approximately flat sequentially", Frey added.

"At the start of the second quarter, we had about 90% of this sales guidance booked and scheduled to ship".

"We expect R and D and SG and A spending to be approximately $91.0 - $93.0 million and net interest and other expenses to be $5.0 - $5.5 million for the second quarter".

"Beginning with this quarter our guidance includes the expected results of System General".

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