Components | April 20, 2011

Fairchild: PCIA sales up 9% sequentially

Fairchild Semiconductor reported 1Q/2011 (ended March 27, 2011) sales of USD 413 million, up 4% from the prior quarter and 9% higher than the 1Q/2010.
Fairchild reported first quarter net income of USD 43.5 million compared to USD 51.0 million in the prior quarter and USD 22.6 million in the first quarter of 2010. Gross margin was 36.8% compared to 37.0% in the prior quarter and 32.2% in the year ago quarter.

Fairchild reported first quarter adjusted gross margin of 36.9%, down 20 basis points sequentially and 440 basis points higher than in the first quarter of 2010. Adjusted gross margin excludes accelerated depreciation and inventory reserve releases related to fab closures.

Adjusted net income was USD 51.3 million, compared to USD 57.3 million in the prior quarter and USD 31.8 million in the first quarter of 2010. Adjusted net income excludes amortization of acquisition-related intangibles, restructuring and impairments, accelerated depreciation and inventory reserve releases related to fab closures, and associated net tax impact of these items and other acquisition-related intangibles.

“We got off to great start for 2011 by delivering strong sales growth and gross margin at the high end of expectations. We grew PCIA sales 9% sequentially due to the capacity additions we made to support strong demand from industrial, automotive, appliance and alternative energy customers. We have excellent backlog visibility in this business and continue to add capacity to support our customers’ requirements. We posted 1% sequential sales growth in our MCCC business which is particularly notable given normal end market seasonality and the weakness seen in the computing and consumer segments. MCCC sales growth was driven by further share gains in smart phones, tablets and consumer applications. Our standard product sales were down sequentially as we continue to shift capacity to higher margin business. Our core businesses, which now drive 90% of our total sales, are growing well and we expect to continue this trend as we enter what is typically the highest demand quarters of the year", said Mark Thompson, Fairchild’s Chairman, CEO and president.

First Quarter Financials

"Gross margin came in at the high end of expectations due to further progress on improving product mix and higher factory utilization", said Mark Frey, Fairchild’s executive vice president and CFO.

"R&D and SG&A expenses were USD 92 million which was favorable to our guidance range due to lower payroll and variable compensation expenses. Adjusted tax expense was USD 7.8 million or 13% of adjusted income before taxes. We generated USD 22.4 million of free cash flow during the quarter and paid USD 17 million to acquire a silicon carbide power transistor company. At the end of the quarter, total cash and securities exceeded our debt by a record USD 136.8 million. We increased internal inventory dollars by 4% to hold our days of inventory flat with the prior quarter."

Forward Guidance

"We expect sales to be USD 425-435 million in the second quarter,” said Frey. “Our current scheduled backlog is sufficient to achieve this range. We expect to increase adjusted gross margin to 37.0-37.5% due primarily to the impact of better mix and higher factory utilization in Q1. We anticipate R&D and SG&A spending of USD 96-98 million in the second quarter as we increase our investment in new product development and sales and incur greater equity compensation expenses driven by our higher stock price. Net interest expense is expected to be roughly USD 2 million per quarter going forward. The adjusted tax rate is forecast at 15% plus or minus 3% for the quarter. As with last quarter, we are not assuming any obligation to update this information, although we may choose to do so before we announce second quarter results."
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