SAN JOSE, Calif. — (BUSINESS WIRE) — October 18, 2012 — Fairchild Semiconductor (NYSE: FCS), the leading global supplier of power semiconductors, today announced results for the third quarter ended September 30, 2012. Fairchild reported third quarter sales of $358.8 million, down 1 percent from the prior quarter and 11 percent lower than the third quarter of 2011. Third quarter revenue includes approximately a $3 million insurance recovery related to the Thailand flooding which was included in the original assumptions for third quarter guidance.
Fairchild reported third quarter net income of $24.7 million or $0.19 per diluted share compared to $11.9 million or $0.09 per diluted share in the prior quarter and $35.8 million or $0.28 per diluted share in the third quarter of 2011. Gross margin was 33.5 percent compared to 32.6 percent in the prior quarter and 35.9 percent in the year-ago quarter.
Adjusted net income was $32.3 million or $0.25 per diluted share, compared to $17.6 million or $0.14 per diluted share in the prior quarter and $44.5 million or $0.34 per diluted share in the third quarter of 2011. Adjusted net income excludes amortization of acquisition-related intangibles, restructuring and impairments, accelerated depreciation related to fab closures, write off of deferred financing fees, charges for litigation and associated net tax effects of these items and other acquisition-related intangibles.
“As expected, we posted solid sequential sales growth for mobile products,” said Mark Thompson, Fairchild’s chairman and CEO. “Offsetting the mobile growth was incremental weakness in other end markets, especially computing, where we were also more selective in accepting commodity notebook-related business. We under-shipped consumption in the distribution channel by about $8 million as we continue to aggressively control inventories during this uncertain economic time. If we had shipped in line with distribution sell through, sales would have been up sequentially in the third quarter.”
Third Quarter Financials
“Gross margin increased 1 point sequentially due primarily to a richer product mix and lower variable compensation,” said Mark Frey, Fairchild’s executive vice president and CFO. “R&D and SG&A expenses were $85.8 million which was significantly better than guidance due to spending controls and the reversal of variable compensation expenses accrued in prior quarters. Free cash flow was a negative $17.5 million due to increases in accounts receivable and capital expenditures. We increased internal inventory dollars slightly to support higher mobile demand.”
“We expect sales to be in the range of $330 to $350 million for the fourth quarter,” said Frey. “Our current scheduled backlog is nearly sufficient to achieve the low end of this range. We expect adjusted gross margin to be in the range of 30 to 32 percent due primarily to lower factory loadings and start up costs at our 8 inch wafer fab in Korea. We anticipate R&D and SG&A spending to be in the range of $88 to $90 million as the reversal of our variable compensation accrual does not repeat in the fourth quarter. The adjusted tax rate is forecast at 15 percent plus or minus 3 percent 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 fourth quarter results.”
Adjusted gross margin, adjusted net income and free cash flow are non-GAAP financial measures and should not be considered replacements for GAAP results. We exclude accelerated depreciation related to fab closures from GAAP gross margins to determine adjusted gross margins. To determine adjusted net income/loss, we exclude amortization of acquisition-related intangibles, restructuring and impairments, accelerated depreciation related to fab closures, write off of deferred financing fees, charges for litigation and associated net tax effects of these items and other acquisition-related intangibles. To determine free cash flow, we subtract capital expenditures from GAAP cash provided by operating activities. Fairchild presents adjusted results because its management uses them as additional measures of the company’s operating performance, and management believes adjusted financial information is useful to investors because it illuminates underlying operational trends by excluding significant non-recurring, non-cash or otherwise unusual transactions. Fairchild’s criteria for determining adjusted results may differ from methods used by other companies, and should not be regarded as a replacement for corresponding GAAP measures See additional information on our non-GAAP financial measures and reconciliations to the most comparable GAAP measures in our SEC filings related to this announcement.
Special Note on Forward Looking Statements:
Some of the paragraphs above, including the one headed “Forward
Guidance,” contain forward-looking statements that are based on
management’s assumptions and expectations and involve risk and
uncertainty. Other forward-looking statements may also be found in this
news release. Forward-looking statements usually, but do not always,
contain forward-looking terminology such as “we believe,” “we expect,”
or “we anticipate,” or refer to management’s expectations about
Fairchild’s future performance. Many factors could cause actual results
to differ materially from those expressed in forward-looking statements.
Among these factors are the following: failure to maintain order rates
at expected levels; failure to achieve expected savings from cost
reduction actions or other adverse results from those actions; changes
in demand for our products; changes in inventories at our customers and
distributors; technological and product development risks, including the
risks of failing to maintain the right to use some technologies or
failing to adequately protect our own intellectual property against
misappropriation or infringement; availability of manufacturing
capacity; the risk of production delays; availability of raw materials
at competitive prices; competitors’ actions; loss of key customers,
including but not limited to distributors; the inability to attract and
retain key management and other employees; order cancellations or
reduced bookings; changes in manufacturing yields or output; risks
related to warranty and product liability claims; risks inherent in
doing business internationally; changes in tax regulations or the
migration of profits from lower tax jurisdictions to higher tax
jurisdictions; regulatory risks and significant litigation. These and
other risk factors are discussed in the company’s quarterly and annual
reports filed with the Securities and Exchange Commission (SEC) and
available at the Investor Relations section of Fairchild Semiconductor’s
web site at investor.fairchildsemi.com or the SEC’s web site at