Fairchild reported a first quarter net loss of $51.1 million or $0.41 per share compared to a net loss of $218.1 million or $1.76 per share in the prior quarter and net income of $17.1 million or $0.14 per diluted share in the first quarter of 2008. Included in these results is a $6.7 million charge for restructuring and impairments. Gross margin was 15.2 percent, down 11 percentage points sequentially and 15 percentage points lower than in the first quarter of 2008.
Fairchild reported a first quarter adjusted net loss of $40.1 million or $0.32 per share, compared to adjusted net income of $7.7 million or $0.06 per diluted share in the prior quarter and adjusted net income of $23.2 million or $0.19 per diluted share in the first quarter of 2008. Adjusted net income and loss excludes amortization of acquisition-related intangibles, restructuring and impairments, impairment of investments, goodwill impairment charges, release of charges for potential litigation outcomes, and associated net tax benefits of these items and other acquisition-related intangibles.
“We significantly improved our inventory position while recording solid growth in orders and backlog in the first quarter,” said Mark Thompson, Fairchild’s president and CEO. “We aggressively reduced inventory in our distribution channel which we believe will enable us to increase sales closer to customer consumption levels in Q2. We reduced costs across the company and expect the structural changes made in the last two quarters to allow us to maintain our current level of lower operating expenses going forward. The manufacturing restructuring actions announced late last month are also expected to drive solid gross margin improvements over time. We believe our quick actions in this business cycle to reduce costs and inventories will drive higher cash flow and profits while positioning us well to capitalize on future improvements in end market demand.”
End Markets and Channel Activity
“Our first quarter sales were well below customer consumption levels as the industry worked through the current inventory correction,” said Thompson. “The reduction in sales was broad-based across all end markets. However, order rates improved during the quarter and in the first weeks of Q2, enabling us to increase backlog. Overall product pricing was down about 2 percent sequentially which is slightly less favorable than prior quarters. We maintained lead times within a stable range of 4 to 6 weeks during the quarter.”
First Quarter Financials
“We aggressively managed costs, working capital and inventories to increase our cash and securities from the prior quarter,” said Mark Frey, Fairchild’s executive vice president and CFO. “As the demand picture stabilized in Q1 we took decisive action to align our cost structure to the current market. While some of these additional cost reductions benefited the first quarter, most of the favorable impact comes in Q2 and beyond. Gross margin decreased from the prior quarter due primarily to lower factory loadings. R&D and SG&A expenses were significantly lower than our plan due to the additional structural changes announced in the quarter. We reduced our internal inventory by nearly $25 million and inventory in the distribution channel by approximately $50 million sequentially. We increased cash and securities from the prior quarter to $387.3 million which reflected cash flow from operations of $19.4 million and capital spending of $14.9 million.”
Current Status of Second Quarter Business
“Our scheduled backlog for the second quarter is approximately $250
million which is about $45 million higher than this point a quarter
ago,” said Frey. “Included in this amount is more than $22 million of
backlog that we booked in the first two and a half weeks of this
quarter. Similar to last quarter, given the still limited demand
visibility, we are not providing guidance comparable to what we have
historically given but we do want to share this backlog data and our
current view of the state of second quarter business. Assuming we
continue to record positive backlog fill consistent with the current
order patterns, we believe sales in the range of $250 to $270 million
are possible for the second quarter. For this range of revenue, we
anticipate gross margin to be between 21 and 24 percent. Our current
cost reductions coupled with the latest structural changes are expected
to reset our R&D and SG&A spending to a range of $67 to $69 million in
Q2 and enable us to maintain a level of less than $70 million per
quarter in the second half of 2009. Interest expense for the second
quarter is expected to be between $5.0 and $5.5 million while our tax
expense is anticipated to be around zero. We anticipate recording
approximately $15 million in charges in Q2 associated with previously
announced cost reduction actions of which about $3 million will be in
cash. We expect to reach our target inventory level in the distribution
channel and continue to adjust internal inventories lower in the second
quarter, excluding strategic builds required for previously announced
fab closures. Capital spending is expected to be approximately $60
million for all of 2009. 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.”
