Chipset shortage, weak economy mars Fairchild’s sales growth

NEW YORK—Fairchild Semiconductor’s president and chief executive, Mark Thompson, said "chip set shortages from a major vendor" hurt second-quarter sales.

In its quarterly earnings conference call with analysts last week, Thompson said "we estimate our sales would have been at least $5 million higher in Q2 and $10 million higher in Q3."

Although Thompson didn’t cite the vendor, three months ago, chip set maker Qualcomm acknowledged that it was turning to other foundry suppliers amid a shortage of 28-nm capacity at its longtime foundry partner, Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC).

Thompson said that he expects the capacity shortages to end in the fourth quarter, and that Fairchild [San Jose, Calif.] will catch up on those platforms.

For the third quarter of 2012, the power semiconductor supplier expects sales to be in the range of $360 to 380 million. "Current scheduled backlog is nearly sufficient to achieve the low-end of this range," said Mark Frey, Fairchild's executive vice president and CFO.

In addition, the mobile market, which has become a relatively new growth driver for Fairchild, is expected to drive solid sales in the second half of 2012. Third-quarter sales are expected to rise between $10 and $15 million sequentially.

"Initially we expect mobile and mid-voltage products to lead sales growth. We under-shipped consumption in high-voltage products in the second quarter and expect similar trend in the third. In late Q4, we expect this business to resume growth," Thompson said.

There are ongoing efforts to transition its low-voltage MOSFET business away from low-end notebooks to mobile and mid-voltage applications. In fact, the company is ramping 100-V MOSFET production to meet demand and grew backlog of these products in the second quarter, Thompson said.

In China, new incentives to purchase energy-efficient appliances are driving a noticeable increase in customer inquiries and orders. Chinese air conditioning makers are increasingly shifting their efforts to transitive inverter-style, variable speed motors away from the compressor, to instead the external and internal fans. It’s less costly to convert these lower-power fan motors yet it enables them to meet the efficiency standards necessary to qualify for the rebates in China, Thompson explained.

"We are shifting capacity away from the higher power modules required for compressors and to the lower power products needed for fan motors," Thompson said.

Still, the weak economy took its toll on the company’s top and bottom lines.

Fairchild reported second quarter sales of $361.5 million, up 3 percent from the prior quarter and 17 percent lower than the second quarter of 2011. Adjusting for the extra week in Fairchild's fiscal first quarter, sales grew 11 percent sequentially.  Second quarter revenue includes approximately a $4 million insurance recovery related to the Thailand flooding. 

Fairchild reported second quarter net income of $11.9 million or $0.09 per diluted share compared to $1.6 million or $0.01 per diluted share in the prior quarter and $44.9 million or $0.34 per diluted share in the second quarter of 2011.  Gross margin was 32.6 percent compared to 29.8 percent in the prior quarter and 37.1 percent in the year-ago quarter. 

"Distribution sell-through posted a strong increase, enabling us to further reduce our weeks of inventory in the channel increased gross margin nearly 3%," Thompson said.