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Fairchild’s Fiscal 4Q15 Earnings Missed Analyst Estimates

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Fairchild fell short

So far, we saw that Cypress Semiconductor’s (CY) fiscal 4Q15 earnings topped analyst estimates but reported weaker guidance for fiscal 1Q16. Likewise, Fairchild Semiconductor International (FCS), which manufactures power semiconductors, just released its fiscal 4Q15 results, though Fairchild failed to meet analyst estimates. The firm has been struggling from declining revenues for the past few quarters, making it an attractive acquisition target. On November 18, 2015, the company agreed to be acquired by ON Semiconductor (ON) for a cash consideration of $2.4 billion.

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In fiscal 4Q15, Fairchild’s revenues fell by 6% YoY (year-over-year) to $317.2 million, missing the analyst estimate of $326.7 million. The strong demand in the automotive, enterprise computing, and telecom sectors was offset by weaker demand in industrial, appliance, consumer, and mobile. The company’s adjusted EPS (earnings per share) fell by 45% YoY to $0.11, lower than the analyst estimate of $0.14.

That said, the December quarter is generally slow for the industrial market, but fiscal 4Q15 was even weaker than expected, due largely to the slowdown in the Chinese (MCHI) economy. The mobile market growth also slowed. Big behemoths like Samsung and Apple (AAPL) reported slow growth for the December 2015 quarter.

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Profitability

Fairchild’s adjusted gross margin rose from 32.4% in fiscal 4Q14 to 33% in fiscal 4Q15. The company’s gross margin improved as the cost of revenue fell by 8.6% YoY, which topped the revenue decline of 6% one year previously. The company’s adjusted net income rose by 6.7% YoY to $12.7 million in fiscal 4Q15.

In the press release, Fairchild’s chairman, president, and CFO, Mark Thompson, stated that their distributors’ inventory fell from fiscal 3Q15 levels because they ordered less volume than their total consumption. Hence, order rates are likely to improve in fiscal 1Q16 as distributors improve their inventory levels.

Fiscal 2015 performance

For the overall year, Fairchild’s revenues fell by 4.4% YoY to nearly $1.4 billion. Its adjusted gross margin improved, however, rising from 2.9% in fiscal 2014 to 33% in fiscal 2015. Still, its adjusted net income fell by 17.3% YoY to $63.2 million in fiscal 2015, which was a steeper drop than we saw in operating expenses, which fell by 3.5% YoY.

In the next part of the series, we’ll look at the company’s cash position and its stock performance in fiscal 2015.

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