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Fairchild delays fab closures due to demand surge

Posted: 18 Sep 2009 ?? ?Print Version ?Bookmark and Share

Keywords:Fairchild fab closure? foundry? wafer?

Fairchild Semiconductor has delayed shutting down two fabs due to strong demand, according to an analyst.

In March, Fairchild said it planned to close two fabs and eliminate at least 200 jobs in an effort to cut costs. Fairchild will close its wafer fabrication plant in Mountaintop, Pennsylvania as well as it one of its fabs in Bucheon, South Korea.

Now, there is a slight change in strategy. "At an investor conference, Fairchild Semiconductor management said it will delay the closure of two of its six fabrication facilities from mid-2010 previously to late 2010 now," said Craig Berger, an analyst with FBR.

"We believe this delay in fab closures is due to stronger than expected demand, and Fairchild wanting to continue manufacturing product at those facilities to meet this stronger than expected demand," he said.

The fab closures are still in the cards, however. "Fairchild management has said there is about $20 million of annual cash savings and $12-to-$20 million of annual depreciation savings associated with these facility closures," he said. "We expect these savings to now be realized a couple quarters later than we previously expected, but still expect the firm to realize these savings with the fab closures and move towards qualified wafer foundry suppliers like Taiwan Semiconductor."

Fairchild recently reported second quarter sales of $277.9 million, up 25 percent from the prior quarter and 34 percent lower than the second quarter of 2008.

Fairchild reported Q2 net loss of $24.9 million or $0.20 per share compared to a net loss of $51.1 million or $0.41 per share in the prior quarter and net income of $6.9 million or $0.05 per diluted share in Q2 08.

Sales in the range of $300 to $325 million are expected in Q3.

"We believe Fairchild's gross margin and earnings potential is higher than many investors currently expect," according to the FBR analyst. "Management has previously suggested that $325 million per quarter of revenues would drive gross margins near 30 percent (once expensive inventory manufactured when utilizations were low gets sold), and that the firm should be able to achieve incremental margin fall through of about 50 percent as revenues ramp toward $400 million per quarter."

- Mark LaPedus
EE Times

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