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Fairchild Semiconductor Intl Inc (FCS): It’s Time for This Company to Prove its Mettle

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When chipmaker Fairchild Semiconductor Intl Inc (NYSE:FCS) was trading near its 52-week low around three months back, I’d suggested that investors keep an eye on it since the company’s business was gradually getting better. However, I hadn’t expected the stock to bounce back all of a sudden, and as such, its appreciation of around 20% since then comes as a surprise to me.

But, the big question is whether Fairchild Semiconductor Intl Inc (NYSE:FCS) will be able to sustain this momentum going forward or not, especially considering the fact that its second-quarter earnings are set to be released on July 18. Management will need to sing a similar tune of improvement in its end-markets like last time, apart from satisfying consensus estimates.

Let’s check what’s expected of Fairchild Semiconductor Intl Inc (NYSE:FCS) and whether or not it can provide positive commentary about its business this time as well.

What numbers to expect

Analysts expect Fairchild Semiconductor Intl Inc (NYSE:FCS) to post revenue of $365.8 million for the second quarter, which would translate into a minor increase of 1.2% from the year-ago period. However, this small improvement seems massive when you consider that Fairchild has been witnessing year-over-year declines in revenue of late.

As far as meeting the estimate is concerned, I won’t be much concerned about that since the company had itself guided for $355 million to $375 million in revenue, which was ahead of the original consensus estimate of $359 million three months back. Moreover, management had stated that the backlog at that time was good enough to satisfy the lower end of the guidance, which further strengthens the possibility of Fairchild Semiconductor Intl Inc (NYSE:FCS) at least meeting estimates.

If the company manages to upstage revenue expectations, it would be the second time it would have done so in the last six quarters, which means that progress is certainly happening.

The bottom line is where Fairchild Semiconductor Intl Inc (NYSE:FCS) had faltered in the first quarter as it posted a loss while analysts were expecting a profit. The reason behind this unexpected loss was an inventory write-down of $12 million, but according to what management had stated last time, things should have been better in the second quarter.

This time, the bottom-line estimate is pegged at $0.08 per share, which is well below last year’s $0.14 a share. However, one can expect Fairchild Semiconductor Intl Inc (NYSE:FCS) to at least meet this estimate this time and not repeat the story of the first quarter. Higher factory utilization and an improved product mix are expected to be the drivers of the gross margin, which should have jumped to the 30%-31% range in the second quarter from 28% in the first quarter.

About outlook

So, with Fairchild Semiconductor Intl Inc (NYSE:FCS) more or less looking set to satisfy analyst estimates, will it be able to provide a decent outlook once again? I think yes. Firstly, the company’s industrial business, which contributes around one-third of revenue, has gradually strengthened and is witnessing strong orders.

In addition, a strong market for automotives has been a tailwind for Fairchild Semiconductor Intl Inc (NYSE:FCS)’s automotive business. More importantly, Fairchild has been landing design wins in these segments and this should help it grow further.

The industrial and auto segments account for 63% of total revenue; they have been improving of late and are expected to get better going forward. Finally, Fairchild Semiconductor Intl Inc (NYSE:FCS) has been witnessing solid growth in its mobile business, wherein it counts the two titans, Apple Inc. (NASDAQ:AAPL) and SAMSUNG ELECT LTD(F) (OTCMKTS:SSNLF) as customers.

Revenue from Apple was lower than usual in the first quarter due to seasonality as it was transitioning to newer products. However, that shouldn’t be the case this time as Apple Inc. (NASDAQ:AAPL) will probably start producing the latest iPhone this month, according to Jefferies analyst Peter Misek (via Business Insider). In addition, Misek also states that the production of a cheaper iPhone is already underway, and this might prove to be another catalyst for Fairchild.

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