Fairchild Semi Restructures to Lower Costs

Also, the company's loss widens and revenue falls for the second quarter.
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Fairchild Semiconductor's

second quarter showed weaker sales and a wider loss than the same period a year ago, and the company laid out plans to close or sell some facilities as part of a bid to cut costs.

Second-quarter sales totaled $347.1 million, down 3.7% from $360.5 million last year. Fairchild lost $63.8 million, or 54 cents a share, compared with a loss of $13 million, or 12 cents a share, in the 2002 second quarter. The latest quarter included pretax charges for restructuring, impairments and debt refinancing totaling $77 million.

Excluding items, Fairchild would have reported second-quarter earnings of $3.8 million, or 3 cents a share, vs. earnings of $7.5 million, or 7 cents a share, last year.

On that basis, the company matched the consensus estimate carried by Thomson First Call.

Fairchild also unveiled a restructuring plan that's primarily focused on consolidating manufacturing and reducing costs in noncore, nonpower businesses. Fairchild will close or sell its Kuala Lumpur, Malaysia; Wuxi, China; and Loveland, Colo., manufacturing sites.

The company will also exit the nonvolatile memory and hybrid businesses. Additionally, Fairchild will consolidate fab lines and phase out of a fab in South Portland, Maine, and implement additional workforce reductions.

According to the company, the total cost of the actions, including the remaining charges for the previously announced closure of a Pennsylvania fab, will be around $70 million, of which $53.6 million is included in the second-quarter results. The remaining charges will be recorded over the next few quarters.

"We're restructuring the business to tighten our focus on the power markets," Fairchild said. "These actions allow us to consolidate our presence in Malaysia, optimize our optoelectronics business, significantly reduce costs and increase our emphasis on our core power business. These manufacturing consolidations show that we are transitioning the company to be a power analog and power discrete business with a decreasing presence in non-core markets."

The company's third quarter is historically soft, and Fairchild expects that to be the case again this year. The company forecast that revenue will fall 4% to 6% compared with the second quarter. Fairchild also expects to generate pretax savings of $53 million to $58 million in 2004.

"Beyond the third quarter, we expect to grow at or above the power market growth rate driven by the strength of our new products and a leaner, even more focused organization," the company said.