Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Will This Tech Stock Outperform in 2014?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Neither Apple (NASDAQ: AAPL  ) nor Samsung (NASDAQOTH: SSNLF  ) have helped chipmaker Fairchild Semiconductor (NASDAQ: FCS  ) achieve the growth that analysts were expecting this year. The company's performance has been patchy at best, and the tailwinds that it could have enjoyed as a result of Apple's new iPads haven't materialized.

Lower demand from its "other" mobile customer -- probably Samsung -- and weakness in the Asian budget smartphone market have handicapped Fairchild. As such, the company saw a 1.6% year-over-year decline in revenue in its third quarter and a 51% drop in net income. In addition, gross margin also contracted 200 basis points from the year-ago period.  

The outlook was also quite woeful. Fairchild guided for revenue in the range of $335 million to $350 million for the fourth quarter, significantly behind the $368 million consensus estimate. So, it is clear that Fairchild's business didn't grow as much as expected even during the usually lucrative fourth-quarter when orders from mobile customers should be flowing.

Not the best of scenarios
Fairchild had supplied a total of five chips for the iPads in 2012, and it landed the spots yet again in the latest lineup. The iPad Mini Retina has a couple of Fairchild chips inside it, while the iPad Air has at least one of its chips.Sales of the retina iPad Mini are expected to boom in the first quarter of 2014 as well, after a potentially strong December quarter. Digitimes expects shipments of the iPad Mini with retina to rise to 5 million to 6 million units in the first quarter of 2014, after selling 4 million units in the holiday quarter. 

In addition, the older iPad Mini is also expected to see good demand, with shipment projections from Barclays putting the figure at 6 million to 7 million in the first quarter. But for Fairchild, these positives are cancelled out by lower orders elsewhere.

Fairchild saw "incrementally weaker demand" from its Asian mobile customers as they are reducing inventories. Management said that "demand stabilized at a slightly lower level" at one of its other major mobile customers, indicating Samsung. Samsung was Fairchild's largest customer in fiscal 2012, accounting for more than 10% of revenue. Hence, as Samsung started cutting orders for its latest flagship, Fairchild was in for tough times. 

Potential catalysts
It looks like Samsung had manufactured a bit too many Galaxy S4 devices at launch, and when demand didn't pick up as expected, it started slashing orders. But Fairchild believes that its other mobile customers will drain their inventories in the December quarter, which indicates that order patterns should improve in the first quarter of 2014. 

Now, Samsung is also expected to launch its next smartphone flagship early next year. According to TechRadar, Samsung's upcoming flagship might be released in February or March, which means that the company will start ramping up production pretty soon. So, Fairchild might see order inflows from Samsung in the first quarter.  

The demand environment is not completely favorable, and as such, Fairchild is focusing on improving operational efficiencies to reduce costs. Fairchild's new 8-inch fab facility in Korea began commercial production in the previous quarter, and management is optimistic that this will lead to lower costs going forward. In fact, management believes that this fab could help Fairchild save "tens of millions of dollars" annually from the next fiscal year onward as utilization improves.  

Also, Fairchild is seeing steady improvements in its other businesses -- industrial and automotive. The industrial market performed better than expectations, despite seasonality, and the automotive end-market also performed similarly. The automotive market is expected to grow further going forward, driven by strong demand for Fairchild's drivetrain solutions.  

The bottom line
In fiscal 2014, Fairchild expects modest but steady sales growth in its mobile, industrial, appliance, and automotive businesses on the back of design wins and better demand. Even though the stock has performed woefully in 2013, declining almost 10%, it could turn out to be a dark horse in 2014 if its end-markets recover. Investors might think of picking up some shares, as there are signs that Fairchild could improve going forward.

Looking for a winning tech stock?
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2779023, ~/Articles/ArticleHandler.aspx, 5/3/2016 3:08:18 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Harsh Chauhan

Harsh has been covering technology, and sometimes retail, since 2011. He is focused on finding great businesses for the long run. You can follow him on twitter @techjunk13

Today's Market

updated 5 hours ago Sponsored by:
DOW 17,891.16 117.52 0.66%
S&P 500 2,081.43 16.13 0.78%
NASD 4,817.59 42.24 0.88%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/2/2016 4:00 PM
AAPL $93.64 Down -0.10 -0.11%
Apple CAPS Rating: ****
FCS $19.97 Down -0.03 -0.15%
Fairchild Semicond… CAPS Rating: **
SSNLF $1050.00 Down +0.00 +0.00%
Samsung CAPS Rating: ***