Back With a Bang, This Apple Supplier Is Set to Get Better

Fairchild Semiconductor International (NASDAQ: FCS  ) is back with a bang. The Apple (NASDAQ: AAPL  ) supplier has come into its own this year after a sluggish 2013, beating the broader market handsomely with gains of 17% so far. Fairchild's recent second-quarter results were fantastic as well. The company trumped estimates, and looks set to turn in a strong performance in the second half of the year.

Robust performance
Fairchild's revenue increased 4% year over year in the second quarter to $372 million, besting Wall Street's $366 million estimate. The company's net income almost doubled year over year to $17.8 million. Its earnings per share of $0.20 were miles ahead of the $0.11 consensus. Fairchild delivered solid improvements across the board, driven by controlled capital spending, an improved product mix, and higher utilization. As a result, the company's gross margin jumped 4.3 percentage points year over year. 

Additionally, Fairchild exited the quarter with a strong order book. Its order backlog was up modestly on a sequential basis, and the company is on track to improve sales once again in the ongoing quarter.

Automotive and industrial on a roll
Fairchild's performance has been driven by strong demand in several end markets. For example, sales of its automotive solutions are on a roll, increasing 14% year over year in the second quarter. The strong demand for Fairchild's powertrain solutions, such as ignition and fuel injection power management, are key drivers in this segment, along with electronic power steering modules. 

Looking ahead, the company will be launching more powertrain solutions to keep up its pace in the automotive market, which is recovering at a robust pace after the recession. According to IHS Automotive, global auto sales are expected to hit 85 million units this year, driven by recovery in key markets such as Europe and the U.S. Moreover, by 2018, it is estimated that auto sales will hit the 100-million-mark globally. As such, Fairchild should continue seeing sustained demand for its powertrain solutions.

The company is also gaining traction in the industrial market. Fairchild's Smart Power modules have increased its penetration in the industrial appliance market. In addition, its power switches, used in power inverters, are in demand from solar manufacturers.

The mobile opportunity
Fairchild's biggest opportunity is in the mobile market. This segment is expected to grow the fastest in the ongoing quarter, driven by product ramps at Apple. Fairchild has historically supplied analog and field-effect transistors for the iPhone, along with battery charger components.  The company also supplied chips for the iPad Air and the iPad Mini with Retina display last year.

Apple's iPad sales weren't impressive last quarter, but it is trying to set that right by adding more features to the device this year. According to Ming Chi Kuo of KGI Securities (via MacRumors), the next-generation iPad Air will be powered by an A8 processor, along with an 8-megapixel resolution camera and Touch ID. Similar additions are expected to be made to the Retina iPad Mini. Moreover, as widely reported, bigger iPhones are expected to help Apple cut its teeth into the smartphone and phablet market. 

All in all, Fairchild looks set to benefit from an increase in production at Apple, and its outlook suggests the same. But, Cupertino is not the only catalyst for Fairchild in the mobile market. According to Susquehanna Financial Group, a third of the company's mobile sales come from Chinese handset makers. 

Fairchild has reportedly added more Chinese handset manufacturers to its customer base. As such, it is seeing an increase in the number of reference designs as the production phase ramps up. The handset market in China is booming right now, primarily due to the deployment of 4G LTE. According to Strategy Analytics, Chinese smartphone sales will surpass the U.S. this year in terms of volumes and revenue. 

Together, sales of feature phones and smartphones will clock 430 million units in China this year, which almost triples the 163 million units estimated to be sold in the U.S. this year. As such, Fairchild has a big addressable market to tap in smartphones.

The bottom line
Automotive, industrial, and mobile should continue driving Fairchild's sales. Positive trends in these end markets have helped the company improve its order book, while proper supply chain management and smart capital spending are powering its gross margin. All in all, Fairchild looks well-placed to continue beating the market due to robust demand and solid execution.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


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.

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: 3035137, ~/Articles/ArticleHandler.aspx, 9/22/2014 8:24:35 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...


Advertisement