"There was an old man of Calcutta,
Who coated his tonsils with butta,
Thus converting his snore
From a thunderous roar
To a soft, oleaginous mutta."

-- Ogden Nash, "Arthur"

On April 19, mixed-signal and power-control chip maker Fairchild Semiconductor (NYSE:FCS) released first-quarter 2007 earnings for the period ended April 1. Think "earnings" in place of nighttime rumblings, and "tough market conditions" rather than cooking fats, and the tribute above to National Poetry Month should make a little bit of sense. Might. A tiny bit. Maybe.

  • Lower gross margins, $4.3 million in acquisition-related charges, and a higher provision for income taxes than last year combined to cut the net profit down by three-quarters.
  • Fairchild competes with semiconductor designers including Texas Instruments (NYSE:TXN), Maxim Integrated Products (NASDAQ:MXIM), and Linear Technology (NASDAQ:LLTC) in the analog and mixed-signal space, and it's suffering from some of the same market-related problems, such as order weakness from handset makers.
  • The bread-and-butter power control chips face a very different set of rivals, among them ON Semiconductor (NASDAQ:ONNN), International Rectifier (NYSE:IRF), and Vishay Intertechnology (NYSE:VSH). These products are enjoying high demand, which in turn keeps Fairchild's manufacturing lines busy and fairly efficient.
  • What the competition does have in common across the various product segments is excellence. Fairchild is currently a two-star Motley Fool CAPS stock, and Texas Instruments sports three stars. The rest of the companies I mentioned all have very respectable four-star ratings.

(Figures in millions, except per-share data)

Income Statement Highlights

Q1 2007

Q1 2006

Change

Sales

$402.6

$409.5

(1.7%)

Net Profit

$6.3

$26.6

(76.3%)

EPS

$0.05

$0.21

(76.2%)

Diluted Shares

125.7

123.9

1.5%

Get back to basics with the income statement.

Margin Checkup

Q1 2007

Q1 2006

Change*

Gross Margin

27.7%

29.9%

(2.2)

Operating Margin

4.1%

8.2%

(4.2)

Net Margin

1.6%

6.5%

(4.9)
*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets

Q1 2007

Q1 2006

Change

Cash + ST Invest.

$426.8

$521.9

(18.2%)

Accounts Rec.

$170.2

$148.5

14.6%

Inventory

$241.4

$213.6

13.0%

Liabilities

Q1 2007

Q1 2006

Change

Accounts Payable

$108.2

$103.3

4.7%

Long-Term Debt

$587.8

$641.0

(8.3%)

The balance sheet reflects the company's health.

Cash Flow Highlights

Q1 2007

Q1 2006

Change

Cash From Ops.

$24.0

$3.0

700.0%

Capital Expenditures

$16.7

$23.0

(27.4%)

Free Cash Flow

$7.3

($20.0)

N/A

Owner Earnings

$20.9

$32.7

(36.1%)

Free cash flow is a Fool's best friend.

Related Foolishness:

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Fool by Numbers is designed to give you the raw earnings information in a timely fashion, putting all the numbers you need in one easy-to-read place. But at The Motley Fool, we believe numbers tell only part of the story, so check Fool.com for more of our in-depth discussion of what the numbers mean.

At the time of publication, Fool contributor Anders Bylund had no position in any company mentioned. He had been planning to buy one of them, but he had to go and ruin that plan by writing about it. Sorry, no prizes for guessing which one. Fool rules are here.