San Jose, California – January 24, 2008 – Fairchild Semiconductor (NYSE: FCS), the leading global supplier of power semiconductors, today announced results for the fourth quarter and full year ended December 30, 2007. Fairchild reported fourth quarter sales of $431.9 million, up 1 percent from the prior quarter and 3 percent higher than the fourth quarter of 2006. 

Fairchild reported fourth quarter net income of $34.0 million or $0.27 per diluted share compared to net income of $20.3 million or $0.16 per diluted share in the prior quarter and net income of $8.7 million or $0.07 per diluted share in the fourth quarter of 2006. Included in these results is a $2.3 million charge related to asset impairments and restructuring actions to streamline the company’s cost structure. Gross margin was 31.3 percent, 100 basis points higher sequentially and 230 basis points greater than in the fourth quarter of 2006. 

Fairchild reported fourth quarter adjusted net income of $41.8 million or $0.33 per diluted share, compared to adjusted net income of $34.1 million or $0.27 per diluted share in the prior quarter and adjusted net income of $26.7 million or $0.21 per diluted share in the fourth quarter of 2006. Adjusted net income excludes amortization of acquisition-related intangibles, restructuring and impairments, purchased in-process research and development, charges for potential litigation outcomes, System General purchase accounting charges, net gain or loss on the sale of product lines, associated net tax benefits of these items and other acquisition-related intangibles, and tax benefits from finalized tax filings and audit outcomes. 

Full year revenues for 2007 were $1.67 billion, an increase of 1 percent compared to $1.65 billion in 2006. Fairchild reported net income of $64.0 million or $0.51 per diluted share in 2007, compared to net income of $83.4 million or $0.67 per diluted share in 2006. On an adjusted basis, the company reported 2007 net income of $113.7 million or $0.90 per diluted share, compared to $111.7 million or $0.90 per diluted share in 2006.

“We reported the highest quarterly sales, gross margin and net income since the year 2000,” said Mark Thompson, Fairchild’s president and CEO. “We benefited from a higher margin product mix in the fourth quarter, especially in our Analog Products Group (APG). Our analog switch and smart power module product lines posted record sales this quarter and were up 34 percent and 50 percent respectively in 2007 compared to 2006. APG sales were down 4 percent sequentially but gross margin improved 370 basis points as strong growth in our higher margin signal path products was offset by lower revenue for power conversion products as we further reduced analog channel inventory dollars. The Functional Power Group increased sales 4 percent from the prior quarter due to strong MOSFET and SPM® growth.” 

End Markets and Channel Activity

“End market demand was inline with our expectations paced by solid shipments for our products supporting computing, handset and power supply applications,” said Thompson. “Bookings were sequentially higher in the fourth quarter and inline with expectations giving us a healthy starting backlog level. Distributor sell-through was down about 4 percent sequentially in Q4 after being up 7 percent in Q3. We increased our channel inventory while remaining well within our target range after reducing more than a week of inventory a quarter ago. We held lead times within a stable range of 8 to 9 weeks during the quarter and expect to maintain this level during Q1.”

Fourth Quarter Financials

“We reported continued sales and gross margin growth while reducing operating expenses,” said Mark Frey, Fairchild’s executive vice president and CFO. “We improved gross margin 100 basis points sequentially due to a richer product mix and greater manufacturing efficiencies. We also reduced SG&A expenses in the fourth quarter as we continue to benefit from streamlining actions and tight spending controls.

“Cash and marketable securities increased $11.1 million to $462.1 million in the fourth quarter which reflected cash flow from operations of $58.8 million, capital spending of $41.3 million and stock repurchases of $10 million,” stated Frey. 

First Quarter Guidance

“We expect first quarter revenue to be down 2 percent to 6 percent and gross margin to be approximately 100 to 150 basis points lower sequentially due to lower factory loadings and changes in variable compensation accruals,” said Frey. “At the start of the first quarter, we had about 85 percent of this sales guidance booked and scheduled to ship. Although we continue to exercise strict controls over spending, we expect R&D and SG&A expenses to increase to approximately $87 to $90 million in the first quarter due to the resumption of FICA and other payroll taxes as well as changes in variable compensation accruals. Net interest and other expenses are expected to be $5.0 - $5.5 million for the first quarter.

This press release includes references to adjusted net income (which excludes amortization of acquisition-related intangibles, restructuring and impairments, purchased in-process research and development, charges for potential litigation outcomes, System General purchase accounting charges, net gain or loss on the sale of product lines, associated net tax benefits of these items and other acquisition-related intangibles, and tax benefits from finalized tax filings and audit outcomes), statements of operations prepared in accordance with generally accepted accounting principles (GAAP) (which include these items), and a reconciliation from adjusted net income to GAAP net income and adjusted gross margin to GAAP gross margin. GAAP and adjusted results both include equity based compensation expense. Adjusted results are not meant as a substitute for GAAP, but are included solely for informational and comparative purposes. Fairchild presents adjusted results because its management uses them as additional measures of the company’s operating performance, and management believes adjusted financial information is useful to investors because it illuminates underlying operational trends by excluding significant non-recurring, non-cash or otherwise unusual transactions. Fairchild’s criteria for determining adjusted results may differ from methods used by other companies, and should not be regarded as a replacement for corresponding GAAP measures.

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