Fairchild Semiconductor International

FCS : NYSE : US$12.37
HOLD 
Target: US$12.00

COMPANY DESCRIPTION:
Fairchild Semiconductor develops, manufactures and sells power analog, power discrete, and optoelectronic components that optimize system power for applications in the computing, communications, consumer, industrial, and automotive segments.
All amounts in US$ unless otherwise noted.

REDUCED TO HOLD AS LEVERAGE DELAYED
Investment recommendation
We are downgrading FCS to HOLD following a soft outlook for Q4. We don’t see a compelling reason to buy FCS here given uncertain demand from the broader wireless market (smartphones are over 20% of revenue) and a lag before meaningful cost benefits can take hold from plant closures (big impact not until 2015). We do see a looming positive catalyst around FCS’s analyst day, scheduled for February, when the company will be able to lay out more specifics around plant/site closures. We are lowering our estimates and reducing our price target to $12 from $16.
Investment highlights
 FCS reported Q3/13 (Sep.) results this morning before the open. Revenues and EPS were $364.6 million (+2% Q/Q) and $0.17, compared to our in line estimates of $363M/$0.12. Revenue came in above the mid-point of guidance driven by strong demand at one of the large mobile customers and strength in the high voltage business partially offset by weak demand in computing, TV and tier two Asian mobile OEMs.
 Management guided Q4 revenue to $335M-$350M, down 6% Q/Q at the mid-point ($342.5M), below the consensus estimate of $368M and our estimate of $370M. Management highlighted that Q4 revenue guidance weakness is driven by an expected inventory drain at mobile customers and seasonal decline in other segments with declines in air conditioners partially offset by flat to up industrial and flat to up automotive.

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