Download Fairchild Semiconductor International, Inc.

Fairchild Semiconductor
International, Inc.
July 2008
Investor Presentation
www.fairchildsemi.com
Company Confidential
1
Notes on Forward Looking Statements
and Non-GAAP Measures
• Comments in this presentation other than statements of historical fact may constitute
forward looking statements and are based on Fairchild’s management’s estimates and
projections and are subject to various risks and uncertainties
• These risks and uncertainties are described in the Company’s periodic reports and other
filings with the Securities and Exchange Commission (see the Risk Factors section) and
are available at http://sec.gov and investor.fairchildsemi.com
• Actual results may differ materially from those projected in the forward looking statements
• Some data in this presentation may include non-GAAP measures that we believe provide
useful information about the operating performance of our businesses that should be
considered by investors in conjunction with GAAP measures that we also provide. You can
find a reconciliation of non-GAAP to comparable GAAP measures at the Investor Relations
section of our web site at http://investor.fairchildsemi.com
Recent additions to our website at http://investor.fairchildsemi.com
Updated Financials (through 2008 Q2, with segment revenue/gross margin breakouts)
• Quarterly Fact Sheet with 2008 Q2 highlights
• This investor presentation
2
Q2 2008 Summary
Strong Sales and Bookings Driven by New Product Growth
• Sales up 3% QoQ…high end of guidance
• Bookings strong all quarter…very healthy Q3 beginning backlog
• Record sales for SPM™, logic translators and high freq regs
• Internal inventory down nearly $9m or 5 days QoQ to 75 DOI
• Channel POS up 3% QoQ driving nearly 1 week drop in channel
inventory
• Adjusted GM down 160 bps to 28.6% due to inventory drain and
higher energy related costs
• Pricing down 1- 2% QoQ and within our normal range
• Lead times stable at 7 – 8 weeks
3
Forward Guidance – Q3 2008
• Sales expected to be up 2 - 5% QoQ…>90% filled at the start of Q3
• Gross margins expected to increase 150 – 225 bps sequentially
• R&D and SG&A expected to be $89 – 92m
• Net interest and other expenses expected to be about $5.5m
4
Fairchild Overview
www.fairchildsemi.com
Company Confidential
5
Taking Care of Our Stakeholders
Customers
Make our customers successful
Stockholders
Employees
Deliver a superior return
Attract the best
talent in the industry
6
Fairchild Focused on the Right
Markets
Offline Power Conversion Market Forecast
• Energy efficiency and the wireless
mobility revolution are mega-trends
that will shape our world for years to
come
2,000
1,600
13% Sales CAGR
2006 - 2010
1,200
800
400
-
• Fairchild is uniquely positioned to
capitalize on these trends with our
leadership position in switching and
power conversion
2006
2007
2008
Dollars
2009
2010
Units
Power MOSFET Market Forecast
30,000
8% Sales CAGR
2006 - 2010
25,000
20,000
• Our new HF DC/DC regulators for
ultra-portable applications offers us a
high performance entry point into the
voltage regulation market
15,000
10,000
5,000
-
2006
2007
2008
Dollars
2009
2010
Units
Voltage Regulation Market Forecast
30,000
14% Sales CAGR
2006 - 2010
25,000
Fairchild is building the right
products for the right markets!
20,000
15,000
10,000
5,000
-
Source: iSuppli, April 2007
2006
2007
2008
Dollars
7
2009
Units
2010
Industry Cyclicality
40%
30%
20%
10%
-20%
-30%
-40%
Source: WSTS
8
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
-10%
1993
0%
1992
YoY Change in Semiconductor Unit Shipments
WW Semiconductor Unit Shipments Data shows 2-Year cycle since 1991
Despite Cyclicality, Semis Remain a
Growth Industry
Industry Semi Units Shipped (24 mo Rolling Avg)
Semiconductors Shipped (BU)
50
45
40
35
30
25
20
15
10
5
Source: WSTS
9
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
FCS Transition to Higher Value
is Underway!
8 Qtr Average GM Trend
45.0
GM %
40.0
35.0
30.0
Transition
Begins
FCS - GAAP
Note: FCS Q3 is mid-point of guidance range…Peer group includes VSH, ONNN, IRF,
DIOD, NSM, ISIL, TXN, MXIM
10
Peer Average
Q3Y2007
Q2Y2007
Q1Y2007
Q4Y2006
Q3Y2006
Q2Y2006
Q1Y2006
Q4Y2005
Q3Y2005
Q2Y2005
Q1Y2005
Q4Y2004
Q3Y2004
Q2Y2004
Q1Y2004
Q4Y2003
Q3Y2003
Q2Y2003
Q1Y2003
Q4Y2002
Q3Y2002
Q2Y2002
20.0
Q1Y2002
25.0
The Power Franchise®
Fairchild is a world leader in high performance semiconductors
specializing in products for the optimization of system power
µSerDes™
Our Power Franchise® Plan:
• Enhance position in Power Conversion
Video filters
Optocouplers
• Establish leadership in HF DC/DC regs
• Extend lead in MOSFETs
This plan is supported through improved
supply chain & POS mgmt to reduce
cyclicality and package cost reductions
through greater in-sourcing to improve
margins
Amplifiers
Logic
Analog switches
11
FCS Power SAM by Market Segment
30,000
25.0%
25,000
20.0%
19.1%
20,000
$M
15.0%
15,000
10,000
12.7%
12.0%
9.8%
9.0%
5.3%
5,000
5.0%
4.3%
12
W
or
ld
wi
d
e
ro
n
In
d
us
tri
al
El
ec
t
ica
m
un
Source: iSuppli Jun. 2007 (industry definitions)
SA
M
ics
ns
tio
ns
at
io
ic
s
le
s
W
ire
W
ire
d
C
er
E
um
on
s
C
om
m
un
le
c
tro
pu
om
C
ec
ive
to
m
ot
Au
Co
m
tin
g
ic
tro
n
ni
cs
0.0%
s
0
El
10.0%
2006
2010
CAGR ('06 - '09)
Share in Focus Markets
Achieved #1
FCS
2006 TAM, 2005-2010 CAGR
DC/DC Regulation
5.0%
DC/DC Regs
$2297
15.9%
Battery Mgmt
$1512
16.8%
Hot Swap
$ 210
15.3%
MOSFET Drvr
$ 771
14.1%
Non-ISO PWM $1416
16.0%
Huge potential
with UP strategy
$8.5B
STM
$ 744
13.3%
PFC
$ 245
16.1%
ISO PWMs
$ 586
14.4%
NSM
$1.5B
8.5%
HI Volt FETs
$1333
7.5%
LINEAR
FCS
MXIM
$4.6B
POWI
~5
Others
~40
Others
Sanken
N
$3369
Achieved #1
FCS TXN
Switching
Lo Volt FETs
Vishay
Switching
Offline Power Conversion
AC/DC Regs
IRF
Tosh
$2826
Renasas
Linear Regs
~10
Others
Source: iSuppli Jun. 2007
13
STM
DC/DC Regulation
TXN
ON
N
Offline Power
INF
Conversion
Increased Segment Focus
We have defined target markets and are focusing on key solution spaces for
specific customers to drive higher content, market share & margins!
Increased Importance to
Our Customers
µSerDes™
GM Potential by Segment
Optocouplers
Video filters
Narrower,
Deeper Focus
in Markets with
Higher GM
Potential
Amplifiers
70%
60%
50%
40%
30%
20%
10%
0%
Handsets
APG
Logic
Analog switches
Product View
Source: Fairchild estimates
14
Handsets FPG
Displays APG
Displays FPG
Pw r Supplies Pw r Supplies Computing - APG
- FPG
APG
Computing FPG
Segment Focus Drives Content
Gains
Power Supplies
• Commercial & regulatory pressure for greater
efficiency drives PFC and higher silicon BOM
Content Trends
• FCS content grows with addition of SG, PFC,
integrated HV MOSFETs and ICs, SR, QR &
Digital Power
• Expect higher content to drive 3X SAM by 2010
Handsets
LCD Displays (>40")
Displays
• Larger panel sizes and greater resolution require
improved backlighting which drives power BOM
Computing
• FCS adds SPM, analog & HDMI switches, video
filters, power conversion solutions
$0
$2
$4
$6
2006
Handsets
• New features/3G/iPhone revolution while users
demand same or better talk time
• FCS improves content with HF DCDC,
IntelliMAX™ added to the proliferation of analog
switches, µSerDes™ and MOSFETs
Source: Fairchild estimates
15
$8
2008
2010
$10
$12
$14
Becoming a More Important
Supplier
•
Application intimacy
•
Solve important problems
•
Provide complete power
management solutions
•
Reduce BOM and costs for our
customers
•
Global supply chain support
•
Consistent lead times & BIC
performance to request date for
key customers
•
Sales Growth: Strategic Customers
1
50%
Growth
$B
0.5
0
2007 Fcst
Leader in innovation where it
matters most for our customers
Source: Fairchild estimates
16
2009 Fcst
Update on Key Themes from
2006 Analyst Day
2006 Analyst Day Theme
2007 Update
Invest in Analog
• SG acquisition as catalyst for Power Conversion
• HF DC/DC to drive System Power growth
• Signal Path leadership products
• Process capability & 8” wafers in ME
Build on LV strength and upgrade HV
business in PCIA
• IntelliMAX™ & DrMOS design wins
• LV wins in LCD TV enables shift from DT
• HV margin transition in progress
• SPM poised for breakout year in 2007
SPG focus on OM and cash generation
• Very close to 3 year target model during
most of the last cycle
Increase stability of the business
• Best cycle performance in company history!
17
Acquisition Landscape
Reason to Pursue
Integration Risk
Likelihood of Value
to FCS Shareholders
Small Privates
Technology/IP, Key
Personnel Talents,
Emerging Products
Low, mostly around
keeping talent
High, if priced right and
strategy fits
Carve outs
Easy path to
profitability,
Complementary
Products
Low to High, very
situation dependent
High, if priced right and
integration is crisp.
Needs strategic value
beyond beating DCF
Change Competitive
Structure
Med to High. Mgmt &
change of control
issues.
Pricing power elusive.
Must have strategic
synergies
<$1B Public
Enter new markets
Risks of culture clash
Large Public
Combination
Financial Leverage,
Cost reduction
possibilities,
Complementary
Products
Med to High. Mgmt &
change of control
issues.
Risks of culture clash
Increasing Focus
18
Banks/sponsors and
investors who flip
shares will make the
most
Levers to Drive Higher Margins
• Expand content in key segments
• Upgrade HV business to perform in line with LV
• Roadmap for Power Conversion margin improvement
• Continue above-market growth for Signal Path
• Capitalize on HF DC/DC opportunities
• Run SPG at target model
• Package cost reductions
• Tight OPEX control
19
Fairchild Semiconductor
Solid Progress, Exciting Potential
• Transition to a higher value company is well underway
• Demonstrated best ever trough sales & GM performance
• Cross-cycle metrics for sales / GM / EPS all positive
• #1 sales position in 2 of our 3 target markets
• Investment in Analog & Power Management drives exciting new
products – Ramping across 2008 and 2009
• Segment focus drives greater application and customer
intimacy – Enables us to become a more important supplier
• Package cost reductions & tight spending controls increase
confidence in ability to achieve target model
20
Mobile, Computing, Consumer
& Communications (MCCC)
Group Overview
www.fairchildsemi.com
Company Confidential
21
Analog Market Breakdown 2007
Semiconductor IC TAM
$250B
(6.4% CAGR)
Memory
Micro IC
Logic
Analog
Standard Linear TAM
$18.9B
Interface
$2.8B
Analog TAM
$51.2B
(9.5% CAGR)
(8.8% CAGR)
Regulators
$9.1B
(13.8% CAGR)
Amplifiers
$3.1B
(8.4% CAGR)
Standard
Linear
(6.4% CAGR)
Data Converters
$3.1B
(4.6% CAGR)
Source = iSuppli Q2 2007, CAGR 2006-2010
22
ASSP
Analog Power Management
Market
DC:DC Regulation ($9B)
2007 TAM ($M)
CAGR*
Linear Regulators
$3,174
5.0%
DC:DC Regulation
$2,670
15.9%
Battery Management
$1,775
16.8%
Hot Swap
$ 242
15.3%
MOSFET Drivers
$ 885
14.1%
Non-Isolated PWM
$1,662
16.0%
Ultra-portable
Computing/Point of Load
Off-Line Power Conversion ($1.6B)
AC:DC Regulators
$836
13.3%
PFC
$287
16.1%
Isolated PWM
$683
14.4%
*CAGR 2005-2010
Source: VDC
Targeted >$6B TAM with CAGR ~15%
23
Power Conversion
Application Specific Analog for Cell
Phones, UP and PCs
System Power
Signal Path
Market
Segment
Product
Categories
Focus
Ultra-portable
(Cell Phones)
Ultra-portable
(Cell Phones)
Analog Switches
µSerDes™
ASSP’s
Building Block DC:DC
Expand across top 5
manufacturers
Top handset
manufacturer as driver
Expand across top 5
manufacturers
24
Ultra-portable
Interface ($1.50-$3.00)
µSerDes™
Total FSC Content $4.30-$7.30
Signal Conditioning ($0.30-$0.50)
Current Sense Amplifiers
Switch ($0.45-$0.50)
Analog
USB
Discrete ($0.43-$0.45)
LV MOSFET
IntelliMAX™
Logic ($0.25-$0.60)
TinyLogic®
Translators
Regulators ($1.20-$2.00)
DC/DC
LED Drivers
Off-line Power ($0.15-$0.25)
Charger adapters
Market Opportunity* 480Mu
FSC SAM $2.1B-$3.5B
Source: iSuppli June 2007 estimate handsets in mid to high end range for 2008
25
µSerDes™
Serializer / Deserializer Technology
Features & Performance
• Industry leader in Serializer / Deserializer
technology for small display and camera
applications in handsets
• Proprietary technology reduces wires through
hinge by up to a factor of 5x
• First SerDes solution to support primary and
secondary displays, camera, keypad, and GPIO
control in one IC pair
Strategic Importance to Fairchild
• Proprietary signal path solution for cell phones
capitalizing on expanded multimedia functionality
• More valued supplier to top 5 cell phone
manufacturers
2006 Market
Size
Potential Business Opportunity
Source: iSuppli Jun. 2007
990Mu
1,349Mu
• Existing leadership in embryonic application in
cell phone market evolving to dominant position
during high growth ramp.
• Up to 4 units per phone
26
2010 Market
Size
2006 – 10
CAGR
8.1%
Analog Switch
Features & Performance
• New Analog Quad Switches are being used in phones with two
SIM cards. This is a rapidly emerging application in those
countries that allow one phone number with two service
providers
Strategic Importance to Fairchild
• The early recognition of this opportunity for non-US designs is
changing our model to adopt both application specific solutions
and market specific solutions
FSA2567 Quad
Analog Switch
Potential Business Opportunity
• With the vast majority of cell phones now sold outside of the US,
the opportunity is significant
SIM Card #1
SIM Card #2
Dual SIM Card Cell Phones
2006 Market
Size
2010 Market
Size
2006 – 10
CAGR
$250M
$375M
10.7%
Source: iSuppli Jun. 2007
27
DC/DC Regulators for Cell Phones
Features & Performance
• “DC/DC Regulators” convert the varying
battery power of a cell phone to a stable
voltage that supplies power to digital
components inside the cell phone
• Fairchild delivers the smallest and most
efficient DC:DC regulators, resulting in cell
phones with longer operating times
graphics
accelerator
Base Band and
application processor
subsystem
PMU
DDR2/
SDRAM
Camera
Module
LMU
Sub Display
DC/DC
PMU
Audio
RTC
PL
L
SIM
M
DC/
DC
PMU
SDCARD
SDCARD
D/DC
WLAN
Module
DC/DC
LDO
LDO
LDO
DC/DC
Display Module
DC/DC
PA
Strategic Importance to Fairchild
• Build a business in the large DC:DC power
management segment
• More valued supplier to top 5 cell phone
manufacturers
Potential Business Opportunity
• $100M+ business potential over 3 to 5 years
2006 Market
Size
2010 Market
Size
2006 – 10
CAGR
$1.21B
$1.41B
3.9%
Source: iSupply 2006
28
Evolution of Switching Frequencies
in DC:DC Converters
100000
Fairchild is leading in
high frequency
Switching Frequency (KHz)
FAIRCHILD 16MHz
Micrel
MC13882
8MHz
10000
Freescale
Semiconductor
6MHz
Linear LTC3411
Fairchild
FAN5350
3MHz
Linear LTC1616
Linear LTC1767
National LM3671
Linear LTC1701
1000
Linear LTC1307
MAXIM MAX887
Motorola MC34063
100
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
95
93
91
Power Efficiency (%).
….at high efficiency
LTC LTC3448
Year
TI TPS62300
89
National LP5552
87
Freescale
MC13882
85
83
Micrel
MIC3358
81
79
Fairchild
Competition
77
75
0.1
1
10
Switching Frequency in MHz
29
100
IntelliMAX™
Value to the Customer
• A Power Management solution that solves the protection
issues around low Vdd IC processes
• Features: Over Voltage Protection, in-rush current,
transients, ESD…CSP/MLP packaging.
Potential Business Opportunity
• Revenue > 45% CAGR since inception (2007 ≥ $10M)
• Achieves Gross Margins compatible with leading analog
competitors
• Continues to “jump” market Segments…initial target was
ultra portable, but continues to expand in the computing
space
30
2006 Market
Size
2010 Market
Size
2006 – 10
CAGR
Source: iSuppli & Fairchild estimates
$60M
$200M+
43%
Computing
Desktop ($3.00-$3.50)
Switching
Total FSC Content $2.00-$5.00
Regulators
LDO
Discretes
Logic
DriverMOS
Silver Box ($3.25)
Controllers
Power Discretes
SPM
Servers ($4.00–$5.00)
Controllers
DriverMOS
Drivers
LDO
Market Opportunity
FSC SAM $2.5B-$3.25B
31
Notebooks ($4.00-$4.50)
DriverMOS
LDO
Power Discretes
Intellimax
Logic
Gaming ($2.00-$3.50)
Power Discretes
Controllers
Drivers
LDO
Silicon Technology Drives
Performance & Cost Advantages
Align the Technology…..Transition every 18 to 24 months
• Continuously improve Figure of Merit
• Reduce Die Size by 30%
Low Voltage High Volume Package
Revenue vs. ASP/Cost per Unit
Technology-Margin
Revenue
Revenue
ASP
Cost
2004-2005 Technology
Cost
2001
2002
2003
Primarily based on
New
technologies
released
2004
2005
2006ETechnology!
2007E
in ’04-’05
32
↔ V
alue
Delta
2006 Technology
DriverMOS
Value to the Customer
Provides a cost effect path to the performance
requirements of the next Gen. High End Desktops,
Servers and Games
D
D
D
D
S
S
S
G
=
• State-of-the-art system efficiency64 mm
2
3 D-Pak’s 180 mm2 + Driver 30 mm2 = 210 mm2
• High Frequency Operations
• Lower Overall System Cost
2007 Market
SAM
• Fewer passive components
$500M
Potential Business Opportunity
• DriverMOS is a flexible Product Family that can
be scaled across all value / performance tradeoffs
2010 Market
SAM
$630M
2007 - 10
CAGR
8%
• SAM is based on Vcore MOSFET/Driver Content
Calculated from Notebook, Driver, Server and Gaming units
• The combined computing market size totals $2.0B.
This includes FETs, drivers, controllers and
functional power solutions
33
Digital Control Technology
Features & Performance
Digital Power Management:
• Communication: The power supply can become an
intelligent module instead of a black box
Rack / Facility Level
Comm
• Performance: Easier optimization through
communication means higher system efficiency
Digital Power Management:
Board / System Level
• Cost: >50% component reduction and higher
reliability for lower Total Cost of Ownership (TCO)
Comm
Digital Control
Strategic Importance to Fairchild
Input
• Digital control and management is an emerging
trend in power management. As a leader in power
conversion, vetting new technology to better serve
our customers is a key imperative
AC - DC
DC - DC
Output
Potential Business Opportunity
• Significant strides have been made in digital power
management and control technology in the past
few years, driving market forecasts close to $1B in
2011 with a CAGR > 36%. Power supply
manufacturer, OEM and ODM adoption will depend
on solution cost, performance and ease of use.
Digital Power
ICs
2006
Market Size
2010 Market
Size
2006 – 10
CAGR
$169M
$589M
36%
$315M
23%
Source: Darnell June, 2006
Digital Loop
Control ICs
34
$137M
Consumer - Displays
Total FSC Content $9.75-$12.80
Signal Conditioning ($0.25-$0.35)
Video Filters/Drivers
DC/DC Regulators ($2.00-$2.50)
Switching Regulators
Switch ($0.35-$0.55)
Analog
HDMI
Off-line Power ($2.30-$2.60)
FPS
Logic ($0.80-$1.00)
Discrete ($3.35-$4.85)
Low Voltage MOSFET
High Voltage MOSFET
Lighting IC ($0.70-$0.95)
HVIC
Backlight Inverter IC
Market Opportunity* 268Mu
FSC SAM $2.6B-$3.4B
Source: iSuppli June 2007 estimate LDC TV/Monitor for 2008
35
Summary
•
Revenue and margin expansion through growth of new products
•
Application specific products targeted at cell phones, UP, consumer
applications
•
Continued evolution of supply chain and sales channel to support
this business
•
Upgrade silicon based MOSFET technology for better performance,
lower costs and smaller size
•
Reduce packaging costs through greater in-sourcing
36
Power Conversion,
Industrial & Auto (PCIA)
Group Overview
www.fairchildsemi.com
Company Confidential
37
Analog Power Management
Market
DC:DC Regulation ($9B)
2007 TAM ($M)
CAGR*
Linear Regulators
$3,174
5.0%
DC:DC Regulation
$2,670
15.9%
Battery Management
$1,775
16.8%
Hot Swap
$ 242
15.3%
MOSFET Drivers
$ 885
14.1%
Non-Isolated PWM
$1,662
16.0%
Ultra-portable
Computing/Point of Load
Off-Line Power Conversion ($1.6B)
AC:DC Regulators
$836
13.3%
PFC
$287
16.1%
Isolated PWM
$683
14.4%
*CAGR 2005-2010
Source: VDC
Targeted >$6B TAM with CAGR ~15%
38
Power Conversion
Market Drives IC Technology
Power Supply/
IC Trend
Legislative/Market
Trend
Low Standby Power
1W → 300mW
Transmission Efficiency
Market
Burst Mode and Soft Switching
Power Factor Correction (PFC)
Controllers (active)
Operation Efficiency
DC to DC, AC to DC
Linear to Switching
Synchronous Rectification
Quasi Resonant Conversion
Digital
Incandescent to CFL, LED
HVIC, Electronic Ballast, LED Drivers
AC Motor to Brushless
DC Motors
BLDC Controllers and Drivers
Longer Battery Life
Smaller Footprint
Low Power Technology
Integration and Small Packages
High Frequency @ High Efficiency
39
Primary Side Regulation for
Charger/Adapters
Features & Performance
• PSR eliminates components
enabling a cost effective switcher
solution for consumer ultra-portable
chargers
Strategic Importance to Fairchild
• Enables technology-driven entry into
the charger market
Potential Business Opportunity
• Low power charger/adapters are
largest segment of off-line regulators
2006 Market
Size
2010 Market
Size
2006 – 10
CAGR
$206M
$315M
13%
Source: VDC Mar 2006
40
Motion SPM
Value to the customer
• A Smart Power Technology that enables manufacturers
of White Goods to meet the new Government Regulated
efficiency requirements for their product (USA, EU, JPN)
• SPM is a family of products sized for Power as well
as Drive Configuration
• Washing machines
• Air Conditioning
• Refrigerators
2006 Market
Size
Potential Business Opportunity
Government Regulations with respect to Utility Power
(Power Factory and Efficiency) will continue to drive this
market for the foreseeable future. The SPM product
family is staged to follow this trend
$800M
2010 Market
Size
$1.4B
Source: Fuji Chimera, Darnell, IMS)
41
2006 – 10
CAGR
15%
Power Supply SPM
Value to the customer
• A Smart Power Technology that enables the Offline
Power Supply Market (Consumer, Telecom, Computing,
Industrial) to meet the new Government Regulated
efficiency requirements for their product (USA, EU, JPN)
• SPM is a family of products to meet
•Power Factor Correction
•Flyback and Forward
•Full and Half Bridges
VDC OUT
PWM
Controller
2006 Market
Size
Optocoupler
VAC IN
$1.8B
2010 Market
Size
$2.5B
Potential Business Opportunity
Government Regulations with respect to Utility Power
(Power Factory and Efficiency) will continue to drive this
market for the foreseeable future. The SPM product
family is staged to follow this trend
Source: Fuji Chimera, Darnell, IMS)
42
2006 – 10
CAGR
8.5%
Industrial –
Lighting/HVIC/LED
CFL ($0.40)
Control IC
Ballast ($0.58)
Ballast Control IC
PFC IC
HVIC ($0.60)
LED Lighting ($0.35)
AC-DC LED Driver
43
Summary
•
Capitalize on growing demand for greater power supply and
system efficiency…Energy Efficiency Implemented Simply!
•
Innovative power conversion and DC motor control products
to support move to high efficiency BLDCs
•
Rapid growth of highly integrated SPM™ products for
consumer and industrial applications
•
Upgrade silicon based MOSFET and IGBT technology for
better performance, lower costs and smaller size
•
Reduce packaging costs through greater in-sourcing
44
Standard Products
Group Overview
www.fairchildsemi.com
Company Confidential
45
SPG’s Value to Shareholders
• Generates solid cash flow and ROIC
• SPG extracts value from older product lines and
manufacturing assets through intensive product life cycle
management
• Increases cost awareness for the whole company
• Drive improvements in manufacturing and operation costs
• Enhances our BOM position with customers to solve more of
their needs
• Creates potential to generate even more cash when market offer
on divestiture exceeds our discounted cash flow expectations
46
EBIT (%)
Rev ($M)
SPG Rev & EBIT Development
Transition
Begins
Q1
'04
Q2
'04
Q3
'04
Q4
'04
Q1
'05
Q2
'05
Q3
'05
Q4
'05
Q1
'06
Rev-8 Qtr M/A
Q2
'06
Q3
'06
Q4
'06
EBIT-8 Qtr M/A
47
Q1
'07
Q2
'07
Q3
'07
Q4
'07
Margin Progression
• Cost reductions
• Manufacturing
• Business support structure
• Simplification
• Disciplined business practices
• Price management
• Inventory control, both internal and channel
• Focused promotional programs
• Selective investment / divestiture
48
Translator Products
FXL4TD245 4 Bit Low Voltage Configurable Translator
3V
Features and Performance
• Provides voltage translation between 3.6V
and 1.8V
• Allow designers to set either side as the
high or low voltage
1.8V
FXL4TD245
Mobile Phone
Chipset
T-Flash/microSD
Using SPI mode
4 wire interface
• DQFN Packaging saves nearly 75% board
space compared to TSSOP packages
(clock, serial in, serial out, chip select)
• Unique control over the direction of all four
bits provides designers control of
individual bits in their design
Strategic Importance to Fairchild
• Unique function, no direct competition
• Above average margin
Potential Business Opportunities
Translator ($M)
• Applies in the fast growing portable market
such as hand phones, MP3, PMP, etc
including portable instrumentation
2006 TAM
2010 TAM
CAGR%
72.1
102.6
9.2%
Source: Selantek 2006
49
Summary
•
SPG business provides solid cash flow and reasonable profitability
•
With good discipline, SPG business is able to weather business cycles
and provide more stable profits
•
SPG business drives manufacturing and operation cost reduction
initiatives that will benefit other business in Fairchild
•
Demand for Standard products is here to stay
•
Fairchild will continue to manage the standard products portfolio and
make selective investment/divestiture to achieve our target business
model
50
Finance Overview
www.fairchildsemi.com
Company Confidential
51
Financial Highlights
• Better cycle management has driven more consistent
financial performance
• Top priority is to drive future margin expansion
• Gross margin leverage
• OPEX leverage
• Target operating model
• Strong cash flow and balance sheet
52
Better Cycle Management and More
Consistent Financial Performance
www.fairchildsemi.com
Company Confidential
53
Improved Cycle Management
Inventory Impact
Inventory & Distributor POS Trends
150
Just 5% Peak-Trough POS ∆
Inventories Stable Through the Cycle
$400.0
$300.0
$200.0
100
$100.0
$0.0
50
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07
Internal DOI
Channel DOI
54
Channel POS
Q
1'
0
Q 2
2'
0
Q 2
3'
0
Q 2
4'
02
Q
1'
0
Q 3
2'
0
Q 3
3'
0
Q 3
4'
03
Q
1'
0
Q 4
2'
0
Q 4
3'
0
Q 4
4'
04
Q
1'
0
Q 5
2'
0
Q 5
3'
0
Q 5
4'
05
Q
1'
0
Q 6
2'
0
Q 6
3'
0
Q 6
4'
06
Q
1'
0
Q 7
2'
0
Q 7
3'
0
Q 7
4'
07
(In $M)
Adjusted Revenue & Gross Profit %
500
32%
450
30%
28%
400
26%
350
24%
300
22%
250
20%
200
18%
Total Revenue
Gross profit %
55
Solid Sales & GM Growth
8 Qtr Rolling Average Adjusted Sales & GM
500.0
34.0%
450.0
30.0%
400.0
28.0%
350.0
26.0%
300.0
24.0%
250.0
22.0%
20.0%
Q
1'
00
2'
00
Q
3'
00
Q
4'
00
Q
1'
01
Q
2'
01
Q
3'
01
Q
4'
01
Q
1'
02
Q
2'
02
Q
3'
02
Q
4'
02
Q
1'
03
Q
2'
03
Q
3'
03
Q
4'
03
Q
1'
04
Q
2'
04
Q
3'
04
Q
4'
04
Q
1'
05
Q
2'
05
Q
3'
05
Q
4'
05
Q
1'
06
Q
2'
06
Q
3'
06
Q
4'
06
Q
1'
07
Q
2'
07
Q
3'
07
Q
4'
07
Q
1'
08
200.0: Includes Equity Comp
Notes
System General included from Q107 onwards
Q
(in $M)
32.0%
Total Revenue
Gross profit %
56
Improving Financial Results Drives
Free Cash Flow (FCF)
8 Qtr Rolling FCF
Free Cash Flow $M
30.0
25.0
20.0
15.0
10.0
5.0
-5.0
-10.0
Note: FCF defined as Operating Cash Flow - Capex
57
4'0
7
7
Q
3'0
7
Q
2'0
Q
1'0
7
6
Q
4'0
6
Q
Q
3'0
6
Q
2'0
6
Q
1'0
5
4'0
Q
Q
3'0
5
5
2'0
Q
Q
1'0
5
4
4'0
Q
Q
3'0
4
4
2'0
Q
Q
1'0
4
3
4'0
3
Q
Q
3'0
3
2'0
3
Q
1'0
Q
4'0
2
2
Q
3'0
Q
2'0
2
2
Q
1'0
Q
Q
4'0
1
0.0
Strong Cross-Cycle EPS Improvement:
8 Qtr Rolling Average Adjusted EPS
0.35
$0.31
0.30
Adj EPS$
0.25
$0.23
$0.20
0.20
$0.18
$0.20
$0.15
$0.14
0.15
$0.13
$0.14
$0.14
$0.15
$0.14
$0.13
$0.14
$0.16
$0.13
$0.13
$0.13
$0.11
0.10
$0.09
$0.06
$0.06
0.05
$0.03
$0.05
$0.03
0.00
Q4'01
Q1'02
Q2'02
Q3'02
Q4'02
Q1'03
Q2'03
Q3'03
Q4'03
Q1'04
Q2'04
Q3'04
Q4'04
Note: System General included from Q107 onwards
58
Q1'05
Q2'05
Q3'05
Q4'05
Q1'06
Q2'06
Q3'06
Q4'06
Q1'07
Q2'07
Q3'07
Q4'07 Q1 '08
Top Priority: Increasing Gross Margins
www.fairchildsemi.com
Company Confidential
59
Gross Margin Improvement
Key Drivers
Growth of new product families with higher margins
• µSerDes™, Analog Switches, HF Voltage Regulators, System
General, SupreMOS, integrated power systems (SPM),
IntelliMAX™, DrMOS, Digital Power
Divest / Reduce low margin business
• Divest = Motor ICs, LEDs, RF
• Reduce = Planar MOSFETs, small signal and bipolar transistors
Manufacturing cost reductions and product redesigns
• Package in-sourcing
• 8” upgrade in Maine
• Fab process upgrades/shrinks for HV & LV MOSFETs, IGBTs and
Power Conversion
60
Margin Drivers
Growing Profitable New Product Families
MCCC
Growth Drivers
-Switches
USB and multimedia applications
-High Frequency Voltage Regulators
Highly efficient regulators for handsets
-Power Trench Technology
Potentially best figure of merit for low
voltage applications
-µSerDes™
Proliferation to top 5 cell phone suppliers
-Digital Power
Flexible power mgmt for high-end POL and
power supply applications
PCIA
-Power Conversion
System General acquisition, driver for
energy efficiency
-SupreMOS/FS IGBT
Potentially best figure of merit for high
voltage applications
-HF Voltage Regulators
New high performance platform addresses
emerging needs
-SPM
Highly efficient package-level integrated
power management solutions
61
Margin Drivers
Shifting Our Margin Profile
Manage Population II
Grow Population III
• Minimize through lead time
• Cost reduction
• New product design wins
• Obsolete / exit / divest
• Pricing
• Responsive supply chains
• Cost reductions / product
redesigns
• Technology migrations
40%
Millions $
% of Total
$200
Decrease Population I
$0
0%
< Low
0
0 > 10
Margin
10 > 20
20 > 30Margin30 > 40
Average
62
40 > 50High
50 >
Margin
Margin Drivers
Increase In-sourced A&T
100%
In-Source %
80%
Peers
60%
S
FC
40%
Today
2 – 3+ Years
Cost Reduction Opportunity
• Backend drives 30% - 70% of total product cost depending on product line
• Subcon costs have risen due to exchange rates and higher utilization
• Invest $90M+ over 3 years to increase backend capacity
•
•
Payback is < 2 years
Impact on gross margins is 1.5% to 2.0%
63
Margin Drivers
Process Upgrades will Drive Front End Savings
• Maine 8” conversion will increase die capacity by ~70% with
minimal impact to fixed and variable overhead
• Migration of System General and other Bucheon processes to
Maine fab on 0.5µm or lower will increase Power Conversion
margins by ~600 bps
• SupreMOS and FS Trench IGBT processes in Bucheon drive
30% to 40% die shrink while maintaining RDS on performance
• PT4, PT6, PT5, RP5 processes in Salt Lake underway to
increase die per wafer by 30% to 45%
64
Target Business Model (Quarter)
Total Company
Revenue Range
$485 – 545m
Gross Margin
36 - 38%
R&D (% of Sales)
8%
SG&A (% of Sales)
12%
Operating Margin
16 - 18%
65
Strong Cash Flow and Balance Sheet
www.fairchildsemi.com
Company Confidential
66
Strong Balance Sheet
Stable Cash Flow Drives Lower Financial Leverage
8 Qtr Rolling FCF
Net Debt
30.0
Free Cash Flow $M
$700.0
25.0
$600.0
20.0
$500.0
15.0
$400.0
10.0
$300.0
5.0
$200.0
7
4'0
$100.0
Q
Q
3'0
7
7
7
2'0
1'0
Q
Q
6
6
4'0
3'0
Q
Q
6
6
2'0
Q
5
1'0
4'0
Q
Q
5
5
3'0
2'0
Q
Q
4
5
1'0
4'0
Q
Q
4
4
3'0
Q
4
1'0
Q
Q
2'0
4'0
3'0
3
3
3
2'0
Q
Q
Q
Q
1'0
3
2
4'0
3'0
2
2
Q
Q
4'0
2'0
Q
Q
Q
1'0
1
2
0.0
-5.0
$0.0
-10.0
1999
2000
2001
2002
2003
2004
2005
2006
Trended Debt
$1,400,000
9.0%
$1,200,000
8.0%
Stable cash flow and
disciplined balance sheet
management enabled FCS
to decrease debt and secure
lower interest rates
7.0%
$1,000,000
6.0%
$800,000
5.0%
$600,000
4.0%
3.0%
$400,000
2.0%
$200,000
1.0%
$0
0.0%
Total Year
Total Year
Total Year
Total Year
1997 (Mar 11- Dec 21,
1997)
1999
2001
$2,007
Drawn Revolving Credit
Bank Debt
Convertible Debt
High Yield Debt
Undrawn Revolving Credit
Net Interest % of Sales
67
2007
Strong Balance Sheet
Investment to Drive Margin Improvement
Capital Expenditures
18.0%
% of Sales
16.0%
14.0%
Increased Investment to
Drive A&T Cost Reduction
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
2000
2001
2002
2003
2004
2005
68
2006
2007
2008
2009
2010
Fairchild: The Power Franchise®
•
Better cycle management has produced improved financial results
•
8 quarter rolling average for sales / GM / EPS show good progress
•
Top priority going forward is margin growth through:
•
•
Profitable sales growth in analog and functional power products
•
Better mix of products due to more new products and reduction/divestiture of low margin
business
•
Product cost reduction driven by increased A&T in-sourcing, fab shrinks and new
processes
•
Good cost controls to reduce OPEX as a % of sale to target levels
Expect strong cash flow as we progress to financial targets, which enables lower
leverage and allows us to invest in the business
We’re making solid progress at transitioning Fairchild to be a premier
power management company…not only in sales but also
profitability!
69