Fairchild sees strong 1Q growth ahead

Fairchild Semiconductor International (NYSE: FCS) raised expectations again for its first quarter. The company said sales would be up about 10 percent from the fourth quarter of 1999. It also announced a growth plan designed to double revenue by 2002.

Shares were up 1 1/16 to 35 3/4, down slightly from a 52-week high of 44 15/16.

Earlier in the quarter, the company had raised estimates on both sales growth and gross margin improvement. Fairchild's communications and computer and consumer applications businesses continue to show significant growth, said CFO Joe Martin in a statement. The company also attributed rising revenue to new product sales like its power, analog and interface components.

The company said gross margins are also expected to exceed expectations because of higher than expected sales from new product introductions, especially power and interface products.

With both the increase in revenue and higher operating margins, earnings per share (which excludes charges for acquisition-related intangibles) should be higher than the current First Call consensus estimate of 38 cents a share.

Martin also mentioned that the company's effective tax rate will be in the range of 10-12 percent for the quarter compared to analysts' estimates of 20 percent due to greater than expected benefit of net operating loss carryforwards.

He added that current order rates remain strong and he maintained his guidance of continued growth throughout the year.

Fairchild also announced its Phase II growth strategy, under which it plans to attain a 10 percent market share in its segments and double revenue by 2002. The plan has three initiatives: R&D to accelerate new product introductions, capital investment to increase capacity at manufacturing sites, and strategic acquisitions.

The new plan emphasizes the company's fastest growing industry segments, such as power and interface devices and advanced packaging which are used in wireless applications, Internet hardware and digital consumer appliances.

The company said its commitment to R&D is nearly two to three times what major competitors spend. In its December quarter, more than 28 percent of sales were from new products, and the company expects new product revenue to account for 40 percent in the near future.

The company's capital expansion efforts totaling $255 million are underway at its five manufacturing sites worldwide. This spending level is more than double expenditures in recent years. The company said it expects greater than $2 in increased annual sales for every $1 it spends on capital improvements.

Fairchild said it is reviewing potential acquisitions.

The company will report its first quarter results after the market closes on April 25.