Stormy Economic Weather for Fairchild

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It seems that Fairchild Semiconductor (NYS: FCS) has run into rough weather. The company that makes chips for automobiles to mobile phones reported a 3% decline in third-quarter revenue to $403.2 million. Operating income also took a beating, down 17% to $47.9 million. Let's take a Foolish look to see what's fair and what's not.

Tumultuous times
The MCCC division of the company, which serves mobile, computing communications, and consumer markets, showed flat sales. This was partly due to a demand shift from computing and consumer-related sales to analog mobile sales that serve mobile phone and tablet markets.

This may not come as a surprise to many. The last few months have seen weak consumer spending that has kept tech companies up at night. This is especially true for the PC market as high unemployment and a global slowdown have hit players in this space pretty badly.

PCIA, which serves power conservation, industrial, and automotive sectors, witnessed a 5% increase in sales over last year's quarter. However, sales declined 10% from the previous quarter. This can be attributed to a seasonal drop in consumer demand as well as winding down of inventories in the solar, appliance, and consumer markets.

What's more, the solar energy sector is going through tough times as high inventory levels and cutthroat competition from Chinese players have put companies out of business. Despite all the negatives, Fairchild managed to keep net income flat at $35.8 million, with the help of lower taxes and other non-operating expenses.

The chips are slowing down
Apart from Fairchild, many computer chip manufacturers are also facing a slowdown. For instance, low demand for personal computers has taken its toll on Micron Technology (NAS: MU) . The company reported an abysmal third-quarter net loss of $135 million versus a profit of $342 million a year ago.

Another sign of deterioration in this space comes from companies such as Altera (NAS: ALTR) and Texas Instruments (NYS: TXN) that have issued warnings about future earnings. To add to that, JPMorgan analysts think Apple has also recently slashed orders to big iPad suppliers by 25%. This move could mean that Newton's law of gravity is finally catching up with Apple in the form of low demand in Europe. Another possibility could be that the company is trying to operate with lower inventory levels.

The Foolish bottom line
Fairchild will face a number of challenges that may continue to put pressure on the company's profitability, at least in the near term. Given the current global economic problems and the weak state of the semiconductor and solar energy industry, Fairchild will probably face some difficulties. It will be interesting to see how the next few quarters pan out for the company.

So what do you Fools feel about this company? Feel free to leave your interesting comments and opinions in the space below.

  • To add Fairchild Semiconductors to your watchlist click here.
  • To add Micron Technology to your watchlist click here.
  • To add Apple to your watchlist click here.
  • To add Altera to your watchlist click here.
  • To add Texas Instruments to your watchlist click here.

At the time this article was published Keki Fatakia does not own shares in any of the companies mentioned in this article. The Motley Fool owns shares of Texas Instruments and Apple.Motley Fool newsletter serviceshave recommended buying shares of Apple.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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