ON Semiconductor Corporation (ON) Q4 2011 Earnings Report, Transcript and Summary

Good day everyone and welcome to the Fairchild Semiconductor Fourth Quarter and Year-End 2011 Earnings Conference Call. Just a reminder, today’s call is being recorded. Now for opening remarks and introduction I’ll turn the conference over to Mr. Dan Janson. Dan please go ahead.

Thanks. Good morning and thank you for dialing into Fairchild Semiconductor’s fourth quarter and full-year 2011 financial results conference call. With me today is Mark Thompson, Fairchild’s President and CEO, and Mark Frey, our Executive Vice President and CFO. We will start today’s call with Mark Frey, who will review our fourth quarter financial results and discuss the current status of first quarter business. Mark Thompson will then discuss our product line results, end markets and operational performance in more detail. Finally we will reserve time for questions and answers. This call is scheduled to last approximately 60 minutes and is being simultaneously webcast from the Investor Relations section of our website at fairchildsemi.com. The replay for this call will be publicly available for approximately 30 days. Fairchild management will be making forward-looking statements on this conference call. These statements, including all statements about future results and performance, are made based on assumptions and estimates that involve risk and uncertainty. Many factors could cause actual results to differ materially from those expressed in forward-looking statements. A discussion of these risk factors is provided in the quarterly and annual reports we file with the SEC. In addition, during this call we may refer to adjusted or other financial measures that are not prepared according to generally accepted accounting principals. We use non-GAAP measures because we believe they provide useful information about the operating performance of our businesses that should be considered by investors in conjunction within GAAP measures that we also provide. You can find a reconciliation of non-GAAP to the comparable GAAP measures at the Fairchild – at the investor Relations section of our website at investor.fairchildsemi.com. The website also contains a variety of useful information for investors including an extensive financial section to facilitate your investment analysis. Now I’ll turn the discussion over to Mark Frey.

Thanks, Dan. Good morning and thank you for joining us. I’m sure most of you had a chance to review our earnings release, so I’ll focus on just the key points in my comments. Overall demand was lower than expected in the fourth quarter with distribution sell-through down 20% sequentially and sales into our direct OEM customers about 6% lower than the prior quarter. As we discussed in our earnings call last quarter, our primary focus in this time of demand uncertainty is managing our distribution channel tightly by reducing inventories and expenses. We made progress in all of these areas and plan to maintain a discipline in the first quarter. Let’s review some of the details, starting with the income statement. For the fourth quarter of 2011, Fairchild reported sales of $339 million, down 16% sequentially and 15% from the fourth quarter of 2010. Adjusted gross margin, which excludes the restructuring of Asian retirement plans accelerated depreciation inventory reserve releases and write-offs related to fab closures was 30.4%, down 560 basis points from the prior quarter. Gross margin was impacted by lower factory utilization roughly a negative 140 basis points impact from 8-inch fabs start-up cost and normal price reductions. R&D and SG&A expenses were $88 million in the fourth quarter, down $4 million sequentially due to reductions in spending and lower variable compensation expense. We continued to invest in R&D and applications engineering to support our future growth, but all other spending is being tightly controlled. Our fourth quarter results illustrate this point, with R&D spending up around 2%, while SG&A was down 8% sequentially. Fourth quarter adjusted net income was $90 million and adjusted EPS was $0.15. Our adjusted tax expense was a credit of $6 million as we recognized a number of discrete tax benefits during…

Thanks Mark. Recall that a quarter ago we outlined our focus on reducing inventories and controlling expenses as we work through this period of weaker demand in many of our end markets. We tightly controlled our distribution business during the fourth quarter and despite the lower than expected sell-through we’re able to reduce both channel and internal dollars of inventories. Let’s review the fourth quarter in more detail, beginning with the demand trends. We ramped into production a number of new programs in the second half of 2011 for our mobile analog business resulting in an 8% sequential sales growth in the fourth quarter. Our second half mobile analog sales were up 21% over the first half of 2011. We now supply an extensive portfolio of analog and power management solutions for mobile applications including power management for virtually all subsystems, USB, and all types of signal switching audio, high definition signal management and a whole line of battery management and charging products. The combination of strong smartphone and tablet demand coupled with our share gains give us a great deal of momentum heading into Q1. Our automobile business also held up very well in the fourth quarter. We continue to benefit from car markers transition to more energy efficient drivetrain systems and subsystems including high efficiency ignition and electronic power steering. While sales of our products into the auto end market were down a couple of points in Q4, for the full-year of 2011 we grew sales 26% compared to 2010. We expect continued solid demand in this sector in 2012. Our sales into the consumer and appliance end markets were down about 30% sequentially, which is even weaker than our customer’s initial expectations. The decrease in demand was most pronounced in Asia, especially China. Q4 is normally a…

Thanks Mark. We’ll now open the call to questions. I would ask that in order to allow more of you to ask questions, we limit each person to one question and to one follow-up. Thanks, and let’s take the first question, [Jodie].

Thank you. (Operator Instructions) And we’ll take our first question today from Terence Whalen with Citi. Terence Whalen – Citigroup: Great. Good morning, thanks for taking the question. So it seems like looking at the results, one that surprises is that the sell-through declined 20% in the fourth quarter and that channel inventory maybe only declined mid single-digit million versus your $20 million or $25 million expectation. Can you talk a little bit about as the quarter progressed when you realized the weakness to distributors was sell-through versus selling and perhaps explain what you run over the quarter to give you insight into what sell-through is doing and why it’s acting so peculiar? Thanks.

Okay. So, Terence, the biggest delta from forecast and expectations was appliance in China. So, that was far and way the largest chunk. If you look at kind of the moving parts to that, the nature of POS is that it only -- you only really know what it is by the end of the quarter, and often the last week is very large. So, it is chronically difficult to forecast. To de-risk the plan, we readjusted build plans down quite substantially early in the quarter. And so, that’s how -- what the way it played out is we wound up having a big inventory decrease internally, but less so into the channel. So, again you’ve to – if you balance the thing, you add the two and we can partition it however, we want to partition it. If you look at the background to the weakness in appliance, there has been substantial incentive that the Chinese Government has put in place for buying particularly high-efficiency rated appliances. And it works -- the incentives works the same there as they do a replace cells, which is they don’t necessarily stimulate demand; they simply shift the timing of purchase. Those de-risk continued at the end of the first half, and there was talk back and forth, whether they will be renewed or not and they want it up for the second half not being renewed. And it took the key appliance OEMs a while to come to grips with that, and their systems aren’t as particularly their procurement and inventory management systems aren’t as sophisticated as some of the Western Company. So, it took a while for the scope of what needed to be done from their end to flow through back through distribution to us and that became clear during the fourth quarter. And so, we took according action. So, again if you look at the – our commentary, the build plans have been -- were aggressively reduced to try to take care of our estimate for the magnitude of the problem. They were most aggressively reduced in the high-voltage area, which again is why you saw a much larger selective impact to the PCIA numbers and in term why the high-voltage plans are well below the Company average of 70% utilization. So its – it really is quite heavily concentrated. And we think that the correction process should begin to reverse itself by the end of the current quarter. Terence Whalen – Citigroup: Okay. Thanks for that explaining.

Hi, Terence, this is Dan. One of the thing I would add is that we also had a -- we didn’t originally in our guidance assume that there would be an impact from the Thailand flooding. At the time we got it, there wasn’t in Thailand flooding problem. So, that actually was a little bigger hit than we were expecting as we work through the quarter was about a 2% to 3% hit to revenue. Terence Whalen – Citigroup: Okay, thanks, Dan. And then if I could squeeze in a quick follow-up, I think are we getting this, one this morning from clients. In general, when you look at some of the other semiconductor results particularly in analog and the signal that we’ve seen this week, we’ve seen perhaps less of an impact by the reduction in sell-through. Can you perhaps -- based on your observations of what you heard so far from semiconductor companies report maybe why your results are slightly weaker whether its geographic, whether it’s application-driven or a particular distributor exposure, if you could help anyway? Thank you.

Sure. Terence, I’ll handle that. And may be specifically with linear as the most prominent example, I think there is two things you should think of, number one, you can’t assess the business reconciliation on just two quarters. So, if you go back in time we were growing more earlier in the year whereas they were shipping less. So, if you go back actually where they previously peaked to December quarter their revenue will still be down more than ours. Secondly, just in terms of market sector exposure, they’ve a much higher exposure to auto, which has been less impacted and non-appliance industrial, I should say. And specifically China, about 77% of our sales are in Asia with a little less than half of that Mainland China, sorry, Greater China and almost the third of our sales are Mainland China. And the economic impact in that location has certainly been a lot more than even places like Europe. And therefore we’re happy where they’re from the long-term, but in the short-term, it’s pretty painful.

Terence, one other element of the total picture is, if -- again, as Dan and Mark said is when our original estimates were put out, I think the flood that happened at the start of the day before and so it was impossible to size what its impact would be. And so, the – there was one piece that was easy to understand, which was the opto-coupler business, which is manufactured there and a significant increment in the fourth quarter. The somewhat surprising one was the impact on lead-frame supply, which happened to map directly into mobile. So it didn’t hurt the numbers, but it took away probably $5 million of upside that we could have taken. Normally, when you go into a quarter, you’ll have your forecast and then it’s always changing as you go through the quarter and our supply chain is normally able to respond to that. So a little bit of weakness in one place, strengthen in other. So, what happened was a chunk of real strength we were not able to respond to it because we couldn’t get the lead brands. And so that – one of those things were the recovery is under ways, it will be fully recovered from a supply point of view in all places by the end of the first – by the end of the current quarter. But that was another chunk that hit us in the fourth quarter. Terence Whalen – Citigroup: Thanks Mark. I appreciate the insight. Thank you.

We will take our next question from Parag Agarwal with UBS. Parag Agarwal – UBS: Hi, guys. Thanks for taking my question. I just wanted to dig into your guidance. Now you indicated that you’re seeing some upwards trend in ordering some structures. And I was just wondering how do you expect the various end markets to play out in the first quarter. And also if the first quarter is on 13 week basis, it looks like it is still down from December. So just wondering if – do you think that the margins are bottom or we think that they should – there is more downside going forward?

So Parag, let me try to cover that – first the simple part, which is if you look at the – if you turn the 14 week quarter into a 13 week quarter, and then look at the mid point where its down 2% relative to the fourth quarter, which is exactly the seasonal average. So normally when we put our guidance together we both look at patterns of orders and backlog and so forth. We also look at history and then sort of align its history, and so that’s the way to look at that is typical seasonal. If you look at the sort of the strength and weaknesses, the strongest by far are for us in the first quarter will be mobile and automotive. Both of them currently look to be up sequentially from the fourth quarter, again, based on our strong and strengthening positions in those places. If you look at the opposite end of the spectrum, as I already commented, the appliance space we think, normally Q1 is a stronger quarter for appliance. We think that some of the inventory over hangs will probably prevents that from occurring. But we think we will be largely reconciling themselves by the end of the quarter. Computing is somewhere in the middle, in the sense that its – normally it’s a pretty weak quarter for computing. With that said, the – there is a lot of interest in the ultra book. And so there – the other thing is that the inventory is very clean there and so there were lot of aggressive actions that were taken by sort of the whole supply chain in the second half of 2011 and so we’re seeing – better than seasonal strength so far there both in terms of order rates and…

So in terms of pricing, the – we think that it’s going to be an average year in that regard. You know our – most of our business is under longer term contracts and so those are – those typically get renegotiated every six months and some cases every year. And so we don’t see sudden shifts either favorable or unfavorable in the way that, that plays out. So we think that – if you took a four or an eight quarter average for pricing and then laid it on top of 2012 that wouldn’t be – it would be a good estimate and Mark, why don’t you walk through the way to think about margins for the first half of 2012.

So seasonal for pricing is between 1% and 2%. And as Mark said, we’re around there. And you want me to roll Q1 to (indiscernible)?

Yeah.

Just to give you more clarity around the impact of lower utilization and profile for coming out of it, as you’re probably aware accounting requires you to time the impact of utilization slightly different way than the immediate loadings in the factory. So there is a delay effect. And you could see that actions in Q3 began to take margins down in Q4 and the margins remain low in Q1. Most of the accounting gets washed out in Q1, so for the same build plan that we’re planning for in our guidance in Q1 if we were doing that in the absence of the carryover effect from Q4, our margins would be in the 33% to 34% range. And obviously we think that would be then begin to ramp back up again to where we were before as we got our revenue above the $400 million run rate level. Parag Agarwal – UBS: Okay. That’s very helpful guys. Thank you very much.

We will go next to Craig Berger with FBR Capital Markets.

Hey guys. Thanks for taking my question. Can you give any sense from talking to your distributors how much their customers downstream are burning inventory or said differently, where do we think kind of consumption shipments might be if we look at the first half?

So – Craig, it varies a lot and I think by location. That if we look at the U.S for example, I think the inventory corrections are – or I’d say largely complete and I think probably the expectations are fairly close to equilibrium between sort of the take and the use. And if – at the opposite extreme, if you look in China we know that the OEMs there are, particularly, on the appliance side, are still aggressively reducing inventory and will likely continue to do that through the first – the first quarter. But right – but we think certainly by the second half of the first quarter more things should be in equilibrium than not and we would expect that to see turn into point of sale improvements. So, if you look at the rate at which the various indicators inflect, as Mark commented, the order rate has been – the rolling average for the order rate has been steadily increasing since October and is now in a very healthy state actually. If you look at point of sale there it tends to inflect by segments and so point of sale is inflecting on everything so far except for the appliance space and so that’s another non-regional way of looking at it. So if you combine those two things, you see that there is some residual correction remaining in the first quarter, but we think by the end of the first quarter things should be moving much more toward the equilibrium.

Thanks for the detail. And then just to follow-up, can you help us understand your design win traction in mobile, what that suggests for 2012 growth and as part of that, how big is tablet? And then lastly just one point of clarification, what's the OpEx impact from the 14th week and how do we think about Q2? Thank you so much.

Okay. So if we look at the design win traction for us its very broad and sort of all the peripheral analog content and product management content that I highlighted really sort of in all the subsystems around the CPU, we do regulators interface, enable high-definition, battery charging and particularly switching charge management circuits for lithium-ion and so forth. If you look at tablet, the leading tablets look more like the phone that they were derived from than a notebook and that’s one of the reasons why we aggregate those together in a common business unit. We think that our growth in mobile will be in a very strong double-digit, probably in the 20% to 30% in 2012 versus 2011 assuming that the sort of end-market estimates are correct and I think they’re more likely to be than not. And if you look at tablets as a part of that, so that would put it somewhere in the low $300 million range for 2012. And if you look at tablet portion of that, it would be about 15%. So we think the total market, the total sales into tablets for us will be in the $40 million range during 2012.

Thank you.

The OpEx question, we guided a mid-point of 97 on a 13 week basis that would be about 90. When you think about rolling that into Q2, add $2 or $3 million for -- we’ll probably have a merit action in April and the equity program will notch up a bit too. So – and obviously we’re going to maintain our spending in kind of the flattish mode until we see clear indications of the demand profile improving.

Thanks so much.

We’ll go next to Venk Nathamuni.

Hi guys. Thanks for taking my question. Hi, Mark you did mention that you were loading inventory into supply chain and I know in the past calls you’ve talked about your target inventory to be in the range of 7.5 to 8.5 weeks. Is that still the case? And as a follow-on, where do you expect utilization rates to be next quarter? Thanks.

So, if you look at our -- in an equilibrium setting we would always seek to run in that range where there’s little inventory as possible. So, it will never look exactly right in either the very peak or the very trough. So, we then tend to turn to dollars and look at our forward estimates. So, if I look at our current channel inventory versus where we think the end-markets will take demand in the middle of 2012, we’re probably still $10 million to $15 million heavy in terms of where we’d ideally want to be. We were supporting that level of business on about $200 million. We’re kind of $215 million, $216 million now. So – but that is heavily concentrated in the high-voltage space. So in fact, so again if you look as I commented, things roll-over at different times and they recover at different times. We're seeing very clear recovery everywhere except for the high-voltage and similarly our channel inventory is actually pretty close to 9 to 10 weeks even at the trough for most of our businesses. So, its really a concentrated fix that we've and that will be, as a big chunk of that of course is baked into our expectations for the first quarter and then maybe a little bit of trough in the second, but that’s kind of the moving parts on the channel.

Okay and then on the utilization rates?

We expect them to be up, but it depends on how demand moves in Q2 and obviously it’s a little early to be giving guidance on that.

Okay, great, thanks. And then just as a follow-up, you said you had some inventory write-offs during the quarter. Could you quantify that for us in terms of the effect?

They were more than normal.

Okay. Okay, great. Thank you.

We’ll take our next question from Suji de Silva with ThinkEquity.

Hi, guys. Could it be possible to tell us how far above target the inventory levels are for the appliance segment in particular in China?

So, the rough numbers as I commented on the channel, you know for the total company the channel is maybe $15 million above if it was perfect for the current state based on the overall outlook for 2012, probably $10 million of that is high-voltage in that range, you know these are rough numbers, but that’s a pretty good estimate based on what we know today.

Sure. And Mark, I tried to reconcile your comments about the appliance market having less similar tier versus mostly end-markets inflection back, but I -- and further China demand is stabilizing, improving to slightly appliance issues or not?

So, if -- I mean the China demand is definitely down from what it was from its peak of the first half of 2011, but the consumption the pull from distribution is well below that level, so there’s sort of two notches to built into an outlook. The first one is the pure inventory effects and then the second one will be when does appliance use start to grow again in China. So, we wouldn’t try to call the second one, the first one we can model better and that’s reflected in my $10 million comment.

Suji, let me just add another point. So I think one of the things you have to keep in mind here is that, we know that there are some issues in China that we’re working through specifically in the appliance sector. Many of those issues were -- are the results of government policies to try to deal with inflation and try to avoid real-estate asset bubble. And we also know that China is trying to, remake growth at a faster rate. So we’re confident that; we’re in the right spots, we’ve got the right designs and ultimately in China people are going to buy more appliances. They are going to buy more room air-conditions, because it’s still going to get hot in the summer. And what we also know is that, that the Chinese government is very serious about energy efficiency. Anybody that spend any time over there especially in the summer knows they have a hard time keeping up with the vertical demand. So it wouldn’t make any sense for them to go, have a large number of very inefficient products being sold when there’s a much better option out there, and that’s really where our sweet spot is. So we kind of view this market as something that it needs to get through this period of correction, but ultimately we’re very excited about our exposure to China and the end-markets and the energy efficiency play that we kept going there.

Okay. Thank you, guys.

We’ll take our next question from John Pitzer with Credit Suisse.

Yeah, good morning guys. Thanks for letting me ask a question. Guys, I guess my first question here is on the mobile market, it’s got a bright spot. You talked about your expectations for the full calendar year, just kind of curious how we should think about the seasonality in the March quarter for mobile, is that just going to be fully offset by kind of new program wins and then kind of what expectations do you’ve over the next three months for that part of the business?

Yeah. So, traditionally Q1 into your point is the worst quarter of the year. And it can be down as much as five and even high single-digit percent from the fourth quarter. So, what we see is that so far the perspective on smartphone for 2012 is I think overall that is considerable unit versus typical and then more than overcome by design win activities on our part. So, that’s what goes into, so less than typical seasonality for at least the current crop of smartphones and then that being overcome by design wins on our part. John Pitzer – Credit Suisse: Traditionally a clarification, excluding the extra week with debt business, we’re up sequentially apples-to-apples?

Yes. John Pitzer – Credit Suisse: And then my second question is you talked about the impacts in Thailand, I think in the December quarter two to three percentage points of growth with the residual 1% in Q1, I’m kind of curious how does that breakdown between sort of the PC HDTV issues versus the opto issues and in your view is that loss demand or do we get a catch-up at some point and when would you expect that if its the latter?

So, a couple of things, we don’t think that there is going to be any permanent share loss as long as the recovery fully occurs during the first quarter. There is probably in the opto-coupler space is the biggest impact, and we still think that’s probably $3 million to $5 million less than it could be if we had full supply for the year -- for the quarter. Again, that is on track to be back intact fully and we track that daily. The piece that has essentially fully recovered is the lead-frame piece for mobile. So, that impacted us in the fourth quarter, but we think we’re almost entirely recovered on that side. John Pitzer – Credit Suisse: Okay. Any idea when you get this catch-up demand back?

Probably Q2. That would be our expectation. John Pitzer – Credit Suisse: Perfect. Thanks, guys.

We’ll go next to Steve Smigie with Raymond James. And sir, your line is open. Please check your mute button. Steve Smigie – Raymond James: Yes, thank you. My question is with regard to demand for the products in China, particularly for air conditioning, does it that require government incentives, you think to get people to buy there is more energy-efficient devices or they just going to go for the cheapest solution without those incentives in place?

I don’t expect that will be required. Inevitably, you’ll see some overall shift in the market, but as Dan commented, the drive through efficiency is increasingly legislated. So, you look at two sides of it, one is legislation, the other is incentive. The legislation will undoubtedly continue to push the mix towards high-efficiency systems. The incentives are -- as I commented earlier, they tend to take the same -- they have the same impact in China as they do in the rest of the world, which is they don’t really stimulate demand. They simply shift timing. So, if you’re thinking of -- if you’re going to buy something in the next 12 months, and there is an incentive program, you’ll buy it before the incentive program ends. So, to that extent, what it did is it moved demand from the second half of 2011 into the first half of 2011. Overall, one of the great shifts that’s going on in the world today is the emergence of a middle-class in places like China, India, Brazil etcetera, and those are all hot places, there is all need for modern appliances and there is all tremendous interest in energy-efficiency. And so, if you look at our Chinese customers as well as our Korean customers, very heavily those are global businesses as well. So, China has been one of the big markets. It’s a couple of quarter event, but the fundamentals are absolutely intact. Steve Smigie – Raymond James: Okay. And into my last question, it’s a follow-up, are there any internal programs coming up or rolling off that could help you in the coming year? Thanks.

We don’t have incentive expectations in our outlook. There is speculation about whether or not China will put another one in place. Recovery doesn’t require one. And intact, frankly, I would hope that they wouldn’t because again all it does is they shift timing. What we’ll continue to see is legislation that will force systems to have certain levels of efficiency. And that will be a net benefit. And we think we’ll see movement in that direction particularly in China in 2012.

And existing regulations in most geographies have different targets for different years as they step in, so for example, Energy Star has raised the bar for next year. And I don’t know if you follow, but the State of California recently putout requirements for 2013 for not just energy-efficiency, but energy standby…

Yeah.

…and the amount of current debt, a charger is allowed to draw when the battery is fully charged. So those are beneficial. Dan can certainly send you a schedule for the different regulations by geography and/or by country and where we see them going. Steve Smigie – Raymond James: Perfect. Thank you.

And we’ll go now to Kevin Cassidy with Stifel Nicolaus. Kevin Cassidy – Stifel Nicolaus: Yeah. Thanks for taking my questions. I wonder if you could just give a little more detail on the comment about utilization being weaker especially in January.

Well, it’s more efficient to keep everything unloaded in January because you start the quarter with your carryover from Christmas and New Years in the West. And then you know, it’s an early Chinese New Year, so we schedule our shutdowns around the national holidays, and they are clustered in January. That’s been the pattern for a number of years. Then in February and March, we’ll begin to load them back up again. Kevin Cassidy – Stifel Nicolaus: Okay. So its just a standard. I was just curious because the book-to-bill is positive, I was wondering why it wouldn’t be loading, but…

And to be clear, the utilization is still low, but it’s starting in February and March. It will be higher than we ran it in December. Kevin Cassidy – Stifel Nicolaus: Okay, great. Thank you.

We’ll go next to Brendan Furlong with Miller Tabak. Brendan Furlong – Miller Tabak: Good morning. Thank you. Looking at the end of the June quarter, in March quarter, last quarter you said that you expect March to be bottom and you’ve a seasonal up, a non-seasonal up March quarter possibly and things that conspired again seen on the revenue and margin line, but if we look into June and factoring in you know, what you think possible rebound in June is, and also the get back from the 14 week quarter in March, and how should we look at the June quarter?

Well, June is seasonally up 4% to 5% for our businesses in general. And coming out of this cycle we’d have maybe more optimistic expectations for what that would mean. So, I think the way you approach that is, you take here the midpoint of our guidance, divide it by 14, multiply by 13 and that’s your March quarter base. And you ramp that up in June, accordingly. And I previously said what to expect for our margin progression on just the timing of the factory loads in – the December and the March quarter. So we think that’s definitely a step-up in the June quarter, but the ultimate amount is going to be how rapidly demand recovers. Brendan Furlong – Miller Tabak: Thanks for that. And then the other question on the margin side is as we progress through the year, the get back from the ramp of the new fab, and I think the ways that 140 bips or so you said this quarter, how should we think about that as the year progresses?

Well, that will – it will actually dip slightly for a couple of quarters, and then the quarter before we commission the fab, which would probably be December of this year, it might blip up a billion or two. And so, roughly, no more than the run rate impact you’ve seen in Q1. And then the efficiencies from the fab obviously will come after we put it in service in to which we’re planning on 2013, early. Brendan Furlong – Miller Tabak: Great, thank you.

We’ll go next to Bill Ong with Ticonderoga Securities.

Good morning, gentlemen. So, just to clarify, about a year-ago, you talked about managing for the more linear quarter for the growth rate to reduce seasonal variability. So, that’s your standard goal? And then my last question is that were there any changes for your strategic plans for your foundry partners? As you anticipate in the closing of Mount Top fab, so just changes the business projects, but now that Mount Top is still open, any changes around that?

So, there is a couple of questions there, the Mountain Top, the previous Mountain Top strategy was not a foundry-based strategy, it was redistributing the loads elsewhere in the Company. So, the answer is no on that. We do have an active foundry strategy in our analog business where certain technologies, we rely on foundry partners and other technologies are supported in Portland, Maine. And what was the other…

So, the question about seasonality is if you look at a 10% top-line growth rate, I mean it turns into a quarterly couple of percent improvement per quarter if you would linearize it, and I think the lesson is a reminder of what we already know is that a big correction will prompt a linear progression every time. And so, we’ve seen obviously very large adjustments in the overall system inventory, which basically eclipse our ability to be linear.

However, we started this cycle with eight weeks of inventory. We started the ’08-’09 cycle with 12. So, we’ve significantly mitigated it, but nevertheless this was been a pretty painful demand correction we’ve seen.

That’s helpful. Thank you so much.

Operator, we have time for one more question.

Alright, our final question today comes from Mike McConnell with Pacific Crest.

Thanks. Guys could you quantify just the home appliance just what percentage is the revenue now?

Dan.

Mike, I don’t know if I have that number at my disposal here. It’s a fairly significant part of the high-voltage business. Our high-voltage business as you know is about two-thirds of what PCIA is.

Okay.

Alright and its -- I don’t know that it’s probably a bit less than half of that high-voltage business, but it’s a pretty substantial portion. The rest being made up of industrial accounts.

And do you think you know well kind of going through the inventory adjustments there and if you kind of outlined we’ll get through that in Q1. Do you think that we’re going to have to see the China government maybe move back to stimulating the real-estate market potentially or maybe changing some policies for that to begin to grow or do you think the absence there we can still see some growth after we get through this inventory correction?

Mike, I expect that, you know if you look at the pace of the emergence of the middle class and equipping themselves accordingly, its going to grow whether they stimulate it or not. And so, again the overall trajectory -- positive trajectory of that business is it doesn’t require any kind of stimulus at all. And it’s important to remember that the, well in general the appliance worldwide isn’t growing that rapidly. The penetration rate of fresh PC systems which really drive the efficiency is still very low you know maybe 20% in aggregate worldwide. So that conversion is going to drive growth for many years, almost regardless of what policy does. I certainly would hesitate to try to project China’s fiscal policy in 2012.

Certainly, yeah. But just the, and in longer-term just competitively we’ve had some of your competitors now start to look at entering into that IGBT market and obviously was a great driver for your margin profile, your mix-up strategy last cycle. How you’re feeling about your competitive positioning versus some of these new entrance that are starting to get more vocal not getting into the market?

Well, we really liked our leadership positions are wonderful because you can continue to build on. And so if you look at what it takes to make a compelling for example an SPM solution which might have 15 to 30 chips in it. There is strength in the IGBTs themselves which of course are the power management device, there is strength and drivers, strength in the ICs, there is the application knowledge in terms of efficiently driving motors that – those drive schemes and the multi chip packaging capability itself is quite sophisticated the card – as the thermal management is very – it’s a complex system. And it’s one that is good as our current implementations are, there are many vectors that we’re continuing to improve them on. So we think it’s a great space and its one that’s going to be continue to become more important and we have a lot of confidence in our ability to maintain a leadership position there.

Okay. And then my last one just to sneak one last, on just the – I believe you’ve talked about margins 33%, 34%, I just want to clarify with utilization, the expectations the utilizations were up slightly in Q1, should we think about that kind of profile than normalized rate or is that we should think about for Q2? I just want to clarify what that comment was particular to regarding timing that 33% to 34%?

Its normally – it normalizes around the build plan that we’ve embedded in our guidance in Q1.

I see. Okay.

Obviously we’re not saying anything about revenue in Q2 other than the direction indicators that we shared with you so far.

But if we replicated the Q1 build plan and Q2, that would be the approximate outcome.

Perfect. Okay, great. Thank you.

Thanks Mike. Okay with that we’re going to conclude our call. Thank you for your interest in Fairchild.

Ladies and gentlemen, thank you for your participation. This does conclude today’s conference.