The key to weathering the current semiconductor industry downturn will be a company's ability to manage its cash flow, says Matt Towse of Fairchild

The key to weathering the current semiconductor industry downturn will be a company's ability to manage its cash flow in order to meet both its operating expenses and to continue funding critical investments in new product development. This will position the industry winners in the post recovery period.

This article was originally published on Electronicstalk on 30 March 2001 at 8.00am (UK)
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Matt Towse, Fairchild's corporate vice president and treasurer, made these comments at the Lehman Brothers 2001 Hi-Yield Bond and Leveraged Loan Conference.

"Fairchild Semiconductor continues to have a strong cash position, even during current market conditions", Towse said.

"The company's multi-market business model was designed to enable Fairchild to weather the cyclical nature of the semiconductor industry".

"When we established Fairchild Semiconductor four years ago, we purposely structured our business model to meet the operational requirements of a depressed market, knowing the cyclical nature of the semiconductor industry", Towse said.

"While it's important to remember that the industry has consistently grown at a compound annual growth rate of more that 15% throughout its thirty-plus year history, smart companies build their business plan to meet the demands of the downturns".
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"In 2000, Fairchild's cash flow from operations was more than $380 million.

This cash flow generation is instrumental in allowing us to continue growing the company even during industry downturns.

We plan to continue executing our two-pronged growth strategy of new product development and strategic acquisitions, the formula that resulted in a tripling of Fairchild's revenues in its first four years.

During that same time, Fairchild has tripled its earnings before interest, taxes, depreciation and amortisation, excluding nonrecurring items, from more than $128 million in fiscal 1997 to $477 million in 2000, a time period that included the industry downturn of 1998 and the current slowdown".

"Our strategy from day one has been to supply high-performance building block semiconductors to multiple, fast-growing end markets", Towse said.

"With our focus on providing power and interface solutions to drive technologies in markets as diverse as computing, consumer, communications, automotive and industrial applications, we have the flexibility to respond to end market fluctuations.

With a balanced mix of end markets covering diverse segments, Fairchild's future growth is not held captive by any one market segment, as are some other companies in our industry.

Our products have long life cycles and require relatively low capital expenditures.

We believe this strategy will allow Fairchild to continue to weather industry cycles successfully.

Our strong financial position, even in this difficult business environment, has allowed us to stay on strategy and leverage opportunities, such as our recent purchase of Intersil's power discrete business, which catapulted Fairchild into position as the number two power mosfet supplier in the world.

We feel our business model provides Fairchild with a significant competitive advantage".