Fairchild Semiconductor International, Inc. Matt Towse, Sr. Vice President and Chief Financial Officer CSFB Global Semiconductor & Capital Equipment Conference March 2, 2005
Notes on Forward Looking Statements and Non- GAAP Measures Comments in this presentation other than statements of historical fact may constitute forward looking statements. Forward looking statements are based on Fairchild 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 Business Risks section) and are available at http://www.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 2004 Q4, with segment revenue/gross margin breakouts) Quarterly Fact Sheet with 2004 Q4 highlights This investor presentation
Q1 2005: Mid-Quarter Update Reiterated previous guidance of normal, seasonally slow revenue quarter sales 2 6% lower and gross margins down 200 bps sequentially Bookings were strong through first half of Q1. As expected, order rates slowed during the week of Chinese New Year and began to rebound in the last two weeks. We still expect orders to accelerate during March. Greatest strength in the following end markets: Computing Notebooks, Storage Consumer TVs, Set Top Boxes, DVDs Industrial Power Supplies & Battery Chargers Strong demand for power analog and high power switches with lead times in excess of our 8 10 week average. Demand for low power switches has improved but availability is still good and lead times remain short Pricing for new orders has moderated but is still most aggressive for standard products and low power switches. Pricing for power analog and high power switches remain stable
Growing the Power Business www.fairchildsemi.com
Fairchild Semiconductor Strategy Building the PowerFranchise to Drive Higher & More Stable Margins and Earnings Through All Phases of the Business Cycle Strong Asia Focus Sales & Operations PowerFranchise Focused R&D on Power and Asset Light for Non-Power Streamlined Global Manufacturing Advanced Power Processes - Wafer & Packaging Acquisitions - Technology/Geo Presence/Consolidations
What are Power Semiconductors? Power semiconductors are designed to efficiently convert, control and condition electric power These components are used in virtually all electronic applications
What is Driving the Growth in Power? Need for longer battery life to support power hungry features faster CPUs, brighter & larger displays, more features Need for smaller & lighter power supplies and battery chargers Lower operating costs and longer service life move to multi-phase AC and brushless DC motors to provide variable speeds, greater efficiency and longer life Energy standards such as Energy Star, Blue Angel and California s aggressive energy efficiency requirements for electronics
Fairchild has a Full Line of Power Products Power Switches MOSFETs and IGBT s used for fast power switching for power supplies and other power applications AC/DC Off-Line Regulators Green Mode Fairchild Power Switches integrate control and power switch functions to provide excellent energy efficiency and very low standby power consumption Power Supply Controllers Pulse width or frequency modulation used to control MOSFET drivers and MOSFETs DC/DC Regulators Integrates control circuit and power switches to step voltage output up or down Linear Regulators Includes low drop out regulators provides lower cost, less complex power regulation than switching regulators MOSFET Drivers Used in conjunction with power supply controllers to drive MOSFET power switches Motor Drivers Provides analog control flexibility and high level of integration to reduce components required for motor control
Fairchild Leads the Power Semiconductor Market WW Analog Power Management IC and Power Discrete Leaders Fairchild Semi International Rectifier Renesas Technology STMicroelectronics Texas Instruments Toshiba National Infineon Technologies Mitsubishi Matsushita Electric On Semiconductor NEC Electronics Linear Technology Philips Semiconductors Maxim Integrated Vishay Intertechnology Rohm SANYO Electric Freescale Semi Intersil Fuji Electric Ricoh KEC Micrel Pow er Integrations Fujitsu Sanken Electric Mitsumi Electric Shindengen Elec. Man. Microsemi Seiko Instruments Analog Devices Analog Power IC Power Transistor FCS Power % of Total Sales 67% 74% 54% 9% 1997 2001 2003 Q4 04 0 200 400 600 800 1000 Source: isuppli 2004 $ Million in Annual Sales (2003)
Powering Growth at Fairchild Major Emerging Markets - New Product Initiatives New Product % of Sales 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% Focused R&D Investment in Power Drives Higher New Product Sales 2003-2004 2005-2007 Non-Power Power Higher-value new products drove 45% of power sales in the last 2 years expect to continue driving this higher as we focus R&D > $460m in new power product sales at well above average margins in 2004! Non-Power new product sales are less than 15% and falling as we continue to focus R&D in the power business New products defined as released within the last 3 years
Powering Growth at Fairchild Major Emerging Markets - New Product Initiatives 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Key Emerging Markets Served Available Market (SAM) vs Fairchild Market Share 2003 2004 2005 2006 2007 SAM FCS MS 25% 20% 15% 10% 5% 0% Increased focus on higher-value products that drive higher margins These emerging markets represent a SAM of nearly $1.8B in 2007 Our sales of these new products increased >50% YoY in 2004 Key Emerging Markets 2004 SAM Fairchild Power Switch (FPS) $820m Smart Power Modules (SPM) $220m Analog Switches $180m Video Filters $130m Total $1350m We expect to continue growing market share in these applications, more than doubling the sales level of these products over the next few years Source: IMS, Fuji Chimera, Fairchild Estimates
Fairchild Power Switch (FPS) Solutions Overview Fairchild s FPS products combine our leading power switch technology and analog PWM control to provide superior power conversion and ultra-low standby power consumption Target markets range from white goods, color TVs, monitors, set-top boxes, and notebook adapters, to hand-held battery chargers such as PDAs and mobile phones + Snubber Circuit + + Load Fairchild Power Switch Control IC Feedback Circuit + Fairchild s FPS Sales Grew 39% YoY to more than $100m in 2004!
Green FPS for Low Power Applications Power Range : 2-10 Watt Ultra Portable - Mobile Phone - Camcorder - PDA /MD/CD - Digital Camera Features & Advantages Compact size with minimized components Low standby power consumption 0.3Watt 0.1Watt No bias winding reduces cost to customer Auxiliary PS - White Goods -PC SMPS
Green FPS for Mid Power Applications Power Range : 15-60Watt Digital Consumer - Set-Top Box -DVD Players - Printers - LCD Monitor Features & Advantages Low Standby Solution DVDP / STB - under 0.8Watt @ Po=0.3Watt LCD Monitor - under 1.0Watt @ Po=0.5Watt Various built in protections to protect system Optimized package height for built in type solution in LCD Monitor (IP Board) : Slim Design TO220 I2PAK D2PAK
Green FPS for High Power Applications Power Range : 100-300Watt Display & Computing - CRT Monitor - CRT TV - Projection TV - LCD TV / PDP - Silver Box - NoteBook Adaptor Features & Advantages Low Stand by requirement CTV/Monitor - under 1.0Watt PC SMPS - under 1.0Watt @ Po=0.5Watt High Efficiency & Low EMI Quasi resonant switching Optimized SenseFET based on new technology
Green FPS Launch Full Product Line to Support a Growing Market Market Segment Fairchild Has the Most Complete Power Conversion Portfolio Color TV High Power PC SMPS Sanken CRT Monitor Mid Power DVDP LCD Monitor ST & PI Battery Charger Low Power & DC to DC Aux Power PI DC-DC 2003Q4 2004Q1 2004Q2 2004Q3 2004Q4
Smart Power Module (SPM) Solutions Overview Fairchild s SPM products provide a complete, integrated power management solution that combines as many as a dozen separate chips in a single package Fairchild is uniquely positioned to combine our analog control and discrete power switch technology with our own 8 bit microcontroller into a proprietary high value solution Target markets include the white goods (A/C, D/W, Refrig), plasma displays, industrial motors, and lighting SPM AC Source 100V ~ 264V, 50 / 60Hz PFC Driving & Protection VVVF Mortor CPU Single Grounded Power Supply Fairchild s SPM Sales Tripled YoY to nearly $9m in 2004!
Fairchild Smart Power Module (SPM) Leveraging the Fairchild Advantage Complete Solution Half the Board Space of a Discrete Solution Short Circuit Detection and Protection Over Temperature Monitoring Enables ~60% System Power Savings ~$250M White Goods and Fan Motor SPM SAM in 2005 350%+ Expected Fairchild SPM Sales growth YoY in 2005 * Source: IMS, Fuji Chimera (2004), Fairchild internal estimates
Fairchild Plasma Display Panel Module Better Performance/Lower Costs 1 Plasma Display Module Replaces 25 Components Minimum 2 Modules / System Up to 8 Modules / System for Larger Displays Over 90% Space Savings vs. Discrete Designs Reduces component placements / insertions by 96% ~$210M Flat Panel Display Power SAM Growing at ~43% / Year * Source: IMS, Fuji Chimera (2004), Fairchild internal estimates
Fairchild Analog Switches Solutions Overview Fairchild s analog switches provide technically superior low resistance switching of analog signals while reducing power consumption and minimizing signal distortion and providing excellent system isolation (low crosstalk) Switches are used for audio, video, and USB signals primarily in the ultra-portable and consumer electronics end markets Used to switch signals from internal to external speaker, screen to overhead for a LT, etc. Fairchild s Analog Switch Sales Grew 29% YoY to ~$18m in 2004!
Fairchild Analog Switch Products Switches for Ultra-Portables 2003 Cell Phone 2005 Cell Phone A SPDT switch is used in almost every cell phone produced to switch between a internal and external speaker. Fairchild leads this $40M market with approximately 25% SOM. Today s new cell phones are transitioning to stereo headsets, USB ports, MP3 players and cameras. The market is demanding more switches per phone and higher performance. Fairchild s wins with Low R ON Switches minimize signal distortion in higher quality stereo speakers. USB switches allow USB ports to be isolated or shared. Multi-channel switches allow several applications to be implemented.
Fairchild Analog Switch Products Switches for Video FSAV430 Video Switch 2004 Product of the Year Award analogzone. Drives multiple displays from a single source. Provides an inexpensive means of Picture-In-Picture implementation for High Definition monitors. FSAV430 Video Switch Multiplexes between high definition video and high resolution computing in LCD monitors.
Fairchild Video Filters Solutions Overview Fairchild s proprietary video filters and drivers provide superior performance in an integrated solution allowing customers to reduce component count and costs Target markets include set top boxes, DVD, TV (PDP, LCD), A/V receivers, auto entertainment systems, and ultraportables Fairchild s Video Filter Sales Grew 48% YoY to ~$18m in 2004!
Why do we need Video Filter-Drivers? Filters DAC Reconstruction Noise of MPEG Decoders Provide S-Video, Composite Video, RGB, YUV Outputs Variety of Filter Bandwidths Available for Each Application Outputs Drive 75Ω Back-Panel Cables Directly With No External Components Single-Chip Provides Complete Video Output Solution Includes filters, drivers, muxes, summers, clamps, and other useful functionality
Signal Conditioning Application Example DVD Player Sanyo DVDR Player Passive Discrete Filtering Component Video Filters S Video and Composite Video Filters One integrated solution replaces 35 Discrete Components plus pick and place cost plus board reduction at a Total Cost of approx. $1.20: 16 capacitors 9 EDS diodes 4 inductors 6 ferrite beads Advantages: Lower Parts Count and Board Space Integrated Functions Lower Cost / Higher Value Added Versatility ( i.e.. SD or HD) Provides Higher Order Active Filter Driver Solution with lower parts count *Note: Similar scenarios apply for STB, TV, PDP, LCD TV, FMS6419 ($1.00), FMS6418A + FMS6410 ($0.90), 6 channel SD LCF (Target is $0.50)
Financials www.fairchildsemi.com
Powering Higher Earnings Shifting the Mix to Drive Higher EPS Power sales grew 24% YoY in 2004 Standard Products (SP) sales fell 6% during the same time Proforma earnings increased >250% in 2004 350 $0.30 300 $0.25 Proforma Sales 250 200 150 100 50 $0.20 $0.15 $0.10 $0.05 $0.00 Proforma EPS 0 Q1 02 Q2 02 Q3 03 Q4 02 Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 -$0.05 Power SP EPS
Our Business Model Drives Consistent Cash Flow 25 Straight Quarters of positive Cash flow from Operations 240 200 Cash Flow from Operations EBITDA CAPEX Free Cash Flow (Cumulative) $Million 160 120 80 40 ` 0-40 Feb-99 Aug-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04-80 -120 Growing Cash During Every Phase of the Business Cycle
Strong and Balanced Capitalization Cash Capitalization Int. Exp / % of Rev. Debt/ Equity Spinout May-97 Samsung acq. May-99 IPO Aug-99 Follow-on Mar-00 Intersil acq. Mar-01 Dec-01 Convert Jun-02 Follow-on, call bonds Mar-03 Bank re-finance Jun-04 * Feb 2005 Feb-05 ` $1,000 $500 $0 $500 $1,000 $1,500 $2,000 $2,500 $Million Equity Convert Debt Hi-Yld Debt Other Debt Bank Debt Cash 7% 6.6 10% 10.5 10% 1.6 4% 1.0 6% 1.3 6% 1.4 6% 0.7 1% 0.5 * Expected results as of the end of February 2005
Fairchild - Strong Fundamentals, Well Positioned to Grow Focus on power is resulting in more stable sales our sales were down about 8% so far in this trough better than many peers Great line up of successful new products provide a catalyst for future power sales growth and market share gains Record low debt and excellent liquidity provide a strong financial foundation and plenty of resources to invest in the business If Q1 05 is the bottom of this trough Fairchild will have achieved a major goal of raising the floor gross margin approximately 400 bps above recent prior troughs Fairchild remains focused on driving higher and more stable gross margins and earnings through all phases of the business cycle
Fairchild Semiconductor International, Inc. Matt Towse, Sr. Vice President and Chief Financial Officer CSFB Global Semiconductor & Capital Equipment Conference March 2, 2005