FAIRCHILD INVESTOR DAY
2014
WELCOME DAN JANSON
Vice President of Investor Relations
NOTES ON FORWARD-LOOKING STATEMENTS AND NON-GAAP MEASURES • Comments in this presentation, other than statements of historical fact, may
constitute forward-looking statements. They are based on the 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 Risk Factors section), which are available at: http://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, which we believe provide useful information about the operating performance of our businesses. We ask that investors consider this in conjunction with GAAP measures that we also provide. For a reconciliation of non-GAAP to comparable GAAP measures, visit the Investor Relations section of our web-site: http://investor.fairchildsemi.com.
3
MARK THOMPSON Chief Executive Officer
AGENDA
STRATEGIC VIEW Mark Thompson
STRATEGY EXECUTION Vijay Ullal
MARKETING EXECUTION Sajal Sahay
SALES EXECUTION Chris Allexandre
THE BOTTOM LINE Mark Frey
5
WHAT YOU WILL SEE TODAY
• A strong leadership team
• Compelling offerings in Efficiency, Mobility & Cloud
• The transformation of our manufacturing footprint
• The transformation of how we go to market
• A compelling company for which to work
• A compelling company in which to invest
6
2010 INVESTOR DAY EPILOG
• Strategy • People & culture • Better end-market exposure • Return of cash to shareholders
Met Expectations Missed Expectations • Revenue growth • Gross margin improvement
7
LEARNINGS
• Revenue Growth – Market growth below forecasts – Too many investment areas in mobile
• Gross Margins
– Fragmented, inefficient manufacturing footprint – Chronic underutilization
8
BUILDING A GREAT LEADERSHIP TEAM
• Promoting from within in areas of progress – Automotive, Supply Chain, Assembly & Test
• Recruiting & upgrading in areas of weakness
– Sales & Marketing, Fab Operations, Engineering
• Opportunistically adding talent
– Strategy, Finance 9
BRINGING THE MISSION TO LIFE
• Target market growth
• 45% gross margins
• Delight all of our customers
• Invest in leadership that has done it before
– From within Fairchild or from other great companies
10
OUR CULTURE
EXCEL
ENGAGED EMPLOYEE
DELIGHTED CUSTOMER
RESPECT
SPEED
EXPLORE SIMPLIFY
PLAY
DIRECT
WORLD-CLASS
COMPANY
CHALLENGE
11
OUR PLAN THREE KEY INDUSTRY DRIVERS
Cloud Energy Efficiency Mobility
12
OUR PLAN PATH TO 45% MARGINS
Customers
Product
People
13
Systematic Operational Excellence
VIJAY ULLAL President and Chief Operating Officer
THE TEAM THAT WILL TAKE US THERE
15
BUILDING A GREAT COMPANY
SALES & MARKETING
TECHNOLOGY
16
OPERATIONS
BUSINESS UNITS
Operations Execution
OPERATIONS TALENT
WEI-CHUNG WANG Senior Vice President
Fab Operations
Ph.D. Electrical Engineering:
Purdue University
Fairchild, Intel Maxim, TSMC
18
BARRY O’CONNELL Head of Quality
& Reliability
MS Electrical Engineering:
Tyndall Institute
Fairchild, National Semiconductor
MIKE DUBE Vice President, Assembly
& Test Operations
BS Electrical Engineering: Northeastern University
Fairchild, National Semiconductor
CHRISTOPHER BALL Vice President, Supply
Chain, Customer Service & Global Procurement
MS Finance:
Bentley University BA Business:
St. Anselm College
Fairchild, Lockheed Martin
19
QUALITY IMPROVEMENT
Cost of Quality
Source: Fairchild Internal Data
8.5% 7.6%
6.9%
IMPROVED SUPPLY CHAIN
20 Source: Fairchild Internal Data
Q2 2012 Q2 2014
12
6
4%
1%
21 Source: Fairchild Internal Data
FASTER CYCLE TIME OF LEARNING
70
22
90
44
3x Improvement
2x Improvement
22
FOOTPRINT CONSOLIDATION SIMPLIFIES THE FAIRCHILD SUPPLY CHAIN
Source: Fairchild Internal Data
35%
7%
20%
40% 40%
75%
Strategic Approach
OUR NEW STRATEGY TALENT
STEVE FU Vice President, Strategy Ph.D. EE — Stanford University BS EE — Berkeley • Maxim — Executive Director Corporate Strategy • VMware — Head of Desktop Virtualization Strategy • Cisco — Advanced Technology Development & Head of Semiconductor Strategy
24
STRATEGY AS A DAILY ACTIVITY
Differentiated Products Application-Centric
Customer Focus
Product-Centric 25
BEFORE Commoditized Technology Approach
NOW Driving Innovation & Disruption
$0
$6
$12
$18
$24
$30
$36
$B U
SD
MOBILITY
ENERGY
CLOUD
APP-CENTRIC VS. PRODUCT-CENTRIC FAIRCHILD ADDRESSES 45% OF THE TAM IN 2018
26
New strategic
focus areas enable
Fairchild to address
45% of TAM
$24.6B TAM
2013 2018
Source: TAM – WSTS 2014 Spring Forecast (excluding standard products, such as logic) Addressable Percentage - Fairchild Internal Data
$32.2B TAM
% of TAM addressed based on product-centric approach % of TAM with new strategic focus
13%
27
All companies have PRODUCTS
Good companies have STRATEGY
LINKING the two LEADS TO a GREAT company
50,000 ft
1,000 ft
28
50,000 ft
1,000 ft
CLOUD ENERGY MOBILITY
25vFET 100vFET 600vFET GATE DRIVER MUX INTEGRATED SOLUTION WIRELESS IC DIODE FUEL GAUGE CHARGER
Systems solutions that serve the needs
Technologies that build the systems
50 product ideas
Power System in Package, Sensing Systems,
Intelligent Sensors
Today
Application Themes: Customer Empathy
Controller IP
Isolation IP
LV/MV FET IP Packaging IP
Driver IP
Sensor IP
HV FET IP
COMPETITOR
POWER SYSTEMS LANDSCAPE
29
Controller IP
Isolation IP
LV/MV FET IP HV FET IP
Sensor IP
Driver IP
Packaging IP
Controller IP
Isolation IP Sensor IP
Driver IP
HV FET IP LV/MV FET IP
POWER SYSTEMS IN PACKAGE LANDSCAPE
30
Megatrend/Insight Datacenter operators care about total cost of operations (i.e. end-end efficiency)
Application
Technology
Fairchild Differentiation
Market Potential $700M in 2018
STRATEGY TO REVENUE DATACENTER
High Voltage IGBT
Med Voltage MODULE
Low Voltage MODULE
Competitor 1 Competitor 2
Fairchild = End-to-End Solution Provider
Competitor 3
31
Megatrend/Insight Consumers don’t want to think about charging
Application Mobile, Phone, & Tablet
Technology Adaptive, Smart-Charging ICs
Design In 2015 Large Chinese Mobile Customer — Fairchild Total System Solution Fairchild communications protocol enables customers to provide a total system solution, from wall AC adaptor to battery.
Market Potential $3.8B in 2018
STRATEGY TO REVENUE WALL TO BATTERY (W2B)
32
Megatrend Reduce vehicle CO2 emissions through Electrification
Insight 48V Technology allows OEMs to reduce losses and provides better return ($ spent / CO2 reduction)
Application of Focus Mild hybrid
Technologies High-performance power modules SPM®
Design In 2015 3 Tier 1, 4 OEM in 3 continents
Market Potential $2.1B in 2018
STRATEGY TO REVENUE AUTOMOTIVE
33
Megatrend/Insight Autonomous machine control
Application Industrial internet of things and wearables, from drones, robotic vacuums to technical clothing
Technology MTi family: 3D motion hardware and software modules
Target Customer Broad industrial applications and wearables
Market Potential $1.4B* in 2018
STRATEGY TO REVENUE MOTION TRACKING
34 * Does not include Smart Phone applications
NEW SALES & MARKETING TALENT
35
CHRIS ALLEXANDRE Senior Vice President, Worldwide Sales • MSc — Electrical Engineering, ISEN France • Texas Instruments, Vice-President EMEA Sales & Applications • Worked in China & Germany in Consumer, Telecom, Industrial & Automotive industries • Key account & distribution management experience SAJAL SAHAY Senior Vice President, Marketing and Human Resources • BS — Economics from the University of Chicago • MBA — IESE Business School in Barcelona, Spain • T-Mobile — Launched world’s first two Android phones • HP, Philips, IBM
CHRIS ALLEXANDRE Senior Vice President, Worldwide Sales
OVERVIEW
• Foundation — New sales strategy
• People — New leaders, skills, mindset
• Deployment — New growth opportunities
• Execution — New customer engagement model
37
FOUNDATION NEW SALES STRATEGY
• DEMAND CREATION - Design In/Win — shift coverage to R&D - System approach — understand the application - Customer empathy — fill a latent need, solve a problem
• CLOSER TO CUSTOMERS
- Proximity — quick response - Adaptive — fragmented customer base - Agile — early engagement with emerging customers
• ACCOUNTABILITY - Revenue accountability moved to design origin - Pay on results — new sales bonus on design-in, revenue growth
38
• NEW SKILLS – VALUE ADDED TO CUSTOMERS - More technical sales – EE - More Field Applications Engineers (FAE) – FAE as application experts
• NEW MINDSET – PROACTIVE, DRIVE DEMAND - More field-based people, less operations - Relationship-builders
PEOPLE NEW LEADERS, SKILLS, MINDSET
JOSEPH KARIM Americas VP
22 years Atmel, Intersil, ADI
ANDY LAI China VP 22 years
ADI, NSC, TI
ANDREAS HAMMER EMEA VP 16 years SiLabs, TI
JOSEPH NOTARO Motion Tracking VP
22 years STM
WEI LI Taiwan GM
20 years Lucent, Maxim
39
• RAISING THE BAR – NEW LEADERSHIP TEAM
RESOURCES BEST DEPLOYED
• Increase investment on most significant markets - China - Germany - Silicon Valley
• Shift resources to most promising opportunities
- Generated revenue vs. transacted revenue locations - Invest where the growth will be vs. where revenue is today - Aligned company focus segments
• Expand customer base
- More in fragmented markets: (i.e. Industrial, Auto) - Emerging segments and customers: (i.e. Wearables) - Mass market 40
RESOURCES GO-TO-MARKET
ASSIGNED ACCOUNTS
MASS MARKET
LONG TAIL
Growth Potential
• Biggest growth opportunity • Focus, depth — 80% of resources • Demand creation
• More customers • Leveraging distribution
• More engineers • Leverage the web & catalog
distributors • Build brand awareness
41
NEW CUSTOMER ENGAGEMENT
• CUSTOMERS DRIVE PRODUCT DEFINITION - System expertise provides unique insight - FAE conduit of customer pain points
• INCREASE COMPLETE RECEIVED VALUE
- Product to solution, design expertise - Supply chain excellence - No EOL policy
• RELATIONSHIPS MAKE A DIFFERENCE
- Attention to every customer - Focus on customer empathy
42
• CLOUD & TELECOM - Move to IC & System approach - More strategic engagement - Growth acceleration
• MOBILE POWER & W2B - Full end-end solution - Huge value to customer - Major ASP increase
YR13 Y14 $M Y15 $M Y16 $M
Others
Mobile Power & W2B
Cloud & Telecom
43 Source: Fairchild Internal Data
EXECUTION CUSTOMER SHOWCASE RELATIONSHIP, FOCUS, SYSTEM APPROACH DRIVES GROWTH
SAJAL SAHAY Senior Vice President, Marketing and Human Resources
OVERVIEW
45
• New Brand
• New Go-to-Market
• Success
• Customer Count
WHY REPOSITION THE BRAND?
• Brand history: older company & commodity sales – Stagnation in customer growth & revenue
• A new Fairchild brand
– Energize employees – Attract top-notch engineering & sales talent – Grow relationships with design engineers
• Long-Tail customers create innovative products
46
OLD BRAND IDENTITY
2013 47
NEW BRAND IDENTITY
48 2014
NEW BRANDING “XIANTONG” IN CHINA
• Historical significance • Strong awareness • Positive connotation
49
NEW GO-TO-MARKET WEBSITE: OPTIMIZED FOR LONG-TAIL LEAD GENERATION
• SHIFT commodity sales content to value-added content
• MOVE design engineers through the entire buying journey
50
NEW GO-TO-MARKET SUCCESS VIA POWER SEMINARS IN 2014
• 3x new customer leads
• Scalability – Live streaming to remote locations – Post-seminar engagement
• Wider awareness
– New prospects – Social media & community
Boston, MA – May 1 Taichung, Taiwan – May 15 Beijing, China – May 20 Shenzhen, China – May 22 San Jose, CA – June 3
51
NEW GO-TO-MARKET SUCCESS VIA ACCELERATING CUSTOMER ACQUISITION
52
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
# of CustomerLocations
Source: Fairchild Internal Data
MARK FREY Executive Vice President,
Chief Financial Officer and Treasurer
FINANCIAL OBJECTIVES
54
• Grow revenue in line or better than SAM
• Focus on internal cost reductions to drive earnings growth
• Increase outsourcing to reduce variability across the cycle
• Continue to enhance product mix to raise gross margins
• Lower CAPEX & manage working capital to drive strong CF
Big shift in end-market exposure
• Auto, Industrial, Appliance, Mobile & Performance Computing now account for roughly 85% of sales vs. 55% in Q2 2010 • Less headwinds to sales
BETTER END-MARKET EXPOSURE
55 Source: Fairchild Internal estimates – Effective 2011, data segmented using industry standard categories. All data in this chart is derived from this approach
6%
30%
14%
15%
35%
13%
41%
23%
10%
13%
Consumer Computing Mobile Industrial & Appliance Auto
0.0%
10.0%
20.0%
30.0%
40.0%
2003 - 2005 Avg 2012 - 2014 Avg
Source: Fairchild estimate for 2014
• 3 Year Average GM +7 points • 30% reduction in GM variability
GROSS MARGIN PROGRESS 2005 TO 2014
Source: Fairchild estimate for 2014 56
Quarterly Impact
Manufacturing consolidation 300 - 400 bps
Depreciation roll-off 50 - 100 bps
Incremental sales fall through 50% of sales
Mix improvements 100 - 200 bps
GROSS MARGIN EXECUTION GM LEVERS OVER NEXT 18–24
Risk
Lower
Higher
57 Source: Fairchild Internal Estimates
IMPROVING CASH FLOW
Source: Fairchild estimates for 2014 58
0%
2%
4%
6%
8%
10%
12%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
FCF% of Sales
Higher income, excellent working capital management & lower CAPEX drive FCF growth
ASSET MANAGEMENT METRICS
Source: First Call and Fairchild estimates for 2014 59
0
20
40
60
2010 2014
0
20
40
60
80
2010 20140
50
100
150
2010 2014
0
20
40
60
80
2010 2014
Days
Da
ys
Days
Da
ys
Days Payable Days Sales Outstanding
Days of Inventory Days of Inventory - Channel
FCS Peers
NET DEBT & INTEREST TREND
60
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
-$700.0
-$600.0
-$500.0
-$400.0
-$300.0
-$200.0
-$100.0
$0.0
$100.0
$200.0
$300.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Q1 '14 Q2 '14
Net Cash Interest % of Revenue
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1997 1999 2001 2007 2008 2009 2010 2011 2012 2013
Drawn Revolver Term Loan
Convert High Yield
9%
91%
Capital Structure
% of Debt
% of Equity
• Revolver $400M Facility – $200M Drawn – Maturity May 20, 2016 – Access to Incremental $300M – Cost, L+175bps, 35bps undrawn fee
CURRENT CAPITAL STRUCTURE
61
-8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0%
Aggressive buybacks of 100% of excess FCF
Source: First Call and Fairchild estimates for 2014
Ending Share Count % Reduction 2014 vs. 2013
FCS
Peer A
Peer B
Peer C
Peer D
Peer E
62
RETURNING CASH TO SHAREHOLDERS
Sales Range $375 – 425M
Gross Margin 37 – 40%
Operating Expenses 25% of Sales
EBIT Margin 12 – 15%
Cash Flow from Ops 16 – 20% of Sales
Capital Spending 4 – 6% of Sales
Cash to Shareholders 100% of Excess FCF
63
TARGET BUSINESS MODEL POST-CURRENT PHASE OF MANUFACTURING CONSOLIDATION
Source: Fairchild Internal Estimates
MARK THOMPSON Chief Executive Officer
RECAP
• Culture attracts talent
• Company retooled for customer delight
• Footprint transformation supports record margins
65
THANK YOU