Please stand by, we’re about to begin. Good day and welcome to the Fairchild Second Quarter 2015 Earnings Conference Call. Just a reminder, that today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Dan Janson. Please go ahead.

Good morning and thank you for dialing into Fairchild’s second quarter 2015 financial results conference call. With me today is Mark Thompson, Fairchild’s Chairman, President and CEO; and Mark Frey, our Executive Vice President and CFO. Let me begin by mentioning that we’ll be attending the Citi Global Technology Conference on September 9 and the Drexel Hamilton Telecommunication, Media and Technology Conference on September 10 in New York City. We’ll start today’s call with Mark Frey, who will review our second quarter financial results and discuss the current status of third quarter business. Mark Thompson will then discuss our product line results, end markets and operational performance in more detail. Finally, we’ll 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. A replay for this call will be publicly available for approximately 30 days. Fairchild management will be making forward-looking statements in 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 report 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 Principles. We use non-GAAP measures, because we feel they provide useful information about the operating performance of our businesses that should be considered by investors in conjunction with the GAAP measures which we also provide. You can find a reconciliation of non-GAAP to comparable GAAP measures 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 – excuse me, thank you for joining us. I’m sure most of you have had a chance to review our earnings press release, so I’ll focus on just the key points in my comments. For the second quarter of 2015, Fairchild reported sales of $355 million; flat sequentially and down 4% from the second quarter of 2014. Distribution sell-through is typically up 5% sequentially in the second quarter. We did not see this normal increase, especially in the last two months of the quarter, so we adjusted our shipments into the channel to match the lower sell-through. Mark will discuss the current demand environment in more detail in a few minutes. Adjusted gross margin was up 160 basis points from the prior quarter to 33.2%, due primarily to higher factory loadings and manufacturing cost controls in the prior quarter. R&D and SG&A expenses were $100 million, which were up 6% from the prior quarter, due to annual merit raises and equity vesting coupled with temporarily higher legal spending. We forecast OpEx to decrease noticeably in the third quarter. Second quarter adjusted net income was $14 million and adjusted EPS was $0.12. The adjusted tax expense was $2 million for the quarter. Now, I’d like to review our second quarter sales and gross margin performance for our two major business segments. Sales were flat from the prior quarter for our Analog, Power and Signal Solutions segment or APSS, as modestly higher demand for power conversion products supporting the mobile market was offset by lower sales into the consumer and display sectors. APSS’ adjusted gross margin was down from the prior quarter to 36%, due primarily to pricing and a slightly less favorable product mix. In our Switching Power Solutions segment or SPS, revenue was…

Thank you, Mark, and good morning, everyone. We grew sales for our industrial, appliance and mobile products during the quarter and held our distribution channel inventory dollars flat sequentially. Demand was weaker than expected during the second quarter from some mobile and appliance makers to wireless telecom sector, as well as general market distribution. We expect to increase sales in the third quarter due primarily to higher mobile and wireless telecom demand. We completed a number of important milestones in our factory consolidation programs and remain on schedule to realize significant manufacturing cost savings starting this quarter. We forecast gross margins to increase sequentially in the third quarter due to these savings, as well as better product mix. I’ll begin today with a review of the current demand environment and discuss the sales growth drivers for the third quarter. Next, I want to update you on our footprint consolidation and changes in the way we’re managing our supply chain. Finally, I’ll wrap up by discussing some additional second quarter data points. Let’s begin by looking at the current demand environment. We grew sales for our industrial and appliance products in the second quarter but did see some incremental demand weakness. Our third quarter guidance reflects the lower demand for this sector. We expect to offset some of this with higher sales from new products and design wins in solar inverter, UPS, welding, LED lighting and inductive heating market. In the mobile sector, we grew sales sequentially as customers increase production for a number of new smartphones. We also benefited from an increased content for a variety of battery charging, voltage regulator, and signal path solutions on these new models. Demand from one large customer decreased in the latter half of the quarter due to excess inventory of one model and…

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 one follow-up. Thanks and let’s take the first question, please.

And we’ll take our first question from Ross Seymore with Deutsche Bank.

So let me ask the question. I guess, Mark, the first one is in response to you talking about the channel sales being weaker than expected and you guys having to adjust accordingly. Well, I think that’s a great response quickly on your side. Can you give us a little more color on the linearity of that, the causes of it, and how you view that going forward? Is that something that’s going to persist, was it specific to one geography, any sort of color on those metrics would be helpful?

Yes, sure, Ross. So the normal pattern, I mean, actually in Q2 if you look at, it is one of the more consistent quarters if you look at in all the various patterns through cycles. And normally what it does is it starts out a little bit softer then strengthens as the quarter goes along. And then, so and the strength at the end often is, because there are some summer weakness, which then in the third quarter picks up at the end of the third quarter. What we thought was more of a kind of flat line response. So it did go up modestly across the quarter, but not that much. So that – and so that is what caused it, rather than come in at a typical kind of 4% to 5% up, it came in flat. I guess not using a lot of imagination all we’ve done is taken that trend line and put it across the third quarter, which should be a pretty conservative assumption. As I commented earlier, the first two weeks were a bit – a slightly ahead of that trend line, and then normally Q3 strengthens in September. That’s a very typical response. There’s a lot of time off and shutdowns during the summer season in manufacturing. So, again, I think, there is lots of questions about the general demand environment and impact of some of the economic concerns that are going on and so forth. So we just took a pretty cautious stance and decided to model flat. And obviously if it’s better than that, we’ll either increase the shipments, or we’ll have a super clean position for the fourth quarter.

And that’s helpful.

Geographically, Europe and China were probably the most prominent in terms of the slowdown.

And I guess there’s one follow-up for Mark Frey. With that lower revenue base, can you talk about the implications for the gross margin? I would assume the restructuring would have the same sort of positive impact albeit just off of lower base, but just want to confirm that I understand all the moving parts into the second-half and throughout the impact of the restructuring?

You’re correct, Ross. The restructuring has been monetized in dollars of $45 million to $55 million. And so that would imply to whatever business we have, and obviously the lower revenue still has a negative impact on the overall gross margin, which is why the guide although up, we’re still a bit less than we would have expected with a higher midpoint revenue. But the savings are still there, and in essence, you’re even more happy that, you’ve taken fixed costs out of the system in that environment.

So, Ross, to add a little bit more granularly to Mark’s comment, if you look at the sequence that I gave in my prepared remarks. So, Salt Lake, we entered the quarter with about 400 employees, today, we’re about 40 that are involved in decommission and so forth. So, 90% of the total savings approximately would be – or little less than that, because the people who are around are tend to be technicians and such associated with decommission for most of the third quarter. If you take Penang, Penang is still at full – essentially full employment of around 1,600 people, but production will cease at the end of the current month. And so that headcount will kind of go from 1,600 to 500 to so forth across the quarter. So that’s how you see and the same comment, which is that you wind up with kind of a 10% to 15% of the head count remaining for decommissioning, packing equipment, and all that sort of thing, all of which disappears by the end of the year. So that’s how you see the beginnings of a short falloff in the third quarter than a ramp down across the quarter, and then a tail probably into the fourth quarter and then all gone by the end of the year, and that’s why you get a really clean total look at the thing in the first quarter - should get in the first quarter of 2016.

That’s great. If I could sneak in one housekeeping one, I know your inventory, the reasons why you are going to carry it a little bit more, I understand that; you before said you’d exit the year at about 90 days of inventory, is the new target 105, the midpoint of your new guidance range?

Yes, 100 to 105, I mean, we are – we set our plans at beginning now to taper down the part, because the current inventory is higher because the model is different, but it’s also higher, because we have buffer stock of individual parts that are being transferred to the new source of supply.

So Ross, what we’re doing given that it is a new model, we’re focusing on the service levels once we have a good stability in the service levels then we’ll optimize the inventory.

Perfect. Thanks, guys.

[Operator Instructions] We’ll take our next question from Harlan Sur with JPMorgan.

Good morning, and thanks for taking my question. You mentioned confidence on auto growth for the full year, obviously, I know you guys are benefiting from some good content gains in new models. Can you just talk about the trends on a quarter-on-quarter basis? You had anticipated, I think, growth in auto in Q2, how did that play out? And how was that business trending in Q3 relative to seasonality? I think there are definitely concerns out there on the global automotive demand trends and wondering if you’re seeing signs of that.

There’s not a huge seasonality to our auto sales. They were roughly – they were up slightly in Q2, so that they represented the same percentage of the company as they did in Q1, which was 16%. And the only thing I’ll observe is, we will often see a tick-down in Q4, which is kind of inventory control, but that that tends to be modest and the secular trends are really what we have been focusing on, which is just showing modest growth quarter-by-quarter.

Got it.

So a couple of additional comments. So if you look at the first automotive orders tend to come in regardless of our lead times with a lot of, give us a much higher than average degree of visibility. So if you look at 2015, it’s two quarters of actual plus one quarter that’s largely already in backlog. So that the certainty of it is fairly high, obviously, anything can happen in the fourth quarter, but there’s a couple of things. So our overall model was for the business to go in from the kind of 140s into the low 160s. And today that number – the low 160s number is – remains plus or minus $1 million. So and I think the follow on to that is, if you look at the place the people have talked about softness, it’s been in the large European luxury car space, which for us is a relatively unimportant segment in the sense that we don’t do a lot of infotainment, those are very electronics heavy kind of things. We’re really focused on the bread-and-butter cars that make up the largest volume of the typical manufacturers productions, where they meet their volume weighted fuel economy and CO2 emission requirements. So it’s a more robust segment of the market.

Great. Thanks for the insights there, those are really helpful. And then on the increase in wireless telecom demand that you’re forecasting in Q3, is that just more recovering back to run rate levels following a weak Q2, or is the team actually starting to see a pickup in end market infrastructure spending on wireless capacity expansion, any color that would be great.

Yes. It’s just a mild return to typical seasonality. We – as I have many people, we dug in pretty hard to the freeze in the 4G build-out and LTE build-out in China. And we don’t expect that to unfreeze until – our – in our model, it probably doesn’t unfreeze until the end of the third quarter. So it benefits the fourth, but not the third.

Great. Thank you very much.

We’ll take our next question from Chris Caso with Susquehanna Financial Group.

Thank you. Good morning. Just to come back to the gross margins and the cost reduction, my notes from last quarter indicated you are expecting 200 basis point, a positive impact in the third quarter from the cost reduction, but you’re only guiding up a 100 and revenues growing as well. Does that imply your utilization moves lower in Q3, so that there is an offset to that? And, I guess from, say, the Q2 base, what would be I guess, if we use that as a base line when we get to the first quarter, what should be the total magnitude of the cost reduction impact just to keep us on the right level?

Well, it’s all of those things. It was – we had to reduce our build plans in Q2, and that has an impact on manufacturing unit costs, which roll into Q3 and the same thing is true in Q3, then with a higher, with a lower revenue line you get a denominator of fact in terms of just how you calculate gross margin. As to Q4, it really depends on the mix and the revenue volume. And we don’t although, obviously the cost taper down, as Mark explained, we don’t go from 100% to zero. The factories are closing in slightly different schedules and the headcounts taper down. So in, for example, Q2 those are about a $2 million unfavorable impact of having the Salt Lake facility kind of being managed down, obviously we stopped producing late in the quarter, but we still had people embedded in our guidance is that same phenomenon in Penang in Q3. By Q4, most of those costs have been excited, and we’ll have a cleaner opportunity into the cost reduction benefits. But it’s still all in the context of what the revenue line is.

Okay.

And, Chris, I just add one more thing. We still are comfortable with our target business model that we provided at the last Investor Day. So, as we get into next year, I think the model that we laid out depending on where we are from a revenue perspective, still provides for a much higher gross margin than we’ve run historically.

Okay. As a follow-up, you had mentioned in your prepared comments something on pricing and you mentioned it quickly. Can you expand upon those comments a little bit, tell us what you’ve seen with regards to the pricing environment, and how that looks compared to what your expectations were coming into the quarter?

We’re not really seeing anything different or asymmetric.

Dan, can you expand on that that one specific pricing example.

Yeah, sure, so pricing for us is typically down 1% to 2% every quarter. And, Chris, I would say for probably the last, since the recession, it has never varied from that and it didn’t last quarter either. It was pretty much right in the normal average range, so nothing remarkable on pricing.

Okay. Thank you.

We’ll take our next question from Craig Hettenbach with Morgan Stanley.

Yes, thanks. Question for Mark Thompson, just on the growth if I look at kind of where revenue is today, touch above from the beginning of 2014 and understanding a big hence the customer has really been weak. But just, as you look at that, as you look at kinds of demand environment we’re in, just curious to get your take in terms of things that you think at some point can reinvigorate the growth?

So I think there’s a couple of different of – we’ve been focused steadily over a period of time on aligning ourselves not away from general horizontal markets, but with stronger participation in a number of key verticals around handsets, servers, automotive, select industrial kinds of things. And so, we continue to believe that those will ultimately lead to some growth results. I think what we see is that in any given time a negative move from the economy more than offsets any progress in a bunch of the verticals, which actually tend to be pretty robust, right. So if you look at our key verticals they all did well in the quarter and we made progress. But when you have a seasonal drop of 5% in what amounts to about two-thirds of the business or not quite two-thirds, but certainly more than half of the business, it just overwhelms progress in the vertical segments. So we still have very high degree of confidence that we have the right vertical segments and that we are making progress in those. The wildcard and the thing that we both don’t – have less control over and it’s harder to predict is what the general economies are going to do, which tends to influence the mass market. So if you look at the key pieces of that, automotive has been the steadiest, and so that’s the one where I think we got the strategy right earliest and it’s now five years of consecutive growth. The handset one, we had really two major reworks of our strategy and feel quite good about it now. So what we’ve been doing has been – and you could look at part of what we’re doing and say, well, continue to chase who is winning. And that’s partly…

Got it, appreciate all the color on the different potential drivers. Just a follow-up question just for Mark Frey on just the OpEx, understanding some of its litigation is temporary, but just as the sales are at bit of a lower level, the leverage you can pull on the OpEx, which is how you’re looking to manage that on a go-forward basis?

Sure, so there are two aspects of that. Yes, in Q2 we had some one-time expenses. The legal content of that was about $3 million. And we also – there’s sort of a funny impact of the way our equity expense is charged to the income statement. So in Q2 we typically get a flip-up of $1 million dollars and that goes away in Q3. So looking forward and embedded in our guidance, we, number one, obviously the legal expenses taper back down again. The equity does not recur and you do get some favorable seasonality in Q3 and Q4, but on top of that Mark and I have driven cost reductions across the business. We are still focusing on our key R&D and sales priorities, but we are increasingly attacking other infrastructure and support costs.

Got it. Thank you.

And we’ll take our next question from Christopher Rolland with FBR Capital Markets.

Hey, guys. Thanks for the question. So just first a quick housekeeping, if backlog and book-to-bill were positive. And then, sorry to comeback to gross margins here, but I’m trying to get my head around it and put all the pieces together. So at your Analyst Day, you guys guided 300 basis points to 400 basis points from the consolidation, and another 50 basis points to 100 basis points from the depreciation roll-off. So we are talking about a range of about 350 basis points to 500 basis points. So as of Q2, how much of that 350 basis points to 500 basis points has been recognized? And if none, can we just simply add that 350 basis points to 500 basis points from Q2 and assume that gross margins are going to reach a range here of 37% to 38.5% when fully implemented, is that the right way to think about this?

So I’ll answer the first easy part and Mark can answer the second harder part. So our net bookings in the second quarter, calendar second quarter were approximately equal to our shipments in the second quarter.

And on the gross margin, I think, yes, the incremental savings are obviously a function of what base line is at different times that we’ve talked about the program. Our margin has been in different levels. I believe the last time we spoke the margin had been at about 32%. And so if you apply the incrementals you got 37% to 39% in an environment we are the top line would be in the $375 million range. So you still always have to couch it into some fundamental size of the business, but that’s a correct interpretation.

Okay. You guys did – just a follow-up there, you did say that there was an incremental gross margin roll-off of 50%, so we can just work off of that $375 million to see the gross margin impacts of lower revenues, is that correct?

State that again, I am not sure I understood it.

Well, you said it was at a $375 million level and you’re guiding below that for Q3, so for $10 million shorter whatever, should we have a negative incremental fall-through of 50%?

That is not a bad – yes, I mean, if obviously that revenue had been higher, then our guidance for the gross margin would have been higher.

Okay. And then lastly you guys also talked about 100 basis point to 200 basis point improvement from mix that you guys would get, and that was over in 18 to 24 month period. Can you talk about where we are in that transition and how much of that 100 to 200 you guys have realized?

So, again, embedded in our guide for Q3 there is favorable mix in the few – in the 20-ish basis points quarter-to-quarter. And that represents the higher component of mobile. We think that will actually expand in Q4. And then the mix details for next year, we are obviously less certain, but as we grow mobile, high-end computing and auto as a higher percent of the company, those all have a significantly higher gross margin profiles in the rest of the businesses and that’s the kind of the way we approach the view of mix.

Great. Thanks so much guys.

And we’ll take our next question from Vivek Arya with Bank of America Merrill Lynch.

Thanks for taking my question. I am curious how fast you think your mobile sales could grow sequentially and how that compares to growth you have seen in prior years. And as part of that, Mark, you mentioned you have a very balanced exposure to the different mobile customers, I would appreciate any color around how you see demand trends play out at your U.S., your Korean and your Chinese customers.

So if you split it into two pieces, what we had, let’s say if we back up two years, we had more of our revenue in interface solutions than we had in power management solutions. And we had one Asian customer who was close to half of our mobile revenue. As we look to, let’s say, the exit of the third quarter that that’s the power management is well over half and the fastest growing part of that. Our content has gone up drastically in the U.S., and flat to up slightly in non-China Asia, and then growing in China in a way that looks very similar to the rest in a sense that it’s – so the one non-China Asia customer is still heavily concentrated, although migrating to power solutions to some of the older interface solutions. Whereas our growth in content in the two – the handset makers in particular in China that we think are going to be are and going to be the winners. We have content that’s significantly higher, approaching $1 dollar in some cases of power solutions and similarly in the U.S. So it’s a transition to content to power et cetera. So it’s we’re not depending in our numbers on a lot of volume unit growth. We think that the market does – it might post single digits net, but it’s really a sticky content story that we are pursuing and have good progress on.

Got it. Very helpful. And as a follow-up, Mark, there is a lot of concern about just demand and consumption in China, because of what’s going on in their stock market. And since you have exposure to that market along many different product lines, I’m wondering what you are seeing there actually on the ground in terms of demand in your different product lines.

So it depends on where you look. I mean, there’s certainly a higher level of uncertainty we’ve seen in a long time in China. Right now, we’ve seen it mostly impact things like appliance in particular. We’ve seen it less impact the handset space. Although, again there are some fairly large share shifts that are going on even amongst the Chinese players. And so again you can see somebody growing a lot, which doesn’t necessarily imply that the market is a lot. So I think the company that starts with the X, I think has been pretty public. They had big growth goals for 2015 and every quarter they scroll back, right. Now you find some other people that are actually getting that share. So I think the handset space seems to be being relatively robust. And then if you go to the infrastructure build-out, 4G/LTE build-outs, those have been on hold due to the corruption investigations that have gone on. People seem very confident that, A, that they are very committed to completing the build-out; and, B, that those will be concluded during the fourth quarter, and that will go back to a space that’s positive. So our current view of what’s likely to go on is that anything general consumer household-related like appliances, is likely to be challenging for at least the rest of the year. I think mobile is going to be okay, and I think the infrastructure piece will resume.

Great. Thank you very much.

And we’ll take our next question from Tristan Gerra with Robert W. Baird.

Could you talk about the book-to-bill in the quarter and also how the backlog is comparing with last quarter?

So the book-to-bill was very close to 1 in the second quarter. And so our backlog position entering the current quarter for our estimates is about average, I would say, for our short lead time model.

Okay. And then, obviously it’s probably difficult to get an apple-to-apple read on utilization rates, given the fab consolidation that’s ongoing. But for Q3, given the reduction in production on a normalized basis what will the utilization rate look like? Are we in levels that will compare to the low 80s or is that below that level?

No, you’re close. I mean, utilization will still improve, because obviously we’ve take our capacity down, so whereas it would’ve been higher if our revenue guide had been higher. We are more of a variable cost structure now, but so particularly in Korea where we have the receptor sites for a lot of the processes from Salt Lake City, we’re seeing utilization go up there.

Okay. And then last question, when everything normalizes by next year, if you could remind us percentage of your production that will be outsourced?

Of course, that will be our choice depending on where we are in the cycle. But in the – for wafer, it would be anywhere up to about 35%. For assembly and test, it would be anywhere up to about 50%.

Great. Thank you.

We’ll take our next question John Pitzer with Credit Suisse. Sir, your line is open. You may want to check your mute button. Once again, Mr. Pitzer, your line is open.

Yes. Can you hear me now, please?

Yes, sir.

Okay, perfect. Maybe the first question for Mark Frey, just going back to gross margin utilization markets, just kind of curious given where fab loadings are today, if you were to come in at the low-end of the guide for September, i.e., where this is flat sequentially, would you expect the incremental kind of headwind to gross margins in the December quarter, or as you think about where fab loadings today are, even on sort of a flat revenue in September, you would expect loadings to go up, if you can give us some sort of color on that, that’d be helpful.

Well, I’m not getting your question all that clearly. I – it sounds like you’re in a car or something. But the lower your build plan in a given quarter the – it certainly would present a headwind to the next quarter, because the efficiencies are generally out of phase. So, yes, if we were in the very low-end of our range that would imply a higher unit costs that would roll into Q4. But the opposite is true if we’re on the higher end then we would have the opposite effect. But another phenomenon in Q4 is, it’s more important what are foundry and sub-con pricing is, because more of our shipments will not be under this phenomenon of internal manufacturing variance reporting, and whatever we pay the outsource vendors that’s what hits the income statement, and we believe we’ve got some very good pricing out there.

The other thing I would say John is the low-end of our gross margin guidance for Q3, we’d still have us up nearly a point for gross margin. So, we would assume that gross margins would increase even on a flat revenue environment, which is kind of the low-end of guidance.

That’s helpful. Then maybe to a follow-up of Mark Thompson, just getting back to the handset market opportunity, you guys clearly have a very good content story especially with the North American guy here in the near-term. I guess, one of the things that I’m trying to figure out is the history of the handset margin is, when you are in early solving a new problem you tend to have pretty good pricing and pretty good content [ph], but over time, that pricing kind of whittles as early content opportunity rolls away. I guess, what I’m trying to understand better is, why given some of the applications you’re tracking today, you think you’re modes are wider, the content story has the legs or the pricing environment will be better longer, can you just kind of help me understand how you are thinking about that, that would be very helpful.

Yes, sure. So there’s a couple of aspects to that. So the – it starts with the blocks that we are pursuing now, I’m not saying they can’t be integrated, say, into the PMIC, but they almost surely won’t be integrated into the PMIC. I mean, if you look at why, for example, the charger I see stays out of the PMIC, and I don’t know anybody, I mean, I suspect probably what the Korean guys are probably trying to integrate everything. But there’s a bunch of thermal density reasons why it’s really, really hard to put all these power blocks into one place right. So increasingly, in fact, they’re disintegrating them and distributing them around the phone to avoid hotspots on the phone. These phones are working really hard in the power levels, keep going up, batteries get bigger, and so thermal management becomes a very big deal. The – so the other part two is that, if you look, for example, at the Near Field pay reference design that we’ve – we’ve got our reference design end and specific design end. Once you get an RF system working, people are generally lowed [ph] to touch it. And those things are hard to do. And so, sort of the same comment, there’s not a lot of incentive for people to – and there’s not a lot of people who are able to do that. And I guess the proof point I would offer to this has been our experience on the adapter side. So we’ve been the dominant supplier for the adapter for the American company for four to five years now, and a solution that a bunch other people have gone after and so far been unable to replicate the combination of performance that we delivered. And so, that has actually been from a both pricing and a share point of view relatively unchallenged. And so, I think, when you look at specific sockets, like the RF pay function, like the adapter for, as power levels go up like the charger IC, those are pretty immune to integration and they’re really hard to do. So you might wind up with two people ultimately solving the problem. You don’t wind up with five people solving the problem which is what causes pricing to just disappear. So that’s some of the background to why it looks a lot better than, let’s say, three to five years ago.

And Mark, just a quick follow-up on that, to help me better understand it, is there any concern that the new standards on USB would actually integrate some of the Fairchild technology? Is that something that we need to be worried about?

No, we certainly don’t see that happening. The Type-C controller is going to be standalone for the foreseeable future. It’s the same, so, I mean, what the difference between that and the last generation is the 30s can get integrated away, but the power piece will almost surely stay independent.

Very helpful. Thanks, guys.

We’ll take our next question from Steve Smigie with Raymond James.

Great. Thanks a lot guys. Just a follow-up on the appliance weakness and on the sort of the general slowness on the distribution channel, I was hoping you could talk a little bit about how much of that is you see maybe is just due to some demand softness out there in China versus in the past you’ve seen government mandate sometimes create actually inventory that probably shouldn’t have been there, so that differentiation. And also, Mark Frey, you mentioned that the Europe looked a little bit weak. I’m sort of hearing mixed data points, sometimes hearing Europe strong. So is some of that weakness potentially just, sometimes you have and also it’s a wide business and you have fluctuations throughout time in a particular segment. Could you just address that? Thanks.

Sure, China we don’t have any special visibility that we build a lot of inventory and at least based on government mandates, and we have those kinds of the disruptions. But in general it was week. Our appliance businesses is somewhat linked to housing and so we just sort of have to live within that environment. In terms of Europe, the euro made some contribution. As I said I think in the last call, the currency changes we’ve seen in the past year when you net them all they’re favorable to the company, but the euro specifically is unfavorable, it hits the revenue line. And then there wasn’t anything particularly noteworthy in Europe and I just noted that it was, if you compare Q1 and Q2, it was down and it was down off of a fairly strong Q1.

Okay great. And my fourth question is just, you guys had a, I think, a pretty meaningful MEMS announcement during the quarter. Just hoping we can get an update there and any opportunity for MEMS over the next couple of years?

Yes, sure. So, yes, so we’ve launched our very, very low power high accuracy integrated solution and we’re looking at a number of robotic kinds of applications, both the industrial and commercial consumer. The motion modeling business, the suits and the minor suits and the industrial piece of that is doing very well this year. And so we see very strong double-digit growth at very good margins across the year. So we’re very bullish about that business and it’s on the edge of having meaningful impact to the company and I think it will have meaningful impact starting in 2016.

Great. Thanks guys.

And we’ll take our next question from Kevin Cassidy with Stifel.

Thanks for squeezing me in. On your infrastructure exposure, do you sell directly to that customer base or does that go through hubs or through distribution? Just asking about the visibility you have into that market.

Which infrastructure in particular?

Wireless telecom.

That’s mostly through distribution.

Okay. But your comments were – you think that there is just a pause in the build-out and you’re expecting that to resume?

Yes, probably starting in the fourth quarter, in China in particular.

Okay. Great. Thank you.

And we’ll take our next question from Shawn Harrison with Longbow Research.

Hi, good morning. This is Gausia Chowdhury calling on behalf of Shawn. Given that there is extra caution baked into guidance, how will the slow start affect calendar 4Q sales seasonality and margins? Should we expect much of a change?

Could you please repeat the question? I’m not able to hear you.

Sure. I’m sorry. Can you hear me now?

Now I can.

Okay. I’m sorry about that. I was saying that, given that there is extra caution baked into guidance, just wondering how the slow start will affect the fourth quarter in terms of sales seasonality and then margin. Should we expect any kind of major change to seasonality?

It’s very difficult. It’s very difficult to call. I think there are a couple of different models that you could use that I wouldn’t know necessarily how to pick one. So if you use historical and so again we have – it’s unusual to – we’ve never seen in the years we collected data. For example, a distribution point-of-sale in the second quarter that was flat to the first one. So does that mean that it’s a predecessor to a very soft year or just some minor correction that in fact will benefit the fourth quarter, I can make either case. So again, I think that’s why we use the term uncertain, because I think it’s, any time you have a new data point you just don’t have a framework to interpret it.

Okay. And then secondly, just wondering what held you back from using all of the free cash flow towards the buyback and should we expect that the full $150 million will be completed by May 2016?

So, I think the – I wouldn’t say we were held back necessarily. So we – if you look at our – we adjust the matrix every quarter. And so, I mean, certainly if the stock price – we always early in the year want to be a little bit cautious and see – but we try always to buy at least three quarters of our quarterly allocation each quarter. So we try not to be overly optimistic, but if we go – get a little light one quarter, because of where we set the matrix, then we’ll be more aggressive in the following quarter. But yeah, I mean, we’re making sure that we meet our total year’s goals, we’ve done that I think effectively since we started and we expect no different in 2015.

Right. Thank you.

And with no further questions at this time, I’d like to turn the call back over to Dan Janson for any additional or closing remarks.

Great. Well, thank you for your interest in Fairchild. That will conclude our call today.