Good day, everyone, and welcome to the Fairchild Third Quarter 2015 Earnings Conference Call. Just a reminder that today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Dan Janson. Please go ahead, sir.

Good morning and thank you for dialing into Fairchild's third 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 Morgan Stanley Semiconductor and Semicap Equipment Corporate Access Day on November 9, and the Raymond James Technology Investors Conference on December 9 in New York City, as well as the Credit Suisse TMT conference on December 2 in Scottsdale. I also want to point out that we've improved our tracking of sales by end market segments that we publish on our Investor Relations website every quarter. You will note some changes in the data, as well as a new category titled enterprise computing and telecom that replaces the computing category and better reflects the primary applications for our products. We'll start today's call with Mark Frey, who will review our third quarter financial results and discuss the current status of fourth-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. The 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 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 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 that we also provide. You'll find our 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 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 third quarter of 2015, Fairchild reported sales of $342 million, down 4% sequentially and 10% from the third quarter of 2014. Distribution sell-through was weaker than seasonal, and we reduced our shipments into the channel accordingly, which was the primary cause of our sales decline in the third quarter. Adjusted gross margin was up 90 basis points from the prior quarter to 34.1%, due primarily to lower manufacturing costs and improved product mix. R&D and SG&A expenses were $88 million, down 12% from the prior quarter, due to spending controls, seasonal factors, and the impact of the expense reduction program we announced in the quarter. Roughly $2 million of the sequential reduction was due to a one-time bonus and equity compensation accrual reversal for the employees impacted by our workforce reductions. Recall that we forecast completing the previously-announced actions to reduce operating expense by the middle of this quarter. Third-quarter adjusted net income was $23 million, and adjusted EPS was $0.20. The adjusted tax expense was $4 million for the quarter. Now, I'd like to review our third-quarter sales and gross margin performance for our two major business segments. Sales were up 7% from the prior quarter for our Analog, Power and Signal Solutions segment, or APSS, due to higher mobile demand and modestly higher consumer sales. APSS adjusted gross margin increased to 43%, due primarily to lower manufacturing costs, higher sales, and a more favorable product mix. In our Switching Power Solutions segment, or SPS, revenue was 8% lower sequentially, as seasonally lower sales in the appliance and auto markets, plus…

Thank you, Mark, and good morning, everyone. We increased sales for our mobile, enterprise computing and telecom products during the quarter while reducing our distribution channel inventory dollars sequentially. Demand was in line with our revised forecast during the third quarter, reflecting weakness from Asia and especially China in the industrial, appliance and consumer markets. Sales for our automotive products were seasonally lower in the third quarter, but are tracking for another year of solid growth. We completed the remaining factory closures during the third quarter to improve our manufacturing cost structure. We also announced that we streamlined our leadership structure, which will significantly reduce operating expenses. These are structural cost reductions and are designed to improve profitability and cash flow at current revenue levels. I will begin today with a review of the current demand environment, and our perspective on the fourth quarter. I'll wrap up with a discussion of how we're managing the business in the current environment. Let's begin by looking at the demand environment. We grew third-quarter sales of our mobile products in support of new model launches by leading customers. We also benefited from increasing content for a variety of battery charging, voltage regulation, and signal path solutions on these new models. We expect mobile sales to continue growing sequentially in the fourth quarter as we ramp our shipments to support these new phones. Looking forward, we believe Fairchild is very well positioned to increase content and drive higher sales in the mobile market in 2016. Sales into the enterprise computing and telecom end markets were also sequentially higher in the third quarter. We are benefiting from the ramp in server production, driven by the latest Intel architecture. Fairchild is also gaining content in a number of telecom applications, with high performance discrete and integrated…

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.

We'll take our first question from Ross Seymore with Deutsche Bank.

Hi, guys. Thanks a lot. May I ask the question? I guess the first one is a little bit separate from the quarter itself, but there was some news reports yesterday about M&A potential that may or may not involve you. I'm wondering if you had any comments, either specifically or in a more general sense, on the quite active M&A market in semis right now.

Sure, Ross. Thanks for letting us get this out up front. So as you know, no company ever comments on this stuff, and we're not going to today. We're here to talk about Q3 and our current business.

Okay. That's kind of what I expected. So let's get onto the Q3 and the current business, then. I guess talking about the gross margin, and as far as it's related to inventory, can you talk a little bit about the magnitude of how much you expect to bring the inventory down, and how long that lower utilization is likely to weigh on the gross margin? People are excited about the cost cuts that you put into place, but it seems like we're not really seeing them come through, due to the revenue environment. So I'm wondering when we're actually going to start to see those.

Sure. First of all, the cost reductions do come through. Unfortunately, they're on a lower business base than when we originally presented their projections. But we expect to, over time, get the inventory back into the 100 day, 110 day range, over the fourth and first quarter. I think we'll probably still be modestly reducing the costs next year, simply because a component of the build ahead were parts related to the factory close-down, and we allowed ourselves about a four-quarter runway for those. But they also tend to be parts that are made externally, so they wouldn't have the kind of income statement leverage that you would normally think of, when a company reduces inventory.

Ross, let me add a few more elements to Mark's remarks. So we are currently significantly under-building, so the biggest increment would come in the fourth quarter. We would expect -- and that's obviously reflected in our current estimates. By the first quarter, we will need to get back to building to consumption. And so if you look at the impact of this, we would typically see it roughly spread across fourth and the first quarters approximately equally. And then you'd see the benefits then of the full model, A, when the plants are running at consumption, and then B, when there's transitional impacts associated with these things. They don't occur instantaneously as period expenses. Think similar impact to Q1 as Q4, and then completely done by the end of Q1.

So pretty much a 1 point drop again in 1Q and then what you're building in 1Q will help 2Q, the utilization?

No, think – I think a good approximation, obviously it's an approximation, is we would expect Q1 to be similar to Q4.

From a gross margin perspective?

From a gross margin perspective.

Got it. Thank you.

We'll take our next question from Harlan Sur with JPMorgan.

Good morning. Thanks for taking my questions. So normal POS in Q3 is up 2%. I think the team planned for flat. It came down 2% sequentially. What are your POS historical trends for the fourth quarter, and what's embedded in your guidance? I'm just trying to gauge the level of conservatism in the team's outlook here.

So the normal POS in the fourth quarter is down 2% to 3%. And so we have reflected a seasonal drop to POS in the fourth quarter.

Got it. Okay. Great. And then auto, looks like auto was down about 4% sequentially in Q3, which I think is maybe a bit more than seasonal. Any geographic trends you can talk about? Obviously, there's been a lot of concern around the China automotive segment, and auto does tend to take a step down seasonally in Q4. But it seems like the team is guiding up for the fourth quarter, so if you can just help us understand some of the dynamics that are driving this?

I don't have the numbers in front of me. I believe that the step-down in the third quarter was more like 2%. And it was mostly a result of some timing things, which were originally thought to land at the end of the third quarter, and wound up landing at the beginning of the fourth quarter. And so that's really the -- that's the picture. It's really some very local timing effects of some programs. We haven't seen any impact of the China softness in our general automotive business yet, anyway. So --

Appreciate the insights. Thank you.

We'll take our next question from Chris Caso with Susquehanna.

Yes, good morning. Just a general question on overall business conditions. Based on your commentary, it looked like the biggest area of incremental weakness as you go into the fourth quarter is the industrial and appliance business. I guess if you could talk to us about how you'd characterize that business, do you see that business still getting incrementally worse, and therefore, kind of hard to call stability there? And then with regard to the rest of the business, if you characterize that as stable, improving, getting worse, or maybe you just don't have visibility right now.

The way I would characterize it is that the industrial and appliance businesses is normal all around the world, except for the combination of Korea and China, which are very closely coupled, as I think you know well. And that was quite weak in the third quarter, and we're expecting another similar kind of weakness in the fourth quarter. One of the things we pay close attention to is, so it's weak, but we know that customers and distributors are taking down inventory, right? So people are producing below consumption, and that gives me some confidence. Again, I can't predict the China economy, but it's always a good sign when people are taking inventory out as opposed to the business is down, and inventory is remaining unchanged. So that's why, based on that, we think the most likely scenario, assuming there's not another leg down on the China economy, which most people don't think is the likely case, is that this will be a two-quarter phenomenon. And that most of the inventory correction will be done by the fourth quarter, and then you'll start to see life come back second half of Q1, after Chinese New Year.

Okay. Just a follow-up with regard to the OpEx, any OpEx cuts. You mentioned that some of the cuts were already reflected in the fourth-quarter guidance. You talked about reversing some bonus accruals there. Taking the full impact of the annual reduction in OpEx for next year, I guess it runs an average something around $8 million a quarter, how much of that is already reflected in the Q4 numbers, and then what should we be taking out of our prior estimates for next year?

So what I think you can comfortably do is, if you look at Q1, Q1 OpEx will be pretty similar to Q4 OpEx. So in other words, the programs -- the biggest chunk of the OpEx reduction programs were triggered, about two-thirds of it were triggered by the end of the -- right at the end of the third quarter. And then there's a longer tail that's being triggered across the fourth quarter, as certain programs are wound down, and that kind of thing. So a large portion -- so all of the improved OpEx in Q3 were spend control and accrual relief. The benefits you see in Q4 are expense control, plus a much better, but not fully reflected, cost structure. Then normally in Q1, you see a little bit of seasonal increase from seasonal taxes and stuff like that, FICA turns back on, et cetera. And so - but we will then essentially be at the new run rate, with all the costs fully reflected by the end of the fourth quarter. So based on that, we would expect Q1 OpEx to be roughly flat with Q4 OpEx.

Seasonally, typically your OpEx is a bit lower in the second half of the year, because of some of those factors you mentioned. And that would be still the expectation for next year off of those Q1 levels; right?

Yes, I think so.

Okay. Great. Thank you.

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

Thanks. Following up on some of the restructuring cost initiatives, Mark, if you could just give some context in terms of -- we know for the industry outside of just a cyclical influence, growth has slowed. So how you're level setting in terms of where you see it most appropriate to spend, and what position that puts you in as businesses recover?

So if you look at the structural things that we did, the things that we felt were sound investments based on tangible returns over a period of time, we retained in full. And so if you look at the places like our datacom power management, our server power management, our leading customer mobile power management solutions, our automotive power management solutions, things like that were retained completely as we went through this. What we did is we looked for -- we did our own economies of scale in our discrete business, and so whereas we had run that before as a series of specialty discrete businesses, which often chase cost reductions un-fruitfully, if you look -- did your analytics over time. So what we did is we raised the bar a lot on cost reductions. We were doing fewer of those on those devices. We've consolidated the process technology R&D, and so that's all one organization now. And we have one big discrete organization today that does from the very lowest voltage to the very highest voltage solutions, run by Marion Limmer. And Marion is the one that put us on the map for the automotive business, a very, very strong P&L manager. And so that's the construct that we put together, which cuts across about two-thirds of our business, and that's really where we've driven scale and efficiencies in the latest restructuring.

Helpful. Thanks. And then maybe just shifting gears to growth. You mentioned some optimism around 2016 growth drivers. I know you've had some momentum recently in the data center side, certainly some parts of mobile. Anything you could add to that in terms of anecdotes, or just your visibility into the design pipeline that gives you confidence that you can sustain some of those growth drivers?

So yes, I mean, they tend to be longer term programs, right? So we have good long-term visibility into automotive programs, not as much in the appliance, but in the industrial programs. The key mobile customers, if you look at a couple of the key players, one in the US, one or two in China, they have very ambitious road maps, Type-C is going everywhere. And so if you look at that -- and then the thing that's been weighing on that is the big decline of the latest big share loser, right, where we were pretty heavily penetrated. I guess the blood's pretty much all out of the patient now. It can't be much of a headwind as we head into 2016.

Got you. Just a quick follow-up on the data center side, in particular, as you mentioned, it's long cycle, but just how you're positioned in that particular segment?

We really like our position across both the standard server implementation, which is a big part of the market, as well as the custom data center server of the Google’s and the Facebooks, and so forth. So we have a footprint in both places.

Got it. Thank you.

And we'll go next to Christopher Rolland with FBR & Co.

Hey, guys, thanks for the question, If I look year-over-year, your revenues are down basically less than $10 million here, but your gross margins are really only up 60 basis points, even as we work through this whole restructuring here. Also, your APS segment has really mixed up here, and they contain higher gross margins there. So I'm really -- I guess I'm -- I don't know why it's only 60 basis points here. I'm not understanding why there's not more here. Is there something that we're missing? Is there a pricing issue, particularly in SPS? I just can't connect the dots.

So a few things. Number one, we started the year in Q1 at slightly below 32%, which was an echo from the inventory reductions that we did in the fourth quarter. And in a year where you're closing the factories, although obviously, we've charged a lot of expense to restructuring, related to the factory closures, there's still a lot of expenses that are not properly reflected as restructuring that are in our operating results that are holding down. So for example, the Salt Lake facility was half full in Q2, and so that restrained the profitability there. Going forward, obviously the footprint is clean now. We'll have -- we still have personnel in both sites doing the decommissioning, et cetera. They'll all be gone by the beginning of next year, and in a sense, the next year will be the first really pure time. Now, in your specific question, there's pockets of pricing in SPS, in places like appliance, but most of the business, I don't think we see anything really much different on a pricing standpoint.

Okay. Maybe we can talk about the gross margin progression from here, then. Is there anything left from the restructuring that we have, and is gross margin pretty much dependent now on revenue level and product mix? Are there any other levers that you can pull on gross margin?

The basic restructuring program is concluded. So we won't have any leftover costs when we go into next year. And we think that we still expect to see favorable mix improvement. We always have cost reductions so as we consolidate with our subcons, we will work on pricing negotiations, et cetera. In Bucheon, where we're running new parts, you get a learning effect, which deals with yield and throughput, et cetera. So when you net all that, if we're operating at these kind of low 330 range, we think that would translate based on the cost progress to a 33% to 34% profile. When we get back up to the 350 or so, we think that drives a 35% plus.

Okay. Thanks, guys.

And we'll take our next question from Tristan Gerra with Baird.

Hi, good morning. Given that a lot of your peers did not preannounce, my assumption is that you were just more responsive than a lot of other companies adjusting POP in the face of point of sales weaker than expected. If this is true, and assuming that you're not losing market share, what do you think the inventory increase is in the channel from your peers that haven't preannounce, that are reporting on a sell-in basis? Are you seeing a lot of inventory increase at this piece as a result?

Tristan, that's a really very -- that's actually an impossible question for me to answer, because I just don't -- I don't have the books obviously of our competitors. But what I could do is I could tell you what it would have looked like if we had managed differently, right? So if you look at the bridge, we took channel inventory down total in the third quarter between $5 million and $10 million. So if we had just allowed ship-in to occur, so if we had done that, we would have been at the low end of our guidance range, but we would have built the channel by a bunch, at least $10 million. And so it could have been worse than that, right? So depending on how much you allow it to simply go. So I don't -- my belief is -- and again, we've been very clear that this is a China phenomenon. So the more China exposure you have, I think the more sensitive you are to the trend. So I would think that if you kept -- if you have a significant portion of your business in China, and you decided to just keep to your original guidance as the POS rolled off, the equivalent would have been $10 million to $20 million channel increase and again, we just approached it very aggressively. And so what that means is that we'll be sick shorter time than if we hadn't approached it aggressively. So that's the difference. But I think if you took that, you could then scale it to somebody else and if all those assumptions were true, I think it might allow you to create an estimate.

Okay. That's actually very useful. Also, in the Q&A I think I've heard you mention that from a gross margin perspective, we should expect Q1 to be similar with Q4, and you did mention that there was some decommissioning expenses in Q4 that won't be recurring in Q1. So that gross margin flattish assumption, what type of seasonal decline, or are you expecting a below seasonal decline, given that you will be under shipping [real demand] in Q1 at the top line?

Tristan, I think you landed on the key point, which is it's actually more -- the bigger moving part is not the revenue expectation. It's how much remaining inventory adjustment you need to do. And so we are under-producing by some number like $20 million a quarter right now. And so we would expect that normal revenue seasonality over the recent years has been -- Q1 has been roughly flat, up or down a little bit to Q4, so that's not the big swinger here. If China stays very soft in early next year, then we may choose to continue the inventory reduction. If it shows signs that the inventory correction is completing in the fourth quarter, then we'll be turning the factories back on closer, or even above consumption to support demand. And that's the thing that we're not obviously ready to call yet, and don't need to call it yet.

Okay. So the gross margin impact from the decommissioning that won't recur in Q1, that's happening in Q4, how should I quantify that?

I think, Tristan, there's a number of puts and takes as you go from any quarter and that's one of them. When we say, think roughly flat, it's the net of a number of things. Because remember, some things go against us, like in the US, we have to start paying FICA taxes for employees, people go on vacation less often, et cetera. So I wouldn't put the decommissioning at a status that's different than any of the other puts and takes.

Okay. Thank you very much.

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

Hey, good morning, guys. Thanks for letting me ask the question. I guess, Mark Thompson, a little bit curious you how you're thinking about mobile beyond the December quarter. Because clearly despite the growth headwinds in the industrial and the implied space you've got sequential growth in September, you said in the prepared comments you expect it to be up again in December. I'm wondering how much of that do you think is just timing of builds of new products, new flagship launches, and we should expect some seasonality into the March quarter? And how much of that is just you think more structural, you're gaining content, share, that's a little bit more sustainable than just a two quarter period.

So I think there's both elements are present. Certainly, there is one leading customer that's doing a big build in the fourth quarter. We would expect them to pull back some in Q1. That's normal seasonality. On the other hand, the China Mobile component has gotten more significant for us, and their Q1 is the US's Q4. If you look at the way that typically plays out, smartphones are typically a Chinese New Year gift, and so forth. So I think the seasonality will be less muted, but I think - and also, somewhat offset by continued gains, especially places like Type-C and adaptive charging we see continuing to put increasing content. So I don't think we're going to see like a big bubble and then a pullback for mobile. We feel pretty confident, at least looking across 2016, that at the players, one big US, two big China, are pretty well positioned to keep their share, and the big correction we've taken in one other player is fairly well complete. So I'm expecting it to be fairly steady and strong across 2016, if you net all that out.

That's helpful, Mark. Mark, in the past, you've given us at least some qualitative commentary around linearity of bookings, and relative to the midpoint of the current quarter guide how much is booked, how much is turns. I guess when you look at the profile of the December quarter and the guidance you gave, can you help me understand turns dependency versus what's already been booked?

One of the things that's always interesting about this business is no one year is ever like another year. I always have to refigure the trends. One of the things that we saw as the business softened is that people went much toward -- more toward turns business. And so that's been the big focus that we've had, is modeling the pattern of the turns business, and figuring out how to carry die bank [ph] to be as nimble and adaptive as possible. So certainly, if you look at the fill rate and our backlog position, it's very consistent with the top half of our revenue range, but it does depend on the turns fill rate to continue to be quite high, which it was in the third quarter. In fact, escalated across the third quarter. It turned up quite sharply, actually, in September. So that's the way -- and that's actually normal, right? People get cautious and then only buy what they really need and I think that's -- so it's all consistent with the market and normally when things start to strengthen, you see people more willing to put more backlog in, and less reliant on turns business. But we think the fourth quarter will kind of look like the third in that regard.

Can I sneak one last one in for Mark Frey? Mark, just relative to the question about gross margins in December year over year, how much of that is explained by utilization, and the fact that last years you were in inventory building mode as you were planning shutdowns, and this year you're in inventory depletion mode?

We still built inventory in, obviously, Q3, so we have to deal with that in Q4. And that has an impact, as I said earlier, the decommissioning costs have a bit of an impact in Q4. So I think it's the normal timing of how utilization hits the P&L. It does hit with a little lag, so some of the inefficiencies of the shutdown were in the Q3, and those costs really flow into cost of goods sold in Q4. And that's why we guided the margins down again.

Thank you.

And we'll take our next question from Steve Smigie with Raymond James.

Great. Thanks a lot guys. Just a quick question on the tax rate. At the 12%, should we be thinking that's the rate going forward or is it more 14%-ish? How should we think about tax?

I could give you a long discourse on that, but we have valuation allowances in the two place -- or the three places where we own our technology, the US, Korea, and Bermuda. So we're highly leveraged to -- when income goes up -- to tax rate. But we pay about $4 million per quarter as the entitlement tax for our distribution entities like Hong Kong, et cetera, and our sites, in the sense they have a guaranteed income tax. That's in the very low $2 million to $4 million per quarter. So if you've got income in the $20 million range, you end up with, in our case we had 14% adjusted earnings. If you go higher than that, you would actually be leveraged to a lower tax rate. So obviously we - it's really hard to predict that, because there's always a lot of special items in taxes. So as you can see, we typically keep our guidance to 12%, plus or minus 3%, unless we see some sort of structural change happening.

Okay. Fair enough. And then just on the continued industrial weakness, just trying to get some sense of what's really weak. Obviously the China white goods, but what outside of that is weak? Just trying to contrast a little bit with Linear yesterday, who saw China not as bad. So I'm just trying to narrow down which -- maybe you have different exposures. And then just finally, just a housekeeping item. On the OpEx for, say, Q1, is that flat plus the FICA? So dollar-wise it's maybe up $1 million or whatever it is, to cover FICA? Thanks.

Dollar wise it's flat.

Okay.

So if you look at the weakness, again, I don't -- I do suspect that Linear has different concentrations in China than we do and so -- but if you look at things -- the places you'd expect it to be weak, it's weak. So white goods are at the epicenter of it, very tied to housing. Housing is in a big correction. There's no surprise there. Then there's miscellaneous industrial equipment. We have a significant presence, for example, in welding. Welding equipment has been weak and that normally ties to people building more or less, right? So that's, again, not a surprise. And then general power supplies that go into -- everything that plugs into the wall has a power supply, all manner of test equipment, you name it. That's also been soft. So those -- if you just sample across that, that will map the stuff that's been weak, and that, in China, is what's been weak. Those equivalent things in the rest of the world have done just fine.

Okay. That's really helpful. Thank you.

We'll take our next question from Kevin Cassidy from Stifel.

Hi. This is Dean Grumlose calling in for Kevin. Last quarter, you mentioned an expectation that China LTE base station deployments would resume in the fourth quarter. Can you provide an update for this market, and your expectation?

Yes, our expectation is that it's not going to turn back on in the fourth quarter, that the latest talk we hear from the various players in that space from China is that it's likely to not resume until Q1, and that's reflected in our outlook. So if it does -- they maybe start to turn on at the end of Q4. We're assuming its dead through Q4 and doesn't come back until Q1.

As a follow-up, can you provide some color on your exposure to PCs and tablets in the sense of -- we're seeing a shipment forecast go down. I'm wondering if you have content and share gains that may be offsetting that softer outlook, and how we should view that?

With the exception of one specialty notebook and tablet maker, we have essentially no content in standard notebooks, so we are not very sensitive to it.

Thank you very much. That's very helpful.

We'll take our next question from Shawn Harrison with Longbow Research.

Hi, good morning. First question, you touched on this a bit earlier, but previously your gross margin goal of 37% to 40% was predicated on $1.5 billion or more of revenues, and with your pre-announcement I know you alluded to the fact you're trying to get to that margin target at a lower level, but do you have a new revenue figure to be able to hit the 37% gross margin?

The calculation would be the same. So it would be in the [37%, 37.5%] range, combined with some mix progression.

Our mix, current mix is probably better than it was when we made those revenue projections, but we're confident that those are still -- it's still that, or better.

Okay. But would you be able to I guess hit -- I guess a follow-up question, just on the share buyback. How are you viewing that right now, knowing that you have a large cash restructuring cost in the fourth quarter?

We have already purchased north of $100 million of -- so we've been on track to the targets that we put out for people, when we put the program together at the beginning of the year. We always adjust across the quarter in response to a variety of things, right? To your point, we're sensitive to cash in the US, cash generated in the US, minimum cash balances in the US, the share price, so we're still very - there's no change in our policies, and the puts and takes remain as they are, as they've been all year, so.

Okay. Thank you.

[Operator Instructions] We'll go next to Christopher Rolland with FBR & Co.

Hi, guys. Just some housekeeping items. If you could talk about disty channel inventory, book-to-bill, backlog, and any comments on linearity?

Well, we commented that channel for the third quarter was down the $5 million to $10 million range, so that, I guess, is that piece. As we saw in the third quarter that we moved to a larger turns model, book-to-bill is only predictive if you're not seeing shifts between entering backlog and turns, and so we're in a fairly heavy turns or heavier turns model right now, while the market is a bit squishy, and we expect that. So again, if it remains roughly -- if the ratio remains roughly constant for the fourth quarter, and we expect that it will, then that will -- it's very consistent with the way we've guided our quarter. And we would expect then if Q4 is the last quarter of significant inventory correction and such, then we would expect to begin Q1 and then Q2, with relatively more starting backlog and relatively lower expectation of turns. That's a cycle that we've seen now play out over a period of time.

Thanks.

And we have a question from Ross Seymore of Deutsche Bank.

Hi, guys. Thanks for letting me ask a couple quick follow-ups. On the disty trend as well, I think, Mark Thompson, I heard you say that you expect POS to be normal or seasonal in the fourth quarter. I was just wondering why would that go from being subseasonal for two quarters back to seasonal given what you said about inventory burn, et cetera?

Because it is an inventory correction and inventory corrections don't last for more than a few quarters. So the take is less than the ship, right? So those things -- so we keep an eye on that, and we expect -- so it is -- we do forecast it to be seasonally down, right? So that's baked into our model. But it's down off a pretty low number. So those things always eventually reverse.

Got you. So it's more about coming off a low base after two quarters than any sort of optimism going forward?

Exactly. So Q2 was subseasonal, Q3 was subseasonal, and so that can only run for so long. So again, we pay really close attention to, are they making and shipping stuff, and they are definitely taking less than they're making and shipping. So that can only run for a finite number of quarters, and so we think it's a reasonable estimate.

And then I guess the final clarification was just on the gross margin being flat in the first quarter. Is your utilization expected to drop again in the fourth quarter in order to bring the inventory down? And if so, doesn't that raise costs structurally? I guess there could be a bunch of one-off offsets to that to the positive side, but from a utilization perspective alone would that be a headwind to 1Q gross margins?

The current assumption reflects all that. As Mark commented, there's a whole bunch of puts and takes. There's some fixed costs that get better in Q1, and then there's -- there is to your point, some underutilization charges that appear in Q1. Our expectation is we certainly can't - would not expect to run this far below consumption two quarters in a row. We normally find ourselves in a situation, we attack hard, early, and then we can back off a bit. So all those things wind up being spread across the two quarters and that's why we view them as a matched set. But the blocks that get you there are different.

Perfect. Thank you.

We'll take our final question today from John Pitzer with Credit Suisse.

Yes, thanks for letting me ask the follow-up. Mark Thompson, we're a couple quarters now into Infineon having bought IRF. At least early on in that integration, it presented some opportunities I think you took advantage of, as they were having some integration issues. I'm just curious, some of the near term share gains you got when that merger occurred, were you able to sustain those? Or help me understand from your perspective, how that played out.

So probably the spot that's clearest to analyze and understand, and therefore to talk about, has been in the server space. And so there was a clear need for an additional player to give a robust supply chain, and that has clearly benefited us through the program wins and share that we're getting and so forth. People want - especially for things like standard Intel platforms and so forth, they want two equivalent independent supply chains. When those two folded up into one, it clearly opened the door for an additional player, and so, we've successfully taken advantage of that.

Thank you.

And gentlemen, we have no further questions.

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