Maxim Integrated Products
) second quarter earnings excluding special items and including
stock based compensation expenses beat the Zacks Consensus by a
Maxim's second quarter revenue of $591.4 million was down 7.0%
sequentially, 3.5% year over year and missing management's guidance
range of $625-655 million, or down 1.7% to up 3.0% sequentially.
Revenue was down across all end-markets.
Revenue by End Market
end market was the largest in the last quarter, with a quarterly
revenue contribution of around 41%, down 7.0% sequentially and up
23.6% year over year. Sales in the consumer end market suffered on
account of year-end inventory rebalancing at customers and Maxim
stated that it was in line with normal seasonal patterns.
Growth from the year-ago quarter was due to a growing design
wins and opportunities in the smartphone, tablet and other markets.
Maxim is now focusing on more integrated solutions, which are
expected to gain momentum this year.
, the second largest segment, generated 26% of revenue, which was
down 7.0% sequentially and 10.4% from the year-ago quarter due to
broad-based weakness in the market. While automotive and smart grid
segments continue to show signs of strength, other segments within
the industrial market remain weak.
Revenue from the
end market was down 7.0% sequentially and 21.9% year over year to
17% of total revenue. The GPON business remained strong in the last
quarter according to Maxim.
Additionally, growing braodband usage in China continued to
boost infrastructure investment, which was a positive for FTTH
deployment. Other areas of the business remained weak on account of
soft market conditions overall.
Despite the dismal performance in the last quarter, the
market remains important for Maxim, given its 16% revenue
contribution. Revenue from the end market was down 7.0%
sequentially and 18.8% from last year. Maxim attributed the decline
to the ongoing weakness in the notebook market.
Revenue by Geography
China remained the single largest contributor in the last
quarter, with a revenue share of 44% (down 5.8% sequentially and up
14.1% from last year). Korea accounted for 7% (down 36.6%
sequentially) and Japan 6% (up 1.1% sequentially and down 17.7%
year over year). The rest of Asia brought in another 15% of total
quarterly revenue, which was up 10.0% sequentially.
The U.S. and Europe generated around 13% and 12% of revenue,
respectively. However, while the U.S. declined just 3.1%, Europe
was down 15.1%. The two regions were down 11.7% and 25.0%,
respectively from the year-ago quarter. The rest of the world
accounted for around 3% of revenue.
Management does not provide specific information on orders, as
shifts in customer vendor managed inventory programs distort
We estimate that orders were down mid-single-digits in the last
quarter, cutting down the backlog significantly, with the
book-to-bill going remaining below unity. Turns sales increased
strongly in the last quarter, while backlog sales declined. Supply
chain activities improved, with Maxim's delivery lead times
dropping to six weeks exiting the quarter. Internal inventories
The pro forma gross margin was 60.5%, down 315 basis points
(bps) sequentially and 304 bps year over year. Management stated
that the weaker gross margin was related to lower utilization rates
and higher inventory reserves.
Operating expenses of $220.3 million were up 2.2% sequentially
and 8.9% from the year-ago quarter. This helped bring the operating
margin down 497 bps sequentially and 729 bps from last year. Both
R&D and SG&A also increased significantly as a percentage
of sales, although not as much as cost of sales.
The pro forma net income was $103.3 million, or a 17.5% net
income margin compared to $137.2 million, or 21.6% in the previous
quarter and $132.4 million, or 21.6% of sales in the year-ago
quarter. Our pro forma calculation excludes restructuring,
intangibles amortization and other one-time items on a tax-adjusted
basis, but includes stock based compensation charges in the last
Including these items, on a fully diluted GAAP basis, the
company recorded a net income of $88.1 million ($0.29 per share)
compared to $133.4 million ($0.44 per share) in the September 2011
quarter and $109.6 million ($0.36 per share) in the December
quarter of 2010.
Inventories were down 7.8% to $233.4 million, with inventory
turns up from 3.7X to 4.0X. Days sales outstanding (DSOs) went down
from around 47 to around 38. The cash and marketable securities
balance was $816.5 million, up $56.2 million or 7.4% during the
The cash generated from operations was $249.3 million, of which
the company spent over $68 million on PP&E, $12 million on
acquisitons, $64 million on cash dividends and $72 million on share
repurchases. Maxim has just $308.7 million of long term debt and
long term liabilities are also not too high at $327.8 million.
In the third quarter of fiscal 2012, Maxim expects revenue of
$555-585 million (down 1-6% sequentially). The backlog is $365
million, but the guidance calls for high turns sales, which may be
within its capacity given recent trends.
The gross margin is expected be in the 55-58% range on a GAAP
basis and 57-60% on an adjusted basis. Mix, utilization and
inventory reserves will be variables impacting the gross margin.
Operating expenses excluding special items are expected to be down
3-4% from December. The tax rate excluding special items is
expoected to be 26-28%.
All this will yield GAAP earnings of 22-26 cents on a GAAP basis
and 25-29 cents on an adjusted basis. The Zacks Consensus Estimate
was 32 cents when the company reported, but has moved down 5 cents
after the company reported. Capital expenditure is expected to be
be flat to down sequentially. Capital expenditures are expected to
be 5-7% of revenue in fiscal 2012.
Maxim is a well-diversified business, although it has increased
focus on faster-growth markets in the last few years. Therefore,
the company currently generates a significant percentage of its
revenue from the consumer and computing end markets. These markets
are not doing so well right now due to natural disasters and
However, Maxim has done better than the market, because of its
superior technology and innovation Therefore, design wins continue,
not just in the U.S. but also in emerging countries, such as
While Maxim's product line remains solid and its end market
diversity is commendable, we think its exposure to the consumer and
computing markets will negatively impact results.
Maxim shares therefore have a Zacks Rank of #3, implying a Hold
recommendation in the short term (1-3 months). We remain relatively
more positive about other analog players, such as
), which has a Zacks #2 Rank (Buy) and
), whichh has a Zacks Rank of #1 (Strong Buy).
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