Maxim Integrated Products, Inc.
) second quarter fiscal 2014 earnings (excluding special items
but including stock-based compensation expenses) of 36 cents per
share beat the Zacks Consensus Estimate by 4 cents.
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Revenues in the reported quarter were $620.0 million, up 6.0%
sequentially and 2.5% on a year-over year basis. The sequential
rise in revenues was primarily on account of the acquisition of
Volterra. However, revenues missed the Zacks Consensus Estimate
of $623.0 million.
Revenues by End Market
The Consumer end market remained the largest revenue contributor,
accounting for approximately 39.0% of revenues compared with
43.0% in the prior quarter. The sequential decline was due to
weakness in home entertainment.
Maxim's expansion into sensors, motion control and other areas of
smartphones, tablets and hybrid devices is proving to be
beneficial as it secured design wins for its sensor technology.
Further, Maxim is also expanding its mobile solutions toward
mid-range smartphones as high-end smartphones are witnessing a
Industrial, Maxim's second largest segment, generated 28.0% of
revenues compared with 29.0% in the prior quarter. Although
Automotive grew for the fourth straight quarter, the Industrial
business declined slightly due to seasonal weakness in Smart
Meter and Medical businesses.
The Communications end market accounted for 16.0% of revenues
compared with 15% in the prior quarter. The sequential increase
was driven by robust performance from Networking and Datacom
The Computing business contributed 17.0% of revenues compared
with 12.0% in the prior quarter. The sequential improvement in
the Computing business was mainly on account of the Volterra
Non-GAAP gross margin was 58.2%, down 250 basis points (bps)
sequentially and 330 bps year over year. The decline in gross
margin was attributed to unfavorable product mix, lower factory
utilization and higher inventory reserves.
Non-GAAP operating expenses of $226.4 million were up 9.2%
sequentially and 4.9% from the year-ago quarter. The increase in
operating expenses was mainly due to the Volterra factor as well
as the impact of the annual merit rise and equity grants.
Pro forma net income was $102.5 million compared with $119.5
million in the prior quarter and $124.8 million in the year-ago
quarter. Our pro forma calculation excludes restructuring,
intangibles amortization, asset impairments and other one-time
charges on a tax-adjusted basis but includes stock based
compensation charges in the last quarter.
Balance Sheet & Cash Flow
During the quarter, cash flow from operations was $234.0 million
or 38.0% of revenue, up from $96.0 million in the prior quarter.
Inventory was 110 days, flat sequentially.
Total cash, cash equivalents and short-term investments increased
by $115 million in the second quarter to $1.15 billion.
Net capex was $46.0 million compared with $33.0 million in the
prior quarter. Maxim has $1.0 billion of long-term debt compared
with $500.9 million in the prior quarter.
Share Repurchase & Dividend
Maxim spent $73.0 million on cash dividends and $59.0 million on
share repurchases in the reported quarter.
For the third quarter of fiscal 2014, Maxim expects revenues in a
range of $590-$620 million. Backlog is expected to be $366.0
million. Management expects consumer market revenues to be
subdued in the third quarter as the March quarter happens to be
seasonally soft for mobility products. Communications revenues
are projected to increase in the third quarter. Maxim expects
Industrial revenues to grow significantly in the third quarter.
Computing revenues, however, are projected to go down in the next
Gross margin is expected be in the 56%-58% range on a GAAP basis
and 60%-62% on an adjusted basis (excluding special items).
Earnings are expected to be 37 cents - 41 cents on a GAAP basis.
The cap-rate, excluding special items, is expected to be within
the long term range of 16.0%-20.0%.
Maxim's business is well-diversified. It has increased its focus
on the faster-growing consumer and computing end markets.
However, Maxim has outperformed the broader market owing to its
superior technology and innovation, which leads to continued
design wins not just in the U.S. but also in emerging markets.
Of late, Maxim has been attempting to diversify its exposure
within the Mobility market in several ways such as expanding its
tech offerings for mobile devices, growing revenue and content in
the mid-range smartphone market with significant growth in China
and so on. Additionally, Maxim has been on the lookout to expand
beyond smartphones with games in tablets and e-readers. All these
efforts are aimed at extending its foothold in various new
While Maxim's product line and pipeline remain solid and its
end-market diversity commendable, we believe its exposure to the
consumer and computing markets increases risks. Moreover, its
strong business model coupled with strong profitability allows it
to return a significant portion of free cash flow to
Currently, Maxim's shares carry a Zacks Rank #4 (Sell).
Better-ranked semiconductor stocks include
), both with a Zacks Rank # 1 (Strong Buy) and
) with Zacks Rank # 2 (Buy).