Microsemi Beats by a Penny - Analyst Blog

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Microsemi Corporation 's ( MSCC ) adjusted earnings for the first quarter of fiscal 2014 came in at 36 cents per share, which surpassed the Zacks Consensus Estimate by a penny.

Revenues

Microsemi reported revenues of $255.6 million, up 2.1% sequentially, 3.2% year over year and also above the Zacks Consensus Estimate of $245 million. The quarter's revenues included $21 million in sales from the acquisition of Symmetricom.


In the last quarter, book-to-bill ratio was greater than 1, driven by orders for longer lead time products.

Revenues by End Market

Microsemi generates revenues from the Defense & security, Aerospace, Communications and Industrial markets.

The Defense & Security market generated 25% of sales, down 15% sequentially to $63.0 million. The decline was due to some push-outs and industry weakness due to government shutdown and sequestration.

Around 38% of Microsemi's quarterly revenues came from the Communications market which was up over $28 million sequentially. Management attributed the increase to strength in PoE wireless products and voice circuit products. PoE's expansion into new markets is another growth factor for Microsemi. Also, strengthening telecom spending worldwide, including emerging markets such as China and India are benefiting the company.

The Aerospace segment was down $9.9 million sequentially and generated 15% of first-quarter revenues. The decrease was attributable to some satellite shipment delays.

Going forward, management believes that growing product mix and strong industry fundamentals will benefit this end market. Additionally, the ramp up of more electronic aircraft such as Boeing 787, Airbus A350 and A380 will lead to significant content growth.

The Industrial market generated 22% of sales, down 1.0% sequentially to $55.9 million.

Going forward, management expects strong revenues from this end market from the ramp up of new chip scale atomic clocks which helps in energy exploration applications and other new programs.

Margins

The reported gross margin was 54.1%, down 290 basis points (bps) sequentially and 350 bps from 57.6% in the year-ago quarter. The decrease was due to unfavorable product mix.

Operating expenses of $131.1 million were higher than the previous quarter's $117.1 million. As a percentage of sales, general and administrative expenses increased, while research & development (R&D) expenses decreased from the year-ago quarter. The net result was a GAAP operating margin of 2.8%, down 750 bps year over year.

Net Income

Microsemi generated GAAP net profit of $1.4 million or 1 cent a share compared with $14.1 million or 15 cents a share in the previous quarter and net income of $14.2 million or 16 cents a share in the year-ago quarter.

Excluding these special items, pro-forma net income was $33.9 million or earnings of 36 cents per share compared with $37 million or earnings of 41 cents per share in the year-ago quarter and $39.1 million or earnings of 42 cents per share in the previous quarter.

Balance Sheet

Cash and cash equivalents balance at quarter-end was $218.1 million, down $38.3 million during the fourth quarter. Cash generated from operations was $62.5 million and capex was $12.1 million, netting a free cash flow of $50.4 million.

Inventories increased 33.5% to $216.3 million from $162.0 million in the previous quarter. Days sales outstanding (DSOs) increased to 59 days from 57 days in the last quarter.

Guidance

Microsemi provided guidance for the second quarter of fiscal 2014. Revenues are expected to increase 10%-14% sequentially. Gross margins are expected in the range of 54.5%-55.5% and non-GAAP earnings per share are expected to be around 48 cents-54 cents per share.

Our Take

Microsemi's first-quarter earnings exceeded the Zacks Consensus Estimate by a penny, while the year-over-year comparisons were disappointing.

In the last quarter, the company gave an encouraging forward guidance. It expects sequential dollar growth in all of its end markets, indicating improving demand environment and increased visibility.

Also, Microsemi's R&D program remains on track, helping the company to manage its expenses well. Additionally, the company's focus on security and increasing electronic content per device and customer will eventually boost its market share.

Microsemi has a Zacks Rank #1 (Strong Buy). Other stocks that are performing well at current levels include M/A-Com Technology Solutions Holdings, Inc. ( MTSI ), Supertex Inc. ( SUPX ) and Fairchild Semiconductor ( FCS ). All these stocks carry a Zacks Rank #1.



MICROSEMI CORP (MSCC): Free Stock Analysis Report

MA-COM TECH SOL (MTSI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: MSCC , MTSI

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