) adjusted earnings per share (EPS) for second quarter of fiscal
2012 beat the Zacks Consensus Estimate by a couple of cents.
Microsemi reported revenue of $249.3 million, up 3.5%
sequentially, 20.2% year over year and much better than
management's expectations of a 1-5% sequential increase.
Revenue by End Market
Microsemi generates its revenue from the Defense, Aerospace,
Enterprise & Commercial and Industrial markets.
The largest chunk of Microsemi's quarterly revenue came from the
market, which constituted 31% of sales. Management saw a rise in
demand in wireless LAN products, which did not perform well in the
previous quarter. It also saw a strong performance in voice circuit
and PoE products.
The company also introduced many new products in which the power
conversion products saw rapid expansion in the end market. While
the flooding in Thailand caused some setbacks, management stated
that production of many new products has now started.
Defense & Security
market generated 29% of sales, increasing 3.0% sequentially.
Management attributed the increase to contributed stabilization in
the market. Microsemi is focused on the introduction of new
products that it expects will result in market share gains. The
market offers significant growth potential, as spending on U.S.
military electronics is on the rise (independent market research
indicates growth at 4.0% CAGR from 2012 to 2017). Therefore,
Microsemi stands to gain from both market expansion and share
generated 21% of revenue, increasing 8.0% sequentially, as
commercial air remained strong and the satellite business started
coming back. The satellite business typically has very long lead
times; therefore, with its growing contribution to revenue, the
visibility of segment revenue automatically
market was flattish in the last quarter, with a 19% revenue
contribution. While this is a diverse market, the medical
sub-segment remains the area with best prospects. Management stated
that the medical segment continued to stabilize in the second
Microsemi expects that
), its longtime customer, will grow in importance in the coming
quarters, which along with its new products will help to capture
the market share.
The defense, aerospace and medical markets largely consume
Microsemi's high reliability chips, while the other markets use its
analog/mixed signal products.
The reported gross margin was 52.9%, up 70 basis points (bps)
from the previous quarter's 52.2%. The gross margin was up 830 bps
from the year-ago quarter. The rise in gross margin was due to
relocation of their manufacturing facilities from Thailand. This
resulted in improved manufacturing efficiencies and product cost
The operating expenses of $120.8 million were lower than the
previous quarter's $126.4 million. The operating margin expanded
480 bps sequentially and 850 bps year over year, touching 4.5%. The
sequential increase was entirely because of the lower cost of sales
both sequentially and year over year, the effect of which was
partially offset by higher R&D year over year and down
sequentially and flattish SG&A as a percentage of sales.
The pro forma net income for the second quarter of 2012 was
$40.3 million or 46 cents per share, compared to $38.4 million, or
45 cents in the year-ago quarter. Including inventory adjustments,
restructuring charges, acquisition-related costs, amortization of
intangibles and other items that were excluded from the pro forma
calculation, the GAAP net loss was $4.8 million ($0.05 per share)
compared to loss of $19.1 million ($0.22 per share) year over
However, including the stock-based compensation expenses but
excluding all other one-time items, adjusted EPS was 40 cents
compared to 140 cents in the year-ago quarter.
The cash and investments balance at quarter-end was $121.4
million, down $12.1 million during the quarter. Cash generated from
operations was $41.4 million and capex was $14.2 million, netting a
free cash flow of $28.6 million.
Inventories decreased 5.2% in the last quarter. DSOs went up
from 47 to around 52 days. DSOs have shown great improvement over
the past year and a half due to on-time shipping delivery as the
company recovered from the Thai floods.
Microsemi provided guidance for the third quarter of fiscal
2012. Accordingly, revenue is expected to grow 3-5% sequentially
and non-GAAP earnings per share are expected to increase 11-19% to
around $0.51-$0.55, much higher than the 44 cents that analysts
were expecting when the company reported.
The Zacks Rank on Microsemi shares is #3, which implies a Hold
rating in the near term (1-3 months). We are also Neutral on the
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MICROSEMI CORP (MSCC): Free Stock Analysis
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