) adjusted earnings per share (EPS) for third quarter of fiscal
2012 missed the Zacks Consensus Estimate by a penny.
Microsemi reported revenue of $259.2 million, up 4.0%
sequentially, 19.6% year over year.
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 their power management products, PoE, timing and
synchronization and voice circuits.
The company also introduced many new products, of which the
power management and conversion solutions saw rapid adoption.
Management believes that Microsemi's timing, PoE and voice circuits
will see broad adoption in peripheral, silicon-based products.
Microsemi also remains upbeat about its PoE business, which it
expects will grow double-digits this year.
Microsemi's strength lies in its vast product range and
offerings for next generation 4G LTE networks. This can help
Microsemi outgrow its competitors and increase its market share in
the long run.
Defense & security
market generated 28% of sales, increasing 2.0% sequentially. While
some budget-related uncertainty remains, Microsemi is over the lows
it saw in December and management now expects to meet its
originally targeted 8-12% growth for the year. Microsemi's strategy
of supplying both SoCs and discrete solutions has enabled it to
increase its dollar content and thereby gradually increase its
market share. .
generated 21% of revenue, increasing 5.0% sequentially. The
satellite business is picking up speed due to Microsemi's focus on
large constellations, high value government programs, penetration
of payload electronics and growing opportunities for its radiation
There is also an ongoing trend of adding more efficient planes
to commercial fleets, which is opening up opportunities in the
commercial air and avionics segment. Microsemi, with its years of
experience and customer clout is well positioned to benefit from
market generated 20% of revenue contribution, increasing 8.0%
sequentially. While this is a diverse market, the company saw
surprising strength in the basic tooling segment (weldings, CO2
lasers, industrial printing, precision GPS for surveys and
transport). This was supplemented with steady orders from the
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 55.8%, up 290 basis points (bps)
from the previous quarter's 52.9%. The gross margin was down 120
bps from the year-ago quarter. The gross margin expansion was due
to higher revenue, focus on new high-margin products and
realization of operational synergies.
The operating expenses of $95.3 million were higher than the
previous quarter's $93.7 million. The operating margin expanded 310
bps sequentially and contracted 330 bps year over year, touching
The sequential increase was because of lower R&D and
SG&A expenses (as a percentage of sales). However, while
R&D was also down from the year-ago quarter, SG&A went up
The total adjustments for the third quarter of 2012 were $30.2
million or 34 cents per share, compared to $34.8 million, or $0.40
a share in the previous quarter and $16.7 million ($0.19 a share)
in the year-ago quarter. Excluding these special items, the pro
forma net income was $37.9 million (14.6% of sales) compared to
$35.3 million (16.3%) in the year-ago quarter and $34.7 million
(13.9%) in the previous 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 income was $8.1 million or $0.09 per share compared to $32.8
million or $0.38 per share in the year-ago quarter and a loss of
$4.8 million ($0.06 per share) in the previous quarter.
The cash and investments balance at quarter-end was $167.1
million, up $45.7 million during the quarter. Cash generated from
operations was $54.7 million and capex was $13.1 million, netting a
free cash flow of $41.6 million.
Inventories decreased 0.5% to $155.5 million from $156.3 million
in the previous quarter. DSOs went up to 53 days from 52 days in
the last quarter.
Microsemi provided guidance for the fourth quarter of fiscal
2012. Accordingly, revenue is expected to be between $262.0-$268.0
million and non-GAAP earnings per share are expected to be around
57-60 cents, well over the Zacks Consensus of 49 cents.
Microsemi is pushing its boundaries by investing heavily in
R&D. Management is focusing on security and increasing the
electronic content per device and per customer, which will
eventually grow its markets share. Further, they are upbeat about
the industrial segment as industrial GPS, downhole drilling,
welding have all witnessed strong growth in recent times.
There are, however, some issues in Microsemi's defense business,
as the U.S. Department of Defense (DoD) has announced that it will
trim the defense budget, which could push out some short-term
defense programs. This uncertainty could keep the lid on share
The Zacks rank on Microsemi shares is #4, which implies a Sell
rating in the near term (1-3 months).
MICROSEMI CORP (MSCC): Free Stock Analysis
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