) adjusted earnings per share (EPS) for the second quarter of
fiscal 2012 missed the Zacks Consensus Estimate by 3 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
Communication 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.
The 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 itself 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 gains.
Aerospace 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 increases.
The Industrial 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
quarter. 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 total adjustments for the second quarter of 2012 were $34.7
million or 40 cents per share, compared to $91.1 million, or $1.06
a share in the previous quarter and $119.9 million ($1.40 a share)
in the year-ago quarter. Excluding these special items, the pro
forma net income was $29.9 million (12.0% of sales) compared to
$100.7 million (48.6%) in the year-ago quarter and $46.5 million
(19.3%) 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 loss was $4.8 million ($0.05 per share) compared to loss of
$19.1 million ($0.22 per share) year over year.
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 flood.
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
(We are re-publishing this article to correct a mistake. The
original Microsemi earnings blog, published May 2, 2012, should
no longer be relied upon.)
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