) adjusted earnings per share (EPS) for the first quarter of
fiscal 2013 came in at 41 cents, missing the Zacks Consensus
Estimate by 2 cents.
Microsemi reported revenues of $247.6 million, down 5.9%
sequentially but up 2.8% year over year.
Revenues by End Market
Microsemi generates revenues from the Defense, Aerospace,
Enterprise & Commercial, and Industrial markets.
Around 31% of Microsemi's quarterly revenues came from the
market. Management attributed the 5.9% sequential decline to
broad-based weakness in the market rather than any weakness at
Microsemi's own projects or customers. In fact, management tone
was positive about increasing design wins for its timing and
synchronization products. There are also signs of improving
demand across other product lines and management believes that
key customers, such as
) will generate steady demand.
Defense & security
market generated 31.0% of sales as revenue increased 4.1%
sequentially to $76.8 million. While budget cuts and increasing
focus on electronic content have taken a toll on many companies
serving the federal defense segment, Microsemi is gaining from
this trend. This is because in addition to its traditional
products, the company has increased focus on cyber security. The
company is developing system on chip (SoC) solutions that have
the potential to generate market share gains according to
segment declined 10.0% sequentially to 19% of revenue, which
management attributed to the lumpy nature of the market.
Microsemi continued to benefit from the two major satellite
programs that took off over the past year. Management is also
upbeat about bookings growth in the space segment.
market generated 19.0% of sales, representing a 10.6% sequential
decline to $47.0 million. Management attributed the broad-based
weakness to increased caution at customers, reflecting the trends
we have seen at other companies serving the market. However,
Microsemi's ultra low power radio ramp is expected to drive
) over the longer term. Design win activity for its SmartFusion
product line (for industrial automation applications) also
continued in the last quarter.
The reported gross margin was 57.6%, up 43 basis points (bps)
from the previous quarter's 57.2% and 541 bps from the year-ago
quarter. The gross margin expansion was due to a growing
percentage of new high-margin products in the mix, as well as
operational cost reduction.
The operating expenses of $117.1 million were lower than the
previous quarter's $123.8 million. The operating margin expanded
19 bps sequentially and 1059 bps year over year, touching 10.3%.
Both R&D and SG&A expenses increased sequentially as a
percentage of sales, which partially offset the higher gross
The total net income for the first quarter of 2013 was $14.2
million or 16 cents per share compared with $11.6 million or 13
cents a share in the previous quarter and ($44.6) million, or
(52) cents a share in the year-ago quarter.
Excluding these special items, the pro forma net income was
$37.0 million (14.9% of sales) compared with $26.7 million
(11.1%) in the year-ago quarter and $41.5 million (15.8%) in the
The cash and cash equivalent balance at quarter-end was $203.3
million, down $1.0 million during the first quarter. Cash
generated from operations was $28.1 million and capex was $8.5
million, netting a free cash flow of $19.6 million.
Inventories decreased 0.1% to $158.9 million from $159.1
million in the previous quarter. Days sales outstanding (DSOs)
increased to 58 days from 53 days in the last quarter.
Microsemi provided guidance for the second quarter of fiscal
2013. Revenue is expected to decline 4-8% and non-GAAP earnings
per share are expected to be around 37-43 cents. The Zacks
Consensus Estimate for the next quarter is 43 cents, at the high
end of the guided range. Non-GAAP gross margins are expected to
be within 55.5-56.5%. The tax rate is expected to be 7.0%.
Microsemi reported a disappointing first quarter and the
guidance also fell short of expectations.
The company is seeing weakness across most major served
markets, although its R&D program remains on track.
Management is focusing on security and increasing the electronic
content per device and customer, which will eventually boost its
However, uncertainty in short-term defense programs owing to
apprehensions over the 'fiscal cliff' could temper the effects of
increasing electronic content in defense applications.
Microsemi has a Zacks Rank #4 (Sell)
Investors should look out for some other technology stocks
that are slated to report this earnings season with positive
Zacks Rank and Expected Surprise Prediction or ESP (Read:
Zacks Earnings ESP: A Better Method
) has a Zacks Rank #1 (Strong Buy) with an ESP of 14.8% and
) has a Zacks Rank #2 (Buy) with an ESP of +14.3%.
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