) adjusted earnings per share (EPS) for the third quarter of
fiscal 2013 came in at 42 cents, beating the Zacks Consensus
Estimate by 4 cents or 10.5%.
Microsemi reported revenues of $242.6 million, up 3.1%
sequentially but down 6.4% year over year.
Revenues by End Market
Microsemi generates revenues from the Defense, Aerospace,
Enterprise & Commercial, and Industrial markets.
Defense & security
market generated 31% of sales, down 6.0% sequentially to $75.2
million. Microsemi is witnessing strong booking growth in C4ISR,
military avionics and cyber security applications.
Around 28% of Microsemi's quarterly revenues came from the
market. Management attributed the 6.9% sequential increase to
strength in PoE, timing and sync and voice circuit products. PoE
expansion into new markets is another growth factor for
Microsemi. However, management expects bookings to rebound,
driven by seasonality, market share gains and expansion into
small cell markets from the second half of 2013.
segment increased 3.1% sequentially to generate 19% of revenues,
attributable to improving market conditions. Longer-lead time
business remains soft according to management, although
strengthening in other areas over the past three quarters will
lead to growth in the next quarter.
market generated 22% of sales, up 13.4% sequentially. Microsemi
saw strength in the solar market, which was offset by weakness in
other areas. Microsemi's bookings improved in semicap, industrial
lasers, MRI and other broad-line industrial applications.
The reported gross margin was 57.0%, up 27 basis points (bps)
from the previous quarter's 56.7% and 122 bps from 55.8% in the
year-ago quarter. The sequential rise was due to higher volumes
and favorable mix. The year-over-year expansion was due to a
growing percentage of new high-margin products in the mix and
cost reduction that were enough to offset the lower volumes.
Operating expenses of $113.1 million were lower than the
previous quarter's $121.7 million. The operating margin increased
538 bps sequentially and 27 bps year over year, touching 10.4%.
Both research and development (R&D) and selling, general and
administrative (SG&A) expenses decreased sequentially as a
percentage of sales, which combined with a higher gross margin
increased the operating margin.
Microsemi generated GAAP net profit of $18.3 million or 20
cents a share compared with loss of $2.9 million or 3 cents a
share in the previous quarter and income of $8.1 million or 9
cents a share in the year-ago quarter.
Excluding these special items, pro forma net income was $38.4
million (15.8% of sales) compared with $38.9 million (15.0%) in
the year-ago quarter and $28.7 million (12.2%) in the previous
Cash and cash equivalents balance at quarter-end was $220.9
million, up $14.0 million during the third quarter. Cash
generated from operations was $52.6 million and capex was $13.6
million, netting a free cash flow of $39.0 million.
Inventories increased 2.4% to $166.6 million from $162.7
million in the previous quarter. Days sales outstanding (DSOs)
decreased to 58 days from 62 days in the last quarter.
Microsemi provided guidance for the fourth quarter of fiscal
2013. Revenues are expected to increase 2-4% and the tax rate is
likely to be6.0%. Non-GAAP earnings per share are expected to be
around 51-55 cents.
Though Microsemi's third quarter earnings were better than the
Zacks Consensus Estimate, the year over year comparisons were
disappointing. However, the company provided a modest
The company is seeing weakness across its major markets,
although its R&D program remains on track. Management is
focusing on security and increasing electronic content per device
and customer, which will eventually boost its market share.
However, uncertainty in short-term defense programs owing to
apprehensions over 'sequestration' could temper the effects of
increasing electronic content in defense applications.
Microsemi has a Zacks Rank #3 (Hold). Semiconductor stocks
that are worth considering include
Advanced Micro Devices
Microchip Technology Inc.
), all carrying a Zacks Rank #2 (Buy).
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