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Maxim Integrated Products, Inc. (MXIM)

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Maxim Integrated Products, Inc. (MXIM)

Q1 FY09 Earnings Call

October 29, 2008, 05:00 PM ET

Executives

Paresh Maniar - Executive Director, IR

Bruce E. Kiddoo - CFO

Tunç Doluca - President, CEO and Director

Analysts

Uche Orji - UBS

John Barton - Cowen & Company

Craig Hettenbach - Goldman Sachs

John Pitzer - Credit Suisse

Ross Seymore - Deutsche Bank

Doug Freedman - American Technology Research

Steve Smigie - Raymond James

ChristopherDanely - JPMorgan

Tore Svanberg - Thomas Weisel Partners

David Wu - Global Crown Capital

Rahman Shah - Barclays Capital

Craig Ellis - Citigroup

John Dryden - Charter Equity

Krishna Shankar - JMP securities

Mahesh Sanganaria - RBC Capital Markets

Presentation

Operator

Thank you for standing by. Good day and welcome to Maxim Integrated Products First Quarter 2009 Earnings Release Conference Call. Today's call is being recorded.

At this time for opening remarks and introduction, I will turn the call over to Mr. Paresh Maniar, Executive Director of Investor Relations for Maxim Integrated Products. Mr. Maniar, please go ahead.

Paresh Maniar - Executive Director, Investor Relations

Thank you operator. And welcome everyone to our fiscal first quarter 2009 earnings conference call.

With me on the call today are Chief Executive Officer Tunç Doluca; and Chief Financial Officer Bruce Kiddoo.

There are some administrative items that I'd like to take care of before we cover our results. First, we will be making forward-looking statements on this call and in light of the Private Securities Reform Litigation Act. I would like to remind you that the statements we make about the future, including our intentions or expectations or predictions of the future, including, but not limited to possible statements regarding bookings and turns orders, revenues and earnings, inventory and spending levels, manufacturing efficiency or capacity, projected end-market consumption of our products, the estimated time to complete our restatement project and any other financial results are forward-looking statements.

If we use words like anticipate, believe, project, forecast, plan, estimate or variations of these words and similar expressions relating to the future, they are intended to identify forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in the forward-looking statements. Additional information about risks and uncertainties associated with the company's business are contained in the company's SEC filing on Form 10-K for the year ended June 28, 2008. Copies can be obtained from the company or the SEC.

Second, in keeping with the SEC's fair disclosure requirements, we have made time available for a question-and-answer period at the end of today's call. This will be your opportunity to ask questions of management concerning the quarterly results and expectations for the next quarter. An operator will provide instructions at that time, we again request that participants limit themselves to one question and one follow-up question during the Q&A session.

I will now pass the call over to Bruce.

Bruce E. Kiddoo - Chief Financial Officer

hanks Paresh.

We are very pleased to report full financial results this quarter. Completing the re-statement, re-listing on NASDAQ, and announcing $750 million share repurchase program, are all signs that Maxim is back at full strength. And while current economic environment provides a new set of challenges, we are confident we have the business model strategy and execution to weather the storm and emerge as a premier analog semiconductor company.

Moving on to the result of our recently completed September quarter, let us start with the income statement. Revenue for the first quarter was $501.2 million, flat with last quarter and within our guidance range. Our revenue mix by major end-market in Q1 was approximately 28% computing, 28% consumer, 24% industrial, and 20% communications.

In the consumer market, our revenue grew in handsets for the third consecutive quarter as power management, multimedia and multi-function design wins continue to ramp. In the communications market, our revenue was flat as the as the bay station market segment continued to grow due to strength in the Asia infrastructure market, offset by lower revenue and other communication market segments.

In the industrial market, our revenue increased primarily due to strength in our medical product lines. And finally as expected, in the computing market, revenue declined in the notebook motherboard power management product line.

GAAP gross margin declined in Q1 by 250 basis points due to lower factory utilizations as we proactively took steps to manage inventory, and a higher percentage of stock based compensation expense, allocated to cost of goods sold. In addition in Q4, we had a favorable warranty reserve adjustment that did not recur in Q1.

Non-GAAP gross margin was 62.8% and has now been favorable for two years. As forecasted, we tightly managed the operating expenses in Q1 with GAAP operating expenses down 11 million due to lower stock based comp expense and lower restatement expenses. We kept non-GAAP operating expenses flat despite one month of the company wide merit increase.

Total stock based comp in Q1 was $37.6 million down $2.1 million from Q4. Expenses primarily related to the restatement and the ramp down of wafer fabrication facilities were $30.1 million in Q1, down $5.6 million from Q4. GAAP EPS was $0.21, non-GAAP EPS was $0.35.

Turning to the balance sheet; total cash, cash equivalents and short-term investments increased by $38 million during Q1 to $1.26 billion. A $157 million in cash flow from operations was primarily reduced by $64 million for dividends and $38 million in payments for property and equipment.

Inventory declined by 3% due to our proactive steps to lower spending in the quarter. Average day sales outstanding was flat at 49 days. Capital expenditures totaled $29 million in Q1 or 6% revenue, down $8 million from Q4 and down 57% from a year ago. This is consistent with our goal to reduce capital expenditures and is the lowest quarterly amount in three years.

On October 13th, our Broad of Directors authorized the repurchase of up to $750 million of the company's common stock. Through Tuesday October 28th, we have repurchased approximately 5.5 million shares of common stock at a total amount of approximately $77 million.

Our share repurchase program is subject to this market and economic conditions. Regarding bookings and backlog, during Q1 our bookings declined by 6%. Our beginning current quarter backlog of net realizable revenue of Q2, for Q2 is 293.7 million, a decline of 8% from the prior quarter.

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