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Maxim Integrated Products, Inc. (MXIM)

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Maxim Integrated Products (MXIM)

Q4 2011 Earnings Call

July 28, 2011 5:00 pm ET

Executives

Bruce Kiddoo - Chief Financial Officer and Senior Vice President

Tunç Doluca - Chief Executive Officer, President and Director

Paresh Maniar - Executive Director of Investor Relations

Analysts

Steve Smigie - Raymond James

Craig Berger - FBR Capital Markets & Co.

Shawn Webster - Macquarie Research

Terence Whalen - Citigroup Inc

Uche Orji - UBS Investment Bank

Christopher Danely - JP Morgan Chase & Co

Ross Seymore - Deutsche Bank AG

Sumit Dhanda - Citadel Securities, LLC

Mark Delaney - Goldman Sachs Group Inc.

Romit Shah - Nomura Securities Co. Ltd.

Ambrish Srivastava - BMO Capital Markets U.S.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Maxim Integrated Products Fourth Quarter 2011 Earnings Release Conference Call. [Operator Instructions] As a reminder, this program is being recorded. I would now like to introduce your host for today's program, Mr. Paresh Maniar. Please go ahead, sir.

Paresh Maniar

Thank you, Jonathan, and welcome, everyone to our Fiscal Fourth Quarter 2011 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 Litigation Reform Act, I'd like to remind you that 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, anticipated tax benefits and any other future 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's important to note that the company's actual results could differ materially from those projected in the forward-looking statements. During the quarter, Maxim's corporate representatives may reiterate the business outlook during private meetings with investors, investment analysts, the media and others.

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 26, 2010. Copies can be obtained from the company or the SEC.

Second, in keeping with the SEC's fair disclosure requirements, we 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 Kiddoo

Thanks, Paresh. I will review our fourth quarter financial results. Revenue for the fourth quarter was $626.5 million, up 3% from the third quarter. Consumer market revenue increased significantly offset by a decline in the other markets. Our revenue mix by major market in Q4 was approximately 36% for consumer, 28% industrial, 19% communications and 17% computing.

Our consumer market grew strongly due to continued momentum in cell phones. Our industrial market was down slightly due to control and automation offset by growth in automotive. The communications market decline in Q4 was due to an inventory correction in fiber optic modules and in base stations. Finally, computing revenue declined due to notebook.

Gross margin excluding special items grew to 63.7%, up from 62.7% in the prior quarter, due primarily to a subcon billing catch up in Q3, which did not repeat in Q4. Special items in Q4 gross margin were intangible asset amortization.

Operating expenses excluding special items were $211 million compared to $204.6 million in Q3. The increase was primarily due to selective hiring, mass and prototype expenses and higher 401(k) matching. Special items in Q4 operating expenses were primarily intangible amortization from acquisitions. Q4 GAAP operating income excluding special items was a $188 million or 30% of revenue.

The Q4 GAAP tax rate, excluding special items was 26% compared to 30% in the prior quarter. The decline is primarily due to a true up in Q3 between our prior fiscal year provision and actual tax return which did not repeat in Q4. GAAP earnings per share, excluding special items was $0.45, up 13% from $0.40 in Q3 due to increased revenue and gross margin and a lower tax rate.

Turning to the balance sheet and cash flow. During the quarter, cash flow from operations was $246 million or 39% of revenue. The strong cash flow was a result of a strong profitability and international tax structure. Inventory was flat at 95 days, within our target of 90 to 100 days to better serve our customers. Inventory in the channel, excluding catalog distributors, was 67 days, up slightly from the prior quarter. Net capital expenditures totaled $59 million in Q4 as we invested in new fab technology and new facilities. For the full year, fiscal 2011 capital expenditures were 6.4% of revenue within our 5% to 7% target. Free cash flow was $201 million or 32% of revenue. Share repurchases totaled $59 million in Q4 as we bought back 2.3 million shares. And in Q4, we paid $62 million in dividends to our shareholders. As a result, total cash, cash equivalents and short term investments increased by $94 million in the fourth quarter to $1 billion.

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