Maxim Integrated Products, Inc. F2Q08 (Qtr. End 12/31/07) Earnings Call Transcript

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Maxim Integrated Products Inc. (MXIM)

Q2 FY08 Earnings Call

January 31, 2008, 5:00 PM ET

Executives

Paresh Maniar - Executive Director, IR

Bruce E. Kiddoo - VP - Finance

Tunc Doluca - President, CEO, Director

Vijay Ullal - Group President

Pirooz Parvarandeh - Group President

Analysts

Tore Svanberg - Thomas Weisel Partners

Jeff Rosenberg - William Blair & Company

Romit Shah - Lehman Brothers

Craig Ellis - Citigroup

Ross Seymour - Deutsche Bank

Simona Jankowski - Goldman Sachs

Sumit Dhanda - Banc Of America Securities

John Pitzer - Credit Suisse

Doug Freedman - American Technology

Manish Goyal - TIAA

Presentation

Operator

Thank you for standing by. Good day and welcome to Maxim Integrated Products Second Quarter 2008 Earnings Release Conference Call. Today's call is being recorded. At this time for opening remarks and introductions I'll 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 second quarter 2008 earnings conference call. With me on the call today are Chief Executive Officer, Tunc Doluca; Group President, Pirooz Parvarandeh; Group President, Vijay Ullal; and Vice President of Finance, Bruce Kiddoo. There are some administrative items that I would like to take care of before we cover our result. First, we will be making forward-looking statements on this call and in light of the Private Securities Litigation Reform Act, I would like to remind you that the statements we make about the future, including our intention 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 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 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 filings on Form 10-K for the year ended June 25, 2005. Copies can be obtained from the company or the SEC.

Second, in keeping with 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 again limit themselves to one question and one follow-up question during the Q&A session. Before I hand the call over to Bruce, I want to remind you of the contents of our January 31, 2007 press release, which reported that due to stock option accounting matters, Maxim expects to restate its financial statements. Since the company has not yet issued restated financial statements, we are unable to provide detailed GAAP or non-GAAP financials for the quarter ended December 29, 2007. As a result, all numbers contained in our press release and discussed on this call exclude all stock-based compensation. These numbers should be treated as estimates only and are subject to change.

Our press release dated January 17, 2008 provided an update on the progress of the restatement process. Consequently, no additional comments will be made regarding this issue.

I'll now pass the call over to Bruce

Bruce E. Kiddoo - Vice President, Finance

Thank you, Paresh. I will begin by reviewing the results of our most recently completed December quarter starting on certain items from the income statement. Overall, we are very pleased with our results as we met or exceeded our guidance for all key metrics. Consistent with our guidance, net revenues for the second quarter were $540 million, an 8.6% increase from the same quarter last year and a 3.3% increase from the first quarter of fiscal 2008. As we guided, this increase was driven by strength in our cell phone, computing peripherals, and consumer entertainment segments.

For the four major end markets comparing Q2 to Q1, revenue from the consumer, industrial and the communications end markets were each up mid-single digits, while revenue from the computing end market was up slightly. Consequently, our revenue mix during Q2 shifted slightly from the previous quarter resulting in 31% from computing, 29% from consumer, 21% from industrial, and 19% from communications.

Q2 gross margins excluding stock-based comp and non-recurring charges improved by 50 basis points compared to Q1, consistent with our business model that gross margins will fluctuate within a stable range. The improvement over Q1 was due mainly to our continued inventory management, resulting in lower inventory reserve requirements.

Q2 operating expenses, excluding stock-based compensation and non-recurring items increased 2.9% sequentially over Q1 including the test compared to 3.3% revenue growth. Our performance exceeded our guidance, which was to grow Q2 operating expense lower than revenue excluding the test. Non-recurring items during Q2 were $9 million as the cost of the restatement effort was partially offset by a gain on the sale of property.

Turning to the balance sheet, total cash, cash equivalents and short-term investments decreased by $180 million during Q2. Strong cash flow generated from the P&L was offset due to $106 million for two fiscal-year '08 income-tax payments in the quarter, $94 million for the previously announced goodwill payments related to expired stock options, $63 million for the Vitesse acquisition plus $60 million for dividends and $77 million for property and equipment.

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