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Microsemi (MSCC) Q4 Earnings Match, Revenues Beat

Microsemi Corporation 's MSCC fourth-quarter fiscal 2015 adjusted earnings of 60 cents per share matched the Zacks Consensus Estimate.

Revenues

Microsemi reported revenues of $328.8 million, up 3.7% sequentially and 8.4% year over year. Also, revenues were just ahead the Zacks Consensus Estimate of $328 million, driven by strong growth across all end markets.

In the reported quarter, the book-to-bill ratio was less than 1.

Revenues by End Market

Microsemi generates revenues from the Defense & Security, Aerospace, Communications and Industrial markets.

Around 38.0% ($126 million) of Microsemi's quarterly revenues came from the largest end market Communications market, which increased 7.0% sequentially and 14.0% year over year. Management attributed the increase to higher carrier capex spending.

Microsemi's broadband gateway applications posted record results led by customers' competition to deliver increased bandwidth to homes globally. Also, the company is witnessing best solution sell results.

The Defense & Security market generated 26.0% ($85 million) of sales, up 4.0% sequentially and 5.0% year over year. The improved defense end-market environment led to the year-over-year increase.

Management expects this end market to continue to witness growth backed by improving defense budget and increasing dollar content.

The Aerospace segment generated 16.0% of fourth-quarter revenues. The segment increased 6.0% sequentially and 22.0% year over year to $53 million, driven by strong fundamentals in the commercial aviation markets.

In 2016, Management expects to witness strength from the commercial air end markets as customers ramp production versus strong multiyear backlogs.

The Industrial market generated 20.0% of sales, down 4.0% sequentially and 5.0% year over year to $65 million. The results were negatively impacted by the oil-affected end markets partially offset by strong results from medical end markets, driven by new product ramp.

Revenues by Product Line

FPGA s generated 22.0% of fourth-quarter sales, down 3.0% sequentially but up 6.0% year over year.

The company's SoC FPGAs are used in multiple end markets namely, Aerospace, Defense, medical and industrial and witnessed good traction in all of the end markets. Management stated that it will continue to improve its capabilities in the FPGA business, thereby expanding the revenue base.

Timing products revenues accounted for 16.0% of sales, up 15.0% sequentially because timing solutions in the communications applications returned to growth form, and management expects the trend to continue.

Management expect continued share gains in broader clock management applications, as the design win activity over the last two years starts to roll into production.

Mixed-signal RF accounted for 34.0% of the revenues, up 7.0% sequentially and 30.0% year over year. The increase was driven by acquisition of Ethernet products fromVitesse and strong organic growth of specific components.

Discretes were up 3.0% sequentially, accounting for 28.0% of the total fourth-quarter sales. The company continues to see an improving situation for defense and security and space-level applications, as well as stable demand for power switching products in industrial applications.

Margins

The reported gross margin was 56.5%, down 48 basis points (bps) sequentially but up 13 bps year over year. The sequential decline was due to unfavorable product mix.

Operating expenses of $115.0 million were 0.5% lower than $115.6 million reported last quarter. The lower expenses were due to better cost management. Operating margin of 7.9% was up 100 bps sequentially and 126 bps year over year.

Net Income

Microsemi generated GAAP net income of $25.3 million or earnings of 26 cents per share compared with $14.7 million or earnings of 15 cents per share in the previous quarter and $32.8 million or earnings of 34 cents per share in the year-ago quarter.

Excluding special items but including stock-based compensation expense, non-GAAP earnings per share was 60 cents compared with earnings of 54 cents in the prior quarter and 56 cents in the year-ago quarter.

Balance Sheet

Cash and cash equivalents balance at quarter-end was $256.4 million, down from $204.0 million in the second quarter. Operating cash flow for the fourth quarter of 2015 was $77.9 million versus $55.1 million in the previous quarter. Capex was $9.2 million compared to $10.2 million in the previous quarter.

Inventories were $227.2 million versus $235.0 million in the previous quarter. Days of inventory were flat at 147 days. Accounts receivable was $186.9 million compared to $197.2 at the end of the prior quarter. Days sales outstanding (DSOs) were down 2 day to 53 days.

During the quarter company spent $25 million to repurchase 761,000 shares of common stock at an average price of $32.86.

Guidance

Microsemi expects first-quarter fiscal 2016 revenues to be $325-$329 million. The Zacks Consensus Estimate for revenues is pegged at $329 million. Earnings per share are likely to be within 70-74 cents, well above the Zacks Consensus Estimate of 58cents.

Our Take

Microsemi reported a decent quarter with both the top line exceeding the Zacks Consensus Estimate while the bottom line matched.

The company's focus in improving product mix, operational efficiency, and consolidation, will help it drive its revenue and also help it achieve its 60% gross margin target in the second half of calendar 2016.

However, management will continue to invest in FPGAs, timing and mixed signal RF product offerings, which might increase expenses, in turn impacting operating margins in the near term.

Stocks to Consider

Microsemi has a Zacks Rank #3 (Hold). However, some better-ranked stocks include JD.com, Inc. JD , Amazon.com Inc. AMZN and eBay Inc. EBAY . All of them sport a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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