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Maxim Integrated Products, Inc. (MXIM)

Q2 2019 Results Earnings Conference Call

January 29, 2019, 05:00 PM ET

Company Participants

Kathy Ta - VP, IR

Tunç Doluca - President and CEO

Bruce Kiddoo - SVP and CFO

Conference Call Participants

Harlan Sur - JPMorgan Securities LLC

Ross Seymore - Deutsche Bank Securities, Inc.

Ambrish Srivastava - BMO Capital Markets

Craig Hettenbach - Morgan Stanley & Co. LLC

John Pitzer - Credit Suisse Securities

Tore Svanberg - Stifel, Nicolaus & Co., Inc.

Chris Caso - Raymond James & Associates, Inc.

Toshiya Hari - Goldman Sachs & Co. LLC

Srini Pajjuri - Macquarie Capital, Inc.

CJ Muse - Evercore ISI

William Stein - SunTrust Robinson Humphrey, Inc.

David Haberle - Susquehanna Financial Group LLLP

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Maxim Integrated Second Quarter Fiscal 2019 Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today's program is being recorded.

I would now like to introduce your host for today's program, Kathy Ta, Vice President, Investor Relations. Please go ahead, Kathy.

Kathy Ta

Thank you, Jonathan. Welcome everyone to Maxim Integrated's fiscal second quarter 2019 earnings conference call. Joining me on the call today are Chief Executive Officer, Tunç Doluca; and Chief Financial Officer, Bruce Kiddoo.

As part of our usual process, we have posted a supplemental financial presentation through our external Investor Relations website. The information in this presentation accompanies the financial disclosures in our earnings press release and on this conference call.

During today's call, we will be making some forward-looking statements. In light of the Private Securities Litigation Reform Act, I'd like to remind you that these statements must be considered in conjunction with the cautionary warnings that appear in our SEC filings.

Investors are cautioned that all forward-looking statements in this call involve risks and uncertainties and that future events may differ materially from the statements made. For additional information, please refer to the company's Securities and Exchange Commission filings, which are posted on our website.

Now, I'll turn the call over to Tunç.

Tunç Doluca

All right. Thank you, Kathy. Good afternoon to all our participants and thank you for joining us today. We appreciate your interest in Maxim Integrated.

Our December quarter results came in below expectations due to the soft environment. However, we are encouraged to see bookings return to normal levels in recent weeks. We believe our business model enables us to be successful in any environment and we continue to generate strong free cash flow despite the current conditions.

Our strong free cash flow and positive net cash balance enable us to increase our share buyback and continue our industry-leading dividend. And we are on track to return 125% of free cash flow to shareholders this fiscal year. We continue to believe that buying our shares is the best use of our cash in the current environment.

Before I turn to my end-market commentary, I want to remind investors that our second fiscal quarter last year was a 14-week quarter and was impacted by the transition to sell-in accounting at one distributor. My comments on December quarter year-on-year comparisons adjust down year ago quarter revenue for both of these items.

Let me now discuss December results and current quarter outlook starting with Automotive. In the December quarter, our Automotive business was up 8% from the same quarter last year. We continue to see the strongest demand signals from battery management systems for electric vehicles and driver assistance content.

However, in our infotainment and auto body electronics business, we are seeing sub-seasonal performance, driven by slower car sales. We do see ample content growth opportunities for Maxim and driver assist or ADAS applications in power management and point-to-point serial link data communication products.

As the Consumer Electronics Show, we held a record number of customer discussions on our battery management, driver assistance, and power management solutions. Our latest generation of GMSL-2 automotive serial link products to transport video, audio, and data at a 6-gigabit per second transfer rate and can also transport 1-gigabit per second Ethernet. We expect to introduce additional GMSL-2 products in the coming year and have already won designs at seven different OEMs.

Our business and battery management systems for electric vehicles continues to grow in global footprint and scale and we discussed our latest generation products with customers at CES.

Additionally, we announced new families of high-voltage automotive power solutions that efficiently control and supervise the hundreds of watts of power required for Advanced Driver Assistance Systems.

In the March quarter, we expect Automotive to be up sequentially and up in the high single-digits from the same quarter last year, supported by continued strong demand for battery management systems, but offset by lower overall car sales.

Let me next turn to the Industrial market. In the December quarter, Industrial was down 6% from the same quarter last year. Throughout the quarter, we experienced slow bookings and resales across most of our product lines sold to the industrial broad markets and to factory automation customers. Bruce will provide more detailed commentary on the dynamics of our distribution business right after me.

We continue to believe in the long-term growth trajectory of factory automation in the areas of interface and communications that bring intelligence to the factory edge, digital isolation and isolated power and protection solution, and ultra-efficient and tiny footprint power margins. In the March quarter, we expect Industrial to be down sequentially with core Industrial flat.

Read the rest of this transcript on seekingalpha.com