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Summary
conference date: April 26, 2006
for quarter ending: March 25, 2006 (3rd fiscal quarter 2006)
Overview: Solid revenue and earnings growth. Slight gross margin slip due to CDMA margins, which sould be restored going forward. Good start to new quarter. May leave CDMA transceiver business if margins remain low, but that won't have a material impact on earnings.
Basic data:
$478.1 million record revenues, a 7.2% sequential increase. Net income was $120.3 or .36 EPS. This included $42.1 million of stock-based compensation expense. Non-GAAP EPS was .45. Both EPS measures were up .03 from the prior quarter.
Gross margin of 62.7% (69% excluding stock compensation), down from prior quarter. Free cash flow was $88.5 million.
Cash and short term investments ended unchanged at $1.3 billion.
Guidance:
June quarter revenues will increase about 7%. Non-GAAP earnings expected up 7% to .48.
Conference Highlights:
Missed gross margin because a couple of cellular products had lower margins than expected and 3 fab plants missed plan by $3 million. Pricing collapsed in CDMA handset market, due to competing on price with GSM handsets.
Accounts receivable grew $67.6 million and inventory grew about $37 million to $204.6 million.
16 of 20 tracked markets showed increased revenues. Declined in notebook products due to seasonality.
R&D investments are targetting these markets with new integration products: base stations; personal media players; stand alone stereo audio processor; flat panel monitor anti-aliasing filter; power supply chips; smart phone chips. Partnering with all top 20 consumer device manufacturers; many new designs coming on line.
Other areas of opportunity are LCD TVs, automotive, cell phones and portable DVD players.
Q&A:
Manufacturing problems? Always a struggle with new processes and products every year. Analog is more complicated than digital and changes quicker.
Wireless? Expects to drop CDMA chips in 90 days if profit margin does not increase.
Acquisitions: prefers to add individual talent or a small business with talented people.
Did you overship consumption? Made $490 million and shipped $490 million. Customers may be booking slightly more than consumption because of hopes for increased sales.
Long term strategy touchstones? Customers have come to them with a problem and asked them to make products. It is important to beware of low-value-added products.
How much would dropping CDMA hurt? 170 million handsets annually international; 40% is US; won't quantify, but would like to keep high-end CDMA products. The high-end data phones are not yet growing. It is a small part of MXIM revenues. Not going to be material to June quarter.
Operating expenses? It is not capital or cash intensive; will not grow as fast as sales. 44% operating margin is a reasonable expectation (same as last 2 quarters).
Are you planning on building additional inventory this quarter? The mix is the issue and hard to predict.
Attracting designers is more difficult than in 1999; have not had an attractive stock run up; but "we've competed very well." Expect to hire 80 people this quarter.
Gross margin should go up slightly (1 to 1.5%) in June or following quarter.
Expected bookings to be in a better mix; revenues would have been higher if they had had all stock in die banks.
Dallas bookings were 20% of revenue and profits.
3G Infrastructure market? A good market, but not growing rapidly. No pricing pressure there. Design wins are followed by little actual production.
$1.9 Billion in fiscal 2006. In 2007 believes $2.4 to 2.5 billion.
Bookings are up 30% over last year.
Data converter market? People are not buying as stand-alone today. They are embedded in many applications.
Notebook business pricing? Still dominates that market, some sockets are getting more competitive, engineering staying ahead of competitors, including napa platform. Gained share with smart batteries, audio.
CDMA handsets, non-transceiver chips? Only the transceiver pricing was under pressure.
Interest down why? Cash went down temporarilly for dividend payout.
Will ship 66% of turns, which are up 20% over same weeks in last quarter.
In high-growth markets like camera and telecom, half of growth has been market growth, half has been market share growth. Industrial instrumentation markets are growing, may not be gaining share.
Capital expenditures are going up in anticipation of need for capacity. $100 million in current quarter. No fab constraints for MXIM at present, but has heard some fabless companies may be constrained.
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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. Before making or terminating an investment you should always verify any factual basis of your decision from multiple independent sources.
Copyright 2006 William P. Meyers