Analyst Conference Summary

conference date: January 29, 2008 @ 2:00 PM Pacific Time
for quarter ending: December 27, 2008 (2nd fiscal quarter 2009)

I own two competitors, Microchip (MCHP) and Marvell (MRVL)
Forward-looking statements

Overview: Revenues declined less sequentially than some competitors in a grim economic environment, but fell well into the red.

Basic data (GAAP) :

Revenues were $410.7 million, down 18% sequentially from $501.2 million and down 24% from $540.0 million year-earlier.

Net income of negative $38.8 million contrasted with $67.6 million income in September quarter and $107 million net income year-earlier. See also non-GAAP numbers below.

EPS (earnings per share) were negative $0.12, down sequentially from positive $0.21 and down from $0.33 year-earlier.

Guidance:

Fiscal Q3 (March quarter) revenues expected between $290 and $330 million, with GAAP gross margins between 46% and 49%, non-GAAP 50% to 53%, with operating expenses of $170 to $173 million. $34 to $37 million in stock based compensation expense. Cash flow from operations should increase sequentially. Capital expenditures will be cut to about $130 million in fiscal 2009.

Factory utilization will decline to about 65%.

Conference Highlights:

Now have a very cautious view of global economy even though customers indicate bookings should improve this quarter. Operating expenses are being reduced. The dividend of $0.20 will be paid to shareholders of record on February 20, 2009.

We have the cash and business model to weather this storm. We are reducing operating expenses and capital expenditures. There will be a 2 week fab shutdown in Q3 and mandatory unpaid vacation.

Special expense items reduced net income by $125.9 million pre-tax, and therefore GAAP EPS by $0.26. Speical items included $42 million in stock based compensation, $44 million for impairments of manufacturing assets, $14 million for restructuring, and $12 million for accelerted depreciation from closing Dallas facility. There was a benefit from the reinstatement of the R&D tax credit. Excluding special items EPS would have been positive $0.13 per share.

GAAP gross margin declined to 55%.

Cash flow from operations was $71.5 million. Share repurchases used $235 million cash. Dividend was $0.20 per share, using $62 million. $33 million was used to acquire Mobilygen. $38 million for capital expense. Leaving cash and equivalents balance of $925 million.

Inventories ended at $252 million, down 4% sequentially. Will continue to decline.

Bookings decreased by 34% in the quarter. The order backlog declined by 30% to $206 million.

Cost of goods sold was $212 million, leaving gross profit of $199 million. Operating expense of $280 million consists of: R&D $144 million, selling and general $64 million, in-process R&D $4 million, impairments $44 million, restructuring $14 million, and other $10 million. Operating loss was $81 million. Interest income was $7 million. Income tax benefit was $35 million.

Consumer market accounted for 27% of revenue. Cell phone segment declined significantly. However, ramp of more recent design wins is encouraging. Given known cell phone inventories, both ours and our customers' products, we believe they should renew ordering soon.

Computer market was 27% of revenue, with notebooks heavily impacted. This will see the largest decline in fiscal q3. But expect growth around middle of calendar year as new products ramp.

Industrial market was 24% of revenue and declined broadly. Military orders were flat. This segment will decline the least in Q3 because it is a seasonally strong quarter. Power metering is a growth area. Also developing more products for medical market.

Communications segment represented 22% of revenue. Revenue declined only 10%. Bay station market continued to benefit from Asian infrastructure buildout. 3G rollouts are expected to continue in China.

Headcount dropped by about 1000 in calendar 2008.

Q&A:

Do you expect March quarter to be the bottom? Visibility is too poor to call the bottom.

Channel inventories? Varies by market. High in notebook market, low in cell phones.

Other cash expenses in fiscal Q3? We'll look at acquisitions. We are authorized to repurchase shares, but will do that opportunistically.

Would you have to dip into cash balances to pay dividends? We do annual and quarter reviews. It depends on cash flow, but believe we can continue the dividends, and it will come out of free cash flow.

Can capital expense go lower? We need to invest in new technology for fabrication and testing. We are selective, but we need it for long term competitive advantage. We are also spending on producing our design productivity.

We can't narrow guidance on gross margins because it depends in part on where revenues come out. Quarter is affected by Chinese new year; weeks have been lumpy, there is no clear trend in the quarter yet.

Lead times? Customer lead times have not changed much.

Communications segment color? There really is little inventory, so to ship new product they are going to have to order new parts.

Fab capacity? Finishing taking Dallas fab off line will reduce capacity by about 10%. Our fab light strategy is working well in this slow time.

Pricing environment? We mostly sell proprietary products, so we have good price control compared to commodity lines, where we do see pressure.

OpenIcon Analyst Conference Summaries Main Page
Maxim Investor Relations page
More Openicon Maxim Summaries

Search

More Analyst Conference Pages: