Hittite Matches Expectation

Hittite Microwave Corporation (HITT - Analyst Report) second quarter results came in at the high-end of management’s revenue guidance of $38.5 to $39.5 million and the EPS guidance of $0.32 to $0.35. 

Although, operating expenses decreased 2.9% year-over-year in the quarter, Hittite’s operating margin was 40.8%, a decrease of 320 basis points over the year-ago period. EPS for the quarter was $0.35, compared to $0.43 in the year-ago period and $0.34 in the first quarter. This was in line with our estimate of $0.35. 

Revenue for the quarter was $39.7 million, down 11.9% from the $45.0 million reported last year, and in line with our $39.5 million estimate. Sequentially, revenue increased 3.9% from $38.2 million, driven primarily by the growth in cellular infrastructure and microwave communication markets. Year-over-year comparisons were impacted by the weak global economic environment, which slowed demand across four of its eight served end-markets. The company did not suffer market share losses or face increased competition. 

Hittite’s three largest target markets are cellular infrastructure, microwave & millimeterwave communications, and military, which together contributed 82.0% of the quarterly revenue. Of the four end-markets which increased sequentially, cellular infrastructure increased the most as a result of the 3G rollout in China and microwave communications grew due to new back hold radio linked bandwidth requirements in international markets, and to a lesser extent due to restocking. 

The other target markets – automotive, broadband, fiber optics, space, and test and measurement, accounted for the remaining 18.0% of revenue. Broadband revenue in the quarter was flat, fiber optics revenue increased while automotive, military and space revenues declined sequentially. 

For the third quarter of 2009, Hittite expects net income in the $10.0 – $10.9 million range with EPS in the $0.33 to $0.36 range. Revenue is expected to be in the $40.0 – $41.0 million range, a sequential growth of 3.4% from the high end of the guided range due to strong backlog and steady customer orders from all regions. Although some short term weakness in Europe is expected in the third quarter, we strongly believe that the company will be able to post good results due to its track record of growth in a fairly lackluster market, new product releases and expected recovery in demand. Hittite is more profitable than most of its smaller peers such as Skyworks (SWKS - Analyst Report), and Linear Technology (LLTC - Analyst Report). 

We therefore maintain our Buy rating on the stock.