Margins Shrink at Supertex

Supertex Inc. (SUPX - Snapshot Report) recently reported revenues of $15.9 million in its fiscal second quarter, down 32% year over year but up 17% sequentially. 

The sequential increase in revenues was driven by growth in LED driver products for lighting and backlighting, medical electronics products, and electroluminescent (EL) driver products. Orders for LED and EL driver products surged after Labor Day. The company had to rush these orders through its wafer fab and expedite them through backend assembly and test in order to meet customer demand schedules. Demand for medical ultrasound products is also beginning to rebound, as sales grew 17% sequentially.

Management added that its major customer has increased its LED TV sales estimates for 2009 and 2010 while other customers are also ramping up. Sales of LED driver products for general lighting applications have also increased. In anticipation of new cell phone launches, shipments of EL inverter products ramped up in the reported quarter.

Gross margin declined to 47% from 53% in the previous quarter due to the non-linear loading of its wafer facilities and backend operations. Net income declined to $1 million compared to $4.5 million in the year-ago quarter. Earnings per share came in at 15 cents easily beating the Zacks Consensus Estimate of 10 cents.
 
Based on booking, management expects revenues between $16.5 million and $17.5 million in its fiscal third quarter, driven by sequential growth in all end markets. However, customer demand in foundry service business is expected to be lower. During the December quarter, Supertex is planning a normal wafer fabrication facility shutdown for maintenance and hence expect gross margin to be flat in the third quarter.
 
The top-line has been shrinking from the past few quarters but the company expects demand to pick up in the back-end of 2009 as Supertex indicated that its LED driver business is expected to see substantial growth. Additionally, the Medical segment is anticipated to stabilize in the second half as new design wins ramp up. We await better visibility of these programs before turning positive on shares of Supertex.
 
Headquartered in California, Supertex designs and sells high-voltage analog and mixed signal integrated circuits. Competition remains intense in the analog sector where the gross margins are traditionally higher including products for the Medical Electronics, Imaging, Telecom, LED Lighting, and industrial/other markets. The company competes with several larger analog semiconductor companies with far greater resources, including Maxim Integrated Products Inc. (MXIM - Analyst Report), Hitachi LTD (HIT - Analyst Report) and Texas Instruments (TXN - Analyst Report) for the Medical Electronic market.