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Third quarter revenue of $571.2 million was down 3.4% sequentially, 5.9% year over year and matching management’s guidance range of $555.0-585.0 million, or down 2.8% to up 2.5% sequentially. Revenue was down across all end-markets except industrial, which was flat sequentially.
Revenue by End Market
The consumer end market was the largest in the last quarter, with a quarterly revenue contribution of around 41.0%, reiterated. The sales in the consumer end market suffered because of seasonal trends. The March quarter is a seasonally slow quarter for Maxim. However, management remains optimistic about stronger smartphone demand going forward.
Maxim expects that the smartphone segment will strengthen this year. Maxim’s USB charging chip is gaining ground, with production ramping for Japanese digital video and DSLR cameras. An e-reader using its USB chip is also ramping production. Management is also focusing on a new smartphone platform, launched by one of its customers.
Industrial, the second largest segment, generated 27.0% of revenue. The segment was flat, impacted by the distribution side of the business, where distributors stopped building inventories. Maxim expects the security and automotive segments to improve again in the next quarter, with the impact offset by a couple of medical customers.
Control and automation (the largest chunk of the business right now) should see some improvement, however, as channel inventories are very lean according to management and shipments are mainly to consumption.
Revenue from the Communications end-market declined sequentially to 17% of total revenue. Continued weakness in the traditional telecom business and base station inventories has impacted Maxim’s business. However, while the telecom market remains weak, base station revenue is expected to rebound, as inventories get back to normal levels.
Despite the dismal performance in the last quarter, the computing market remains important for Maxim, given its 15.0% revenue contribution. Revenue from the end market was down sequentially, but should see some growth over the next two quarters, as Intel’s ( INTC - Analyst Report ) Romley ramps production.
Maxim’s 6-gig SAS-expanded products should see traction when this happens because of the increased storage requirements. A Chinese financial terminal manufacturer using Maxim’s secure microcontrollers is also ramping production, which should translate to additional revenue for the company.
Revenue by Geography
China remained the single largest contributor in the last quarter, with a revenue share of 45% (up 15.2% from last year). Korea accounted for 7% (down 38.2%) and Japan 5% (down 25.3%). The rest of Asia brought in another 15% of total quarterly revenue, which was up 17.0% year over year. The U.S. and Europe generated around 12% and 13% of revenue, respectively. The two regions were down 22.2% and 24.4%, respectively.
Management does not provide specific information on orders, as shifts in customer vendor and managed inventory programs distort quarter-to-quarter comparisons.
The orders showed an improvement in all 4 major markets. The order lead time was reiterated and the book to bill ratio is above 1.
The GAAP gross margin was 58.7%, down 10 basis points (bps) sequentially and 270 bps year over year. Management stated that the weaker gross margin was related to lower utilization rates, lower spending and lower inventory reserves.
Operating expenses of $223.5 million were down 4.2% sequentially and 7.1% from the year-ago quarter. This contributed to the operating margin declining 20 bps sequentially and 740 bps from year over year. Both R&D and SG&A also decreased significantly as a percentage of sales, although not as much as cost of sales.
The GAAP net income was $22.7 million ($0.07 per share) in the third quarter, compared to $88.1 million ($0.29 per share) in the prior quarter and $136.3 million ($0.45 per share) in the prior-year quarter.
Excluding special items such as restructuring, intangibles amortization, impairment charges, acquisition expenses, discontinued operations and other one-time items on a tax-adjusted basis, adjusted net income $99.5 million or 33 cents in the quarter, compared to $100.7 million or 34 cents in the previous quarter and $121.7 million or 40 cents in the year-ago quarter.
Including these items, on a fully diluted GAAP basis, the company recorded a net income of $22.7 million ($0.07 per share) compared to $88.1 million ($0.29 per share) in the second quarter of 2012 and $136.3 million ($0.45 per share) in the the March quarter of 2011.
Balance Sheet, Cash Flow, Dividend
Cash and cash equivalents were $936 million up 14.6% sequentially. Inventories were down 5.6% to $220.2 million. The cash generated from operations was $196.5 million, of which the company spent over $70 million on PP&E, $64.0 million on cash dividends and $29.0 million on share repurchases. Maxim has $308.7 million of long-term debt and long-term liabilities of $420.7 million.
In the fourth quarter of fiscal 2012, Maxim expects revenue of $590.0-620.0 million (up 6% sequentially). The backlog is $388.0 million.
The gross margin is expected be in the 60-63% range on a GAAP basis and 62-63% on an adjusted basis. Mix, utilization and inventory reserves will be variables impacting the gross margin. Operating expenses excluding special items are expected to be up 2-3% from March. The tax rate excluding special items is expected to be 20-24%.
All this will yield earnings of 34-38 cents on a GAAP basis and 37-41 cents on an adjusted basis. The Zacks Consensus Estimate was 34 cents when the company reported, but has moved up 4 cents since then.
Capital expenditures are expected to be 5-7% of revenue in fiscal 2012 due to expansion of manufacturing and new facilities.
Management declared a cash dividend of $0.22, which will be paid on June 6, 2012, declared on May 21, 2012.
The Zacks Rank onMaxim shares is #3, implying a short-term hold recommendation.
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