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International Rectifier Corp. (IRF - Snapshot Report) has reported first-quarter 2013 loss of 20 cents per share, better than the Zacks Consensus Estimate of 26 cents loss per share.

Revenue

The company reported revenue of $252.5 million, down 16.6% year over year due to an overall weak demand environment.

Revenues declined across the board with Enterprise power segment being the only exception. Power management devices revenue decreased 18.3% year over year to $90.8 million; Energy saving products revenue decreased 41.7% to $44.4 million; Automotive products revenue declined 0.3% to $28.8 million while HiRel revenue dropped 0.8% to $48.4 million. Enterprise power revenue, however, increased 5% to $37.8 million.

Intellectual property revenue was $2.1 million in the quarter, which included a one-time patent sale of $1.7 million.

Margins

Reported gross margin for the quarter was 27.9% versus 37.9% in the year-ago quarter. The lower gross margins were due to an unfavorable mix and lower utilization rates in the quarter.

Operating expenses (SG&A and R&D) of $80.7 million decreased 1.6% year over year. The reduction in selling, general and administrative (SG&A) and research and development (R&D) expenses from the prior quarter was due to reduced fixed costs.

The reported operating margin decreased significantly from the year-ago quarter. Both, SG&A and R&D expenses increased as a percentage of sales from the year-ago quarter. Moreover, lower gross margins led to the decrease in operating margin.

The quarter’s GAAP net loss was $28.8 million or loss per share of 42 cents, compared with a net income of $22.0 million or 31 cents earned in the comparable quarter last year. Excluding special items, non-GAAP net loss was $13.9 million or loss per share of 20 cents compared with net income of $25.4 million or earnings of 36 cents a share in the year-ago quarter.

Balance Sheet

The company has a cash and cash equivalents, restricted cash and short-term investments balance of $356.2 million, down from $369.9 million in the prior quarter. Trade receivables were $151.6 million, down from $168.5 million in the prior quarter.

Cash flow from operations was $6.5 million versus $16.6 million in the year-ago quarter. Capex was $22.0 million versus $45.2 million in the year-ago quarter.

Guidance

For the second quarter of 2013, International Rectifier expects total revenue in the range of $215–$230 million, which is sequentially weak to reflect overall weak demand environment. Gross margins are expected in the range of 22% to 23%, research and development expense in the range of $32 to $33 million, sales, general and administrative expense of approximately $46 million, asset impairment, restructuring and other charges of $2 to $3 million, and other expense of $1.5 million.

Conclusion

International Rectifier designs, manufactures, and markets analog integrated circuits (ICs) and power components, focused on power management applications. Though the company reported a disappointing quarter, the loss incurred was narrower than expected.

In the quarter, the company performed poorly with both its revenue and gross margins decreasing from the prior quarter. Management gave a weak second quarter guidance, which reflects poor fundamentals, macro weakness, and pronounced weakness in discrete analog.

However, we remain optimistic about the company’s long-term prospects and its decision to initiate operational restructuring activities to reduce fixed cost base and hence reduce operating expenses.

The company faces stiff competition, particularly from Fairchild Semiconductor International Inc. (FCS - Snapshot Report), STMicroelectronics (STM - Snapshot Report) and Vishay Intertechnology Inc. (VSH - Snapshot Report).

Currently, International Rectifier has a Zacks #4 Rank, implying a short-term Sell rating.
 

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