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Microsemi (MSCC) Q4 Earnings and Sales Surpass Estimates

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Microsemi Corporation’s (MSCC - Free Report) fourth-quarter fiscal 2016 adjusted earnings of 77 cents per share beat the Zacks Consensus Estimate by 4 cents.

The company’s focus on improving product mix, operational efficiency, and consolidation has driven revenues and margins in the second half of calendar 2016.

The integration of PMC-Sierra that the company acquired in Dec 2015 remains well on track and has started making revenue contributions.

Management sounded upbeat on the company’s strategic positioning, strong fundamentals and efficient execution.

MICROSEMI CORP Price, Consensus and EPS Surprise

Let’s have a look at the numbers:

Revenues

Microsemi reported revenues of $450.1 million for the quarter, up 4.3% sequentially and 36.9% year over year. Revenues for fiscal 2016 were $1.65 billion, up 32.9% from $1.25 billion reported in fiscal 2015.

Quarterly revenues were slightly above the Zacks Consensus Estimate of $448 million and within management’s guidance of $438 million–$458 million.

Revenues by End Market

Microsemi generates revenues from the Communications, Defense & Aerospace, Data center and Industrial markets.

Around 38% ($170 million) of Microsemi’s quarterly revenues came from its largest end market, Communications, which increased 5% sequentially and 39% year over year.

In the quarter, the company saw strong growth across field-programmable gate array (FPGA), Optical Transport Network (OTN), timing, and Power over Ethernet (PoE) offerings. 

The Defense & Aerospace market generated 26% of sales, up more than 2% sequentially but down 16% year over year. The improved defense end-market environment led to the year-over-year improvement. In particular, the aerospace segment grew significantly, supported by strong satellite bookings and commercial aviation markets.

Management expects this end market to continue witnessing growth backed by an improving defense budget and increasing electronic content.

The Data center segment ($95 million) generated 21% of fiscal fourth-quarter revenues. The segment increased 3% sequentially. This end market primarily comprises storage controllers, interconnect devices and board level products along with various power management and Ethernet switching products.

For this segment, management expects to see growth from market share gains driven by growth in flash business and NVMe transition.

The Industrial market generated 15% of sales, up over 8% sequentially and 8% year over year to $70 million. The results were driven by FPGA traction and motor controls, power discretes for EV charging, and Ethernet and industrial switching applications.

Margins

Pro-forma gross margin was 62.6%, up 74 basis points (bps) sequentially and 610 bps year over year. The increase was driven by higher revenues, a favorable product mix, operational efficiency and consolidation.

Adjusted operating expenses of $161.4 million were down 1% sequentially but up 40.3% year over year. Operating margin of 26.7% was up 269 bps sequentially and 522 bps year over year.

Net Income

Microsemi generated GAAP net income of $48.9 million or earnings of 42 cents per share compared with $25.3 million or earnings of 26 cents per share a year ago.

Excluding special items but including stock-based compensation expense, non-GAAP earnings per share were 77 cents compared with 60 cents in fourth-quarter fiscal 2015.

Balance Sheet

Cash and cash equivalents balance at the end of the fiscal quarter was $189.5 million, up from $131.8 million in the fiscal third quarter. Operating cash flow was $128.8 million compared with $45.3 million in the previous quarter. Capex was $14.6 million compared with $11.2 million in the previous quarter.

Inventories were $213.1 million compared with $231.2 million in the previous quarter. Accounts receivable was $245.2 million compared with $241.7 million at the end of the prior quarter.

Guidance

Microsemi expects first-quarter fiscal 2017 revenues in a range of $428–$442 million. The Zacks Consensus Estimate of $433.8 million is within the guided range. Non-GAAP earnings per share are likely to be within 82–90 cents, above our estimate of 69 cents.

Zacks Rank and Key Picks

Currently, Microsemi has a Zacks Rank #3 (Hold). Better-ranked  stocks worth considering in the wider technology sector include Kimball Electronics, Inc. (KE - Free Report) ,  NVIDIA Corporation (NVDA - Free Report) and Stratasys Ltd. (SSYS - Free Report) , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

For the current year, the consensus estimate for Kimball Electronics has gone up by 8.1% in the past 30 days. Estimates for NVIDIA and Stratasys have remained unchanged over the same time frame.

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