Maxim (MXIM) Beats Q4 Earnings Estimates, Lags Revenues

Maxim Integrated Products (NASDAQ:MXIM), Inc.’s MXIM fourth-quarter fiscal 2016 adjusted earnings of 49 cents per share came in a penny above the Zacks Consensus Estimate.

Revenue

Revenues of $566.0 million were up 2.0% sequentially but down 2.8% year over year. The increase was driven by the strength in the majority of end markets.

The top line was within the company’s guidance of $555 million to $595 million but below the Zacks Consensus Estimate of $576.0 million.

Revenues by End Market

The revenue mix in terms of major markets has been discussed below.

The Consumer end market remained the largest revenue contributor, accounting for approximately 29% of revenues. This segment was flat sequentially due to the delay in the ramp up of audio product shipments for tablets.

Industrial, Maxim’s second-largest segment, generated 27% of revenues, up sequentially. The improvement was driven by core industrial, with strength across factory automation products.

The Communications and data center end market accounted for 21% of revenues, flat sequentially. The momentum continued in the company’s optical products for the data center.

The Automotive end market generated 19% of revenues, up sequentially. The increase was driven by content growth and continued strong adoption of new products.

The Computing business contributed the remaining 4%.

Margins

The non-GAAP gross margin was 64.1%, up 272 basis points (bps) sequentially and 324 bps year over year. The increase was led by higher utilization rates.

Non-GAAP operating expenses of $185.0 million decreased 3.1% sequentially and 4.7% year over year. The decline resulted from overall cost control, including initial savings from the company’s restructuring activities.

Pro-forma operating margin was 31.4%, down 444 bps sequentially and 389 bps year over year.

Net Income

GAAP net income was $92.3 million compared with $139.8 million last quarter and $98.7 million a year ago.

Pro-forma net income was $140.5 million compared with $117.7 million last quarter and $124.1 million a year ago. Our pro-forma calculation excludes restructuring, intangibles amortization, asset impairments and other one-time charges on a tax-adjusted basis.

Balance Sheet & Cash Flow

During the quarter, cash flow from operations was $254.0 million compared with $168.0 million in the prior quarter. Important usages of cash during the quarter included $22.0 million on capex, $90.0 million for share repurchases and $85.0 million paid as dividends.

Total cash, cash equivalents and short-term investments were $2.23 billion in the fiscal fourth quarter, up from $1.86 billion in the prior quarter.

Management said that a cash dividend of 33 cents per share will be paid on Sep 1, 2016, to stockholders of record on Aug 18. This represents a 10% increase in the dividend from the prior quarter.

1Q Guidance

For the fiscal first quarter, Maxim expects revenues in the range of $540 million to $580 million based on a quarter-end backlog of $363.0 million. The Zacks Consensus Estimate is pegged at $571.7 million.

Gross margin is expected within 61–63% on a GAAP basis and 63–65% on an adjusted basis (excluding special items).

Earnings per share are expected within 40–46 cents on a GAAP basis and 44–50 cents on an adjusted basis. The Zacks Consensus Estimate stands at 48 cents.

Going Forward

Maxim delivered decent fiscal fourth-quarter 2016 results with earnings exceeding the Zacks Consensus Estimate but the top line slightly missing the same.

The company expects the Communications and Data Center segment to see increase in earnings in the upcoming quarter, driven by strength in cloud data center and cable businesses. Automotive and Industrial are likely to remain weak due to seasonality and the Consumer market will be flat in the September quarter. Lower revenues of the largest mobility customer will be offset by increasing revenue across a range of customers and products.

Maxim remains financially strong with convincing margin expansion opportunities through its cost-saving initiatives and R&D focus on high-return investments.

The company is expanding its manufacturing footprint to enhance flexibility and profitability, while lowering capital expenditures. Management also plans to optimize product lines and organization for better returns on R&D investments. These efforts will likely enable Maxim to improve future utilization rates, reduce costs and improve gross margin performance to the mid 60% range.

Maxim is shifting to the advanced node process technology development through a recent collaboration with its foundry partners. Products launched under this initiative should expand margins.

Currently, Maxim carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are MaxLinear MXL, ON Semiconductor Corp. ON and Semtech Corporation SMTC, each carrying a Zacks Rank #2 (Buy).