Early Pop for Maxim Integrated

Shares of the chipmaker rally following release of better-than-expected results.
By K.C. Swanson ,

Updated from Feb. 5

Shares of

Maxim

(MXIM) - Get Report

jumped more than 7% a day after the company delivered upside surprises on sales and earnings in its fiscal second quarter and forecast better than expected results in the current quarter. Maxim's chief executive also flagged a potential capacity shortage down the road as demand ratchets up for high-performance semiconductors.

The stock was recently up $3.53, or 7.3%, to $52.17.

In a note Friday morning, Pacific Growth Equities upgraded the stock from equal weight to overweight, saying it believes the company "has entered an accelerated growth path, driven by the ramp in revenues from it huge pipeline of new products" and that it stands to outgrow its peers over the next several years. Pacific Growth hasn't done any investment banking for Maxim.

But Deutsche Bank was more cautious, saying signs of slowing notebook computer demand call into question whether Maxim can sustain its recent growth in bookings and revenue. Also, with shares trading at 35 times calendar year 2004 earnings per share estimates, the stock is at the high end of the bank's valuation range.

Deutsche Bank, which has a sell rating on the shares, recommends investors wait for a better entry point before buying. It hasn't done banking for Maxim.

Maxim posted net sales of $338.1 million for the quarter ending Dec. 27, up 18.2% from last year's levels and above analysts' estimates of $330 million.

Net income totaled $98.5 million, up 27.8% year over year. On a per share basis, the company beat the Wall Street consensus number by a penny, with 28 cents a share.

Gross margin as a percentage of sales stood at 69.5%, down sequentially from 70% due to start-up costs at a newly acquired wafer fabrication facility.

On guidance, Maxim expects March quarter sales of $368 million with EPS of 31 cents -- both above respective Wall Street consensus estimates for $349 million and 29 cents.

Demand was broad-based; Maxim said bookings rose by more than 10% in all geographic regions, and 11 of its 14 business units saw a significant sequential increase in orders.

"In the next six months, there could be a shortage of foundry capacity for high-performance chip production," Maxim Chief Executive Officer Jack Gifford said in a prepared comment, noting the rising demand.

He said the company has responded by accelerating its production schedule for the recently acquired fab in San Antonio. It now plans to go into production in the first quarter of fiscal year 2005, about nine months earlier than it had initially planned.

In regular Thursday trading, the stock closed up 3 cents, or 0.1%, to $48.72.

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