Maxim Integrated Products Management Discusses Q4 2012 Results - Earnings Call Transcript

Maxim Integrated Products (MXIM)

Q4 2012 Earnings Call

July 26, 2012 5:00 pm ET

Executives

Venk Nathamuni

Bruce E. Kiddoo - Chief Financial Officer and Senior Vice President

Tunc Doluca - Chief Executive Officer, President and Director

Analysts

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Parag Agarwal - UBS Investment Bank, Research Division

John W. Pitzer - Crédit Suisse AG, Research Division

Vivek Arya - BofA Merrill Lynch, Research Division

Jeffrey A. Schreiner - Capstone Investments, Research Division

James Schneider - Goldman Sachs Group Inc., Research Division

Shawn R. Webster - Macquarie Research

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Christopher B. Danely - JP Morgan Chase & Co, Research Division

JoAnne Feeney - Longbow Research LLC

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Blayne Curtis - Barclays Capital, Research Division

Craig Berger - FBR Capital Markets & Co., Research Division

Craig A. Ellis - Caris & Company, Inc., Research Division

David M. Wong - Wells Fargo Securities, LLC, Research Division

Sumit Dhanda - ISI Group Inc., Research Division

Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division

Mark Lipacis - Jefferies & Company, Inc., Research Division

Ross Seymore - Deutsche Bank AG, Research Division

Mark Delaney - Goldman Sachs Group Inc., Research Division

Terence R. Whalen - Citigroup Inc, Research Division

Doug Freedman - RBC Capital Markets, LLC, Research Division

Elizabeth Howell

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Maxim Integrated Products Fourth Quarter 2012 Earnings Release Conference Call. [Operator Instructions] As a reminder, this program is being recorded.

I would now like to introduce your host for today's program, Mr. Venk Nathamuni. Please go ahead, sir.

Venk Nathamuni

Thank you, operator, and welcome, everyone, to Maxim Integrated Products Fiscal Fourth Quarter 2012 Earnings Conference Call. With me on the call today are Chief Executive Officer, Tunç Doluca; and Chief Financial Officer, Bruce Kiddoo.

During today's call, we will be making some forward-looking statements. In light of the Private Securities Litigation Reform Act, I would like to remind you that these statements must be considered in conjunction with the cautionary warnings that appear in our SEC filings. Investors are cautioned that all forward-looking statements in this call involve risks and uncertainty and that future events may differ materially from the statements made. For additional information, please refer to the company's Securities and Exchange Commission filings, which are posted on our website or available from the company without charge.

Now, before we discuss our results and guidance, I'd like to remind everyone that Maxim will be hosting its 2012 Investor Day Meeting in New York City on September 5. Details of the event and registration information are available on Maxim's Investor Relations' website at maxim-ic.com/investorday2012. We look forward to seeing you there.

Now, I'll turn the call over to Bruce.

Bruce E. Kiddoo

Thanks, Venk. I will review our fourth quarter financial results.

Revenue for the fourth quarter was $605 million, up 6% from the third quarter. Our revenue mix by major market in Q4 was approximately 43% for consumer; 26%, industrial; 16%, communications; and 15%, computing. Our consumer business was up strongly due to smartphones. Our industrial business was up slightly due to automotive and Control and Automation. Our communication business was flat, as an increase in base stations was offset by weakness in legacy businesses. Computing was up due to our notebook business.

Gross margin, excluding special items, was 63%, up from 60.4% in the prior quarter. The increase was due to improved variances from higher fab and end-of-line utilizations. Part of the increased utilization was due to inventory build to meet seasonally strong demand in consumer.

Special items in Q4 gross margin were intangible asset amortization from acquisitions.

Operating expenses, excluding special items, were $214 million, flat with Q3. And fully benefit year-end accrual credits offset higher employee profit sharing expense.

Special items in Q4 operating expenses included a $22 million impairment for buildings held for sale, plus the normal acquisition-related charges, offset by a reduction in the payroll tax accrual.

Q4 GAAP operating income, excluding special items, was $167 million or 28% of revenue. The Q4 GAAP tax rate, excluding special items, was 20% compared to 24% in the prior quarter due to normal variations from our international structure. GAAP earnings per share, excluding special items, was $0.45, up from $0.33 in Q3 due to higher revenue and gross margin and a lower tax rate.

Turning to the balance sheet and cash flow. During the quarter, cash flow from operations was $190 million or 31% of revenue.

Inventory increased to 99 days from 89 days in the prior quarter, within our target range of 90 to 100 days. We are at the high-end of our range due to an inventory build to meet seasonally strong demand in our consumer business. Inventory in the channel, excluding catalog distributors, declined from 57 days to 53 days, well below our target of approximately 65 days. In dollar terms, general inventory declined by 1%.

Net capital additions totaled $78 million in Q4, as we invested in long-term manufacturing capacity and new facilities. Free cash flow was $115 million. Share repurchases totaled $56 million in Q4 as we bought back 2.1 million shares. Finally, in Q4, we paid $64 million in dividends to our shareholders.

Overall, total cash, cash equivalents and short-term investments increased by $20 million in the fourth quarter to $956 million.

Moving on to guidance. Our beginning Q1 backlog is $393 million. Based on this beginning backlog and expected turns, we forecast Q1 revenue of $605 million to $635 million or flat to up 5% from Q4.

Q1 gross margin, excluding special items, is estimated at 61% to 64%. Variables that may influence Q1 gross margin include utilization, product mix and inventory reserves.

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