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
Venk NathamuniThank 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. Read the rest of this transcript for free on seekingalpha.com