Original Source: FD (FAIR DISCLOSURE) WIRE
. Carl Jasper, Maxim Integrated Products, VP-Fin., CFO . Jack Gifford, Maxim Integrated Products, Chairman, President, CEO . Tunc Doluca, Maxim Integrated Products, VP . Pirooz Parvarandeh, Maxim Integrated Products, VP . Romit Shah, Lehman Brothers, Analyst . Craig Hettenbach, Wachovia Securities, Analyst . Tore Svanberg, Piper Jaffray, Analyst
. Ross Seymore, Deutsche Bank, Analyst . Ramesh Misra, C.E. Unterberg, Analyst . Mona Jankowski, Goldman Sachs, Analyst . Steve Smigie, Raymond James, Analyst . Michael Masdea, Credit Suisse, Analyst . Joseph Osha, Merrill Lynch, Analyst . Tom Thornhill, UBS, Analyst
. Jeff Rosenberg, William Blair, Analyst . Sumit Dhanda, Banc of America, analyst . David Lou, Global Crown Capital, Analyst . Louis Gerhardy, Morgan Stanley, Analyst . Krishna Shankar, JMP Securities, Analyst . Craig Ellis, Citigroup, Analyst
MXIM reported 4Q06 net revenues of $511m, net income excluding stock-based compensation of $159m, and EPS excluding stock based compensation of $0.48. The Co. utilized $76.7m to repurchase 2.4m shares of common stock and paid out $40.2m in dividends during 4Q06. MXIM expects 1Q07 revenues to range between 1-3% above 4Q06 level.
A. Key Data From Call 1. 4Q06 net revenues = $511m. 2. 4Q06 net income excluding stock-based compensation = $159m. 3. 4Q06 EPS excluding stock based compensation = $0.48. 4. 4Q06 DSO = 52 days. 5. Inventories at 4Q06 end = $207m. 6. Cash and short-term investments at the end of 4Q06 = $1.3b. 7. 4Q06 share repurchase = 2.4m shares of common stock at $76.7m. 8. 1Q07 revenue guidance = 1-3% above 4Q06 level.
S1. 4Q06 Financials (C.J.) 1. Highlights: 1. Net revenues for 4Q06 were a record $511m, up 6.8% from 3Q06 and up 27.5% from 4Q05. 2. Net income, excluding stock-based compensation was $159m, up 6.9% from 3Q06 and up 25.9% from 4Q05. 3. Gross turns orders during 4Q06 were $251m, of which $166m was shipped for revenues within 4Q06. 1. Turns for 3Q06 were $245m, of which $161m were shipped for revenues within 3Q06. 4. 12-month backlog grew to $429m at the end of 4Q06, from $401m at the end of 3Q06.
5. Beginning 90-day backlog for 1Q07 is $366m vs. the beginning
90-day backlog for 4q06 of $346m. 6. Tax rate for 4Q06 was 32.7% consistent with prior quarters. 1. Expects tax rate to increase to 33.7% for FY07 as the old tax deduction for extra territorial income is being eliminated and replaced with a deduction for domestic
production that is being phased in over several years. 2. The tax rate for 1Q07 may vary from annual rate by plus or minus 1% depending on the Senate and the President's decision to retroactively reinstate the R&D tax credit in 1Q07. 2. Balance Sheet Items: 1. AR grew $33m during 4Q06 to $293m. 2. DSO grew from 49 days to 52 days as a result of a larger share of 4Q06 shipments occurring later in 4Q06. 3. Inventories grew $3m during 4Q06 ending at $207m.
1. Inventory days improved from 119 days in 3Q06 to 110 days in
4Q06. 2. Inventories at distributors are turning 7-8 times on an annual basis, consistent with prior quarters. 4. At the end of 4Q06, cash and short-term investments totaled $1.3b, unchanged from 3Q06. 5. Utilized $76.7m to repurchase 2.4m shares of common stock and paid out $40.2m in dividends during 4Q06.
6. As forecasted in last conference call, 4Q06 capital spending
increased. 7. Purchased $121m worth of property and equipment and paid $100m in 4Q06. 1. Significant portion of these CapEx went towards expanding fab capacity in anticipation of expected continued growth in FY07. 8. Derivative lawsuits were filed against certain former and current officers and directors alleging wrongful backdating of stock option to certain officers and inquiries by the SEC and the US Attorney into the Co.'s past option granting practices: 1. Due to the legal constraints, the Co. will not be making any additional comments on this issue in this call.
S2. Operational Performance (J.G.) 1. Results: 1. In 4Q06, the Co. crossed the $0.5b revenue threshold for the first time.
2. 4Q06 earnings, before option expensing, exceeded the peak qtr.
in 2000 and 2001 by 41%. 1. This was higher growth rate than the competitive companies in the mixed-signal analog business.
3. FY06 non-GAAP EPS has grown at a compound rate of 24% since
2002. 2. 4Q06 Highlights: 1. Non-GAAP GM came in at 68.1%, but this included a $2.5m one-time benefit or 0.5% due to a settlement with one of the suppliers. 1. Excluding this credit, GM would have been 67.6%. 2. The drop QoverQ of GM was attributed to two factors: 1. A 0.8% drop due to a mixed change as MXIM continued to execute its long-range plan to grow the top line of high volume products. 1. These high volume products have lowered GM vs. historical mix. 2. The Co. completely believes in its strategy that will enable it to expand its business at above industry growth rates as it provides more highly integrated
solutions to customers. 3. Believes that this rate of decline also going forward will be moderated; this decline due to product mix. 2. A 0.6% drop due to unfavorable manufacturing variances attributed to the fabs missing their plans in 3Q06. 1. As a result, this was due to the fact that the Co. has been aggressively installing equipment and capacity in this interferes with the production process when it is done within the same manufacturing fab.
3. The Co. has also been transferring two very important new processes from R&D into production, also within the same production fabs. 1. Has 6-inch to 8-inch conversion of wafers going on in the
Beaverton fab. 2. The Co. believes this trend will be reversed as these three activities are completed and expects that its fabs
will positively contribute to GM in future quarters. 4. OpEx, including stock option expense, was 21.4%, down from 24.9% in 3Q06 and 27% in 4Q05. 1. These expenses continued to increase at a rate slower than sales growth. 2. Operating margins including stock based compensation expense were 44% unchanged from the previous qtr. 1. The Co. is one of few companies in the world that produces
operating margins at this 40% level, its level of revenue. 3. EPS excluding stock based compensation was $0.48 per share, up
7% from $0.45 in 3Q06 and up 30% from 4Q05. 4. To compare apples-to-apples, one needs to take into account some of the competitors accelerated divesting of their out-of-the-money options. 1. Had the Co. done so, stock based compensation expense would have been $0.04 per share, smaller in 4Q06 and $0.15 per share smaller for FY06.
5. During 4Q06, the Co. recorded $557m of gross bookings, a 4%
increase over 3Q06. 1. This translates to $531m of realizable bookings, the difference being that the realizable bookings are adjusted
for ship and debit, which are credits the distributors receive, and also adjusted for returns and other price allowances. 3. Outlook:
1. Expects 1Q07 revenues to range between 1-3% above 4Q06 level.
1. At that level of sales, the Co. expects to produce non-GAAP
earnings of $0.48. 1. This would exclude the impact of the changes regarding tax rate and also the unknown impact of expenses associated
with auditing the option grant practices and other than normal legal costs. 2. At the Analyst Meeting at the end of May, the Co. had presented a slide that showed the quarterly revenue for the past four years and a trend line along which the revenue
growth over this period has occurred. 1. Strong revenue increases over the last three quarters have put the Co. over this trend line. 2. Seasonally weaker bookings in the summer months will adjust the revenue toward this trend line going during the third
calendar qtr. 3. Expects the fourth calendar qtr. revenue to reflect customer manufacturing bills for the year and holiday season spending associated with that. 3. Barring a slowdown in the economy, the Co. expects revenue growth in FY07 as a whole to be at or above the four-year trend line. 4. During the past year, the Co. has introduced a number of groundbreaking products, and many of these with high levels of integration.
S3. Market Trends (T.D.) 1. Strategy: 1. The diversity of the end markets reduces MXIM's sensitivity to demand fluctuations in any single-end application. 2. The breadth of the Co.'s mixed signal cell library makes MXIM the IC supplier of choice when customers seek a source for highly integrated solutions that allow them to produce portable products that have even more features than their earlier generation offerings. 3. For six straight quarters now, the Co. has achieved booking increases.
1. During 4Q06, the primary contributors to the sequential bookings improvements were the cell phone, network and datacom, base station, industrial, and GPS end markets. 2. Equipment Opportunities in Portable Computing & Instrumentation Electronics Group: 1. Introduced the full-bridge controller to drive [fusoelectric]
transformers to light up liquid crystal displays in ultra-thin
mobile personal computers providing a highly reliable compact,
efficient, and cost effective backlighting solution. 2. For point-of-load power solutions in network and graphics and
servers, the Co. added an 8-amp output step-down regulator with on-chip power switches to the portfolio. 1. Two of these can easily be interleaved for 16-amp applications. 3. Introduced a digitally configurable anti-aliasing filter with a 3 to 1 video multiplexer and buffer for standard, and more importantly, high-definition television, as well as computer display formats and set-top boxes. 1. This is the first device to enable optimization of video quality and also noise reduction. 4. New third-generation highly integrated power management chips will power the third-generation of Intel's XScale microprocessors for smart phones. 1. MXIM has the leading market share for powering these processors.
5. One of the Co.'s Dallas business units' newest embedded market
controller battery capacity monitor provides a cryptographic
security and charging protection in a tiny package. 1. This solution gives users 15% more runtime especially in smart phone applications vs. conventional solutions. 6. MXIM's latest offerings for digital still camera and digital video camera markets will further increase the market share as the world's leading supplier of highly integrated power supply products for this market.
1. The aforementioned three new products for six output devices
offer complete power management for lithium rechargeable or AA primary cell powered cameras. 7. For the same market, one of the Dallas business units' new [four LU] cell nickel-metal-hydride charger virtually eliminates the most common consumer mistake, which is the charging of alkaline cells. 1. The Co.'s proprietary electronic profile identification and charge prohibition of alkaline batteries was the key to this feature. 3. Base Stations:
1. For base stations, MXIM's new digitally controlled variable
gain amplifier completes the Co.'s direct conversion transmit
chain. 1. The 65% cost and 50% space savings enable next-generation
GSM Edge design with the Co.'s complete lineup of digital-analog converters, RF modulators, and amplifiers. 4. Sampling: 1. As to the sampling of the Co.'s recent design wins, battery management fuel-gauge products when showcased at major Japanese and Taiwanese customers in portable music player and smart phone applications respectively, amounting to several million dollars per year of revenue. 2. With the cell phone and smart phone high integration power management chips, the Co. won designs at a leading US smart phone maker and multiple platforms at the two leading Korean cell phone makers. 1. These wins add up to tens of millions of dollars of annual revenue. 3. The Co. won multiple million dollar awards of high integration power management chip sockets at two major digital still camera makers in Japan.
1. Mass production will start later in this year. 4. A major power system chip design was won in another leading Japanese consumer electronics customer's latest portable music player also going into production later this year. 5. Additionally, the Co. has been extremely successful in its Advanced Micro Devices (AMD) relationship. 1. Their Notebook computer reference designs are exclusively powered by MXIM chips, and this is translating to virtually 100% win ratio at the customers using AMD microprocessor
chip sets. 6. The Co.'s recruiting efforts are also going very well. 1. Started two new design centers in Asia, and is pursuing
several additional locations. 2. These latest …