Analyst Conference Summary

Maxim Integrated Products

conference date: October 29, 2008 @ 2:00 PM Pacific Time
for quarter ending: September 27, 2008 (1st fiscal quarter 2009)

I own two competitors, Microchip (MCHP) and Marvell (MRVL)
Forward-looking statements

Overview: Reasonably solid quarter, but sees soft December quarter ahead.

Basic data (GAAP) :

Revenues were $501.2 million, flat sequentially from $501.3 million and down 4% from $524.1 million year-earlier.

Net income was $67.6 million, up 2% sequentially from $66.0 million and down 19% from $83.6 million year-earlier.

EPS (earnings per share) were $0.21, up 5% sequentially from $0.20, but down 16% from $0.25 in the year-earlier quarter.


Based on bookings, revenue for December quarter expected between $410 and $440 million. Non-GAAP gross margin will decline. $50 to $52 million stock based compensation. $35 to $45 million for restructuring. $0.23 to $0.27 per share non-GAAP, $0.03 to $0.09 GAAP EPS.

Conference Highlights:

Given Maxim's cash position and strong cash flow, the company expects to get through these uncertain times. Believes will emerge from the downturn "an even stronger participant in all major analog-mixed signal segments." A cash dividend of $0.20 per share for stockholders of record on November 21 will be paid out on December 5, 2008. Accounting restatement was completed. Stock relisted by Nasdaq. Mobilygen acquisition completed at $33 million.

Cash and equivalents increased $38.3 million in the quarter to $1.26 billion. Cash flow from operations was $157.1 million. $64.1 million was paid out in dividends. $29 million was used for capital expenditures. Inventory declined by 3%. 5.5 million shares repurchased for $77 million.

Non-GAAP EPS was $0.35.

Cost of goods sold was $209.7 million. Gross profit was $291.6 million. Operating expenses of $198.0 million included: $138.9 million for R&D, $40.2 million for selling, general and administrative, $7.3 million for impairments, $4.1 million for restructuring, and $7.4 million other. Leaving operating income of $93.6 million. Interest income was $9.1 million. Income tax provision $35.1 million.

By end market, as percent of full revenues: 28% computer, 28% consumer, 24% industrial, and 20% communications.

In consumer market handset revenues continued to ramp led by power management, multimedia, and multi-function chips. However, now customers are cautious going forward.

In communications, flat overall with strength in base stations offset by lower demand in other segments. Bookings increased modestly.

Industrial market, revenue increased, showed strength in medical product lines. Bookings declined noticeably and have continued into October. No one wants to hold inventory. There has been an increase in design wins.

In computer market revenue declined in notebook motherboard power management, as expected. Storage market is good and should expand next year.

$293.7 million ending backlog. Bookings declined by 6% in quarter. Bookings in Q2 have weakened further.

Gross margin declined due to lower revenues. Non-GAAP gross margin was stable.

Stock based compensation was $37.6 million.

In Q2 we expect a broad decline. Notebook power management decline will continue. Cell phones will show declines. Storage and base stations, however, will show growth.

Taking the usual steps to reduce expenses. Fabs will shut down for 2 weeks towards end of calendar year.

Stock repurchasing will continue on $750 million authorization.


What changed that led to current guidance? We last provided guidance in early fiscal Q2. During Q2 our booking levels dropped sharply and customers reported lower demand. Small customers moved quicker to reduce purchases.

Utilization rates? Remain unchanged at 70 to 75%. Inventories have not changed substantially on sequential basis. Demand is going down faster than we can reduce production, so inventory should increase for a while. Channel inventory is not a major issue, the issue is end demand, not too much inventory.

Acquisition strategy? We don't have an exact budget. We look at our product portfolios and listen to customers about what they need. We are looking for companies in early stages of revenue generation that can get to break even in about one year.

Margin target long term? 63% to 65%.

Any particular competition issues? Notebook market is competitive for all parts. We look for areas where there is less competition because many functions are on one chip. We are not seeing more competition in those areas. In cellular business we grew revenue with differentiated products.

Handset market? Lots of forecast reductions in that market in the last few weeks.

Pricing? Competitive landscape is about what you would expect. Commodity products have pricing pressure. We don't know what TI will do in analog. We believe we can hold our prices on our differentiated products.

Seasonality? We are seeing such wild swings it is difficult for us to tell if calendar Q1 will be close to what we have seen historically. We see our growth stories continuing on, but the flip side is what happens to demand in this economy.

Mobilygen will add about $4 million per quarter to operating expenses. Dallas plant closing, when complete, will save us $10 million per quarter.

Why prioritize acquisitions over share repurchases? We have not. We are buying stock at today's attractive price. We also want plenty of cash in case there is a long or deep recession.

Revenue potential after shutdowns? We have plenty of revenue potential because of our deal with Epson.

Cellular customers have absolutely put on the breaks for this quarter. But we have a lot of design wins in 3G, increasing our market share. We don't know what will happen in calendar 2009.

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Copyright 2008 William P. Meyers