Friday, November 7, 2008

Maxim (MXIM) Sees Weak Q4

Maxim Integrated Products (MXIM) had some accounting issues these last couple of years that have now been cleaned up, so it is a good time to take a close look at this leading analog semiconductor chip maker.

Revenues held steady in Q3. At $501.2 million, they were flat sequentially from $501.3 million and down 4% from $524.1 million year-earlier.

Guidance for Q4, based on what management saw in October, is to revenues of $410 to $440 million, which would be quite a slump.

Fortunately Maxim has good profit margins, which should leave it profitable even if revenue erosion is that bad. In Q3 GAAP net income was $67.6 million, or $0.21 per share. Non-GAAP EPS was $0.35. Cash flow from operations was an astonishing $157.1 million.

How can Maxim be so profitable in the highly competitive semiconductor market? They keep on top of markets where they have a competitive advantage and abandon markets where they don't. They are in diverse end markets: by percent of full revenues: 28% computer, 28% consumer, 24% industrial, and 20% communications. Within these markets they focus on areas like power management and integration of multiple functions on a single chip.

Also in contrast to many chip technology companies, Maxim pays a hefty dividend, $0.80 per year per share at present. This allows you to have some of your profits without having to sell stock, which is nice in this undervalued, illiquid market.

For a fuller report on Maxim's results, see my Summary of Maxim (MXIM) Q3 Analyst Conference.

Keep in mind that while Maxim is pretty solid, all investments involve risks, so ...

Keep diversified.

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