TTM Technologies (TTMI) makes PCBs (printed circuit boards) for the communications, industrial, medical, and consumer electronics industries. It owns plants in the U.S. and in China. The U.S. facilities generally do small runs of PCBs for prototypes and specialized, low volume products. Chinese facilities do larger PCB runs for computer and communications equipment, cell phones including smartphones, and more recently tablet computers and e-readers.
Q3 2011 was a no-growth quarter. Revenues were $358.3 million, down 2% sequentially from $366.1 million, and about flat against $356.8 million in the year-earlier quarter. GAAP net income was $24.5 million, up sequentially from negative $20.3 million, but down 16% from $29.1 million year-earlier. Q2 profits were hit by a one-time non-cash accounting charge for writing off some obsolete factory equipment. So, switching to a non-GAAP view of net income, we have: Q3 2011 $31.0 million, Q2 2011 $32.9 million, Q3 2010 $35.0 million.
While growth has been stagnant this year, profits have remained healthy. Annualizing Q3 non-GAAP EPS gives a P/E ratio is about 7.2 at today's closing price of $11.01 per share.
Because TTM has a broad array of end customers and a global presense, to a large extent its fortunes reflect those of the electronics industry as a whole. For that industry Q3 was a slow quarter in a slow year. Everyone is worried about end demand because of the economy. I believe TTM's ability to make a profit in this environment means it is a reliable cash generator. If the electronics industry picks up again in 2012, there is upside potential.
In the Q3 conference call on November 2nd management noted that some orders were pushed out past the end of the quarter. Cash flow from operations was $42.6 million. The cash and equivalents balance ended at $207.7 million. Long term debt ended at $366.7 million. TTM made capital expenditures of $28.3 million, mostly for new high-end manufacturing equipment in China.
It is notable that debt still exceeds cash. The debt was used to build and expand plants in Asia. So far it has been a good use of debt, but it does create some risk if there is an extreme economic slowdown. Paying down debt has been a priority use for cash.
TTM tracks end markets into 5 segments. For the quarter aerospace and defense was below trend. Cell phones were strong, particularly smartphones. Computers and related were weak and are expected to continue to be weak in Q4. The medical and industrial segment was flat. Networking and communciations, which accounted for 38% of revenue, is expected to be soft in Q4. There is also an "other" category, which saw growth because they are producing the PCBs for a new e-reader for an unspecified customer.
The top five customers were: Apple, Cisco, Ericsson, Huawei and ZTE. Only one of them accounted for more than 10% of revenue.
I believe that as the global electronics industry recovers TTM will continue to pay off debt and eventually be better positioned to use cash for buy-backs and dividends.
Disclaimer: I am long TTMI. I have no plan to change my position this quarter.
Keep diversified!
Showing posts with label communications. Show all posts
Showing posts with label communications. Show all posts
Monday, November 14, 2011
Tuesday, March 10, 2009
Marvell Technology In Recession Mode
Marvell Technology Group (MRVL) reported revenue of $513 million for their quarter that ended January 31, 2009 (4th quarter fiscal 2009). That was not a good number for Marvell; it was down 35% from the October 2008 quarter, and down 39% from the year-earlier quarter.
I own Marvell stock. I had hoped for better, but not expected it. Since a lot of Marvell's revenue comes from the data storage sector, I hoped people's need to store ever-increasing amounts of data might partially offset the recession. As we have seen, for instance, at Dot Hill. On the other hand, I have a backup drive that once seemed capacious and now is getting pretty full, but I am delaying buying a bigger capacity drive right now; I have more pressing needs for cash. Multiply by 100 million.
Marvell is a relatively new company that grew big quickly and seems to aim at dominating the entire mixed digital analog sector. In addition to making chips for Western Digital drives, it makes processors that RIM uses in some of its Blackberry products, chips for printers, chips that combine Bluetooth and WiFi, and video processing chips. It seems to be able to move its engineering expertise from one technology arena to another, taking on the likes of TI, Motorola, Intel and Broadcom. Sometimes it takes Marvell a while to get traction in a new area, but when Sehat Sutardja says "In a year or two, " it is a good idea to take him seriously.
In a year or two, Sehat believes there will be architectural convergence for many devices, including netbook computers, smartphones, and next generation data and communication appliances. He believes Marvell has all the expertise necessary to get there with the best products at prices that enable the magic of mass consumption with good profit margins for Marvell. That looks right to me. Marvell has shown it can do ARM processors as good as anyone, and it is unrivaled at putting analog circuitry on chips.
But I would not discount, quite yet, the ability of rivals to out market, and perhaps even out engineer, Marvell. Motorolla, TI and Intel all have deep pockets and large research establishments.
Of its $513 million in revenue in the quarter, Marvell spent $208 million for research and development. Obviously they could have sent a lot of engineers home in 2008 and pleased short term investors. That is not the Marvell way.
Whether Marvell was profitable in the quarter depends on how you want to do your accounting. On a GAAP basis they lost $65 million. They claim non-GAAP net income of $32 million. On a cash basis, they had free cash flow of $95 million. They ended with $952 million in cash and equivalents, so they are well positioned to keep up their drive for industry dominance.
They have cut costs, and are reducing the work force by 15%. If I know Marvell's corporate culture, that means those lucky enough to be employed are going to work even harder and smarter, if that is possible.
For more details, see my Marvell analyst conference summary for March 5, 2009.
The current economic and stock market troubles provide for a unique opportunity to buy into Marvell, but there is risk in investing in the highly competitive semiconductor industry, so ...
Keep diversified.
I own Marvell stock. I had hoped for better, but not expected it. Since a lot of Marvell's revenue comes from the data storage sector, I hoped people's need to store ever-increasing amounts of data might partially offset the recession. As we have seen, for instance, at Dot Hill. On the other hand, I have a backup drive that once seemed capacious and now is getting pretty full, but I am delaying buying a bigger capacity drive right now; I have more pressing needs for cash. Multiply by 100 million.
Marvell is a relatively new company that grew big quickly and seems to aim at dominating the entire mixed digital analog sector. In addition to making chips for Western Digital drives, it makes processors that RIM uses in some of its Blackberry products, chips for printers, chips that combine Bluetooth and WiFi, and video processing chips. It seems to be able to move its engineering expertise from one technology arena to another, taking on the likes of TI, Motorola, Intel and Broadcom. Sometimes it takes Marvell a while to get traction in a new area, but when Sehat Sutardja says "In a year or two, " it is a good idea to take him seriously.
In a year or two, Sehat believes there will be architectural convergence for many devices, including netbook computers, smartphones, and next generation data and communication appliances. He believes Marvell has all the expertise necessary to get there with the best products at prices that enable the magic of mass consumption with good profit margins for Marvell. That looks right to me. Marvell has shown it can do ARM processors as good as anyone, and it is unrivaled at putting analog circuitry on chips.
But I would not discount, quite yet, the ability of rivals to out market, and perhaps even out engineer, Marvell. Motorolla, TI and Intel all have deep pockets and large research establishments.
Of its $513 million in revenue in the quarter, Marvell spent $208 million for research and development. Obviously they could have sent a lot of engineers home in 2008 and pleased short term investors. That is not the Marvell way.
Whether Marvell was profitable in the quarter depends on how you want to do your accounting. On a GAAP basis they lost $65 million. They claim non-GAAP net income of $32 million. On a cash basis, they had free cash flow of $95 million. They ended with $952 million in cash and equivalents, so they are well positioned to keep up their drive for industry dominance.
They have cut costs, and are reducing the work force by 15%. If I know Marvell's corporate culture, that means those lucky enough to be employed are going to work even harder and smarter, if that is possible.
For more details, see my Marvell analyst conference summary for March 5, 2009.
The current economic and stock market troubles provide for a unique opportunity to buy into Marvell, but there is risk in investing in the highly competitive semiconductor industry, so ...
Keep diversified.
Friday, January 30, 2009
Maxim and Microchip Report Fourth Quarter 2008
Maxim Integrated Products (MXIM) and Microchip (MCHP) both reported on their fourth quarters yesterday. Both are makers of digital and analog semiconductor chips, and to a certain extent are rivals. However, they serve different markets with different styles, so comparing them may give a good view of how the semiconductor market is evolving.
Microchip is known for its microcontrollers, which are microprocessors combined on a single chip with inputs and outputs designed to control external devices. A typical use might be controlling a consumer appliance or coordinating the systems in an automobile. It makes a wide variety of microcontrollers that are usually sold as standard parts. It also makes some analog devices (capable of creating radio wave forms, for instance) and other special parts.
Maxim makes standard parts that can be incorporated into circuit designs, but more of its business is in making special parts for particular products. These parts may or may not include a microcontroller; they often include both digital and analog circuits on the same chip.
Both companies saw demand dry up in Q4 as manufacturers who use their chips cut back on orders, both because of weak demand from their own customers and because they could save cash by depleting inventories.
Both companies cut back on their own production in order to save cash and to cut their own inventories, but both still believe their own inventories are too high if the economy remains down.
Microchip revenues were $192 million, down 29% sequentially from $270 million and down 24% from $253 million year-earlier.
Maxim revenues were $410.7 million, down 18% sequentially from $501.2 million and down 24% from $540.0 million year-earlier.
One reason that Maxim's revenues were not down as much sequentially as Microchip, but were down the same from year-earlier, had to do with notebook computers. Maxim makes parts for notebook computers, and had made a part for a particular Intel standard design. They lost that part in the latest transition. However, they have new design wins that they believe will enable them to regain some traction in notebooks in 2009, if notebook end demand does not crash even futher.
Both companies had a variety of one time charges and benefits in the quarter. Stripping those out, especially if you look only at cash flows, both were positive. Both sit on large accumulations of cash kept from more prosperous times. Both give investors generous dividends and see no need to cut the dividend at the current level of recession. At this moment's prices, Maxim pays a dividend of 6.22% at $12.45, and Microchip pays a 7.37% at 18.98. You can't get that from a Treasury or CD.
What about the future? Neither firm has good visibility, although it is fair for us to assume that when (or if, for pessimists) the economy revives the demand for their chips will also increase. Both plan on even lower revenues in the March quarter. Maxim believes that it will do well in its communications segment (which does not include parts for cell phones, but for infrastructure) because they are supplying parts for base stations in China, which is committed to continuing its 3G rollouts. They think their computer segment will do poorly as there is a lot of notebook inventory in the distribution channels. They believe cell phone inventories have been depleted (their parts are in high-end phones), so unless consumer demand drops off further, they expect their customers to start restocking soon.
Microchip has more customers, typically using smaller numbers of chips for a particular product. This makes it harder to know what their customers' plans are. Their book to bill ratio was a horrendous 0.7 at year's end, but they have seen a slight uptick in January orders over December. They believe they can return to growth even in a downturn by introducing new products, but their best trick is the flexibility of their expense side. They can cut expenses rapidly, already having done so in 2008. They believe they can remain profitable at almost any level of economic activity.
Microchip is known for its microcontrollers, which are microprocessors combined on a single chip with inputs and outputs designed to control external devices. A typical use might be controlling a consumer appliance or coordinating the systems in an automobile. It makes a wide variety of microcontrollers that are usually sold as standard parts. It also makes some analog devices (capable of creating radio wave forms, for instance) and other special parts.
Maxim makes standard parts that can be incorporated into circuit designs, but more of its business is in making special parts for particular products. These parts may or may not include a microcontroller; they often include both digital and analog circuits on the same chip.
Both companies saw demand dry up in Q4 as manufacturers who use their chips cut back on orders, both because of weak demand from their own customers and because they could save cash by depleting inventories.
Both companies cut back on their own production in order to save cash and to cut their own inventories, but both still believe their own inventories are too high if the economy remains down.
Microchip revenues were $192 million, down 29% sequentially from $270 million and down 24% from $253 million year-earlier.
Maxim revenues were $410.7 million, down 18% sequentially from $501.2 million and down 24% from $540.0 million year-earlier.
One reason that Maxim's revenues were not down as much sequentially as Microchip, but were down the same from year-earlier, had to do with notebook computers. Maxim makes parts for notebook computers, and had made a part for a particular Intel standard design. They lost that part in the latest transition. However, they have new design wins that they believe will enable them to regain some traction in notebooks in 2009, if notebook end demand does not crash even futher.
Both companies had a variety of one time charges and benefits in the quarter. Stripping those out, especially if you look only at cash flows, both were positive. Both sit on large accumulations of cash kept from more prosperous times. Both give investors generous dividends and see no need to cut the dividend at the current level of recession. At this moment's prices, Maxim pays a dividend of 6.22% at $12.45, and Microchip pays a 7.37% at 18.98. You can't get that from a Treasury or CD.
What about the future? Neither firm has good visibility, although it is fair for us to assume that when (or if, for pessimists) the economy revives the demand for their chips will also increase. Both plan on even lower revenues in the March quarter. Maxim believes that it will do well in its communications segment (which does not include parts for cell phones, but for infrastructure) because they are supplying parts for base stations in China, which is committed to continuing its 3G rollouts. They think their computer segment will do poorly as there is a lot of notebook inventory in the distribution channels. They believe cell phone inventories have been depleted (their parts are in high-end phones), so unless consumer demand drops off further, they expect their customers to start restocking soon.
Microchip has more customers, typically using smaller numbers of chips for a particular product. This makes it harder to know what their customers' plans are. Their book to bill ratio was a horrendous 0.7 at year's end, but they have seen a slight uptick in January orders over December. They believe they can return to growth even in a downturn by introducing new products, but their best trick is the flexibility of their expense side. They can cut expenses rapidly, already having done so in 2008. They believe they can remain profitable at almost any level of economic activity.
I own Microchip stock, but not Maxim. I also own competitor Marvell (MRVL). Maxim is on my list to buy at some point, but I have a pretty lengthy list of companies to choose from given their valuations and compared to my ability to generate cash to buy them.
For more detailed coverage of their December quarters, see my Microchip analyst conference summary for Q4 2008, and my Maxim analyst conference summary for Q4 2008.
See also their company sites:
Keep diversified!
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