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4-Traders Homepage  >  Equities  >  Nasdaq  >  Maxim Integrated Products    MXIM

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MAXIM INTEGRATED PRODUCTS : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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10/20/2017 | 10:58pm CEST

Maxim Integrated Products, Inc. ("Maxim Integrated" or the "Company" and also referred to as "we," "our" or "us") disclaims any duty to and undertakes no obligation to update any forward-looking statement, whether as a result of new information relating to existing conditions, future events or otherwise or to release publicly the results of any future revisions it may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by federal securities laws. Readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Readers should carefully review future reports and documents that the Company files with or furnishes to the SEC from time to time, such as its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

Overview of Business

Maxim Integrated is incorporated in the state of Delaware. Maxim Integrated designs, develops, manufactures and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits, for a large number of geographically diverse customers. We also provide a range of high-frequency process technologies and capabilities that can be used in custom designs. The analog market is fragmented and characterized by many diverse applications, a great number of product variations and, with respect to many circuit types, relatively long product life cycles. We are a global company with a wafer manufacturing facility in the U.S., testing facilities in the Philippines and Thailand and sales and circuit design offices around the world. The major end-markets in which our products are sold are the Automotive, Communications and Data Center, Computing, Consumer and Industrial markets.

During fiscal year 2015, we commenced activities to close down the operations in our Hillsboro, Oregon testing site and consolidate such operations with our facility in Beaverton, Oregon, which were completed in fiscal year 2017.


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Also, we announced in July 2015 that we intended to close our wafer level packaging ("WLP") manufacturing facility in Dallas, Texas in fiscal year 2017. On April 7, 2016, we entered into an agreement for the sale of its Dallas, Texas campus, including our WLP manufacturing facility, for approximately $34.5 million. We completed the sale of our Dallas, Texas campus, including our WLP manufacturing facility in Dallas, Texas in fiscal year 2016. In connection with this sale agreement, we entered into a lease and facility sharing agreement to lease back portions of the Dallas, Texas campus. We completed the transition of design, administration and manufacturing activities and discontinued our operations in the WLP manufacturing facility in Dallas, Texas during fiscal year 2017.

On April 13, 2016, we entered into agreements for the sale of our micro-electromechanical systems (MEMS) business line, including related assets and inventory, for approximately $42.2 million. We completed the sale of our micro-electromechanical systems (MEMS) business line in fiscal year 2017.

CRITICAL ACCOUNTING POLICIES

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The Securities and Exchange Commission ("SEC") has defined the most critical accounting policies as the ones that are most important to the presentation of our financial condition and results of operations, and that require us to make our most difficult and subjective accounting judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies include revenue recognition, which impacts the recording of net revenues; valuation of inventories, which impacts costs of goods sold and gross margins; the assessment of recoverability of long-lived assets, which impacts impairment of long-lived assets; assessment of recoverability of intangible assets and goodwill, which impacts impairment of goodwill and intangible assets; accounting for income taxes, which impacts the income tax provision; and assessment of litigation and contingencies, which impacts charges recorded in cost of goods sold, selling, general and administrative expenses and income taxes. These policies and the estimates and judgments involved are discussed further in the Management's Discussion and Analysis of Financial Condition in our Annual Report on Form 10-K for the fiscal year ended June 24, 2017. We have other significant accounting policies that either do not generally require estimates and judgments that are as difficult or subjective, or it is less likely that such accounting policies would have a material impact on our reported results of operations for a given period.

There have been no material changes during the three months ended September 23, 2017 to the items that we disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 24, 2017.

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RESULTS OF OPERATIONS

The following table sets forth certain Condensed Consolidated Statements of Income data expressed as a percentage of net revenues for the periods indicated:

                                                 Three Months Ended
                                          September 23,      September 24,
                                              2017               2016

Net revenues                                 100.0  %            100.0  %
Cost of goods sold                            35.1  %             38.4  %
Gross margin                                  64.9  %             61.6  %
Operating expenses:
Research and development                      18.9  %             20.1  %
Selling, general and administrative           12.8  %             12.6  %
Intangible asset amortization                  0.3  %              0.4  %
Impairment of long-lived assets                  -  %              1.1  %
Severance and restructuring expenses           0.9  %              1.8  %
Other operating expenses (income), net        (0.1 )%             (5.1 )%
Total operating expenses                      32.8  %             30.9  %
Operating income                              32.2  %             30.7  %
Interest and other income (expense), net      (0.7 )%             (1.2 )%
Income before provision for income taxes      31.4  %             29.4  %
Income tax provision (benefit)                 4.6  %              4.9  %
Net income (loss)                             26.8  %             24.5  %



The following table shows stock-based compensation included in the components of the Condensed Consolidated Statements of Income reported above as a percentage of net revenues for the periods indicated:

                                            Three Months Ended
                                     September 23,      September 24,
                                         2017               2016
Cost of goods sold                         0.4 %              0.4 %
Research and development                   1.4 %              1.4 %
Selling, general and administrative        1.2 %              1.2 %
                                           3.0 %              3.0 %



Net Revenues

Net revenues were $575.7 million and $561.4 million for the three months ended September 23, 2017 and September 24, 2016, respectively. Revenue from industrial products was up 12% driven by higher sales of core industrial products. Revenue from automotive products was also up 13%, primarily driven by growth in infotainment. These increases were partially offset by a decrease in revenue from consumer products of 8%, primarily due to lower shipments of smartphone products.

During the three months ended September 23, 2017 and September 24, 2016, approximately 89% and 88% of net revenues, respectively, were derived from customers outside of the United States. While more than 98% of these sales are denominated in U.S. Dollars, we enter into foreign currency forward contracts to mitigate our risks on firm commitments and net monetary assets and liabilities denominated in foreign currencies. The impact of changes in foreign exchange rates on our revenue and results of operations for the three months ended September 23, 2017 and September 24, 2016 was immaterial.


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Gross Margin

Our gross margin percentages were 64.9% and 61.6% for the three months ended September 23, 2017 and September 24, 2016, respectively. Our gross margin increased by 3.3%, due to continued benefits from increased outsourcing of manufacturing, improved factory utilization and focus on cost reductions.

Research and Development

Research and development expenses were $108.6 million and $112.7 million for the three months ended September 23, 2017 and September 24, 2016, respectively, which represented 18.9% and 20.1% of net revenues for each respective period. The $4.1 million decrease was primarily due to continued portfolio management.

Selling, General and Administrative

Selling, general and administrative expenses were $73.7 million and $70.9 million for the three months ended September 23, 2017 and September 24, 2016, respectively, which represented 12.8% and 12.6% of net revenues for each respective period. The $2.8 million increase was primarily attributable to an increase in employee related expenses.

Severance and Restructuring Expenses

Severance and restructuring expenses were $5.4 million and $10.0 million for the three months ended September 23, 2017 and September 24, 2016, respectively, which represented 0.9% and 1.8% of net revenues for each respective period. The $4.6 million decrease was primarily due to the timing of reorganization of certain business units and functions and the closure of the Dallas wafer level packaging manufacturing facilities which was completed in fiscal year 2017.

Other Operating Expenses (Income), net

Other operating expenses (income), net were $(0.8) million and $(28.5) million during the three months ended September 23, 2017 and September 24, 2016, respectively, which represented 0.1% and 5.1% of net revenues for each respective period. This net decrease in other operating income of $27.6 million was primarily driven by the $26.6 million gain on the sale of micro-electromechanical systems (MEMS) business line in the first quarter of fiscal year 2017.

Provision for Income Taxes

In the three months ended September 23, 2017 and September 24, 2016, we recorded an income tax provision of $26.4 million and $27.6 million, respectively. Our effective tax rate for the three months ended September 23, 2017 and September 24, 2016 was 14.6% and 16.7%, respectively.

Our federal statutory tax rate is 35%. The effective tax rate for the three months ended September 23, 2017 was lower than the statutory rate primarily due to earnings of foreign subsidiaries, generated primarily by our international operations managed in Ireland, that were taxed at lower rates, and a $2.0 million discrete benefit for excess tax benefits generated by the settlement of share-based awards, partially offset by share-based compensation for which no tax benefit is expected and interest accruals for unrecognized tax benefits.

The effective tax rate for the three months ended September 24, 2016 was lower than the statutory rate primarily due to earnings of foreign subsidiaries, generated primarily by the Company's international operations managed in Ireland, that were taxed at lower rates, and a $3.3 million discrete benefit for excess tax benefits generated by the settlement of share-based awards, partially offset by share-based compensation for which no tax benefit is expected.

BACKLOG

At September 23, 2017 and June 24, 2017, our current quarter backlog was approximately $426.0 million and $389.1 million, respectively. In backlog, we include orders with customer request dates within the next three months. As is customary in the semiconductor industry, these orders may be canceled in most cases without penalty to customers. Accordingly, we believe that our backlog is not a reliable measure of future revenues. All backlog numbers have been adjusted for estimated future U.S. distribution ship and debit pricing adjustments.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES


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Financial Condition

Cash flows were as follows:
                                                              Three Months Ended
                                                       September 23,      September 24,
                                                            2017               2016
                                                                (in thousands)

Net cash provided by (used in) operating activities $ 219,705 $ 123,402 Net cash provided by (used in) investing activities (711,657 )

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Net cash provided by (used in) financing activities (177,009 ) (136,631 ) Net increase (decrease) in cash and cash equivalents $ (668,961 ) $ (13,156 )

Operating activities

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities.

Cash provided by operating activities was $219.7 million in the three months ended September 23, 2017, an increase of $96.3 million compared with the three months ended September 24, 2016. This increase was primarily driven by higher net income driven by increased profitability, a decrease in accounts receivable due to the timing of collections, and higher income taxes payable.

Investing activities

Investing cash flows consist primarily of capital expenditures, net investment purchases and maturities.

Cash used in investing activities increased by $711.7 million for the three months ended September 23, 2017 compared with the three months ended September 24, 2016. The increase was due primarily to a $641.1 million increase in purchases of available-for-sale-securities during the three months ended September 23, 2017.

Financing activities

Financing cash flows consist primarily of debt issuance, repurchases of common stock and payment of dividends to stockholders.

Net cash used in financing activities increased by approximately $40.4 million for the three months ended September 23, 2017 compared to the three months ended September 24, 2016. The increase was primarily due to $17.6 million in higher repurchases of our common stock, $14.8 million lower proceeds from stock options exercised in the three months ended September 23, 2017, and a $7.8 million increase in quarterly dividends.

Liquidity and Capital Resources

Long Term Debt Levels On June 15, 2017, the Company completed a public offering of $500 million aggregate principal amount of the Company's 3.450% senior unsecured and unsubordinated notes due on June 15, 2027 ("2027 Notes").

On November 21, 2013, the Company completed a public offering of $500 million aggregate principal amount of the Company's 2.5% senior unsecured and unsubordinated notes due on November 15, 2018 ("2018 Notes").

On March 18, 2013, the Company completed a public offering of $500 million aggregate principal amount of the Company's 3.375% senior unsecured and unsubordinated notes due on March 15, 2023 ("2023 Notes").

The estimated fair value of outstanding debt is $1,518 million and $1,516 million as of September 23, 2017 and June 24, 2017, respectively.

Off-Balance-Sheet Arrangements


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As of September 23, 2017, the Company did not have any material off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

© Edgar Online, source Glimpses

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Financials ($)
Sales 2018 2 372 M
EBIT 2018 818 M
Net income 2018 631 M
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Yield 2018 2,87%
P/E ratio 2018 22,53
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Maxim Integrated Products Technical Analysis Chart | MXIM | US57772K1016 | 4-Traders
Technical analysis trends MAXIM INTEGRATED PRODUCTS
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Income Statement Evolution
Consensus
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Mean consensus OUTPERFORM
Number of Analysts 26
Average target price 49,9 $
Spread / Average Target -0,35%
EPS Revisions
Managers
NameTitle
Tunç Doluca President, Chief Executive Officer & Director
William P. Sullivan Chairman
Bruce E. Kiddoo Chief Financial Officer & Senior Vice President
James R. Bergman Independent Director
Joseph R. Bronson Independent Director
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