Microsemi Misses on Q2 Earnings, Revs Beat - Analyst Blog
April 25 2014 - 2:00PM
Zacks
Microsemi
Corporation's (MSCC) adjusted earnings in the second
quarter of fiscal 2014 came in at 38 cents per share, which missed
the Zacks Consensus Estimate by 3 cents.
Revenues
Microsemi reported revenues of
$287.0 million, up 12.3% sequentially and 22.0% year over year as
well as above the Zacks Consensus Estimate of $286 million.
In the last quarter, book-to-bill
ratio was greater than 1, driven by orders for longer lead time
products.
Revenues by End
Market
Microsemi generates revenues from
the Defense & security, Aerospace, Communications and
Industrial markets.
The Defense & security
market generated 27% of sales, up 25% sequentially to
$79.0 million. The increase was aided by synergies from the
Symmetricom acquisition and improved market environment.
Around 35% of Microsemi’s quarterly
revenues came from the Communications market which
was up 3% sequentially to $100.0 million. Management attributed the
increase to strength in packet timing, OTN sales in Asia and
increased share gains from a new sapphire clock management product
family. Also, strengthening telecom spending worldwide, including
emerging markets such as China and India, is benefiting the
company.
The Aerospace
segment improved 8% sequentially to approximately $43.0
million and generated 15% of second-quarter revenues. The increase
was attributable to improving content growth trends in
electronic-oriented aircrafts and strong growth in commercial
aircrafts.
Going forward, management believes
that growing product mix and strong industry fundamentals will
continue to benefit this end market. Additionally, the ramp up of
more electronic aircraft such as Boeing 787, Airbus A350 and A380
will lead to significant content growth.
The Industrial
market generated 23% of sales, up 17% sequentially to
$65.0 million, driven by strong demand for ultra-low-power RF
products.
Going forward, management expects
strong revenues from this end market from the ramp up of new chip
scale atomic clocks which helps in energy exploration applications
and other new programs.
Margins
The reported gross
margin was 50.7%, down 340 basis points (bps) sequentially
and 600 bps from 56.7% in the year-ago quarter. The decrease was
due to unfavorable product mix.
Operating
expensesof $141.3 million were higher than the previous
quarter’s $121.7 million. As a percentage of sales, both general
and administrative and research & development (R&D)
expenses decreased from the year-ago quarter. The net result was a
GAAP operating margin of 1.4%, down 360 bps year over year.
Net Income
Microsemi generated GAAP net loss
of $8.7 million or loss of 9 cents a share compared with ($2.9)
million or loss of 3 cents in the year-ago quarter.
Excluding special items but
including stock-based compensation expense, non-GAAP net income was
$36.2 million or earnings of 38 cents per share compared with $28.6
million or earnings of 31 cents in the year-ago quarter.
Balance Sheet
Cash and cash equivalents balance
at quarter-end was $205.2 million, down $12.9 million from the
first quarter. Cash generated from operations was $30.2 million and
capex was $8.7 million, netting a free cash flow of $21.5
million.
Inventories increased 6.6% to
$202.1 million from $216.3 million in the previous quarter. Days
sales outstanding (DSOs) were 59 days, flat sequentially.
Guidance
Microsemi provided guidance for the
third quarter of fiscal 2014. Revenues are expected in the range of
$287–$293 million, up 1.0% sequentially at the mid-point. Non-GAAP
gross margins are expected to increase in the range of 20–100 bps
and earnings per share are expected to be within 55–61 cents.
Our Take
Microsemi’s second-quarter earnings
missed the Zacks Consensus Estimate due to higher-than-expected
operating expenses.
In the last quarter, the company
gave an encouraging forward guidance. It expects sequential dollar
growth in all the end markets, indicating improving demand
environment and increased visibility.
Also, Microsemi’s R&D program
remains on track, helping the company to manage its expenses well.
Additionally, the company’s focus on security and increasing
electronic content per device and customer will eventually boost
its market share.
However, management expects
expenses to increase in the upcoming quarter due to heavy
investments in FPGAs and mixed signal RFs.
Microsemi has a Zacks Rank #3
(Hold). Other stocks that are performing well at current levels
include Montage Technology Group Limited (MONT),
ON Semiconductor (ONNN) and CSR
plc (CSRE). All these stocks sport a Zacks Rank #1 (Strong
Buy).
CSR PLC-ADR (CSRE): Free Stock Analysis Report
MONTAGE TECH GP (MONT): Free Stock Analysis Report
MICROSEMI CORP (MSCC): Free Stock Analysis Report
ON SEMICON CORP (ONNN): Free Stock Analysis Report
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