After Maxim Integrated Products' Tough Q2, MKM Finds 'Meaningful Long-Term Positive' In Revenue Diversification

Maxim Integrated Products Inc. MXIM reported weaker-than-expected second-quarter results and announced disappointing March quarter guidance Tuesday, citing a soft demand environment.

Although estimates have been lowered accordingly, the company witnessed a return of bookings to normal levels in recent weeks and its profitability metrics remain among the best in the semiconductor universe, according to MKM Partners.

The Analyst

Analyst Ruben Roy maintained a Neutral rating on Maxim Integrated Products and cut the price target from $56 to $54.

The Thesis

Maxim Integrated Products reported December quarter revenue and EPS of $577 million and 60 cents, respectively, well below the consensus expectation of $590 million and 62 cents, respectively.

The company’s operating margin contracted from 38 percent in the prior quarter to 33 percent, driven down by lower revenue, Roy said in a Wednesday note. 

For the March quarter, Maxim Integrated Products guided to revenue of $520-$560 million. The midpoint of $540 million is below the consensus estimate of $597 million. The company projected EPS in the range of 49-55 cents.  The midpoint of 52 cents is significantly below the consensus estimate of 64 cents. 

The analyst lowered EPS estimates for 2019 and 2020 from $2.75 to $2.45 and from $2.90 to $2.60, respectively.

Despite the disappointments, bookings have returned to normal levels and the company has maintained industry-leading profitability metrics, the analyst said, adding that Maxim Integrated Products’ revenue diversification is a “meaningful longer-term positive." 

Price Action

Maxim Integrated Products shares were down 3.63 percent at $52.98 at the time of publication Wednesday. 

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