The Quarter That Was
Maxim reported a pretty solid fiscal second quarter. Revenue was down 2% on a sequential basis, but up 29% from last year and a bit ahead of the published average analyst guess. Communications was a standout (up sequentially by 3%), while computers were notably weak - especially notebooks. Profitability was not bad either. GAAP gross margin did improve a bit on a sequential basis, but operating income did fall even after excluding some unusual items. (For more, see The Chips Are Down.)
There were a few concerning items in the details, though. The company reported that bookings dropped 15% on a sequential basis and the book-to-bill was 0.85. Lead times continue to fall and stood at 12 weeks - off a bit from the company's peak of 14, but still ahead of the "normal" level of 8-9 weeks. That is a definite risk factor for the stock - as customers can more easily get the chips they need (and get them on time), they do not need to over-order or carry larger inventories. That in turn leads to order cancellations and revenue stress.
The Road Ahead
Order times are not the only concern for Maxim investors to consider. Texas Instruments (NYSE:TXN) is building a large 300mm fab (which FBR's analyst Craig Berger has called the "Death Star") and that could produce some supply-driven pressure on the sector. Arguably Maxim would be more vulnerable than Linear Technology (Nasdaq:LLTC) and Analog Devices (NYSE:ADI) but it is hardly good news for any supplier other than TI. (For related reading, see Linear's Ups And Downs.)
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