Morningstar | Maxim Foresees A Bit of a Recovery In Chip Demand; Maintain $55 FVE
Maxim Integrated reported solid fiscal third-quarter results in a challenging semiconductor demand environment and provided investors with a relatively decent fiscal fourth-quarter forecast that points to a modest sequential recovery in chip demand. The firm remains well positioned to profit from rising chip content per automobile, thanks to share gains in chip content in battery management systems, or BMS, used in electric vehicles. We continue to believe that Maxim's near-term sluggishness is cyclical and not secular as we still foresee chip content being required in all types of connected, electronic devices like cars and industrial equipment. We will maintain our $55 fair value estimate for wide-moat Maxim. Shares appear modestly overvalued to us after rising roughly 20% year-to-date, and we see a more attractive margin of safety in one of the firm's peers, wide-moat Microchip Technology.Revenue in the March quarter was $542 million, down 6% sequentially and down 16% year over year, but above the midpoint of the firm's prior guidance of $520 million-$560 million as discussed in January. Automotive chip revenue was the bright spot, up 5% year over year, again thanks to strong BMS demand. All other segments were down at least 15% year over year, although Maxim still sees longer-term growth opportunities in industrial factory automation and data centers. Lower sales levels caused adjusted gross margins to fall 210 basis points to 63.8%, notably short of the firm's long-term target in the 67%-70% range, which the firm reached as recently as September.
For the June quarter, Maxim expects revenue in the range of $540 million-$580 million, which would represent 0%-7% sequential growth, but an 8%-15% year-over-year decline. Adjusted gross margins are forecast to rise to 65.5% at the midpoint. Longer term, we still foresee Maxim weathering this latest chip industry downturn, all while offering a healthy dividend and stock buyback program to investors.
Maxim Integrated Products designs, develops, manufactures and markets a range of linear and mixed-signal integrated circuits, referred to as analog circuits. The company's linear and mixed signal products serve the Automotive, Communications and Data Center, Computing, Consumer, and Industrial end-markets. The company primarily utilizes third party foundries as well as its own wafer fabrication facilities for the production of its wafers. The company markets its products worldwide through a direct-sales and applications organization and through its own and other unaffiliated distribution channels.
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