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Maxim Integrated Products (MXIM) |
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WIKI ANALYSIS
Maxim Integrated Products, Inc. (NASDAQ: MXIM) sells integrated circuits, or ICs - miniature electronic circuits made with semiconductor materials to process electronic signals. All electronic signals are either digital or analog, and Maxim focuses on making ICs to process analog signals that are driven by real world phenomenon such as temperature, sound, speed and pushing a button or flipping a switch. Maxim also creates mixed signal chips that combine both digital and analog signals.[1]
Maxim's ICs are used in everyday electronics (cell phones, DVD players, TVs, and MP3 players) and cars (in airbags, cruise control, and steering systems), as well as being used for industrial applications (such as robotics). Maxim's product portfolio spans over 3,000 integrated circuits sold to over 30,000 customers.
Maxim generates 70-75% of its sales from outside the US, with a big portion coming from manufacturing-heavy economies in Asia.
In December 2007, Maxim’s former CEO and former CFO were sued by the SEC for improperly backdating stock option grants, which the SEC claims inflated Maxim’s net income by 10% for fiscal years 2003 through 2005.
Business Overview
Maxim manufacturers and sells integrated circuits that are used in a broad range of applications, including cars, consumer electronics, telecommunications, medical devices and industrial. The company’s portfolio consists of over 5,000 products, sold to over 30,000 unique customers[2].
Maxim has begun to focus on high-volume complex circuits for consumer electronic goods such as portable MP3 players, cell phone handsets and laptops; this sector of the semiconductor industry is one of the fastest growing. It should be noted that the market for consumer electronic goods ICs tend to be lower margin because of greater competition in the space.
Business & Financial Metrics
MXIM's net income dropped 96.7% from $317.7 million to $10.5 million from FY2008 to FY2009 on a 19.8% drop in revenues.
Business Segments[4]
MXIM operates through one reportable segment which is responsible for the design, development, marketing, and manufacturing of all of the company's circuits.
Key Trends and Forces
Semiconductor Cyclicality Creates Volatility in Maxim's Margins
The semiconductor industry, particularly the analog devices sector, has historically moved in cycles. Progress in technology and changes in technological standards determine the demand for both low-volume high-performance analog (HPA) products as well as high-volume electronic consumer products, including battery power devices, audio and video devices, displays and power supplies, circuit switches, advanced clocks and timers, and thermal sensors. Since the two product categories constitute Maxim’s revenue stream, Maxim’s performance is greatly affected by fluctuations in technological standards and related demand for these products. The company’s diverse product portfolio in a broad range of industries serve as a buffer to minor fluctuations, but also make the company susceptible to a variety of industry-specific risks as well as the general condition of the economy.
Foreign Currency Risk Could Affect Maxim's Balance Sheet
Since the majority of Maxim’s total sales are made internationally, the company makes transactions in non-US currencies, such as the Japanese Yen, the British Pound, and the Euro. This exposes the company to fluctuations in currency exchange rates on accounts receivable from sales made in foreign currencies. A sharp decline in the value of the dollar in relation to a foreign currency would increase the company’s net income.
Maxim's Increasing Dependence on High-Volume Consumer Electronics Creates Risks
As Maxim is increasingly dependent on the high-volume consumer electronics market, the company becomes more susceptible to cancellations of product orders made by its customers. Maxim’s earnings will be affected by such cancellations, since the product orders in this market are generally much larger by dollar value (but lower margin). Furthermore, there is greater unpredictability in customer order size and delivery schedule in the high-volume market than in the low-volume HPA circuits market, which adds strains to Maxim’s operations.[5]
Competitors
Maxim generates one of the highest margins of large semiconductor companies.[6]. Each of Maxim's competitors has some aspect in its business that differentiates it from its peers.
Linear Technology - Linear Technology has a sales force of mostly engineers. The company claims that this allows its customers to receive high-quality technical service on demand. The company generates the highest gross margin of among all large competitors.
National Semiconductor - National Semiconductor utilizes energy efficiency in its circuits as the primary differentiator for its product line.[7]
Texas Instruments - Texas Instruments is the biggest company based on annual revenue among its competitors. It holds a strategic advantage in the amount of financial, manufacturing and marketing resources it can invest. However, due to the wide array of products it offers, it faces intense price competition in many fronts.
STMicroelectronics - STMicroelectronics has diversified its sales over the five high-growth sectors: Communications, Consumer, Computer), Automotive, and Industrial.[8]
Analog Devices - Analog Devices derives its revenue from the industrial market and communications.[9]
Notes
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