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WIKI ANALYSIS
Founded in California in 1975, Supertex designs and sells high-voltage analog and mixed signal integrated circuits. These semiconductor products act as an interface between the low-voltage computer logic signals and high-voltage requirements. Supertex targets the telecommunications, imaging and medical electronics markets. In its telecommunications business, the company sells integrated circuits for handsets, modems, networking and set-top box equipment. In its imaging business, the company sells interface products for flat-panel displays and printers. For instance, these products back-light LCD displays found in cell phone screens and Personal Digital Assistant (PDAs). Supertex's medical electronics products are found mostly in ultrasound diagnostic equipment and portable instruments. The company also provides custom wafer foundry services. In fiscal 2003 and 2004 this business represented about 25% of total revenue.
Supertex has developed an expertise in designing and manufacturing high-voltage components. The company's HVCMOS process technology allows it to meld DMOS and CMOS components to create solutions across a wide range of voltages from 1.6 Volts to 700 Volts. Process technologies such as high voltage CMOS, DMOS and BiCMOS allow Supertex to integrate high-voltage features with fine line process capabilities. This expertise has substantially raised yield and circuit density.
The company has a 6-inch wafer fabrication facility in San Jose and some assembly and packaging in Sunnyvale. The wafer fab has been significantly depreciated. Consequently, the company's manufacturing expenses are low and this enables it to be quite profitable.
QUARTERLY DISCUSSION
Meanwhile, the company reported revenues of $22.0 million, down 17% from a year ago and in line with our estimate. On a sequential basis, revenues were up 6% as Electro-luminescent (EL) driver sales to the company's largest customer rebounded in the second quarter.
On a Generally Accepted Accounting Principles (GAAP) basis, the gross margin declined to 59% from 61% in the prior-year period and the June quarter primarily due to an unfavorable product mix and reduced inventory growth. Operating margin decreased to 23% from 33% in the corresponding quarter of fiscal 2007 and 24% in the prior quarter. The sequential decline in operating margin was due to lower gross margin and higher operating expenses.
In Q2, Medical Electronics accounted for 36% of the total revenues, down 4% from the previous quarter.
The sequential decrease in revenues was attributed to a $1.3 million decline in foundry1 sales due to reduced demand from several customers in medical and industrial markets. Imaging, represented 34% of total revenues, and was up 4% sequentially and Telecom made up 10% of total revenues, up 3% from the June quarter. Industrial accounted for 13% of the revenues while Light Emitting Diodes (LED) lightning contributed the rest.
The company ended the quarter with cash, equivalents and marketable securities balance of $143 million, up only $1.5 million from the prior quarter primarily due to tax payment of $4.1 million.
GUIDANCE FOR SECOND HALF
Finally, management's outlook for the second half of fiscal 2008 remains disappointing. Management expects revenues for the third quarter to be flat sequentially due to uncertainty in electroluminescent lamp driver sales in the near term and potential seasonality decline in medical ultrasound products. For the second fiscal half, the company projected sales to be flat or to modestly up sequentially. Supertex provides EL lighting components for mobile phone keypads, MP3 players and PDAs and LED lighting components for LCD TVs, laptop screens, and auto applications. Therefore, we think these businesses are vulnerable if consumers cut back significantly on spending. Management also forecasted that there could be a short-term pause in the ramp-up of the company's LED driver sales, as inventory of existing Cold Cathode Fluorescent (CCF) based products sell through the High Definition TV (HDTV) retail channel over the coming holidays. LED driver shipment is estimated to resume growth in the fiscal fourth quarter.
Consequently, we now expect fiscal 2008 revenue to be $88 million, compared to our prior estimate of $90 million. For fiscal 2008, GAAP earnings per share are anticipated to be $1.30, compared to our prior estimate of $1.50.
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