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Wednesday, September 20, 2006

Maxim Miss Almost Missed In Excitement

By William Trent, CFA of Stock Market Beat

What with Freescale, Yahoo!, Adobe, Oracle, Thailand, etc. this week we almost missed this story:
Linear and mixed-signal IC supplier Maxim Integrated Products Inc. today lowered its revenue and EPS guidance for fiscal Q1 2007.

While bookings in the latter part of the current quarter have improved over the order rate in July, the company said its aggregate bookings have been softer than expected.
Turns orders received by the company have also been below plan, Maxim said, and the mix of turns orders has deviated from earlier forecasts resulting in demand not matching inventory on hand.

Consequently, the company expects Q1 2007 revenues to be flat to down three percent, compared to Q4, when the company posted record net revenues of $510.6 million, a 6.8 percent increase over the previous quarter and a 27.5 percent increase over Q4 2005.
Earnings per share will be about 10% less than previously expected. Or at least what was expected by the consensus of brokerage firms. We have been saying for months that semiconductor supply and demand are out of whack and getting worse. This is just the latest example, of which there are likely to be many more in the coming months.

But aren’t valuations already down enough? Private equity firms thought Freescale was cheap, why not Maxim? Actually, we covered that argument last week. At 9.6x EV/EBITDA, Maxim is already trading at the high end of the valuation they might expect from a buyout. And that is before the EBITDA numbers get adjusted downward. If we assume a 10% hit to EBITDA and the 7.2x multiple we consider worth the speculation, well… call us when the shares are below $22.

Disclosure: Author owns put options on the Semiconductor Holdrs ETF (SMH).

The author may hold a position in the securities discussed. A current list of the author's holdings is available here.

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