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Maxim Integrated Products Inc. (MXIM): Diversification Should Boost Fundamentals

 March 18, 2014 09:37 AM

The potential to diversify into new markets will keep the fundamentals of Maxim Integrated Products Inc. (NASDAQ:MXIM) in good stead.

Based in San Jose, California, Maxim Integrated makes analog and mixed-signal semiconductor products. It develops integrated circuits (ICs) for the industrial, communications, consumer, and computing markets.

The company is on a path to diversify its customer base in mobility, expand its content in the consumer segment, and continuing to venture into other end markets by taking its capability in integration, and applying it to other segments beyond mobility.

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Maxim's win in audio and a meaningful tablet product as well as with another large customer in smartphones is an example of how the company is diversifying its products beyond power management and sensors, with the latter also being a relatively new area for the company.

UBS analyst Stephen Chin believes Maxim has engaged with five major China handset OEMs. On the tablet side, the company also began shipping its audio solution to one of the largest mobility/consumer OEMs.

The company continues to grow its footprint in the mobility space, from power management SOCs to various sensors, as well as audio amplifiers, for both tablets and smartphones.

Maxim is taking its core capabilities and continuing to diversify by looking into newer end markets, and the automotive segment is an example of where Maxim has been able to grow the business from a low-single-digit percentage level from a few years ago to a high-single-digit percentage now. Chin believes the company should be able to grow in the automotive segment by low double digits over the next few years.

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As an example of approaching other emerging areas, the company's success in mobility and its ability and focus on integration should allow the company to address emerging opportunities such as wearables, and smaller form factor medical devices. The company is looking to take its security capability and extend it to other markets beyond financial terminals.

Near term, that a more subdued ordering pattern from Samsung, for its new Galaxy S5 flagship smartphone, should lead to less volatility in Maxim's consumer related numbers.

For the December quarter, the consumer end market revenue are expected to increase due to shipments of Maxim products into new tablet, smartphone and e-reader platforms. The company sees smartphone revenues flat sequentially.

The company's product diversification is exemplified by its investment in sensors, both optical and motion. In the September quarter, the company began shipping second-generation gesture sensor into a major smartphone platform with MXIM's largest customer. The company is also investing in motion sensor portfolio, which addresses the growing need for human interface functions across a range of mobility platforms.

In the area of automotive Infotainment, the company has design wins ramping into production for satellite radio and TV tuners at several automotive customers. The company's highly integrated utility meter products, addressing both smart meters and solid-state meters, are gaining considerable traction at Chinese meter makers. These customers are supplying not only to the Chinese domestic market, but also are exporting to other Asian markets.

The strength in Fiber Optics business should be tailwind into the December quarter as the China optical market experiencing a rebound in telecom infrastructure spending. The company's Base Station business registered a strong uptick in bookings during the September quarter as it is seeing design win activity across our portfolio of RF, signal chain and power management products.

There is a potential upward bias to Street estimates as various new products the company is introducing ramp at existing and new customers. The stock trades 16 times its forward earnings. The higher multiple is appropriate as it is within the range of P/Es for the broader high performance analog group.



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