Microsemi Corporation’s (MSCC) fiscal fourth quarter earnings beat the consensus by a penny.

The company reported revenue of $109.7 million, which was up 2.5% sequentially and down 18.6% year over year.
Microsemi’s Analog/Mixed Signal products cater to three end markets—mobile/connectivity, notebooks/LCD TVs/display and industrial/semicap. 

The mobile/connectivity business (11% of revenue) grew 25.3% sequentially and declined 37.6% from the year-ago quarter. The business is currently being driven by the WLAN product line, as the high capital requirement of POE installations limit adoption in the current environment. 

Notebooks/LCD TVs/displays generated 7% of revenue, representing a sequential increase of 43.5% and a year-over-year decline of 42.2%. The sequential strength in this business was driven by the seasonally strong LCD TV market, where Microsemi’s CCFL backlights gained share. This was partially offset by sluggish notebook CCFL and auto display markets. 

The industrial/semicap business remains weak, generating just 6% of revenue in the last quarter. Segment revenue grew 2.5% sequentially and declined 34.9% year over year. 

The High Reliability product line also caters to three end markets—defense, commercial air/space and medical. 

The defense segment generated 40% of fourth quarter revenue, up 2.5% sequentially and down 0.5% year over year. Acquisitions, new products and growing electronic content in defense equipment helped growth in the last quarter. 

The commercial air/space markets generated 24% of revenue, down 1.6% sequentially and 11.3% year over year. The slow growth is related to inventory at customers, as the recession has had a significant impact on air traffic. The satellite business was strong, with both acquisitions and organic growth contributing. Organic revenue growth was helped by the newly introduced rad-hard line. 

The medical segment (12% of quarterly revenue) is usually more resilient. Revenue growth is currently being driven by ICDs, where year-over-year comps were impacted by a product transition at a major customer. Capital equipment spending remains weak, negatively impacting MRI equipment sales. This has resulted in sequential and year-over-year declines of 18.0% and 27.7%, respectively.
Bookings growth resumed in the last quarter, yielding a book-to-bill ratio of more than 1. Turns sales were 33%. Lead times in the analog/mixed signal business have shrunk from the normal level of 10-12 weeks to 6-8 weeks. Overall high-reliability lead times have shrunk from 20-30 weeks and have been at 15-26 weeks in the last two quarters. Satellite lead times remain in the 36-week range

Operating Results 
The pro forma gross margin was 48.6%, up 133 basis points (bp) from the previous quarter’s 47.2%. The operating expenses of $28.5 million were lower than the previous quarter’s $29.1 million. A higher utilization rate, reduced cycle times and production efficiencies were responsible for the improvement in gross margin. 

The operating margin was 22.6%, up 256 bps sequentially from 20.0%. Lower COGS and SG&A expenses as a percentage of sales offset the slight sequential growth in R&D (as a percentage of sales). 

The pro forma net income of $19.3 million, or 17.6% of sales, compares with $17.8 million, or 16.6%, in the previous quarter and $29.0 million, 21.5%, in the year-ago quarter. Special items in the last quarter were transitional idle capacity, profit on acquired inventory, restructuring charges, share-based compensation, intangibles amortization and one-time legal charges which had a net impact of -$0.63 per share on a tax adjusted basis. 

Including these items, the fully diluted GAAP loss per share was $0.39 per share compared to profit of $0.10 and $0.21 per share in the previous and year-ago quarters, respectively. 

Balance Sheet 
Microsemi has a strong, debt-free balance sheet. Inventories declined 15.0%, with inventory turns increasing from 2.0x to 2.4x. The cash and investments balance at quarter-end was $216.7 million, up $36.2 million sequentially. The company spent $2.5 million on capex in the last quarter. DSOs went down significantly from 64 to 52 days. DSOs have shown great improvement over the last three quarters, indicating much-improved collections. 

For the fiscal first quarter, management sees revenue growth of 1-4%, which excludes the SEMICOA business that was disposed off last quarter. Both R&D and SG&A expenses are expected to increase by $500K. The non-GAAP EPS is expected to come in at around $0.24-
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