Cyclical Maxim Enjoys Long Upswing

Nobody has to tell the folks at Maxim Integrated Products about the fickle nature of the semiconductor industry.

The maker of highly integrated, analog and mixed-signal semiconductors has seen its share of ups and downs through the years amid the normal ebb and flow of the chip industry.

Lately, the cycle has been up. Maxim (MXIM) has responded by posting six straight quarters of double-digit or better sales and profit growth.

The company sells its semiconductors to four primary end markets: consumer, industrial, computing and communications. It also provides high-frequency process technologies and capabilities for use in custom designs.

A rebound in demand for Maxim's chips has it eyeing a second straight year of profit growth after watching the bottom line sag each of the previous three years.

Maxim is expected to keep growing its bottom line for the next several quarters, though at a much slower rate.

The anticipated slowdown is due to a combination of tougher year-over-year comparisons and weakness in certain end markets.

Still, Wall Street remains bullish on Maxim. The company's stock still trades near a three-and-a-half-year high. And company watchers sound upbeat about Maxim's growth prospects moving forward.

New Products

"New (chip) products such as touch control, integrated power, video and smart metering, (along with) market share gains, should help (Maxim) maintain 10% to 12% growth over the next few years," Citigroup analyst Terence Whalen noted in a recent report.

In addition, Maxim's business is split pretty evenly by end market. Semiconductors sold to the consumer products end market generated 32% of sales last quarter. No. 2 was the industrial end market (29% of sales), followed by communications (20%) and computing (19%).

By spreading its business around, Maxim reduces its exposure to any one market or customer.

"Maxim has a broad base of customers and a diversified product portfolio that leverages precision analog and digital capabilities together into proprietary mixed-signal parts," Whalen noted.

That balance will come in handy as Maxim faces the prospect of near-term weakness in its computing end market.

Computing has been hurt recently by lower outlooks from leading chipmakers Intel (INTC) and Advanced Micro Devices (AMD).

"Maxim expects revenue from the computing end market to decline more than normal due to weakness in the notebook segment," JPMorgan analyst Christopher Danely wrote in a report.

But weakness in the computing market should be offset somewhat by strength in other end markets.

For its fiscal fourth quarter, which ends June 30, Maxim expects to post a sequential increase in revenue from the consumer end market, "driven by strength from the handset segment," Danely wrote.