| 2017-04-21 13:22:14|
MXIM, TXN… 13:22 04/21 04/21/17
Maxim falls after automotive growth stalls, peers follow lower
Shares of semiconductor companies that make automotive chips are underperforming the broader market and the sector this afternoon after Maxim (MXIM) suggested a slowdown in automotive may be on the horizon, despite reporting third quarter earnings yesterday that came in ahead of expectations. Earlier today, Evercore ISI downgraded shares of Maxim. EARNINGS BEAT: For the quarter, Maxim reported earnings per share excluding items of 56c on revenue of $581.22M, beating analysts' estimates of 53c and $575.73M, respectively. EPS for the current quarter were forecast at 59c-65c on revenue of $590M-$630M. Prior to the earnings report, analysts expected Q4 EPS of 58c on revenue of $597.8M. FEARS OF AUTOMOTIVE SLOWDOWN: The importance of Maxim's automotive sector to investors was made most evident during the Q&A part of the chipmaker's quarterly earnings call when BMO Capital Markets analyst Ambrish Srivastava said, "To my knowledge, first time, at least I'm hearing, a company talk about a slowdown which has been feared by investors and everybody for a while." Maxim's growth in automotive has been on a torrid pace over the last few years and now accounts for 21% of total revenue. Bruce Kiddo, Maxon's CFO, noted at the start of the call that automotive was a significant driver in the firm's Q3 overall revenue growth. The company supplies a wide variety of automotive qualified ICs with a focus on power management, RF products, keyless access and high speed serial links. Growth has been exponential in the segment due to activity around conceptualizing the car of the future as well as strong auto sales over the last few years. The company makes technology for serial link products serving infotainment and driver assistance applications. Talk of "peak auto" and U.S sales plateauing may becoming a reality. Additionally, the much relied upon China sales appear to have hit a wall, as the country's rollback of a tax discount for small-engine cars slowed demand. Growth in China auto sales fell of a cliff in March growing just 1.7% a visible slowdown from the 6.3% growth in the first two month of the year. Since its last earnings report in late January, shares were up over 8% going into the Q3 earnings report. MAXIM SEES FLAT Q4 AUTOMOTIVE: During the call, President and CEO Tunc Doluca attributed the sluggish Q4 automotive outlook to difficult comparisons, especially to the most recent Q3 data. Doluca also pointed out that changes in government incentives for electric vehicles in China are having an impact on battery management product demand, and most alarmingly, the CEO confirmed signs of a weaker auto market in the U.S. "As a result, we expect our June quarter Automotive business to be sequentially flat from a very strong March quarter, and strongly up from the same quarter last year," Doluca said. EVERCORE ISI MOVES TO SIDELINES: Evercore ISI analyst C.J. Muse downgraded Maxim Integrated to In Line from Outperform, saying the diversification/margin story is largely complete and shares are near his $46 price target. Muse sees modest headwinds ahead including slowing China BMS business and lack of Apple exposure in 2H and recommends moving to the sidelines. "Now this is not a negative call on Automotive - we think 1HCY17 revenues tracking +20% Y/Y is not something to be terribly worried about," the analyst added. LOOP CAPITAL DEFENDS: Earlier today, Loop Capital analyst Betsy Van Hees attributed the after-hours weakness in Maxim Integrated shares despite the company's strong Q3 report and Q4 guidance to concerns over auto market commentary that may have been misinterpreted. After following up with management, she confirmed they were not making a broad sector call and she views concerns over a flat sequential guide in automotive as "much ado about nothing." Van Hees reiterated her Buy rating and $51 price target on Maxim shares. PRICE ACTION: Shares of Maxim are down 4% to $43.63, weaker than the chip sector as measured by the Philadelphia semiconductor index, which is down just fractionally in afternoon trading. PEERS ALSO LOWER: Shares of other semiconductor makers that derive revenue from automotive are also being dragged down including Texas Instruments (TXN), Infineon Technologies (IFNNY), ON Semiconductor (ON), Analog Devices (ADI) and Diodes (DIOD).
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