(MXIM) Maxim Integrated Products to Modernize U.S. Fabs

In line with its plans announced earlier on its conference call, analog IC-maker Maxim Integrated Products Inc. (MXIM) is injecting $200.0 million into its four wafer fabrication facilities in Beaverton, Oregon; Dallas and San Antonio, Texas; and San Jose, California.

While Maxim did mention that the funds would be used for upgrading and modernizing its facilities, it did not specify how long this would take. However, the company expects fourth quarter capex to skew expectations for 2012 while capex for 2013 remains within the guided range. This seems to indicate that most of the charge will be taken in the fourth quarter itself and any additional expenditure will be spread out evenly over time.

Maxim’s exposure to fast-growing markets, such as smartphone, tablets PC, factory-automation equipment and automotive requires the company to stay abreast of technological advancements. The level of innovation in these markets is typically very high and product cycles are short. Therefore, it is very easy to lose a socket (miss a design cycle), which could result in significant losses for the company.

Therefore, Maxim’s decision to replace old machinery with next-generation equipment, upgrade its process technology, move to newer technology nodes and consolidate production from recent acquisitions comes at the right time. We believe that this initiative is likely to improve Maxim’s competitive position versus peers such as Linear Technology Corp. (LLTC), STMicroelectronics (STM), Analog Devices (ADI) and Texas Instruments Inc. (TXN), among others.

As per research conducted by IDC, the global semiconductor market grew 3.7% to $301.0 billion in 2011. Further, the market is expected to grow 6-7% this year.  Estimates provided by Databeans indicate that the analog segment of the market contributed over $42 billion, or 14%. Maxim was the fifth largest player in the segment, with a 4.8% market share, having grown around 4% from 2010.

In the third quarter of 2012 (the last-reported quarter), Maxim posted revenue of $571.2 million, down 3.4% sequentially, 5.9% year over year and within management’s guidance range of $555.0-585.0 million. Revenue was down across all end-markets except industrial, which was flat sequentially.

Currently, Maxim Integrated Products Inc. has a Zacks Rank of #3, implying a short-term Hold recommendation.

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