Microsemi bucks financial trends on strength from defense, medical markets

By Suzanne Deffree, Managing Editor, News -- 11/14/2008

Offering a welcomed bit of good news, Microsemi Corp Thursday reported fiscal Q4 and full-year 2008 sales and income growth while projecting a solid start to 2009.

The Irvine, Calif-based analog and mixed-signal IC company recorded sales for its fiscal Q4, ended September 28, of $134.7 million, up 12.5% year over year and up 4.2% from on a sequential basis. Sales for the full fiscal year were $514.1 million, up 16.2% from the fiscal year 2007.

Income for the defense and medical markets-focused company's Q4 was $17.3 million and compared to $10.1 million fiscal Q4 2007 and $13.9 million in fiscal Q3. The September quarter recorded earnings per share of $0.21, compared to $0.13 in year-ago quarter and $0.17 in Q3.

Income for the full year was $49.7 million or $0.63 per share, an increase of $39.9 million or 407% compared to $9.8 million or $0.13 per diluted share for fiscal year 2007.

The report is being hailed by Wall Street as a haven in the current financial crisis storm, which has wreaked havoc on many semiconductor industry companies' recent quarterly results and outlooks. Indeed, bellwether Intel Wednesday revised its December quarter forecast from one that offered growth to one that guides for up to a 15% sequential sales decline. Intel said the downward revision was made on significantly lower-than-expected demand in all geographies and market segments and specifically noted weakness in the PC supply chain.

"We expect Microsemi to weather the storm given that 50-plus percent of sales are derived from military and medical," Romit J Shah, a semiconductor industry analyst at Barclays Capital, said in a research note this morning.

Demand from defense and medical markets remains steady and has been historically maintained through recessions, according to market forecasters.

"Microsemi reported another strong quarter of results and guided calendar Q4 better than nearly any chip firm we can think of (due to the firm's 70% revenue exposure to high-reliability defense, commercial aerospace, and implantable medical end markets), demonstrating why many investors think the firm is a safe, defensive, outperformer during cyclical downturns," Craig Berger, an analyst at FBR Capital Markets, said in a separate research note this morning.

Evidencing the strength of the market's its ICs serve, Microsemi noted in its fiscal report that it continues to grow backlog, with a Q4 book-to-bill ratio of 1.05 to 1.00.

"2008 was a tremendous year for the company. We executed on our business plans growing revenues and profits to record levels and capitalizing on our diversification strategy, which allowed us to grow each quarter with continued improvements in gross, operating and net margin metrics," James J Peterson, Microsemi's president and CEO, said in a statement. "Our growth in our September quarter continued to exceed overall industry performance with positive contributions, especially in our satellite, defense, and implantable medical markets. Visibility into our customer demand is strong and we continue to make operational improvements in order to better service our customers."

Microsemi expects that for its first fiscal 2009 quarter sales will be within a range of down 3% to up 2%, sequentially. Earnings for the quarter are expected to be $0.36 to $0.37 per diluted share.

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