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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Jacob Snyder who wrote (42780)	1/18/2009 9:50:32 PM
From: Jacob Snyder	2 Recommendations Read Replies (3) \| Respond to of 95487

Is MXIM a buy? analog chipmaker, sells to diverse end-users: cash: $3.97/share LT debt: zero sales: LT trend is a steady increase, from 1.44B in YE 6/04, to 2.05B in YE 6/08. gross margins: averaging 64% (last 5 years), still at 58% dividends: $0.20/quarter, $0.80/year yield = 7% = 0.80/12.26 earnings: held up remarkably well till now, with yearly EPS of $0.87-$1.35 the last 5 years. However, the estimates for the fiscal year ending 6/2009 is $0.47, $0.67 for FYE 6/2010. Both those numbers have been falling sharply, the last several months. Comparing their expected earnings in the next 2 years, with their dividend.....something's got to give, and I expect it'll be the dividend. Yes, a company can go a while, paying dividends higher than earnings. However, it's an unsustainable trend, (like $60B/M trade deficits, and trillion-$ federal budget deficits, and nil savings rates) which has to end sometime. In addition to the macro and sector-specific reasons, there are company-specific reasons for the stock to have given up 10 years of gains: ...one of the plaintiffs' briefs caught my eye. It included charts of when Maxim's former directors granted stock options. These charts appeared to show that certain options were granted at the lowest possible price during the relevant time period... ...Another person said (at shareholder meeting) that the cost of the backdating of options had cost the company 30 cents a share in earnings, and asked what the company was doing to prevent this [stock option irregularity] from happening again. CEO Doluca said that none of the directors involved in the backdating of options were still with the company.... seekingalpha.com 11/29/08 CC notes: In FY '09 we expect capital expenditure to be in the range of $150 million to $175 million which as a mid point would be a 23% decline over FY '08... ...our restatement team finally completed it's project and we restated our financials for fiscal years 1997 through 2006....our financial filing was followed by the re-listing of our stock...Maxim reached a tentative settlement of Derivative Litigation and we expect the settlement to be affirmed shortly by the Delaware and California courts... seekingalpha.com transcript Based on our progress to-date, we expect to record additional non-cash stock-based compensation expense during fiscal 1995 through fiscal 2006 of approximately $800 million pretax... seekingalpha.com Share buybacks: there has been a slow decline in total shares, over the last several years. On 10/13/08, the BOD authorized the repurchase of up to $750 million of the company's common stock = 61m shares at current prices, about 20% of the total shares. Sounds great. But... here's what the CEO said, when asked how he would pay for it: Craig Ellis - Citigroup analyst: Thanks for getting me in. Bruce, in the press release on the pre-announcement the company identified that it might use another $750 million to buyback stock. I think the implication there was that it might be debt denominated. Under what conditions would the company think about going out and augmenting or altering its capital structure to take out another big slug of stock? Tunç Doluca - President, Chief Executive Officer and Director: This is Tunç actually answering that question. It really is going to depend a lot on several things. It's going to depend on what the state of the economy and the demand is for our product. And how long the downturn is going to last. It also depends on what acquisitions are presented to us as possibilities. So we are really looking at all the time. It's something that we are considering. But we've really not set a set a condition that's going to trigger debt based buyback right now. (IMO, the only correct answer to that question is: "Stock repurchases are financed with cash and cash flow. Using debt to buy back shares is irresponsible, and we'll never do it." The MXIM CEO didn't give the correct answer.) Conclusion: I rate MXIM a Sell, in spite of the low valuation, based on: 1. the dividend is unsustainable, especially if they do the announced stock repurchase. Stocks tank when the dividend is cut. 2. The BOD are thieves. 3. The CEO is irresponsible. 4. Their SEC filings can't be trusted.