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Financial Analysis of Microvision -
February 21st, 2011
Irvine, California-based Microsemi Corporation (MSCC) was formed in 1960. Formerly known as Microsemiconductor Corporation, the company changed its name to Microsemi Corporation in 1983. It offers a broad range of semiconductor integrated circuit (IC) products, broadly categorized into the high reliability and analog/mixed signal categories. The high reliability products are primarily targeted at military, aerospace and medical markets, while the analog/mixed signal products are targeted at LCD TVs, monitors, notebooks, PDAs, cell phones, automotive and other markets. The company's products find application in desktops, mobile computing platforms such as notebook computers and PDAs, data storage devices, wireless LAN, LCD backlighting in LCD TVs and LCD monitors, automobiles, telecommunications products, test instruments, defense and aerospace equipment, and high-quality sound reproduction and data transfer equipment.
Generally, semiconductor devices are divided into three categories analog, digital and radio frequency (RF). Analog semiconductors condition and regulate real world information such as light, temperature, speed, pressure, power and electrical currents. Digital logic semiconductors process information in only two states. Mixed-signal semiconductors combine both analog and digital technology into a single device. Typically, an analog sensor samples real world information, and then converts the input into an electronic analog signal, which is converted into a digital format for further digital processing. The analog and mixed-signal markets tend to be more varied and specialized, with customized products that have longer life cycles than the digital industry segment. There is an ongoing drive to decrease the number of discrete devices, lessen power requirements and shrink the size of the existing devices, which correspondingly increase performance and reliability. Consequently, a greater amount of functionality is being consolidated into increasingly smaller devices.
The company's products are focused on the light, sound and power management areas of the semiconductor market. Power management semiconductors generally refer to a class of standard linear integrated circuits ("SLICs") that perform voltage regulation and referencing in most electronic systems. The scope of power management has broadened in recent years to encompass other devices and modules, including application specific standard products ("ASSPs ), which address particular aspects of power management, such as audio or display-related ICs. This product portfolio is composed of both a core platform of traditional SLICs, such as low dropout regulators ("LDOs) and pulse width modulators ("PWMs ), as well as differentiated ASSPs such as backlight inverters and small computer standard interface ("SCSI") terminators. Over the last year, MSCC's shipments of SLICs, motherboard LDOs and PWMs have declined as a percentage of total revenue, and shipments of differentiated ASSPs, dual LDOs, switching regulators and power amplifiers have become a more significant percentage. These products manage, control and regulate power protect against transient voltage spikes and transmit, receive and amplify signals.
Individual component semiconductor products include silicon rectifier controllers, sensors, drivers, photo detectors, power amplifiers, operational amplifiers, audio amplification ICs, insulated gate bipolar transistors (IGBTs), zener diodes, low leakage and high voltage diodes, temperature compensated zener diodes, transistors, subminiature high power transient suppressor diodes and pin diodes used in MRI machines. The company also manufactures semiconductors for commercial applications, such as automatic surge protectors, transient suppressor diodes for telephone applications and switching diodes for computer systems. The sales mix has been shifting over the past year from traditional zener and voltage diodes to transient suppressor diodes. ICD and heart pacer switching, charging and transient shock protector diodes, low leakage diodes, transistors used in jet aircraft engines and high performance test equipment, high temperature diodes used in oil drilling sensing elements operating at 200C, temperature compensated zener or rectifier diodes used in missile systems and power transistors are emerging as important products.
In 2006, Microsemi completed the acquisition of Advanced Power Technology (APT) in a stock and cash transaction. The acquired company is operating as a separate group, and is being referred to as the Power Products Group (PPG). APT brings with it RF semiconductors for the defense, aerospace and implantable devices markets, thus increasing MSCC's penetration in these markets. While implantable devices are likely to be the strongest growth driver for PPG, the acquired silicon carbide technology is also has wide implications for the defense market. PPG has a lower gross and operating margin profile, therefore the short-term impact on the bottom line could be slightly negative. Microsemi completed the PowerDsine acquisition in Q107 for $168 million, net of cash acquired (75% cash, 25% shares). PowerDsine is a leader in power over Ethernet (PoE) technology that enables power transmission over the same cable that transfers data, eliminating the need for network cables, additional power sockets and wiring. The company has played a major role in the PoE space.
Revenue distribution by end market was as follows Defense 31% (up 17.4%), Commercial Air/Space 20% (up 4.2%), Notebook/LCD TV/Display 11% (down 17.5%), Medical 13% (up 44.5%), Industrial/Semicap 12% (up 36.9%) and Mobile/Connectivity 14% (up 75.2%). Approximately 50% of the products were sold directly to OEMs, and the balance was sold through distributors. The U.S. government was the end customer for nearly a third of 2007 net sales. Around 56% of 2007 sales were generated in the U.S., 13% came from Europe and the balance from Asia. The company did not have any 10% customer in fiscal year 2007.
Currently the company operates four fabrication facilities Garden Grove, Lawrence, Lowell and Scottsdale. Microsemi has undergone massive restructuring since 2001. Phase I, which started in 2001, comprised the capacity optimization enhancement program. This involved the closure of the Watertown and Melrose facilities and the transfer of Watertown operations to Lawrence and Lowell, Massachusetts and Melrose operations to Scottsdale, Arizona. The Watertown consolidation was completed in December 2004, and included the elimination of 30 positions, including four management positions. Phase II was started in October 2003, and involved the transfer of Santa Ana operations (two facilities) to Scottsdale, Arizona and Garden Grove, California. Of the 380 employees at the Santa Ana facilities, 350 were terminated, including 55 management level employees. Thirty employees were absorbed elsewhere. Santa Ana operations ceased in the third quarter of fiscal 2005 and Scottsdale started shipping the products previously manufactured at Santa Ana in the fourth quarter of fiscal 2005. Phase III of the restructuring activity was completed in the Q307. Under this program, the Broomfield and Ireland facilities were closed down, with operations being consolidated into the four remaining facilities. Roughly a third of the 148 Broomfield employees (including 14 managers) were terminated in 2006. The 130,000-square foot owned facility is also being disposed off. Post closure, this is expected to generate $5-7 million in annual cost savings. Management expects the closure to be complete in the March/April timeframe. The company also completed the disposal of the 62,500 square foot Irish facility, including the termination of 46 employees.