Maxim Integrated (MXIM, Financial) reported weaker than expected results in the recently reported quarter. The company fell due to weakness at its leading mobility customer's flagship smartphone and tablet product. The company is now making efforts to execute a turnaround. It is majorly focusing on initiatives that are expected to improve its long-term credibility and growth. Maxim has to make some concrete moves to get over its weakness, as it expects this weakness to continue in the coming quarters as well. It has to undertake some defensive initiatives in order to keep its position intact in the market.
Trying to make a comeback
Maxim is now focusing on various initiatives to improve its market share. The company is undertaking many cost cutting initiatives that are expected to improve its margins in the near term. Maxim has also lowered its spending on R&D initiatives. Besides that, it is more focused on investing in its growth businesses that are showing positive signs and are expected to yield higher returns in the coming quarters.
Maxim is now focusing only on core growth prospects and it is closing down its non-core operations. It has recently decided to close down its San Jose fab, which was used for development and low volume manufacturing. In addition, Maxim is also making a strategic shift in advanced node process technology development through a new collaboration with its foundry partners.
Further, Maxim is planning to commercialize its leading technologies that are developed in its San Jose fab by transferring its manufacturing capability to a combination of internal and external factories. Maxim is expecting this initiative to improve it structurally enhancing its operational efficiency. This is also expected to strengthen its long term prospects.
Looking at the bright areas
However, Maxim is pleased with the momentum that it is seeing with its strategy of mixed signal and analog integration. It is also making impressive moves to grow its mobility business. It is supporting this growth initiative by increasing content opportunities. As the new platform of wearable devices is gaining steam in the market, Maxim is also focusing on broadening its customer revenue base.
Moving on, Maxim is seeing several design wins at its other large mobility customers. The company is benefiting from the tablet platform in this category. Seeing this platform growing, Maxim is also making ways to win several designs in the future. It is advancing its strategic relationships with Chinese smartphone manufacturers. But, with the expected weakness in the future, Maxim is expecting soft revenue in the near term.
Moreover, Maxim is also seeing healthy signs from the distribution business. It is seeing good resale from the Asian markets. This is helping it in offsetting the weakness that it is seeing from weak resale in the European markets. In addition, the automotive segment of Maxim is also expected to improve as design wins in this segment are adding meaningfully to its operational efficiencies.
Maxim is seeing strength in the server and data center markets. The growth in this segment is mainly driven by strong demand that it is seeing for its Volterra products. The Volterra acquisition has been a wise move by the company and it is expecting to benefit from this in 2015 as well with new communication opportunities.
Conclusion
The stock looks reasonable with a trailing P/E of 23.75, while the forward P/E of 15.83 shows good growth in earnings. Considering all these facts, it can be seen that Maxim is a good pick that investors can consider for the long run.
