MAXIM INTEGRATED PRODUCTS, INC. Overview of Business
Impact of COVID-19
The recent coronavirus (COVID-19) pandemic and the mitigation efforts by governments to attempt to control its spread are impacting and will likely continue to impact our operations, customers, and suppliers for an indefinite period of time. While we have implemented safeguards and procedures to counter the impact of the COVID-19 pandemic, the full extent to which the COVID-19 pandemic has and will directly or indirectly impact us, including our business, financial condition, and results of operations, will depend on future developments that are highly uncertain and cannot be accurately predicted, including the further mitigation efforts taken to contain it or treat its impact and the economic impact on local, regional, national and international markets. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, suppliers, and stockholders.
The Linear and Mixed-Signal Analog Integrated Circuit Market
All electronic signals generally fall into one of two categories, linear or digital. Linear (or analog) signals represent real world phenomena, such as temperature, pressure, sound or speed, and are continuously variable over a wide range of values. Digital signals represent the "ones" and "zeros" of binary arithmetic and are either on or off.
Three general classes of semiconductor products arise from this distinction
between linear and digital signals:
• digital devices, such as memories and microprocessors that operate
primarily in the digital domain;
• linear devices, such as amplifiers, references, analog multiplexers and
switches that operate primarily in the analog domain; and
• mixed-signal devices such as data converter devices that combine linear
and digital functions on the same integrated circuit and interface between
the analog and digital domains.
Our strategy has been to target both the linear and mixed-signal markets, often collectively referred to as the analog market. However, some of our products are exclusively or principally digital. While our focus continues to be on the linear and mixed-signal market, our capabilities in the digital domain enable development of new mixed-signal and other products with highly sophisticated digital characteristics.
At the beginning of fiscal year 2020, we combined our Computing Major End-Market category with our Communications and Data Center Major End-Market category. Our former Computing Major End-Market category focused on Desktop Computers, Notebook Computers, and Peripherals and Other Computer markets.
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Our linear and mixed-signal products now serve four major end-markets: (i) Automotive, (ii)Communications and Data Center , (iii) Consumer and (iv) Industrial. These major end-markets and their corresponding markets are noted in the table below: MAJOR END-MARKET MARKET AUTOMOTIVE Infotainment PowertrainBody Electronics Safety and Security COMMUNICATIONS & DATA CENTER Base Stations Data Center Data Storage Desktop Computers Network & Datacom Notebook Computers Peripherals & Other Computer Server TelecomOther Communications CONSUMER Smartphones Digital Cameras Handheld ComputersHome Entertainment & Appliances Wearables Other Consumer INDUSTRIAL Automatic Test Equipment Control & Automation Electrical Instrumentation Financial Terminals Medical Security USB ExtensionOther Industrial CRITICAL ACCOUNTING POLICIES
The methods, estimates, and judgments we use in applying our most critical
accounting policies have a significant impact on the results we report in our
financial statements.
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sold, selling, general and administrative expenses and income taxes. These
policies and the estimates and judgments involved are discussed further in the
Management's Discussion and Analysis of Financial Condition in our Annual Report
on Form 10-K for the fiscal year ended
Except for the accounting policies and estimates outlined under Part I, Item 1.
Financial Statements - Note 2, there have been no material changes during the
nine months ended
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RESULTS OF OPERATIONS
Impact of COVID-19 on Our Business The COVID-19 pandemic has impacted and will continue to impact the Company's operations, employees, customers, and suppliers, due to shelter-in-place orders, mandated quarantines, reduced facility operations, and travel bans and restrictions. While the operating results for the fourth quarter of fiscal year 2020 and thereafter may be impacted by COVID-19, the extent and form of such impact to our business is uncertain and cannot be estimated with any degree of certainty.Employee Health and Safety During the last month of the fiscal quarter, the Company's facilities and offices were either operating at reduced capacity or temporarily closed for non-essential operations. In an effort to protect the health and safety of our employees, we implemented safety measures such as work-from-home practices, travel restrictions, extensive cleaning protocols, and social distancing when engaging in essential activities. Focus on Customers We continue to work with our sales, supplier, and customer design and engineering teams to meet current demand. Teams meet remotely, through telephonic or video conferences and by leveraging available technology, to continue the design and engineering process that would normally take place at physical customer locations. Manufacturing and Operations We will continue to actively monitor this rapidly-evolving situation and are working to adopt and implement government-placed orders, in addition to our own actions, in all our locations. While supply chain disruptions outside of our operations have impacted the way we conduct business, we continuously implement alternative procedures to counter the negative effects of such disruptions. The following table sets forth certain Condensed Consolidated Statements of Income data expressed as a percentage of net revenues for the periods indicated: Three Months Ended Nine Months Ended March 28, March 30, March 28, March 30, 2020 2019 2020 2019 Net revenues 100.0 % 100.0 % 100.0 % 100.0 % Cost of goods sold 34.8 % 37.2 % 35.0 % 34.9 % Gross margin 65.2 % 62.8 % 65.0 % 65.1 % Operating expenses: Research and development 19.4 % 19.7 % 20.0 % 18.8 % Selling, general and administrative 12.7 % 13.7 % 13.6 % 13.3 % Intangible asset amortization 0.1 % 0.1 % 0.1 % 0.1 % Impairment of long-lived assets - % - % - % - % Severance and restructuring expenses 0.1 % 0.3 % 0.3 % 0.2 % Other operating expenses (income), net 0.2 % - % 0.1 % - % Total operating expenses 32.6 % 33.9 % 34.1 % 32.5 % Operating income 32.6 % 29.0 % 30.9 % 32.6 % Interest and other income (expense), net (0.3 )% 0.6 % - % 0.2 %
Income before provision for income taxes 32.3 % 29.6 % 30.9 % 32.8 % Income tax provision (benefit)
3.7 % 5.5 % 3.7 % 6.6 %
Net income 28.7 % 24.1 % 27.2 % 26.2 %
The following table shows stock-based compensation included in the components of the Condensed Consolidated Statements of Income reported above as a percentage of net revenues for the periods indicated:
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Three Months Ended Nine Months Ended
March 28, March 30, March 28, March 30,
2020 2019 2020 2019
Cost of goods sold 0.6 % 0.5 % 0.5 % 0.4 %
Research and development 2.0 % 2.0 % 2.0 % 1.7 %
Selling, general and administrative 1.6 % 1.7 % 1.8 % 1.5 %
4.2 % 4.2 % 4.3 % 3.6 %
Net Revenues
Net revenues were
Net revenues were
During each of the three months ended
Gross Margin
Our gross margin percentages were 65.2% and 62.8% for the three months ended
Our gross margin percentages were 65.0% and 65.1% for the nine months ended
Research and Development
Research and development expenses were
Research and development expenses were
Selling, General and Administrative
Selling, general and administrative expenses were
Selling, general and administrative expenses were
Provision for Income Taxes
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In the three and nine months ended
The Company's federal statutory tax rate is 21%. The Company's effective tax
rate for the three and nine months ended
The Company's effective tax rate for the three months ended
The Company's effective tax rate for the nine months ended
BACKLOG
As of
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
Cash flows were as follows:
Nine Months Ended
March 28 , March 30,
2020 2019
(in thousands)
Net cash provided by (used in) operating activities
Operating activities
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities.
Cash provided by operating activities decreased by
Investing activities
Investing cash flows consist primarily of net investment purchases and maturities, and capital expenditures.
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Cash provided by investing activities decreased by
Financing activities
Financing cash flows consist primarily of payment of debt, dividends to stockholders, and repurchases of common stock.
Cash used in financing activities decreased by
Liquidity and Capital Resources
Our primary source of liquidity is our cash flows from operating activities resulting from net income and management of working capital.
As of
On
During the three and nine months ended
We anticipate that the available funds and cash generated from operations will be sufficient to meet cash and working capital requirements, including the anticipated level of capital expenditures, debt repayments and dividend payments for at least the next twelve months.
Off-Balance-Sheet Arrangements
As of
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