Maxim Integrated (Nasdaq: MXIM ) has been a volatile stock this past year. The analog-semiconductor company has struggled with its new strategic direction, weak end-market demand (fewer customers with open checkbooks), and an investigation into stock-option backdating. Although the recent and unexpected retirement of a founder and head executive is rarely considered a positive, it is probably good for Maxim and for CEO Jack Gifford.
It's not as though Gifford doesn't know what he is doing. The analog-device industry wouldn't be the same without him. He started in the field in the 1960s at Fairchild Semiconductor (NYSE: FCS ) . He helped co-found Advanced Micro Devices (Nasdaq: AMD ) with Jerry Sanders. He assisted in running Intersil (Nasdaq: ISIL ) during the time GE purchased it. And he also has the dubious honor of being fired from Intersil by another Jack -- Jack Welch -- for not giving up his stock options. (I'm fearful that this footnote is a foreshadowing of things to come.)
Determined to build a premier analog company, Gifford went on to found Maxim in 1983. From there, just look at the stock price to see the wealth he has created for the company and its shareholders. Since March of 1990, which is as far back as my data goes, Maxim has appreciated more than even Microsoft. However, the party ended when the tech bubble burst in 2000. Since then, Maxim's share prices have fallen from highs in the $90s and a P/E of more than 100 down to a more reasonable trailing P/E of 22 and a stock price in the low $30s.
However, even with the less frothy valuation, Maxim is struggling to grow its business. Its plan is to increase its toehold in the integrated-circuit chip market. This means moving away from being a pure analog-device designer such as Linear Technology (Nasdaq: LLTC ) toward increased competition with Analog Devices (NYSE: ADI ) and Texas Instruments (Nasdaq: TXN ) .
So far, the plan has had its speed bumps. The transition hasn't been easy as it upgrades its facilities to handle larger wafers, which are more profitable, and converts its fabrication facilities to handle the increased number of integrated-chip designs. Gross margins have also continued to fall as the company aggressively pursues new business. Lastly, it hasn't helped that the overall industry has had problems with excess inventory and falling demand, a situation that has caused many investors to lower their expectations for the industry as a whole.
As an investor, I believe that the short-term issues I have mentioned are discounted into Maxim's current share price. I see it as a positive that Gifford is letting go. A new level of energy and sense of urgency should help the company get through its recent struggles. At this point, I don't see any reason to sell my shares.
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