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Molex to invest more in niche products, strategic allies

Posted: 10 Aug 2012 ?? ?Print Version ?Bookmark and Share

Keywords:connectors? RF products? mergers & acquisitions?

Following a dismal report on its fiscal profit for 2012, Molex officials vowed to raise sales through a series of mergers and acquisitions as well as product development initiatives

Molex is seeking acquisitions in various end markets, including medical, military and industrial, and from a product perspective, it is looking to beef up its RF and cable products as well as acquire niche technologies, said Martin Slark, chief executive of Molex, in the company's earnings call with analysts.

"There will be more [acquisitions] done this year than you have seen in the last two years," he said.

And it has plenty in its coffers to do that. In fact, the company generated a record $347 million in free cash flow, of which $141 million was returned to shareholders in dividends.

"The key areas of focus in fiscal year 2013 will be growing our revenue, despite the economic climate, and continuing the operational effectiveness efforts that we have made, and to drive improvements throughout the operation," Slark said.

Sales growth will also be generated organically as it continues to reinvest between 6 and 7 percent of revenue into R&D. Molex also intends to pursue new product wins with customers that require value-added products with high engineering content, yielding heftier gross margins. Slark also said it will continue to fund new venture opportunities, citing, for instance, the more than $1 million a month it invests in its LED lighting business.

"If we can drive faster, more consistent growth in the top line, it will drive higher EPS growth. That's really the strategy," he said.

Molex expects revenue in its first fiscal quarter of 2013 to reach between $900 million and $940 million and EPS of $0.37 to $0.41 on a non-GAAP basis. For fiscal year 2013, it expects sales to grow in the 8 to 10 percent range, driven by new product introductions in the smart phone and infotainment sectors that will roll out over the next two quarters.

"New product wins with major customers showed increases in bookings in the months of May and June, which is why we will be guiding to a sequential increase in revenue later in the quarter, " said David Johnson, CFO.

The new product design wins, however, will keep gross margins in the 30 percent range since it is more costly to manufacture, Johnson said, CFO. These design wins require Molex to purchase components that are embedded in the end-products. The design also involves assembly work that is more complex in terms of shielding, according to Slark.

In fiscal 2012 ended June, gross margins grew slightly to 30.6 percent from 30.3 percent despite the 2.7 percent decline in revenue, which fell to $3.49 billion from $3.59 billion. Annual net income dropped 4.3 percent, to $281.4 million from $298.8 million.

The company attributed year-over-year declines to weak revenue in three areas: the consumer electronics market, particularly with Japanese LCD TV customers; mid-range mobile phone market; and industrial sector in Europe.

In its 2012 fourth fiscal quarter, revenue was $858.5 million, a 2.6 percent increase from the prior quarter and 6.0 percent decrease year-over-year. Net income for the June 2012 quarter was $72.0 million or $0.40 per share, compared with $64.9 million, or $0.36 per share, for the March 2012 quarter and $77.3 million, or $0.44 per share, for the June 2011 quarter.

With the exception of automotive, all of Molex's product segments, including infotech (or infotainment), telecom, consumer electronics, industrial, military/medical, showed sequential quarterly sales growth, with consumer electronics posting the largest sequential gain at 7 percent as it prepares for the pre-Christmas build. Sales to the automotive sector fell 1 percent, primarily due to weakness in Europe.

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