Maxim Surges Following CEO's Retirement

After the close yesterday, Maxim Integrated Products (MXIM) announced the retirement of 65-year-old Chairman and CEO Jack Gifford for health reasons; he was replaced as CEO by Tunc Doluca, a long-time Maxim exec.

There was some other shuffling of the executive ranks at Maxim as well. The interesting thing is that the stock is jumping on the news: with Gifford’s retirement, the Street expects to see bigger changes at Maxim. Perhaps the most intriguing idea this morning was floated by CIBC’s Rick Schafer, who wonders if the stock starts to be viewed as potential buyout bait. Here’s a rundown:

• Joe Osha, Merrill Lynch: An era came to end yesterday, as Jack Gifford, who founded Maxim Integrated Products and rubbed elbows with the semiconductor industry’s other greats in the 1960s and 1970s, announced his retirement…the departure is abrupt and almost certainly unplanned. During the many meetings we’ve had with Gifford over the years he’s always made it clear that he inteded to stay in his role as long as possible. The fact that Gifford is surrendering his board seat in addition to the CEO title suggests that the seperation is not only sudden, but intended to be complete…The question that really matters is how Maxim fares under new leadership…The transition comes at a good time given the operational challenges Maxim has faced during the past three years and the poor performance of the stock. In our view, AMD’s greatest competitive achievements came after Jerry Sanders had moved on. Tunc Doluca has a similar opportunity if Gifford give him the chance. With the stock still languishing at just above $30, we think it’s a reasonable decision to make, and we continue to be buyers with a $49 target.
• John Lau, Jefferies: A new management team should provide a new direction to MXIM at a time of slowing growth in the analog industry. Although we don’t expect to see radical changes in company’s strategy, we expect the new management to realign the company to compete more effectively against the smaller analog companies, who have been putting pressure on margins and gaining market share.
• Rick Schafer, CIBC: We anticipate that markets may respond favorably to the announcement, based on the assumption that the Board might now be more amenable to overtures from private equity…we agree in principle that MXIM is an attractive LBO target, but view such prospects more as a valuation safety net than as a price catayst. Rather, we believe the strategic vision set by Mr. Gifford to pursue growth at the expense of margins will continue to weight on shares in 2007.
• Michael Masdea, Credit Suisse: We remain concerned about increasing competition in the analog market and risks associated with the transition. However, the potential for this change to bring investors back to the story combined with MXIM’s recently announced plans to improve margins could provide the much need catalyst for the stock.
• Craig Ellis, Citigroup: Bulls will argue shares are now cleared for takeoff in valuation multiple mean reversion with leadership transition overhand removed. However, we are more cautious, seeing deep structural challenges facing Doluca’s early tenure… A bullish call now appears premature.

Maxim shares today have jumped $1.85 to $32.05.

MXIM 1-yr chart: