Wedbush Morgan analysts Craig Berger and James Schneider released a favorable note on analog chipmaker Microsemi Corporation (MSCC). Key points:
* MSCC investor concerns regarding medical device market weakness are overdone, in our view: First, the FDA's recent decision to lower reimbursement rates for implantable defibrillators is unlikely to lessen demand from sick people that need the device. Second, recent weakness at medical chip customer St. Jude is more likely due to market share losses rather than just a weak market. Third, not yet reported Medtronic results and diminished transparency at Guidant (recently bought by Boston Scientific) are causing some investors to sell in the absence of greater visibility into that business. In total, we believe these issues have a worse bark than bite.
* Our EPS sensitivity analysis leads us to conclude that the worst of the medical device-related MSCC selloff is behind us with only a $0.03 potential negative EPS impact in downside scenario.
* Microsemi's June'06 revenue guidance is likely to be in line with consensus, though we expect there could be some positive cost reduction news announced with the closing of the APT acquisition the next day.
* Channel checks indicate that Microsemi is winning some market share in notebook CCFL inverter chips.
* Reiterate BUY as we believe the MSCC growth, restructuring, and margin expansion thesis remains intact.