Aliso Viejo-based chipmaker Microsemi Corp. enters a new fiscal year with a record backlog of contracts fueled by a resurgence in defense and security spending.
“That environment is really changing now,” said Chief Executive James Peterson, highlighting several factors in the rosier outlook, including increased security at airports and the changing political climate that helped Republicans regain a majority in the U.S. Senate in the recent midterm elections.
L-3 Communications Security & Detection Systems Inc. in Woburn, Mass., is expected to double purchases next year of Microsemi components used in scanners that help detect weapons and contraband in airports, military posts, government buildings and other law enforcement settings.
Microsemi acquired the millimeterwave technology, which is at the heart of the device, in 2011 from Florida-based Brijot Imaging Systems Inc. for an undisclosed amount.
Optimism
The expected addition of orders reflects a general optimism in the defense market Peterson hasn’t felt in more than five years.
Peterson told analysts on a recent conference call that 2015 will mark a return to overall growth for defense end markets in the U.S.
“Following several long years in a budget restructuring environment, we are seeing the beginning of a new cycle, and we’re expecting a long and steady growth opportunity from our defense-end markets in 2015 and beyond,” he said.
That lofty sentiment may not play out throughout Orange County, home to a diversified group of parts makers, equipment manufacturers and other component suppliers in the influential industry.
Microsemi owes some of its expected gains to the company’s long-held roll-up strategy, which has brought market-share gains in the defense sector supply chain. Its $430 million deal in 2010 for Mountain View-based Actel Corp., for example, brought a new growth market: super-speedy computing processing chips known as field-programmable gate arrays, or FPGAs.
The chips—which can be programmed by customers after production and can’t be duplicated after use—primarily control systems and manage data.
The added safeguards against security breaches have been attractive for the company’s long list of defense contractor and aerospace clients, which include Northrop Grumman, Boeing Co. and Airbus.
The FPGA segment totaled nearly $275 million in revenue for Microsemi in the 12 months through September, or 24% of total sales, up 8% from the prior fiscal year.
Microsemi last week announced that 15,000 of its components—including FPGAs, diodes, transistors and integrated circuits—are part of the Rosetta Spacecraft, which traveled some 4 billion miles in 10 years on its comet-orbiting flight and research mission.
The products support mission-critical functions, avionics and platform operations.
The company’s components played a similar role in the launch of the Mars Curiosity rover in 2012.
Microsemi, the second largest OC chipmaker in terms of revenue behind Irvine-based Broadcom Corp., closed the books on its recently ended fiscal year with about $1.1 billion in sales, up 16.6% over a year ago.
Net income for the fiscal year hit $206.8 million, up 16.4%.
“We had a good year,” said Peterson. “We solidly broke through that billion-dollar barrier.”
$1.2 Billion
Microsemi projects sales to increase 8% in the current fiscal year to about $1.2 billion, with gains coming beyond the defense and security markets, reflecting the company’s ongoing diversification.
Microsemi once counted on timing and synchronization chips, as well as discrete power chips—designed with extra security considerations—for the bulk of its revenue. The company has in recent years put research and development dollars into the rapidly growing communications-infrastructure market.
The Business Journal this month reported that Microsemi and Broadcom are developing a new connectivity standard for next-generation digital subscriber lines, commonly referred to as DSL.
Revenue in the communications segment grew more than 46% to $407 million in the 12 months through September, partially driven by Microsemi’s $304 million acquisition of Symmetricom Inc. in late 2013. The San Jose-based company specializes in time-keeping technology.
Modernizing Commercial Aircraft
Microsemi’s industrial line of business is also in position for long-term growth with the ongoing modernization of commercial aircraft production.
Boeing and Airbus, which have a duopoly on commercial aircraft production, have tapped Microsemi to outfit next-generation planes with complete electronics systems that will gradually replace hydraulic-based versions.
The aerospace industry has a record contract backlog related to this type of outfitting, with Microsemi in the supply chain for the next five to seven years, according to Peterson.
“We’re in a good spot,” he said.
