MAXIM INTEGRATED PRODUCTS INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended September 25, 2004

or

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the Transition Period from _________ to _________

COMMISSION FILE NO. 0-16538

MAXIM INTEGRATED PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)

DELAWARE		94-2896096
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer I.D. No.)

120 SAN GABRIEL DRIVE, SUNNYVALE, CALIFORNIA		94086
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code:
(408) 737-7600

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No o

Class: Common Stock,		Outstanding at October 22, 2004
$.001 par value		325,248,237 shares

MAXIM INTEGRATED PRODUCTS, INC.

INDEX

			Page

PART I. FINANCIAL INFORMATION

	ITEM 1.	Financial Statements

		Condensed Consolidated Balance Sheets as of September 25, 2004 and June 26, 2004	3

		Condensed Consolidated Statements of Income for the Three Months Ended September 25, 2004 and September 27, 2003
			4
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 25, 2004 and September 27, 2003	5

		Notes to Condensed Consolidated Financial Statements	6-12

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-18

	ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	19

	ITEM 4.	Controls and Procedures	19

PART II. OTHER INFORMATION

	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20

	ITEM 4.	Submission of Matters to a Vote of Security Holders	20

	ITEM 6.	Exhibits	20

SIGNATURES			21

CONDENSED CONSOLIDATED BALANCE SHEETS

MAXIM INTEGRATED PRODUCTS, INC.

(Amounts in thousands)	September 25, 2004			June 26, 2004

	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	246,405		$	147,734
Short-term investments		939,155			948,879

Total cash, cash equivalents and short-term investments		1,185,560			1,096,613

Accounts receivable, net		200,491			197,158
Inventories		135,818			117,785
Deferred tax assets		151,899			153,694
Income tax refund receivable		2,451			2,212
Other current assets		10,125			10,652

Total current assets		1,686,344			1,578,114
Property, plant and equipment, at cost, less accumulated depreciation		990,765			942,186
Other assets		28,922			29,162

TOTAL ASSETS	$	2,706,031		$	2,549,462

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	90,004		$	93,856
Income taxes payable		44,850			19,339
Accrued salary and related expenses		107,183			103,283
Accrued expenses		92,160			79,409
Deferred income on shipments to distributors		22,994			22,858

Total current liabilities		357,191			318,745
Other liabilities		4,000			4,000
Deferred tax liabilities		118,649			114,399

Total liabilities		479,840			437,144

Commitments and contingencies
Stockholders’ equity:
Preferred stock		—			—
Common stock		325			325
Additional paid-in capital		71,342			80,137
Retained earnings		2,157,419			2,038,820
Accumulated other comprehensive loss		(2,895	)		(6,964	)

Total stockholders’ equity		2,226,191			2,112,318

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	2,706,031		$	2,549,462

See accompanying Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

MAXIM INTEGRATED PRODUCTS, INC.

	Three Months Ended

(Amounts in thousands, except per share data)	September 25, 2004		September 27, 2003

	(Unaudited)
Net revenues	$	435,067	$	310,169
Cost of goods sold		120,252		93,028

Gross margin		314,815		217,141

Operating expenses:
Research and development		79,097		70,096
Selling, general and administrative		25,062		21,389

Total operating expenses		104,159		91,485

Operating income		210,656		125,656
Interest income and other, net		5,729		4,751

Income before provision for income taxes		216,385		130,407
Provision for income taxes		71,840		43,034

Net income	$	144,545	$	87,373

Earnings per share:
Basic	$	0.45	$	0.27

Diluted	$	0.42	$	0.25

Shares used in the calculation of earnings per share:
Basic		324,668		326,247

Diluted		344,875		347,333

Dividend declared per share	$	0.08	$	0.08

See accompanying Notes to Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

MAXIM INTEGRATED PRODUCTS, INC.

	Three Months Ended

(Amounts in thousands)	September 25, 2004			September 27, 2003

	(Unaudited)
Cash flows from operating activities:
Net income	$	144,545		$	87,373
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other		18,685			14,995
Tax benefit related to stock based compensation plans		23,788			34,608
Changes in assets and liabilities:
Accounts receivable		(3,333	)		(4,222	)
Inventories		(18,033	)		5,743
Deferred taxes		4,041			3,000
Income tax refund receivable		(239	)		4,313
Other current assets		366			(3,988	)
Accounts payable		(3,852	)		7,582
Income taxes payable		25,511			(1,542	)
Deferred income on shipments to distributors		136			1,087
All other accrued liabilities		16,651			6,563

Net cash provided by operating activities		208,266			155,512

Cash flows from investing activities:
Additions to property, plant and equipment		(66,344	)		(22,955	)
Other non-current assets		(109	)		1,379
Purchases of available-for-sale securities		(328,985	)		(602,833	)
Proceeds from sales/maturities of available-for-sale securities		344,372			424,106

Net cash used in investing activities		(51,066	)		(200,303	)

Cash flows from financing activities:
Issuance of common stock		25,907			39,379
Repurchase of common stock		(58,490	)		(15,460	)
Dividends paid		(25,946	)		(26,134	)

Net cash used in financing activities		(58,529	)		(2,215	)

Net increase (decrease) in cash and cash equivalents		98,671			(47,006	)
Cash and cash equivalents:
Beginning of period		147,734			210,841

End of period	$	246,405		$	163,835

Supplemental disclosures of cash flow information:
Income tax paid		18,738			2,659

See accompanying Notes to Condensed Consolidated Financial Statements.

MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited condensed interim consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. The results of operations for the three months ended September 25, 2004 are not necessarily indicative of the results to be expected for the entire year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the fiscal year ended June 26, 2004.

The Company has a 52-to-53-week fiscal year that ends on the last Saturday in June. Accordingly, every sixth or seventh fiscal year will be a 53-week fiscal year. Fiscal years 2005 and 2004 are 52-week fiscal years.

NOTE 2: STOCK-BASED COMPENSATION

The Company accounts for its stock option and employee stock purchase plans using the intrinsic value method prescribed in Accounting Principles Board’s Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees.” Accordingly, employee and director compensation expense is recognized only for those options whose price is less than fair market value at the measurement date. In addition, the Company discloses pro forma information related to its stock plans according to Financial Accounting Standards Board Statement No. 123 (SFAS 123) “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock Based Compensation — Transition and Disclosure.”

Under SFAS 123, the Company may elect to continue to account for the grant of stock options under APB Opinion 25, in which options granted with an exercise price equal to the fair market value on the date of grant do not require recognition of expense in the Company’s financial statements. The Company is, however, required to provide pro forma disclosure regarding net income and earnings per share as if the Company had accounted for its employee stock options and employee stock purchase rights (including shares issued under 1996 Stock Incentive Plan, 1993 Officer and Director Stock Option Plan, 1987 Stock Option Plan, 1987 Supplemental Stock Option Plan, 1987 Employee Stock Participation Plan (ESP Plan), and Supplemental Nonemployee Stock Option Plan) granted subsequent to June 30, 1995, under the methodology prescribed by that statement. Since the Company has elected to account for the grant of options under APB Opinion No. 25, the following information is for disclosure purposes only.

MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As required under SFAS 148, the reported net income and earnings per share have been presented to reflect the impact had the Company been required to include the amortization of the Black-Scholes option value as an expense. The pro forma amounts are as follows:

	Three Months Ended

(Amounts in thousands, except per share data)	September 25, 2004		September 27, 2003

	(Unaudited)
Net income - as reported	$	144,545	$	87,373
Deduction: total stock-based employee compensation expense determined under the fair value method, net of tax		36,829		16,141

Net income - pro forma	$	107,716	$	71,232

Basic earnings per share –as reported	$	0.45	$	0.27

Basic earnings per share -pro forma	$	0.33	$	0.22

Diluted earnings per share – as reported	$	0.42	$	0.25

Diluted earnings per share -pro forma	$	0.31	$	0.21

NOTE 3: INVENTORIES

Inventories consist of the following:

(Amounts in thousands)	September 25, 2004		June 26, 2004

	(Unaudited)
Raw materials	$	17,025	$	14,713
Work-in-process		80,205		73,833
Finished goods		38,588		29,239

	$	135,818	$	117,785

NOTE 4: OTHER ASSETS

Included in Other Assets at September 25, 2004 is $10.2 million of intellectual property. The intellectual property is being amortized over ten years, which is its estimated useful life. The intellectual property acquired by the Company is being used to design and develop new products as well as in some products currently in production. As required by SFAS 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company periodically assesses the recoverability of the intellectual property whenever an indicator of impairment exists. There were no inidicators of impairment as of September 25, 2004. Should it be determined in a future period that the projected remaining discounted cash flows attributable to products designed and developed with the acquired intellectual property are less than the net book value represented by the intellectual property, the Company’s results of operations could be materially adversely impacted in the period such determination is made.

Also included in Other Assets in the Consolidated Balance Sheets at September 25, 2004 are loans to employees of approximately $8.4 million. These loans are collateralized. To the extent such collateral is not sufficient to cover the amounts owed, there is risk of loss to the Company. To date, the Company has not experienced any material losses related to these employee loans.

MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5: EARNINGS PER SHARE

Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share incorporates the incremental shares issuable upon the assumed exercise of stock options. The number of incremental shares from the assumed issuance of stock options is calculated applying the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share.

	Three Months Ended

(Amounts in thousands, except per share data)	September 25, 2004		September 27, 2003

	(Unaudited)
Numerator for basic earnings per share and diluted earnings per share
Net income	$	144,545	$	87,373

Denominator for basic earning per share		324,668		326,247
Effect of dilutive securities:
Stock options		20,207		21,086

Denominator for diluted earnings per share		344,875		347,333

Earnings per share:
Basic	$	0.45	$	0.27

Diluted	$	0.42	$	0.25

Approximately 15.4 million and 24.9 million of the Company’s stock options were excluded from the calculation of diluted earnings per share for the three months ending September 25, 2004 and September 27, 2003, respectively. These options were excluded, as they were antidilutive. However, such options could be dilutive in the future.

NOTE 6: SHORT-TERM INVESTMENTS

All short-term investments at September 25, 2004 are classified as available-for-sale and consist primarily of U.S. Treasury and Federal Agency debt securities with original maturities beyond three months. Unrealized gains and losses, net of tax, on securities in this category are included in accumulated other comprehensive income (loss) which is a separate component of stockholders’ equity. The cost of securities sold is based on the specific identification method. Interest earned on securities is included in “Interest income and other, net” in the Condensed Consolidated Statements of Income. Included in cash and cash equivalents at September 25, 2004 is $20.9 million of restricted cash.

MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7: SEGMENT INFORMATION

The Company operates and tracks its results in one operating segment. The Company designs, develops, manufactures and markets a broad range of linear and mixed-signal integrated circuits. The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by Statement of Financial Accounting Standard No. 131 (SFAS 131), “Disclosures about Segments of an Enterprise and Related Information.”

Enterprise-wide information is provided in accordance with SFAS 131. Geographical revenue information is based on the customer’s ship-to location. Long-lived assets consist of property, plant and equipment. Property, plant and equipment information is based on the physical location of the assets at the end of each fiscal period.

Net revenues from unaffiliated customers by geographic region were as follows:

	Three Months Ended

(Amounts in thousands)		September 25, 2004		September 27, 2003

	(Unaudited)
United States	$	114,150	$	83,319
China		95,078		55,361
Japan		45,306		28,180
Rest of Asia		88,219		72,228
Europe		79,961		62,629
Rest of World		12,353		8,452

	$	435,067	$	310,169

Net long-lived assets by geographic region were as follows:

(Amounts in thousands)	September 25, 2004		June 26, 2004

	(Unaudited)
United States	$	768,962	$	750,195
Philippines		193,939		176,084
Rest of World		27,864		15,907

	$	990,765	$	942,186

MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8: COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) consists of net income and net unrealized gains (losses) on available-for-sale investments and forward exchange contracts. The components of other comprehensive income (loss) and related tax effects were as follows:

	Three Months Ended

(Amounts in thousands)	September 25, 2004		September 27, 2003

	(Unaudited)
Change in unrealized gains (losses) on investments, net of tax of $1,869 and $(435), respectively	$	3,794	$	(653	)
Change in unrealized gains (losses) on forward exchange contracts, net of tax of $135 and $(152), respectively		275		(308	)

	$	4,069	$	(961	)

Accumulated other comprehensive income (loss) presented in the condensed consolidated balance sheet at September 25, 2004 consists of net unrealized losses on available-for-sale investments of $(1.2) million, net unrealized losses on forward exchange contracts of $(0.2) million, and net foreign currency translation adjustments of $(1.5) million.

NOTE 9: CONTINGENCIES

On June 26, 1997, a complaint was filed by Linear Technology Corporation (“LTC”) naming the Company and certain other unrelated parties as defendants. The complaint alleges that each of the defendants, including the Company, has willfully infringed, induced infringement and contributorily infringed LTC’s United States Patent 5,481,178 relating to control circuits and methods for maintaining high efficiencies over broad current ranges in a switching regulator circuit, all of which has allegedly damaged LTC in an unspecified amount. The complaint further alleges that the Company’s actions have been, and continue to be, willful and deliberate and seeks a permanent injunction against the Company as well as unspecified actual and treble damages including costs, expenses, and attorneys fees. The Company answered the complaint on October 20, 1997, denying all of LTC’s substantive allegations and counterclaiming for a declaration that LTC’s patent is invalid and not infringed.

On September 21, 2001, the Federal District Court for the Northern District of California issued an order dismissing the patent litigation action by LTC. The Company had moved for summary judgment on a number of subjects, including noninfringement, invalidity and unenforceability of the patent. LTC appealed the decision. In June 2004, the appellate court remanded the matter to the trial court for trial. The Company then filed a request for rehearing on two issues. After making certain amendments to its opinion, the appellate court again remanded the matter for trial. The Company does not believe that the ultimate outcome of this matter will have a material adverse effect on the financial position or liquidity of the Company. However, were LTC to prevail in its claims against the Company, the Company’s operating results could be materially adversely affected.

MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On December 12, 2002, Qualcomm Inc. filed and on February 4, 2003, Qualcomm Inc. served the Company with a complaint for patent infringement claiming that certain of the Company’s products infringe one or more of Qualcomm’s patents. Qualcomm seeks a preliminary and permanent injunction as well as unspecified actual and treble damages including costs, expenses and attorneys fees. Qualcomm withdrew one of its patents from the claim in June 2003 and another in May 2004, and has added three more related patents. The Company is presently reviewing these claims and does not believe that the products in question infringe upon Qualcomm Inc. patents noted above. In May 2004, the Company won a motion for summary judgment on the issue of the inducement of infringement by its customers. While no assurance can be given in this regard, the Company does not believe that the ultimate outcome of the action will have a material adverse effect on the financial condition or liquidity of the Company. However, were Qualcomm to prevail in its claims against the Company, the Company’s operating results could be materially adversely affected.

In addition to the above, the Company is subject to other legal proceedings and claims that arise in the normal course of its business. The Company does not believe that the ultimate outcome of these matters will have a material adverse effect on the financial position of the Company.

NOTE 10: INDEMNIFICATIONS

The Company indemnifies certain customers, distributors, suppliers, and subcontractors for attorney fees and damages and costs awarded against these parties in certain circumstances in which the Company’s products are alleged to infringe third party intellectual property rights, including patents, registered trademarks, or copyrights. The terms of the Company’s indemnification obligations are generally perpetual from the effective date of the agreement. In certain cases, there are limits on and exceptions to our potential liability for indemnification relating to intellectual property infringement claims. The Company cannot estimate the amount of potential future payments, if any, that the Company might be required to make as a result of these agreements. To date, the Company has not paid or been required to defend any indemnification claims, and accordingly, the Company has not accrued any amounts for our indemnification obligations. However, there can be no assurances that the Company will not have any future financial exposure under those indemnification obligations.

NOTE 11: PRODUCT WARRANTY

The Company warrants its products to its customers generally for one year from the date of shipment, but in certain cases for longer periods. In certain other cases, the Company warrants products to include significant liability beyond the cost of replacing the product. If there is a material increase in the rate of customer claims or the Company’s estimates of probable losses relating to specifically identified warranty exposures are inaccurate, the Company may record a charge against future cost of sales. Warranty expense has historically been immaterial to the Company’s financial statements.

NOTE 12: SELF-INSURANCE ACCRUALS

The Company is self-insured with respect to defective product claims, employment practice claims, worker’s compensation claims, and general liability. Accruals are primarily based on the actuarially estimated, undiscounted cost of claims, which includes incurred-but-not-reported claims. Amounts accrued for defective product claims, employment practice claims, worker’s compensation claims and general liability are included in accrued expenses.

In addition to the above, the Company is primarily self-insured with respect to healthcare benefits for most of its domestic (United States) employees. Accruals are primarily based on estimated incurred-but-not-reported claims. Amounts accrued for employee healthcare claims are included in salary and salary related expenses.

MAXIM INTEGRATED PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13: COMMON STOCK REPURCHASES

In fiscal year 2002, the Board of Directors authorized the Company to repurchase up to 20 million shares of the Company’s common stock from time to time at the discretion of the Company’s management between the dates of such authorizations and the end of the Company’s fiscal year 2003. In May 2003, the Board of Directors extended the share repurchase authorizations noted above to the end of the Company’s fiscal year 2004. On March, 2004, the Board of Directors authorized the Company to repurchase an additional 10 million shares of the Company’s common stock. This share repurchase authorization has no expiration date. During fiscal year 2004, the Company repurchased approximately 12.4 million shares of its common stock for $601.2 million. As of June 26, 2004, approximately 4.0 million shares remained available under the repurchase authorization.

During the three months ended September 25, 2004, the Company repurchased approximately 1.3 million shares of its common stock for $58.5 million. As of September 25, 2004, approximately 2.7 million shares remained available under the repurchase authorization. The number of shares to be repurchased and the timing of such repurchases will be based on several factors, including the price of the Company’s common stock, general market and business conditions, and other factors. Common stock repurchased is retired and is not held as treasury stock.

NOTE 14: DEFERRED COMPENSATION

The Company and the Chief Executive Officer (CEO) have entered into a deferred compensation plan, pursuant to which the CEO defers receipt of a portion of his cash compensation. Deferred payments bear interest at the rate equal to the interest rate that employees of the Company are required to pay the Company under the Company’s employee loan program. Deferred payments, including interest, are payable beginning upon the CEO’s termination as an employee or service provider to the Company, in approximately equal quarterly installments over a five year period, or upon his death, payable to his designated beneficiary, in a lump sum payment as soon as administratively possible or in the event of an unforeseeable emergency. As of September 25, 2004, the CEO’s deferred compensation balance, including interest thereon, totaled $18.6 million and is included in accrued salary and related expenses in the Consolidated Balance Sheets.

NOTE 15: SUBSEQUENT EVENT

During the second quarter of fiscal year 2005, the Board of Directors declared a cash dividend of $0.10 per share on the Company’s common stock payable on November 30, 2004 to stockholders of record on November 15, 2004.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The methods, estimates and judgments the Company uses in applying its most critical accounting policies have a significant impact on the results the Company reports in its financial statements. The Securities and Exchange Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of the Company’s financial condition and results of operations, and require the Company to make its most difficult and subjective accounting judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, the Company’s most critical accounting policies include revenue recognition and accounts receivable allowances, which impact the recording of revenues; valuation of inventories, which impacts costs of goods sold and gross margins; the assessment of recoverability of long-lived assets, which impacts write-offs of fixed assets; accounting for income taxes, which impacts the income tax provision; and assessment of contingencies, which impacts charges recorded in cost of goods sold and selling, general and administrative expenses. These policies and the estimates and judgments involved are discussed further below. The Company has other key accounting policies that either do not generally require estimates and judgments that are as difficult or subjective, or it is less likely that such accounting policies would have a material impact on the Company’s reported results of operations for a given period.

Revenue Recognition and Accounts Receivable Allowances

Revenue from product sales to the Company’s direct customers is recognized upon shipment, provided that persuasive evidence of a sales arrangement exists, the price is fixed and determinable, title has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant obligations.

A portion of the Company’s sales is made to domestic distributors under agreements that provide the possibility of certain sales price rebates and limited product return privileges. Given the uncertainties associated with the levels of returns and other credits that will be issued to these distributors, the Company defers recognition of such sales and related cost of goods sold until the product is sold by the domestic distributors to their end customers. Revenue on all shipments to international distributors is recognized upon shipment to the distributor, with appropriate provision of reserves for returns and allowances, as these distributors generally do not have price rebate or product return privileges other than warranty product return privileges. Accounts receivable from both domestic and international distributors are recognized and inventory is relieved upon shipment as title to inventories generally transfers upon shipment at which point the Company has a legally enforceable right to collection under normal terms.

The Company must make estimates of potential future product returns and sales allowances related to current period product revenue. Management analyzes historical returns, changes in customer demand, and acceptance of products when evaluating the adequacy of sales returns and allowances. Estimates made by the Company may differ from actual product returns and sales allowances. These differences may materially impact reported revenue and amounts ultimately collected on accounts receivable. In addition, the Company monitors collectibility of accounts receivable primarily through review of the accounts receivable aging. When facts and circumstances indicate the collection of specific amounts or from specific customers is at risk, the Company assesses the impact on amounts recorded for bad debts and, if necessary, will record a charge in the period such determination is made. To date, the Company has not experienced material write-offs of accounts receivable due to uncollectibility.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

Inventories

Inventories are stated at the lower of cost, which approximates actual cost on a first-in-first-out basis, or market value. The Company’s standard cost revision policy is to continuously monitor manufacturing variances and revise standard costs when necessary. Because of the cyclicality of the market, inventory levels, obsolescence of technology, and product life cycles, the Company generally writes down inventories to net realizable value based on 12 months forecasted product demand. Actual demand and market conditions may be lower than those projected by the Company. This difference could have a material adverse effect on the Company’s gross margin should inventory write downs beyond those initially recorded become necessary. Alternatively, should actual demand and market conditions be more favorable than those estimated by the Company, gross margin could be favorably impacted.

Long-Lived Assets

The Company evaluates the recoverability of property, plant and equipment in accordance with Statement of Financial Accounting Standards No. 144 (SFAS 144), “Accounting for the Impairment or Disposal of Long-Lived Assets.” The Company performs periodic reviews to determine whether indicators of impairment exist that would indicate that the carrying amounts of property, plant and equipment might not be fully recoverable. If facts and circumstances indicate that the carrying amount of property, plant and equipment might not be fully recoverable, the Company compares projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining useful life against their respective carrying amounts. In the event that the projected undiscounted cash flows are not sufficient to recover the carrying value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets. Evaluation of impairment of property, plant and equipment requires estimates in the forecast of future operating results that are used in the preparation of the expected future undiscounted cash flows. Actual future operating results and the remaining economic lives of the Company’s property, plant and equipment could differ from the Company’s estimates used in assessing the recoverability of these assets. These differences could result in additional impairment charges, which could have a material adverse impact on the Company’s results of operations.

Accounting for Income Taxes

The Company records a valuation allowance to reduce the net deferred tax assets to the amount that is more likely than not to be realized. In assessing the need for a valuation allowance, historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and practicable tax planning strategies are considered. In the event it is determined that the deferred tax assets to be realized in the future would be in excess of the net recorded amount, an adjustment to the deferred tax asset valuation allowance would be recorded. This adjustment would increase income in the period such determination was made. Likewise, should it be determined that all or part of the net deferred tax asset would not be realized in the future, an adjustment to increase the deferred tax asset valuation allowance would be charged to income in the period such determination would be made.

On a periodic basis the Company evaluates its deferred tax asset balance for realizability. To the extent the Company believes it is more likely than not that some portion of its deferred tax assets will not be realized, the Company will increase the valuation allowance against the deferred tax assets. Realization of the Company’s deferred tax assets is dependent primarily upon future U.S. taxable income. The Company’s judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. These changes, if any, may require possible material adjustments to these deferred tax assets, resulting in a reduction in net income or an increase in net loss in the period when such determinations are made.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

Contingencies

From time to time, the Company receives notices that its products or manufacturing processes may be infringing the patent or intellectual property rights of others. The Company periodically assesses each matter in order to determine if a contingent liability in accordance with Statement of Financial Accounting Standards No. 5 (SFAS 5), “Accounting for Contingencies,” should be recorded. In making this determination, management may, depending on the nature of the matter, consult with internal and external legal counsel and technical experts. Based on the information obtained combined with management’s judgment regarding all the facts and circumstances of each matter, the Company determines whether it is probable that a contingent loss may be incurred and whether the amount of such loss can be estimated. Should a loss be probable and estimable, the Company records a contingent loss in accordance with SFAS 5. In determining the amount of a contingent loss, the Company takes into consideration advice received from experts in the specific matter, current status of legal proceedings, settlement negotiations which may be ongoing, prior case history and other factors. Should the judgments and estimates made by management be incorrect, the Company may need to record additional contingent losses that could materially adversely impact the Company’s results of operations. Alternatively, if the judgments and estimates made by management are incorrect and a particular contingent loss does not occur, the contingent loss recorded would be reversed thus favorably impacting the Company’s results of operations.

RESULTS OF OPERATIONS

Net Revenues

Net revenues were $435.1 million and $310.2 million for the three months ended September 25, 2004 and September 27, 2003, respectively, an increase of 40.3%. The increase in net revenues for the first quarter of fiscal year 2005 as compared to the first quarter of fiscal year 2004 is primarily due to higher unit shipments resulting from increased order rates on the Company’s already existing proprietary and second-source products and the introduction of new proprietary products.

During the three months ended September 25, 2004 and September 27, 2003, approximately 74% and 73%, respectively, of net revenues were derived from customers outside of the United States. While the majority of these sales are denominated in U.S. dollars, the Company enters into foreign currency forward contracts to mitigate its risks on firm commitments and net monetary assets denominated in foreign currencies. The impact of changes in foreign exchange rates on revenue and the Company’s results of operations for the three months ended September 25, 2004 and September 27, 2003 was immaterial.

Gross Margin

Gross margin as a percentage of net revenues was 72.4% and 70.0% for the three months ended September 25, 2004 and September 27, 2003, respectively. The gross margin percentage for the three months ended September 25, 2004 as compared to the three months ended September 27, 2003 increased primarily due to continued improvement in manufacturing efficiencies. Gross margins for the three months ended September 25, 2004 and September 27, 2003 were negatively impacted due to $4.2 million and $2.2 million of inventory write downs in such periods, respectively.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

Research and Development

Research and development expenses were $79.1 million and $70.1 million for the three months ended September 25, 2004 and September 27, 2003 respectively, which represented 18.2% and 22.6% of net revenues, respectively. The increase in research and development expenses in absolute dollars is primarily due to hiring additional engineers to support the Company’s new product development efforts and increased salary related expenses.

The level of research and development expenditures as a percentage of net revenues will vary from period to period, depending, in part, on the level of net revenues and, in part, on the Company’s success in recruiting the technical personnel needed for its new product introductions and process development. The Company continuously attempts to control and, if possible, reduce expense levels in all areas including research and development. However, the Company views research and development expenditures as critical to maintaining a high level of new product introductions, which in turn are critical to the Company’s plan for future growth.

Selling, General and Administrative

Selling, general and administrative expenses were $25.1 million and $21.4 million for the three months ended September 25, 2004, and September 27, 2003, respectively, which represented 5.8% and 6.9% of net revenues, respectively. The increase in selling, general, and administrative expenses in absolute dollars for the three months ended September 25, 2004 as compared to the three months ended September 27, 2003 is primarily due to increased headcount related expenses.

Interest Income and Other, Net

Interest income and other, net was $5.7 million and $4.8 million for the three months ended September 25, 2004, and September 27, 2003, respectively. This increase was due to higher average interest rates offset slightly by lower average invested cash, cash equivalents, and short-term investments balances.

Income Taxes

The effective income tax rate for the three months ended September 25, 2004 and September 27, 2003 was 33.2% and 33.0%, respectively. The effective rates were lower than the U.S. federal and state combined statutory rate primarily due to tax benefits on export sales.

Realization of the net deferred tax asset of $33.3 million at September 25, 2004 is dependent primarily upon achieving future U.S. taxable income of $90 million. The Company believes it is more likely than not that the net deferred tax assets will be realized based on historical earnings and expected levels of future taxable income. Levels of future taxable income are subject to the various risks and uncertainties as described in the Company’s Annual Report on Form 10-K for the fiscal year ended June 26, 2004. An increase in the valuation allowance against net deferred tax assets may be necessary if it becomes more likely than not that all or a portion of the net deferred tax assets will not be realized. The Company periodically assesses the need for increases to the deferred tax asset valuation allowance.

OUTLOOK

First quarter bookings were approximately $377 million, a 30% decrease from the fourth quarter’s level of $535 million. Turns orders received in the quarter were $117 million, a 31% decrease from the $170 million received in the fourth quarter of fiscal year 2004 (turns orders are customer orders that are for delivery within the same quarter and may result in revenue within the same quarter if the Company has available inventory that matches those orders). Bookings decreased in all geographic locations and for all business units. The Company believes that bookings exceeded consumption in the third and fourth quarters of fiscal year 2004.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

First quarter ending backlog shippable within the next 12 months was approximately $458 million, including approximately $377 million requested for shipment in the second quarter of fiscal year 2005. The Company’s fourth quarter ending backlog shippable within the next 12 months was approximately $529 million, including approximately $428 million that was requested for shipment in the first quarter of fiscal year 2005.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary sources of funds for the three months ended September 25, 2004 were from net cash generated from operating activities of $208.3 million and proceeds from the exercises of stock options and purchases of common stock under the Employee Stock Participation Plan of 1.7 million shares in the amount of $25.9 million.

Another source of cash from the Company’s stock option programs is the tax deductions that arise from exercise of options. These tax benefits amounted to $23.8 million in the three months ended September 25, 2004.

The principal uses of funds were the repurchase of 1.3 million shares of the Company’s common stock for $58.5 million, the payment of $25.9 million for dividends and the purchase of $66.3 million in property, plant and equipment. The Company believes that it possesses sufficient liquidity and capital resources to fund its property, plant and equipment purchases, common stock repurchases, dividend payments, and operations for at least the next twelve months. The Company plans to continue to repurchase its common stock in fiscal year 2005. The number of shares to be repurchased and the timing of such repurchases will be based on several factors, including the price of the Company’s common stock, general market conditions, and other factors. See Note 13 of Notes to Condensed Consolidated Financial Statements regarding the status of the Company’s common stock repurchases.

The Company is subject to pending legal proceedings. See Note 9 of the Notes to Condensed Consolidated Financial Statements for information regarding pending patent litigation. Although the results of such legal proceedings are unpredictable, the Company does not believe that any pending legal proceedings will have a material adverse impact on its liquidity or financial position. However, were LTC or Qualcomm to prevail in their claims against the Company, the Company’s operating results could be materially adversely affected.

The following table provides a summary of the effect on liquidity and cash flows from the Company’s contractual obligations as of September 25, 2004

(Amounts in thousands) (Unaudited)	Fiscal Year: 2005		2006		2007		2008		2009		2010 and thereafter		Total

Contractual obligations:
Noncancellable operating leases	$	2,136	$	1,995	$	1,186	$	838	$	366	$	172	$	6,693

Off-Balance-Sheet Arrangements

As of September 25, 2004, the Company did not have any material off-balance-sheet arrangements, as defined in Item 303 (a)(4)(ii) of SEC Regulation S-K.

FORWARD-LOOKING INFORMATION AND RISK FACTORS

This Report on Form 10-Q contains forward-looking statements that fall within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this Report, other than statements that are purely historical, are forward-looking statements, including statements regarding or implicating the Company’s expectations, intentions, plans, goals and hopes regarding the future. Words such as “anticipates,” “expects,” “intends,” “plans,” believes,” “seeks,” “estimates,” variations of such words and similar expressions identify forward-looking statements. Forward-looking statements in this Report, including this Management’s Discussion and Analysis section, involve risk and uncertainty.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT’D)

Forward-looking statements include, without limitation, the Company’s belief that the ultimate outcome of the LTC litigation, the Qualcomm litigation and any other pending legal proceedings will not have a material adverse effect on the financial position or liquidity of the Company, the Company’s belief that it is more likely than not that net deferred tax assets will be realized, the Company’s assessment of its customers’ current ordering activities and demand for products, the Company’s belief that it possesses sufficient liquidity and capital resources to fund operations for at least the next twelve months, the Company’s expectation that it will continue to repurchase its common stock in fiscal year 2005, the Company’s continuous attempts to control and reduce expenses and the Company’s intention to use the intellectual property acquired from a privately-held semiconductor company.

Actual results could differ materially from those forecasted based upon, among other things, unexpected outcomes in the Company’s pending litigation and legal proceedings, unexpected changes in earnings and taxable income that adversely affect the realizability of net deferred tax assets, the Company incorrectly assessing customer demand, customer willingness to commit to inventories and orders, and higher than expected order cancellation levels, the Company’s ability to repurchase its common stock at favorable prices, the Company’s effectiveness in controlling and reducing expenses and the Company’s ability to use the intellectual property from a privately-held company.

In addition, future business could be adversely affected by technical difficulties in bringing new products and processes to market in a timely manner; market developments that could adversely affect the growth of the mixed-signal analog market; the Company being unable to sustain its success in recruiting and retaining high-quality personnel; the Company’s success in the markets its products are introduced in; whether, and the extent to which, demand for the Company’s products increases and reflects real end-user demand; customer cancellations and delays of outstanding orders; whether the Company is able to manufacture in a correct mix to respond to orders on hand and new orders received in the future; whether the Company is able to achieve its new product development and introduction goals; whether the Company is able to effectively and successfully manage manufacturing operations; whether the Company is able to successfully commercialize its new technologies; overall worldwide economic conditions; demand for electronic products and semiconductors generally; demand for the end-user products for which the Company’s semiconductors are suited; timely availability of raw materials, equipment, supplies and services; unanticipated manufacturing problems; technological and product development risks; competitors that may outperform the Company; and other risk factors described in the Company’s filings with the Securities and Exchange Commission and in particular its report on Form 10-k for the fiscal year ended June 26, 2004.

All forward-looking statements are based on the Company’s current outlook, expectations, estimates, projections, beliefs and plans or objectives about its business and its industry. These statements are not guarantees of future performance and are subject to risk and uncertainty. Actual results could differ materially from those predicted or implied in any such forward-looking statements.

The Company disclaims any duty to and undertakes no obligation to update any forward-looking statement, whether as a result of new information relating to existing conditions, future events or otherwise or to release publicly the results of any future revisions it may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Readers should carefully review future reports and documents that the Company files from time to time with the Securities and Exchange Commission, such as its annual reports on Form 10-K (particularly Management’s Discussion and Analysis of Financial Condition and Results of Operations) and any current reports on Form 8-K.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s market risk has not changed significantly from the interest rate and foreign currency risks disclosed in Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended June 26, 2004.

ITEM 4: CONTROLS AND PROCEDURES

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer, and Vice Presidents, of the effectiveness of the Company’s disclosure controls and procedures. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934 is properly and timely recorded, processed, summarized and reported. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information that the Company is required to disclose in reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

It should be noted that any control system, no matter how well designed and operated, can provide only reasonable assurance to the tested objectives. The design of any control systems is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table summarizes the activity related to stock repurchases for the first quarter of fiscal year 2005.

	Issuer Repurchases of Equity Securities

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of SharesPurchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs

Jun. 27, 2004 – Jul. 24, 2004		11,542	$	48.66		11,542		4,006,810
Jul. 25, 2004 – Aug. 21, 2004		1,202,889	$	44.81		1,202,889		2,803,921
Aug. 22, 2004 – Sep. 25, 2004		95,381	$	42.19		95,381		2,708,540

Total for the Quarter		1,309,812	$	44.66		1,309,812		2,708,540

All shares were repurchased pursuant to the Company’s share repurchase program authorized in March 2004 to repurchase up to 10 million shares, which has no expiration date. During the first quarter of fiscal year 2005, the Company purchased 1.3 million shares for $58.5 million. As of September 25, 2004, approximately 2.7 million shares remained available under the repurchase authorization. The number of shares to be repurchased and the timing of such repurchases will be based on several factors, including the price of the Company’s common stock, general market and business conditions, and other factors.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held a special meeting of stockholders on September 17, 2004. The following proposal was voted on by the Company’s stockholders and the results thereon:

Proposal 1: Ratification and approval of an amendment and restatement of the Company’s 1996 Stock Incentive Plan, as amended, increasing the number of shares available for issuance from 104.6 million to 117.6 million.

The proposal was ratified and approved with 157,062,990 votes in favor, 118,109,144 against, and 1,530,619 abstentions.

ITEM 6: EXHIBITS

(a) Exhibits

31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

ITEMS 1, 3 AND 5 OF PART II HAVE BEEN OMITTED AS THEY ARE NOT APPLICABLE.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

November 4, 2004		MAXIM INTEGRATED PRODUCTS, INC.

(Date)		(Registrant)


		/s/ CARL W. JASPER

		CARL W. JASPER
		Vice President, Chief Financial Officer
		(For the Registrant and as Principal Financial Officer and as Chief Accounting Officer)

Exhibit Index

31.1	Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).

31.2	Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).

32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).

32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).