RESULTS OF OPERATIONS
Net sales decreased
Table of Contents
Estimated sales by end markets are based on our understanding of end market uses of our products. An estimated breakout of net sales by end markets is approximately as follows (amounts in thousands):
Quarter Ended Nine Months Ended June 30, July 1, June 30, July 1, 2013 2012 2013 2012 Communications
$ 67,769 $ 79,187 $ 208,890 $ 231,542Defense & Security 76,302 72,555 231,369 213,136 Aerospace 45,075 55,555 137,484 157,557 Industrial 53,484 51,898 147,818 147,186 Total $ 242,630 $ 259,195 $ 725,561 $ 749,421Net sales in the Communications end market decreased $11.4 millionto $67.8 millionin Q3 2013 from $79.2 millionin Q3 2012 and decreased $22.7 millionto $208.9 millionin 2013 YTD from $231.5 millionin 2012 YTD. While this end market benefited from increased contributions of voice circuit and timing and synchronization products, our overall Communications end market is sensitive to macroeconomic conditions and capital expenditure deployment, which resulted in a decline in net sales. During Q2 2013, PoE, power management, RF and voice circuit products were especially impacted by macroeconomic factors, thus impacting 2013 YTD results. We expect to continue expanding our market opportunity in timing and synchronization products and believe we are well poised for growth, as a result of new product acceptance as well as expectations for an increase in telecommunications carrier spend on these products. We expect net sales in the communications end market to increase in the upcoming quarter due to market share gains and market expansion in PoE and network synchronization, with continued steady growth from our existing timing and synchronization products. Net sales in the Defense & Security end market increased $3.7 millionto $76.3 millionin Q3 2013 from $72.6 millionin Q3 2012 and increased $18.2 millionto $231.4 millionin 2013 YTD from $213.1 millionin 2012 YTD. Sales for Q3 2012 and 2012 YTD were adversely impacted by the lack of a 2012 federal budget through the first quarter of 2012, and uncertainty surrounding the defense budget was reflected in cautious procurement plans of our customers. While the uncertainty about the impact of sequestration remains, this end market has grown steadily over the last year. We believe the most recent budget emphasizes command, control, communications, computers, intelligence, surveillance and reconnaissance and equates to growing electronic content. We also believe that net sales benefited from increasing international defense sales, enabled in part by our security product offerings, and that Microsemi'sdollar content in defense programs will increase as our products move up the value chain. We believe the Departments of Defense and Homeland Security's budgets for electronic content, an area of Microsemifocus, will continue to expand and contribute to growth in this end market. We believe that net sales have benefited from our industry leading technology breadth and total solutions approach and as a result, we are currently bidding for more potential dollar value than any time in our past. We recognize that the current uncertainty surrounding the U.S. federal budget and sequestration may result in short-term delays in defense programs but believe in our long term growth prospects for this end market. Net sales in the Aerospace end market decreased $10.5 millionto $45.1 millionin Q3 2013 from $55.6 millionin Q3 2012 and decreased $20.1 millionto $137.5 millionin 2013 YTD from $157.6 millionin 2012 YTD. We noted robust demand and order rates for commercial aircraft at aircraft manufacturers and tier one suppliers, growing electronic content in current aircraft, refurbishment programs for older aircraft and demand for the high-reliability radar and avionics solutions we provide. We believe that 2013 YTD net sales were impacted by irregular order rates that we attribute to OEMs and subcontractors filling their channels to prepare for production and then slowing as manufacturing begins. In addition, during the second quarter of 2013, sales of space level products were adversely impacted by longer lead times affecting the timing of sales; sales of space level products have somewhat recovered in Q3 2013. Space level bookings have increased over the last several quarters and we expect increased shipments of space level products along with steady commercial aerospace sales. Net sales in the Industrial end market increased $1.6 millionto $53.5 millionin Q3 2013 from $51.9 millionin Q3 2012 and increased $0.6 millionto $147.8 millionin 2013 YTD from $147.2 millionin 2012 YTD. Bookings were steady for medical, semiconductor capital equipment, industrial lasers, MRI and other broadline industrial applications while bookings for solar applications also increased. Over the intermediate to longer term, we believe that our differentiated medical products and early design-in activity in industrial automation applications will result in growth for this end market.