Broad-based growth across all product lines helped
Microchip Technology Inc.
) deliver record first-quarter fiscal 2015 revenues and adjusted
earnings. Not only did this leading semiconductor manufacturer beat
our estimates, but the company also reported at the high-end of its
guidance with respect to sales, non-GAAP gross margin and adjusted
Microchip reported GAAP net income of $89.9 million or 40 cents per
share in the first quarter of fiscal 2015 compared with $78.6
million or 37 cents per share in the year-ago quarter. The healthy
14.4% year-over-year increase in GAAP earnings is primarily
attributable to record quarterly sales.
Excluding non-recurring items, adjusted net income for the reported
quarter was a record high of $151.6 million or 68 cents per share,
significantly up from $120.4 million or 57 cents per share in the
year-earlier quarter. The quarterly adjusted earnings well exceeded
the Zacks Consensus Estimate of 62 cents.
Net revenue (non-GAAP) for the reported quarter came in at an
all-time high of $531.3 million, up 14.8% year over year, aided by
record sales of microcontrollers and analog products. The quarterly
revenues were also ahead of the Zacks Consensus Estimate of $527
In terms of product mix, revenues from microcontroller products
accounted for 64.7% of the total revenue in the quarter ($343.8
million), while analog revenues, memory chip and licensing business
represented 24.1% ($127.8 million), 6.3% ($33.4 million) and 3.8%
($20.4 million) of total revenue, respectively. By geographical
regions, the bulk of the revenues came from Asia ($318.3 million),
followed by Europe ($109.7 million) and the Americas ($103.3
Net sales of microcontroller products were up 14.5% year over year
in the quarter driven by record sales of 8-bit, 16-bit and 32-bit
microcontrollers. While the 16-bit microcontroller business climbed
26.5% for the reported quarter, 32-bit microcontroller revenues
were up 59.8% with new design wins and applications.
The microcontroller business continued to outperform the industry
and enabled Microchip to gain significant market share. Microchip
expects to continue this momentum to further strengthen its
position as the best-performing microcontroller franchise in the
Analog revenues, including the contribution from Supertex,
increased 23.8% in the reported quarter on a year-over-year basis.
The Analog business has evolved as one of the best performing
analog franchises in the industry. In order to further capitalize
on this burgeoning business potential, Microchip is developing and
introducing a wide range of innovative and proprietary new
During the quarter, Microchip acquired 83.5% of ISSC Technologies
Corporation, a low power Bluetooth and advanced wireless solutions
provider for the Internet of Things, to supplement its presence in
these niche markets. The company expects to complete the
acquisition by December this year. The transaction is expected to
be accretive to Microchip's non-GAAP earnings from the very first
quarter of its operation. The strategic purchase complements
Microchip's initiatives in the wireless market, by leveraging
ISSC's deep domain knowledge in Bluetooth and wireless technologies
to enable significant cross-selling opportunities.
Microchip recorded gross margin (non-GAAP) of 59.8% for the
reported quarter, while operating income (non-GAAP) was $176.3
million. Non-GAAP operating margin for the quarter was 33.2% and
Microchip was confident of achieving its long-term goal of 35%
non-GAAP operating margin in the near future.
With a diligent focus on right-sizing the various components of
inventory holdings, Microchip's consolidated inventory (including
Supertex) at quarter end was $264.5 million or 109 days. Inventory
at distributors was at 31 days. The company hiked its quarterly
cash dividend from 35.55 cents to 35.60 cents per share,
representing the 42nd dividend increase since its inception.
Cash and short-term investments improved to $2.29 billion, with
$980 million debt under its revolving line of credit. Capital
expenditures aggregated $44.6 million for the quarter.
Concurrent with the first quarter earnings release, management
provided guidance for the second quarter of fiscal 2015. Management
expects net sales between $560.0 million and $575.9 million, while
non-GAAP gross margin is expected in the range of 59.2% to 59.6%.
Non-GAAP net income is anticipated in the range of $155.7 million
to $164.8 million, with earnings per share of 70 cents to 74 cents.
Microchip expects to increase cash and investments by approximately
$160 million to $180 million in the second quarter prior to the
dividend payment. The company expects to incur $50 million in
capital expenditure in the next quarter, bringing its tally to
about $175 million for fiscal 2015.
With record revenues, better-than-expected bookings and increasing
requests on the back of strong demand and robust product designs,
we expect Microchip to continue its bull run in the coming quarters
Microchip presently has a Zacks Rank #3 (Hold). Other players in
the industry that are worth mentioning include ON Semiconductor
), Fairchild Semiconductor International Inc. (
) and Analog Devices, Inc. (
), each carrying a Zacks Rank #2 (Buy).
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