Microchip Beats on Q3 Earnings - Analyst Blog

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Broad-based growth across all product lines helped Microchip Technology Inc. ( MCHP ) deliver solid third-quarter fiscal 2014 revenues and earnings. Not only did this leading semiconductor manufacturer beat our estimates, but the company even exceeded the mid-end of its guidance with respect to net sales and adjusted earnings per share.

Microchip reported GAAP net income of $105.4 million or 48 cents per share in the third quarter of fiscal 2014 compared with $10.2 million or 5 cents per share in the year-ago quarter.

Excluding non-recurring items, adjusted net income for the reported quarter was $132.9 million or 61 cents per share, significantly up from $84.5 million or 41 cents per share in the year-earlier quarter. The year-over-increase in non-GAAP earnings was primarily attributable to solid top-line growth. The quarterly adjusted earnings well exceeded the Zacks Consensus Estimate of 54 cents.

Revenues

Net revenue for the reported quarter came in at $482.4 million in third quarter fiscal 2014, up 15.9% year over year, aided by a healthy microcontroller business. The quarterly revenues were also ahead of the Zacks Consensus Estimate of $480 million.  

In terms of product mix, revenues from microcontroller products accounted for 64.9% of the total revenue in the quarter ($313.3 million), while analog revenues, memory chip and licensing business represented 22.6% ($108.9 million), 7.1% ($32.5 million) and 5.0% ($24.1 million) of total revenue, respectively. By geographical regions, the bulk of the revenues came from Asia ($296.3 million), followed by Europe ($95.4 million) and the Americas ($90.7 million).

Net sales of microcontroller products were up 17.8% year over year, driven by robust sales of 8-bit, 16-bit and 32-bit microcontrollers. While the 16-bit microcontroller business climbed 27.9% year over year, 32-bit microcontroller revenues were up 29.5% in the reported quarter, driven by new design wins and applications.

Microchip shipped its 13 billionth cumulative microcontroller in November - a milestone reached just seven months after shipping its 12 billionth microcontroller in Apr 2013. The company is gaining significant market share with continued new product innovations and customer engagements. Microchip expects to continue this momentum to further strengthen its position as the best performing microcontroller franchise in the industry.

Analog revenues increased 16.7% year over year and gained a healthy market share. With nine consecutive quarters of sequential revenue growth, the Analog business has become 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 products.

Gross margin (non-GAAP) for the reported quarter was 59.0%, while operating income (non-GAAP) was $153.8 million.

Balance Sheet

With a diligent focus on right-sizing the various components of inventory holdings, Microchip's consolidated inventory at quarter end was $274.6 million or 126 days. Inventory at distributors was at 33 days with a healthy book-to-bill ratio. The company hiked its quarterly cash dividend from 35.45 cents to 35.50 cents per share, representing the 40th dividend increase since its inception.

Cash and short-term investments at quarter end were $1.3 billion, with $650 million debt under its revolving line of credit. Capital expenditures aggregated $24.3 million for the quarter. Free cash flow at quarter end was $110.3 million prior to the dividend payment.

Outlook

Concurrent with the third quarter earnings release, management provided guidance for the fourth quarter of fiscal 2014. Management expects net sales between $482.4 million and $496.8 million, while GAAP gross margin is expected to be in the range of 58.6% to 58.8%. GAAP net income is anticipated to be in the range of $97.1 million to $104.0 million, with earnings per share of 43 cents to 47 cents.

Microchip expects to increase cash and investments by approximately $135 million to $155 million in the fourth quarter prior to the dividend payment. The company expects to incur $30 million in capital expenditure in the next quarter, bringing its tally to about $115 million for fiscal 2014.

With 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 as well.

Microchip presently has a Zacks Rank #3 (Hold). Players in the industry that are worth mentioning include Montage Technology Group Ltd. ( MONT ), NXP Semiconductors NV ( NXPI ) and ON Semiconductor Corp. ( ONNN ), each carrying a Zacks Rank #2 (Buy).



MICROCHIP TECH (MCHP): Free Stock Analysis Report

MONTAGE TECH GP (MONT): Free Stock Analysis Report

NXP SEMICONDUCT (NXPI): Free Stock Analysis Report

ON SEMICON CORP (ONNN): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: MCHP , MONT , NXPI , ONNN

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