Broad-based growth across all product lines helped
Microchip Technology Inc.
) 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
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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.
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
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.
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
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
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
Microchip presently has a Zacks Rank #3 (Hold). Players in the
industry that are worth mentioning include
Montage Technology Group Ltd.
NXP Semiconductors NV
ON Semiconductor Corp.
), each carrying a Zacks Rank #2 (Buy).