Microchip Technology Incorporated
) recently updated its integration activities with Standard
Microsystems. Microchip Technology signed a definitive agreement
in May 2012 to acquire Standard Microsystems Corporation for
$37.00 per share in cash for about $939 million. The net value
stood at $766 million, excluding Standard Microsystems cash and
investments on its balance sheet of approximately $173
The merger was approved in July 2012. Concurrent with the
second quarter 2013 earnings release last week, Microchip updated
the integration process of Standard Microsystems's
Microchip remains on track to ship products of Standard
Microsystems from its operational system by January 1, 2013 and
converge all business tracks by the first quarter of calendar
Microchip intends to exploit the assembly and test
infrastructure in Thailand to obtain synergies. The company has
combined its supply chains and hence has identified a number of
opportunities to improve its cost structure.
Microchip has already identified a number of synergy
opportunities in the area of IP acquisition and development, CAD
infrastructure, reference design, joint marketing and joint
Meanwhile, Microchip continues to maintain its focus on the
different product lines to ensure customer focus and continuity
as the sales teams work together to cross-train and identify
cross-selling opportunities as the integration progresses
Microchip has combined the distribution networks of the two
companies and franchised
), which was distributing Standard Microsystems products, to sell
Microchip products as well and franchised Future Electronics,
which was the distributor for Microchip products, to sell
Standard Microsystems products.
Consequently, all the three global distributors,
), Arrow and Future Electronics, are now distributing Microchip's
complete product line globally.
Standard Microsystems is expected to contribute approximately
$87 million to $94 million to the top line in the December
quarter. However, the business is expected to be weak due to the
global macroeconomic uncertainty.
Excluding one-time items, Microchip currently assumes that the
acquisition will add approximately 4-5 cents in the December
quarter, down from the earlier projection of 6-7 cents due to the
soft business conditions. The acquisition will add 5- 6 cents in
the March quarter next year and 6-7 cents in the June quarter
next year, down by a penny from the earlier projection.
Microchip is also undertaking actions to improve the gross
margin of the combines business portfolio, lower operating
expenses and substantially increase its operating profit.
Last week, the company reported its second quarter of 2013,
which missed the Zacks Consensus Estimate by 5 cents.
We believe the integration process will be a difficult affair
and the company might not be able to achieve the targeted
synergies. We continue to maintain a Neutral recommendation on
Microchip. However, the near-term weakness enforces us to have a
Zacks #5 Rank on Microchip, which translates into a short-term
rating of Strong Sell.
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