Microchip Technology Incorporated
) recently announced the completion of its previously announced
acquisition of Standard Microsystems Corporation.
Concurrent with the 1Q13 earnings release last week, Microchip
updated the integration process of Standard Microsystems's
Microchip currently reports in five different product lines --
microcontrollers, analog products, memory products, licensing and
others -- while Standard Microsystem's product lines include
automotive, wireless audio, USB, industrial networking and
computing. Following the merger, Microchip will continue run these
product lines as Standard Microsystems's business lines are
more end market-based rather than product determined.
Management expects that Microchip's microcontrollers, analog and
memory products will find market in automotive, wireless audio and
computing customers with Standard Microsystems's.
Meanwhile, Standard Microsystems's mixed signal/analog products
cater to a wide array of markets like automotive, PC, industrial
and consumer, and management expects that this business will
benefit from Microchip's strategy of expanding in the large
horizontal customer base.
Microchip will not create any additional product line for
Standard Microsystems's products. Revenue from Standard
Microsystems will be included with Microchip's microcontroller and
analog revenue product line. With the addition of Standard
Microsystems's business, Microchip will extend its reach to two
additional vertical markets for Microchip namely - wireless audio
On the manufacturing front, Standard Microsystems uses many of
the same wafer foundries as Microchip for acquiring some of its
wafers. Standard Microsystems subcontracts 100% of its assembly and
90% of its test operations. These packages are different from
Microchip's. Hence, Microchip expects that the majority of the
assembly and test of the Standard Microsystems products will remain
with the subcontractors.
However, some of the manufacturing systems such as wafer
ordering, assembly and test management, shipments and warehouses
are expected to be combined and management also expects shipment of
all Standard Microsystems products from Microchip's manufacturing
systems to start by January 1, 2013 or earlier.
Excluding one-time items, Microchip currently assumes that the
acquisition will add approximately 3 cents to the bottom line in
the September quarter and 6-7 cents in the December quarter and 7-8
cents in the March quarter next year and 8-9 cents in the June
quarter next year.
Last week, the company reported its first quarter of 2013, which
missed the Zacks Consensus Estimate by a penny.
We continue to maintain a Neutral recommendation on Microchip.
Our Neutral recommendation is supported by a Zacks #3 Rank, which
translates into a short-term rating of Hold.
MICROCHIP TECH (MCHP): Free Stock Analysis
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