Broad-based growth across all product lines helped
Microchip Technology Inc.
) deliver record fourth-quarter and fiscal 2014 revenues and
earnings. Not only did this leading semiconductor manufacturer
beat our estimates, but the company also exceeded the mid-end of
its guidance with respect to net sales, gross margin, operating
margin and adjusted earnings per share.
Microchip reported GAAP net income of $111.5 million or 50 cents
per share in the fourth quarter of fiscal 2014 compared with
$59.7 million or 28 cents per share in the year-ago quarter. The
stellar 86.8% year-over-year increase in GAAP earnings is
primarily attributable to record quarterly sales and lower
Excluding non-recurring items, adjusted net income for the
reported quarter was a record high of $141.3 million or 64 cents
per share, significantly up from $109.3 million or 52 cents per
share in the year-earlier quarter. The quarterly adjusted
earnings well exceeded the Zacks Consensus Estimate of 55 cents.
For fiscal 2014, Microchip reported GAAP net income of $395.3
million or $1.82 per share compared with $127.4 million or 62
cents per share in fiscal 2013. The phenomenal 210.3%
year-over-year increase in GAAP earnings was largely driven by
record fiscal revenues.
Excluding non-recurring items, adjusted net income for the
reported fiscal was $531.0 million or $2.45 per share compared
with $388.5 million or $1.89 per share in fiscal 2013. The
adjusted earnings for fiscal 2014 comfortably beat the Zacks
Consensus Estimate of $2.19.
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Net revenue for the reported quarter came in at $493.4 million,
up 14.7% year over year, aided by all-time high sales of
microcontrollers. The quarterly revenues were also ahead of the
Zacks Consensus Estimate of $491 million. For fiscal 2014,
Microchip's net sales were $1.93 billion compared with $1.58
billion in fiscal 2013.
In terms of product mix, revenues from microcontroller products
accounted for 66.2% of the total revenue in the quarter ($326.4
million), while analog revenues, memory chip and licensing
business represented 21.8% ($107.5 million), 6.7% ($33.1 million)
and 4.7% ($23.2 million) of total revenue, respectively. By
geographical regions, the bulk of the revenues came from Asia
($284.6 million), followed by Europe ($115.9 million) and the
Americas ($92.8 million).
Net sales of microcontroller products were up 18.3% year over
year in the quarter and 20.8%, respectively, driven by robust
sales of 8-bit, 16-bit and 32-bit microcontrollers. While the
16-bit microcontroller business climbed 38.3% and 44.2% for the
reported quarter and fiscal, respectively, 32-bit microcontroller
revenues were up 66% and 73% with new design wins and
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 increased 10.6% and 32% in the quarter and fiscal
2014, respectively, on a year-over-year basis. 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
Microchip recently completed the acquisition of integrated
circuits (IC) manufacturer Supertex Inc., which will operate as
one the divisions of its analog business. This strategic purchase
will enable Microchip to expand in the Medical, Industrial and
Lighting verticals. Microchip is also expected to leverage
Supertex' strong domain knowledge in high voltage analog and
mixed signal technologies to achieve significant operating
synergies and create cross-selling opportunities.
Microchip recorded gross margin (non-GAAP) of 59.3% for the
reported quarter, while operating income (non-GAAP) touched a
record high at $161.5 million. Non-GAAP operating margin for the
quarter was 32.7% and Microchip was confident of achieving its
long-term goal of 35% non-GAAP operating margin in the near
future. Gross margin (non-GAAP) for fiscal 2014 was 58.8%, while
operating income (non-GAAP) was at an all-time high of $613.2
With a diligent focus on right-sizing the various components of
inventory holdings, Microchip's consolidated inventory at quarter
end was $262.7 million or 118 days. Inventory at distributors was
at 33 days. The company hiked its quarterly cash dividend from
35.50 cents to 35.55 cents per share, representing the 41st
dividend increase since its inception.
Cash and short-term investments improved to $2.14 billion, with
$650 million debt under its revolving line of credit. Capital
expenditures aggregated $34.7 million for the quarter.
Concurrent with the fourth quarter and fiscal 2014 earnings
release, management provided guidance for the first quarter of
fiscal 2015. Management expects net sales between $519.8 million
and $534.6 million, while non-GAAP gross margin is expected in
the range of 59.3% to 59.5%. Non-GAAP net income is anticipated
in the range of $143.7 million to $151.7 million, with earnings
per share of 64 cents to 68 cents.
Microchip expects to increase cash and investments by
approximately $140 million to $160 million in the first quarter
prior to the dividend payment. The company expects to incur $40
million in capital expenditure in the next quarter, bringing its
tally to about $125 million for fiscal 2015.
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 #2 (Buy). Other players in
the industry that are worth mentioning include
Montage Technology Group Ltd.
ON Semiconductor Corp.
). While Montage currently holds a Zacks Rank #1 (Strong Buy),
MaxLinear and On Semiconductor carry a Zacks Rank #2 (Buy)