Broad-based growth across all product lines helped
Microchip Technology Inc.
) deliver stellar second-quarter fiscal 2014 revenues and
adjusted earnings. Not only did this leading semiconductor
manufacturer beat our estimates, but the company even exceeded
the high-end of its guidance with respect to net sales, non-GAAP
gross margin percentage and adjusted earnings per share.
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Microchip reported GAAP net income of $99.8 million or 46 cents
per share in the second quarter of fiscal 2014 compared to a GAAP
loss of $21.2 million or 11 cents per share in the year-ago
Excluding non-recurring items, adjusted net income for the
reported quarter was a record high of $136.4 million or 63 cents
per share, up 39.5% from $97.7 million or 48 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 55 cents.
Net revenue for the reported quarter came in at $492.7 million in
second quarter fiscal 2014, up 28.5% year over year, aided by a
healthy microcontroller business. The quarterly revenues were
also ahead of the Zacks Consensus Estimate of $482 million.
In terms of product mix, revenues from microcontroller products
accounted for 65.2% of the total revenue in the quarter, while
analog revenues, memory chip and licensing business represented
22.0%, 7.1% and 5.0% of total revenues, respectively. By
geographical regions, bulk of the revenues came from Asia ($298.6
million), followed by Europe ($98.9 million) and the Americas
Net sales of microcontroller products recorded an all-time high
of $321 million, up 22.9% year over year, driven by robust sales
of 8-bit, 16-bit and 32-bit microcontrollers. While 16-bit
microcontroller business climbed 48.1% year over year, 32-bit
microcontroller revenues were up a staggering 53.4% in the
reported quarter compared with the year-ago quarter, driven by
new design wins and applications.
Microchip expects to ship its 13 billionth cumulative
microcontroller in November - a milestone reached just seven
months after shipping its 12 billionth microcontroller in April
this year. 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
Analog revenues increased 25.2% year over year to achieve record
sales of $108.5 million in the reported quarter. With annual
sales of about $434.0 million, 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.
Revenues from memory business totaled $35.0 million, while
licensing revenues were $24.8 million in second quarter fiscal
2014. Gross margin (non-GAAP) for the reported quarter was 59.0%,
while operating income (non-GAAP) was a record high at $156.6
With a diligent focus on right-sizing the various components of
inventory holdings, Microchip's consolidated inventory at
quarter-end was $275.1 million or 123 days. Inventory at
distributors was at 33 days with a healthy book-to-bill ratio.
The company hiked its quarterly cash dividend from 35.40 cents to
35.45 cents per share, representing the 39th dividend increase
since its inception.
Cash and short-term investments at quarter-end were $1.2 billion,
with $640 million debt under its revolving line of credit.
Capital expenditures aggregated $27.4 million for the quarter.
Free cash flow at quarter-end was $126.4 million prior to the
Concurrent with the second quarter earnings release, management
provided guidance for the third quarter of fiscal 2014.
Management expects net sales between $463.1 million and $492.7
million, while GAAP gross margin is expected to be in the range
of 58.3% to 58.7%. GAAP net income is anticipated to be in the
range of $88.7 million to $99.8 million, with earnings per share
of 40 to 46 cents.
Microchip expects to increase cash and investments by
approximately $110 million to $130 million in the third quarter
prior to dividend payment. The company expects to incur $35
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 driven
by strong demand and robust product designs, Microchip is
expected to continue its bull run in the coming quarters as well.
We also remain encouraged by the strong results of the company
and its bullish guidance.
Microchip presently has a Zacks Rank #1 (Strong Buy). Other
players in the industry that are worth mentioning include
Alpha & Omega Semiconductor, Ltd.
Amkor Technology, Inc.
), each carrying Zacks Rank #2 (Buy).