Microchip's Record Adj. Earnings Top Ests - Analyst Blog

Leading semiconductor manufacturer Microchip Technology Inc. ( MCHP ) reported phenomenal first quarter fiscal 2014 results with solid revenues, driven by broad-based growth across all product lines. The company reported GAAP net income of $78.6 million or 37 cents per share in the first quarter of fiscal 2014 compared with $78.7 million or 39 cents per share in the year-ago quarter.

Excluding non-recurring items, adjusted net income for the reported quarter was a record high of $120.4 million or 57 cents per share, up 24.3% from $96.9 million or 48 cents per share in the year-earlier quarter. The year-over-increase in non-GAAP earnings is primarily attributable to solid top-line growth. The quarterly adjusted earnings were in line with the Zacks Consensus Estimate.


Net revenue for the reported quarter came in at $462.8 million in first quarter fiscal 2014, up 31.4% year over year, aided by a healthy microcontroller business. Microchip exceeded the higher end of its revised revenue guidance provided in June. The quarterly revenues were also ahead of the Zacks Consensus Estimate of $455 million.

In terms of product mix, revenues from microcontroller products accounted for 64.9% of the total revenue in the quarter, while analog revenues, memory chip and licensing business represented 22.3%, 7.3% and 4.9% of total revenues, respectively. By geographical regions, bulk of the revenues came in from Asia ($274.6 million), followed by Europe ($101.2 million) and the Americas ($86.9 million).

Net sales of microcontroller products recorded an all-time high of $300.3 million, up 24.8% year over year, driven by robust sales of 8-bit, 16-bit and 32-bit microcontrollers. While 16-bit microcontroller business climbed 71.7% year over year, 32-bit microcontroller revenues were up a staggering 362% in the reported quarter compared with the year-ago quarter, driven by new design wins and applications.

Analog revenues increased 119% year over year to achieve record sales of $103.2 million in the reported quarter. With annual sales of about $413 million, the Analog business has become one of the largest 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 $34.0 million, while licensing revenues were $22.5 million in first quarter fiscal 2014. Gross margin (GAAP) for the reported quarter was 57.6%, while operating income was $98.4 million.

Balance Sheet

With a diligent focus on right-sizing the various components of inventory holdings, Microchip was able to reduce its inventory during the quarter to $256.1 million or 119 days. Inventory at distributors was at 32 days with a healthy book-to-bill ratio. The company hiked its quarterly cash dividend from 35.35 cents to 35.40 cents per share, representing the 38th dividend increase since its inception.

Cash and investments at quarter-end were $1.9 billion, with $610 million debt under its revolving line of credit. During the reported quarter, Microchip executed a new five-year $2-billion worth revolving credit facility, replacing its existing $750 million credit facility. Free cash flow at quarter-end was $138.9 million prior to the dividend payment.


Concurrent with the first quarter earnings release, management provided guidance for the second quarter of fiscal 2014. Management expects net sales between $472.0 million and $490.6 million, while GAAP gross margin is expected to be in the range of 57.6% to 58.2%. GAAP net income is anticipated to be in the range of $86.7 million to $95.5 million, with earnings per share of 40 to 44 cents.

Microchip expects to increase cash and investments by approximately $110 million to $130 million in the second quarter prior to dividend payment. The company expects to incur $27 million in capital expenditure in the next quarter, bringing its tally to about $90 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. We also remain encouraged by the strong results of the company and its bullish guidance.

Microchip presently has a Zacks Rank #2 (Buy). Other players in the industry that are worth mentioning include Analog Devices, Inc. ( ADI ), Advanced Micro Devices, Inc. ( AMD ) and Applied Micro Circuits Corp. ( AMCC ), each carrying Zacks Rank #2 (Buy).

ANALOG DEVICES (ADI): Free Stock Analysis Report

APPLD MICRO CIR (AMCC): Free Stock Analysis Report

ADV MICRO DEV (AMD): Free Stock Analysis Report

MICROCHIP TECH (MCHP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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