10-QPeriod: Q2 FY2004

MICROCHIP TECHNOLOGY INC Quarterly Report for Q2 Ended Sep 30, 2003

Filed November 14, 2003For Securities:MCHPMCHPP

Summary

Microchip Technology Incorporated reported steady performance for the quarter and six months ended September 30, 2003. Net sales saw a modest increase year-over-year, driven primarily by higher demand for their microcontroller products. This growth was achieved despite a slight decrease in average selling prices, indicating a strong unit volume increase. The company continued its focus on cost management, as evidenced by a slight decrease in operating expenses as a percentage of sales, and improved capacity utilization in its manufacturing facilities. Financially, Microchip demonstrated solid cash generation from operations, which helped increase its cash and short-term investment balances. The company also continued to manage its capital expenditures effectively. Notably, the company has initiated a quarterly cash dividend, signaling a commitment to returning value to shareholders. The report also details the ongoing efforts to optimize manufacturing operations, including the closure of a fabrication facility and the ramp-up of new capacity, which are expected to yield long-term benefits.

Key Highlights

  • 1Net sales increased by 1.0% for the three months and 1.7% for the six months ended September 30, 2003, compared to the prior year periods, driven by increased demand for microcontrollers.
  • 2Gross profit margin remained stable at 54.1% for the quarter but decreased to 44.5% for the six-month period, impacted by significant special charges related to the closure of the Chandler, Arizona (Fab 1) facility.
  • 3Operating income saw a substantial increase to $47.6 million for the quarter and $58.1 million for the six months, a significant improvement from the prior year due to lower special charges and improved operational efficiency.
  • 4The company generated strong net cash from operating activities, totaling $145.1 million for the six months ended September 30, 2003.
  • 5Short-term investments increased significantly to $306.4 million from $162.6 million, indicating a prudent approach to cash management and liquidity.
  • 6A quarterly cash dividend of $0.024 per share was paid in August 2003, with a further dividend declared for December 2003.
  • 7The company is continuing its investment in advanced process technologies and expansion, with plans for approximately $65 million in capital expenditures over the next 12 months.

Frequently Asked Questions

For the three months ended September 30, 2003, net sales were $168.5 million, a 1.0% increase year-over-year. For the six months ended September 30, 2003, net sales were $329.8 million, a 1.7% increase year-over-year. The growth was primarily attributed to increased demand for their microcontroller products.

The closure of the Chandler, Arizona (Fab 1) wafer fabrication facility resulted in special charges, including accelerated depreciation and severance costs, which negatively impacted the gross profit for the six-month period. However, operating income improved significantly year-over-year due to lower special charges in the current period compared to the prior year.

Microchip Technology generated $145.1 million in cash from operating activities for the first six months of fiscal 2004. The company's cash and cash equivalents, along with short-term investments, increased significantly, reaching $350.9 million at the end of the period, indicating a strong liquidity position.

The company initiated a quarterly cash dividend in October 2002 and paid its first dividend in August 2003. This demonstrates a commitment to shareholder returns in addition to potential stock repurchases, though no significant repurchases were made in the reported quarter.