10-QPeriod: Q2 FY2009

MICROCHIP TECHNOLOGY INC Quarterly Report for Q2 Ended Sep 30, 2008

Filed November 7, 2008For Securities:MCHPMCHPP

Summary

Microchip Technology Inc. reported solid financial results for the quarter and six months ended September 30, 2008, demonstrating resilience amidst a challenging economic environment. Net sales saw a modest increase year-over-year, driven primarily by growth in Microcontroller and Analog/Interface product lines, while Memory products experienced a decline. The company maintained strong gross profit margins, reflecting effective cost management and a favorable product mix. Despite a decrease in interest income due to lower rates, the company successfully managed its expenses, leading to improved operating income. The balance sheet remains robust, with significant cash and investment balances, although short-term investments and cash have decreased compared to the previous fiscal year-end. The company also initiated new interest expense related to its recently issued convertible debentures. The company's strategic focus on embedded control products continues to drive performance, with a strong emphasis on new product development and maintaining a competitive cost structure through its owned manufacturing facilities. While acknowledging the increasing economic headwinds and credit market volatility, Microchip appears well-positioned to navigate these challenges, supported by its established market presence and ongoing operational efficiencies. Investors should note the company's commitment to returning capital to shareholders through dividends and share repurchases, alongside continued investments in R&D for long-term growth.

Financial Statements
Beta
Revenue$269.71M
Cost of Revenue$105.55M
Gross Profit$164.15M
R&D Expenses$31.34M
SG&A Expenses$45.63M
Operating Expenses$76.97M
Operating Income$87.18M
Interest Expense$6.87M
Net Income$75.72M
EPS (Basic)$0.20
EPS (Diluted)$0.20
Shares Outstanding (Basic)367.23M
Shares Outstanding (Diluted)375.87M

Key Highlights

  • 1Net sales increased by 4.3% to $269.7 million for the three months ended September 30, 2008, compared to $258.6 million in the same period last year.
  • 2Gross profit margin remained strong at 60.9% for the quarter, indicating effective cost management and favorable product mix.
  • 3Operating income significantly improved to $87.2 million, up from $55.7 million in the prior-year period, driven by higher sales and controlled operating expenses.
  • 4The company reported diluted earnings per share of $0.41 for the quarter, an increase from $0.27 in the prior year.
  • 5Total assets remained stable at approximately $2.52 billion, with a slight increase in long-term investments and a decrease in cash and short-term investments.
  • 6The company continued its share repurchase program and paid a quarterly dividend of $0.338 per share, demonstrating a commitment to shareholder returns.
  • 7Microchip experienced a decline in Memory Products sales (-14.5% year-over-year for the quarter) due to challenging market conditions in the Serial EEPROM segment.

Frequently Asked Questions

Microchip's net sales increased by 4.3% to $269.7 million for the three months ended September 30, 2008, compared to $258.6 million in the same period last year. This growth was primarily driven by increases in its Microcontroller and Analog and Interface product lines, offsetting a decline in Memory Products.

As of September 30, 2008, Microchip held $311.7 million in cash and cash equivalents and $796.7 million in short-term investments, totaling over $1.1 billion in liquid assets. Total assets were approximately $2.52 billion, with a notable increase in long-term investments.

The company highlighted several risks, including the potential adverse impact of declining general economic conditions and fluctuations in global credit and equity markets. Other risks include intense competition, pricing pressures, dependence on distributors, potential disruptions in manufacturing capacity utilization, and the need to consistently introduce new products. The company also noted uncertainty surrounding its investments in auction rate securities.

Microchip continued to manage its capital effectively by generating strong operating cash flow. It also demonstrated a commitment to shareholder returns by paying a quarterly cash dividend of $0.338 per share and actively engaging in share repurchases. The company anticipates continuing these practices based on market conditions and financial performance.