10-QPeriod: Q3 FY2011

MICROCHIP TECHNOLOGY INC Quarterly Report for Q3 Ended Nov 8, 2010

Filed November 8, 2010For Securities:MCHPMCHPP

Summary

Microchip Technology Inc. reported strong top-line growth in its Q2 2010 results, driven by a significant increase in net sales. This growth was fueled by a rebound in semiconductor industry conditions, successful market share gains in its core microcontroller and analog product lines, and the impactful acquisition of Silicon Storage Technology, Inc. (SST). The acquisition of SST, completed in April 2010, has successfully integrated new memory products and technology licensing revenue streams, diversifying Microchip's offerings. The company demonstrated improved gross profit margins compared to the prior year, benefiting from higher capacity utilization and the integration of higher-margin SST businesses. Despite increased R&D and SG&A expenses reflecting the expanded operations and the restoration of compensation programs, Microchip maintained healthy operating income margins.

Financial Highlights

50 data points
Beta

Revenue

$367.82M

58.8% Gross Margin

Net Income

$100.78M

27.4% Net Margin

EPS (Diluted)

$0.26

Total Assets

$2.83B

Cash & Equivalents

$500.62M

Free Cash Flow

$138.68M

Financial Statements
Beta
Revenue$367.82M
Cost of Revenue$151.43M
Gross Profit$216.40M
R&D Expenses$42.20M
SG&A Expenses$56.10M
Operating Expenses$98.94M
Operating Income$117.45M
Interest Expense-$7.67M
Net Income$100.78M
EPS (Basic)$0.27
EPS (Diluted)$0.26
Shares Outstanding (Basic)374.98M
Shares Outstanding (Diluted)392.51M

Key Highlights

  • 1Net sales surged by 68.7% year-over-year for the three months ended September 30, 2010, reaching $382.3 million, indicating a strong recovery and the positive impact of the SST acquisition.
  • 2Gross profit margin improved to 58.9% from 54.4% in the same period last year, reflecting better capacity utilization and favorable product mix from the acquired business.
  • 3The acquisition of Silicon Storage Technology, Inc. (SST) contributed significantly, adding $60.2 million in net sales for the quarter and diversifying revenue streams into memory products and technology licensing.
  • 4Operating income grew substantially to $123.1 million, up from $52.7 million in the prior year's quarter, showcasing the company's ability to leverage its increased sales.
  • 5Research and Development (R&D) expenses increased by 47.9% year-over-year in dollar terms to $43.7 million, signaling continued investment in innovation, though as a percentage of sales it decreased slightly to 11.5%.
  • 6The company generated strong operating cash flow of $291.4 million for the six months ended September 30, 2010, indicating healthy cash generation from its core operations.
  • 7Microchip continued its commitment to shareholder returns by declaring and paying dividends, with plans for continued quarterly cash dividends.

Frequently Asked Questions

The significant increase in Microchip's revenue was driven by a combination of factors: a general improvement in semiconductor industry conditions, successful market share gains in its core microcontroller and analog product lines, and importantly, the acquisition of Silicon Storage Technology, Inc. (SST) which closed in April 2010. The SST acquisition contributed substantially to the revenue growth, particularly in memory products and technology licensing.

The acquisition of SST has positively impacted Microchip's financial performance by adding new revenue streams in memory products and technology licensing, diversifying its business. SST's products and intellectual property are seen as critical for advanced microcontrollers. The integration has also contributed to improved gross profit margins and expanded the company's product portfolio, enhancing its competitive position.

Microchip anticipates that its gross margins will fluctuate, influenced by factors such as capacity utilization, product mix (microcontrollers, analog, memory, and licensing), manufacturing yields, fixed cost absorption, and competitive/economic conditions. The company noted improved margins in this quarter due to higher capacity utilization and the addition of SST's higher-margin businesses.

Microchip demonstrated strong operating cash flow generation, totaling $291.4 million for the six months ended September 30, 2010. The company maintained a healthy balance of cash, cash equivalents, and investments, totaling $1,568.9 million. While the SST acquisition was a significant cash outflow, operating cash flow and existing liquidity are expected to be sufficient for anticipated needs over the next 12 months. The company also continues to pay regular quarterly cash dividends.