10-QPeriod: Q2 FY2012

MICROCHIP TECHNOLOGY INC Quarterly Report for Q2 Ended Sep 30, 2011

Filed November 7, 2011For Securities:MCHPMCHPP

Summary

Microchip Technology Inc. reported net sales of $340.6 million for the third quarter of fiscal year 2012, a decrease of 10.9% compared to $382.3 million in the same period last year. For the first six months of fiscal year 2012, net sales were $715.1 million, down 3.3% from $739.4 million in the prior year period. This decline in sales is attributed to general economic and semiconductor industry conditions. The company's gross profit margin remained strong, at 57.3% for the quarter and 58.0% for the six-month period, although slightly down from the previous year's 58.9% and 58.5% respectively. Research and development expenses increased year-over-year, reflecting continued investment in new products and technologies. The company's balance sheet shows total assets of $3.03 billion as of September 30, 2011. Key balance sheet changes include an increase in short-term investments to $740.3 million from $539.6 million and a decrease in accounts receivable to $142.4 million from $181.2 million. Cash and cash equivalents stood at $675.1 million. The company also highlighted its strong liquidity position, with $1.775 billion in cash, cash equivalents, and investments, and a newly established $750 million revolving credit facility. Dividend payments of $132.1 million were made in the first six months of the fiscal year.

Financial Highlights

51 data points
Beta

Revenue

$340.60M

57.8% Gross Margin

Net Income

$79.29M

23.3% Net Margin

EPS (Diluted)

$0.20

Total Assets

$3.03B

Cash & Equivalents

$675.13M

Free Cash Flow

$154.75M

Financial Statements
Beta
Revenue$340.60M
Cost of Revenue$145.61M
Gross Profit$196.70M
R&D Expenses$45.38M
SG&A Expenses$51.00M
Operating Expenses$99.08M
Operating Income$97.62M
Interest Expense$8.91M
Net Income$79.29M
EPS (Basic)$0.21
EPS (Diluted)$0.20
Shares Outstanding (Basic)381.62M
Shares Outstanding (Diluted)400.40M

Key Highlights

  • 1Net sales for the quarter ended September 30, 2011, decreased by 10.9% year-over-year to $340.6 million, primarily due to general economic and semiconductor industry conditions.
  • 2Gross profit margin remained robust at 57.3% for the quarter, demonstrating pricing power and cost management, despite a slight decrease from the prior year.
  • 3The company's balance sheet reflects a strong liquidity position with $675.1 million in cash and cash equivalents and $740.3 million in short-term investments as of September 30, 2011.
  • 4Microchip Technology Inc. entered into a new $750 million revolving credit facility in August 2011, enhancing its financial flexibility.
  • 5Research and development expenses increased by 3.8% for the quarter and 7.6% for the six-month period, indicating continued investment in innovation and future product development.
  • 6The company repurchased 7.5 million shares under its stock repurchase program as of September 30, 2011, signaling a commitment to returning value to shareholders.
  • 7Dividend payments remained consistent, with $0.347 per share paid in the quarter, highlighting a continued focus on shareholder returns.

Frequently Asked Questions

The primary drivers for the decrease in net sales were general economic conditions and broader semiconductor industry trends, which impacted demand across the various end markets Microchip serves. This led to a decrease in the number of semiconductor units sold.

Microchip's inventory levels increased to $211.2 million at the end of the quarter from $180.8 million at the beginning of the fiscal year. The company expects to grow inventory levels further in the next quarter to maintain competitive lead times and ensure strong delivery performance, while also aiming to keep capital expenditures low.

The company has $1.15 billion in 2.125% junior subordinated convertible debentures. As of September 30, 2011, the conditions for conversion by debenture holders had not been met. The conversion price has been adjusted due to dividends paid. For accounting purposes, these debentures are bifurcated into liability and equity components, with ongoing amortization of a debt discount recognized as non-cash interest expense.

Microchip defers revenue recognition until a distributor sells a product to their end customer. This is because distributors often have broad price protection and product return rights, meaning the final sales price is not fixed at the time of shipment to the distributor. Revenue is recognized when the distributor's sale becomes fixed or determinable, and deferred income on shipments to distributors represents the gross margin on these sales, which may be adjusted by future credits.