10-QPeriod: Q2 FY2014

MICROCHIP TECHNOLOGY INC Quarterly Report for Q2 Ended Sep 30, 2013

Filed November 8, 2013For Securities:MCHPMCHPP

Summary

Microchip Technology Inc. reported a significant increase in net sales for the three and six months ended September 30, 2013, compared to the prior year, largely driven by the acquisition of SMSC in August 2012. Net sales for the quarter rose 28.5% year-over-year to $492.7 million, and for the six-month period, increased by 29.9% to $955.5 million. This growth was fueled by a combination of the SMSC acquisition, general economic conditions in the semiconductor industry, and market share gains. The company's gross profit margin also saw a substantial improvement, reaching 58.6% for the quarter and 58.1% for the six-month period, up from 50.7% and 54.3% respectively in the prior year. This improvement was attributed to the integration of SMSC, favorable product mix, and cost reduction efforts, partially offset by underutilization of manufacturing capacity. Despite increased R&D spending and higher interest expenses related to recent borrowings, Microchip maintained strong operating income and delivered solid net income, highlighting its ability to effectively integrate acquisitions and manage operations.

Financial Highlights

57 data points
Beta

Revenue

$492.67M

58.6% Gross Margin

Net Income

$99.81M

20.3% Net Margin

EPS (Diluted)

$0.23

Total Assets

$3.97B

Cash & Equivalents

$344.20M

Free Cash Flow

$157.55M

Financial Statements
Beta
Revenue$492.67M
Cost of Revenue$203.81M
Gross Profit$288.86M
R&D Expenses$78.25M
SG&A Expenses$69.37M
Operating Expenses$171.35M
Operating Income$117.51M
Interest Expense$12.35M
Net Income$99.81M
EPS (Basic)$0.25
EPS (Diluted)$0.23
Shares Outstanding (Basic)395.65M
Shares Outstanding (Diluted)432.95M

Key Highlights

  • 1Net sales increased by 28.5% for the three months ended September 30, 2013, reaching $492.7 million.
  • 2Net sales for the six months ended September 30, 2013, increased by 29.9% to $955.5 million, primarily due to the SMSC acquisition.
  • 3Gross profit margin improved significantly to 58.6% for the quarter and 58.1% for the six-month period.
  • 4Operating income showed strong growth, indicating effective operational management post-acquisition.
  • 5R&D expenses increased, reflecting continued investment in product development.
  • 6The company maintained a strong cash position, with $344.2 million in cash and cash equivalents as of September 30, 2013.
  • 7A new $2.0 billion credit agreement was established in June 2013, providing enhanced financial flexibility.

Frequently Asked Questions

The primary driver was the acquisition of SMSC (Standard Microsystems Corporation) on August 2, 2012. This acquisition significantly expanded Microchip's product portfolio and market reach, contributing substantially to the reported increase in net sales for the three and six months ended September 30, 2013.

Profitability saw a notable improvement. Gross profit margin increased significantly, from 50.7% to 58.6% for the three-month period and from 54.3% to 58.1% for the six-month period. This was driven by better product mix, cost efficiencies, and the revenue contribution from the acquired SMSC business.

Microchip continues to invest in R&D, with expenses increasing to support the development of new microcontrollers, analog and mixed-signal products, and memory solutions. The company anticipates approximately $90 million in capital expenditures over the next twelve months, primarily for maintaining and selectively increasing production capacity to meet anticipated demand, funded through existing cash and operating cash flows.

In June 2013, Microchip entered into a new $2.0 billion credit agreement, comprising a term loan and a revolving credit facility, to enhance its financial flexibility. As of September 30, 2013, the company had $640.0 million in outstanding borrowings under this agreement. The company believes its current liquidity sources, including cash from operations and borrowings, are sufficient to meet its needs for at least the next 12 months.