10-QPeriod: Q1 FY2018

MICROCHIP TECHNOLOGY INC Quarterly Report for Q1 Ended Jun 30, 2017

Filed August 4, 2017For Securities:MCHPMCHPP

Summary

Microchip Technology Inc. (MCHP) reported a strong second quarter for fiscal year 2017, demonstrating significant revenue growth and improved profitability. Net sales increased by 21.6% year-over-year to $972.1 million, driven primarily by a substantial increase in the number of products sold, particularly in the microcontroller segment. This growth was supported by favorable semiconductor industry conditions and market share gains. The company also achieved a significant improvement in gross profit margin, reaching 60.1% compared to 43.6% in the prior year's quarter. This enhancement was largely due to the absence of a substantial inventory fair value adjustment that impacted the prior year, along with ongoing cost reductions and favorable product mix. Operating expenses, as a percentage of net sales, also decreased due to realized synergies from the Atmel acquisition. The company generated robust operating cash flow and maintained a strong liquidity position, underscoring its financial health and operational efficiency.

Financial Highlights

56 data points
Beta

Revenue

$972.10M

60.1% Gross Margin

Net Income

$170.60M

17.5% Net Margin

EPS (Diluted)

$0.35

Total Assets

$7.89B

Cash & Equivalents

$773.00M

Free Cash Flow

$345.00M

Financial Statements
Beta
Revenue$972.10M
Cost of Revenue$387.70M
Gross Profit$584.40M
R&D Expenses$130.50M
SG&A Expenses$114.30M
Operating Expenses$362.80M
Operating Income$221.60M
Interest Expense$49.50M
Net Income$170.60M
EPS (Basic)$0.37
EPS (Diluted)$0.35
Shares Outstanding (Basic)458.80M
Shares Outstanding (Diluted)485.80M

Key Highlights

  • 1Net sales for the quarter ended June 30, 2017, increased by 21.6% year-over-year to $972.1 million, driven by a 19% increase in units sold.
  • 2Gross profit margin significantly improved to 60.1% from 43.6% in the prior year, primarily due to the absence of acquisition-related inventory adjustments.
  • 3Microcontroller sales, the largest product line, grew by 27.5%, representing 65.3% of total net sales.
  • 4Operating expenses as a percentage of net sales decreased due to cost synergies realized from the Atmel acquisition.
  • 5Net cash provided by operating activities increased by over 54% to $345.0 million compared to the prior year's quarter.
  • 6The company ended the quarter with $1,650.7 million in cash, cash equivalents, and investments, demonstrating a strong liquidity position.
  • 7Technology licensing revenue saw a notable increase of 21.6% year-over-year.

Frequently Asked Questions

The primary driver for the significant increase in net sales was a substantial increase in the number of products sold, which grew by approximately 19% compared to the prior year's quarter. This was complemented by a 2% increase in average selling prices, influenced by pricing adjustments on Atmel products and changes in product mix.

The Atmel acquisition had a notable positive impact, particularly on operating expenses. Synergies realized from the integration led to reductions in R&D and SG&A expenses as a percentage of net sales. Additionally, the absence of acquisition-related inventory fair value adjustments from the prior year significantly boosted the gross profit margin.

At June 30, 2017, distributors held 31 days of Microchip's inventory, a slight decrease from the previous quarter. The company recognizes revenue upon sale by the distributor to their customer, and the deferred income on shipments to distributors reflects the gross margin. Management believes their inventory levels allow for competitive lead times and strong delivery performance.

The gross profit margin is influenced by several factors, including capacity utilization levels, product mix, manufacturing yields, fixed cost absorption, and competitive and economic conditions. A significant factor in this quarter's improved margin was the absence of a $90.5 million charge related to the recognition of acquired inventory at fair value, which impacted the prior year's quarter.