Microchip Misses By a Couple

Microchip Technology Incorporated (MCHP - Analyst Report) reported net revenues of $340.6 million in the second quarter of fiscal 2012, down 9.1% sequentially but up 10.9% year over year.  The results were in line with the company’s revised guidance released earlier this month.

On a geographical basis, revenues from Americas were down 9.4% sequentially. Europe was down 8.5% sequentially and Asia was down 9.2% sequentially. Almost all geographies were impacted by the weak business conditions, Asia being the weakest.

Microchip started the September quarter expecting broad-based demand weakness. The company expected late summer orders for normal Christmas-related builds in September. However, distributors reported that they did not see any sales related to Christmas builds materialize in September.

The only market where business was slightly up was automotive, driven by recovery from the earthquake and tsunami in Japan. Microchip continues to see broad-based weakness in all markets in all geographies.

Quarter in Detail

In terms of product mix, revenues from microcontrollers were down 11.2% sequentially with both 8-bit and16-bit businesses down 14.9% sequentially. The 16-bit business was down 14.9% sequentially but flat on a year over year basis as most 16-bit customers were adjusting their inventory and new customers became cautious in their end product launches. 32-bit microcontroller business was up 10.4% sequentially and up 158.2% from a year-ago.

Microchip shipped 43,000 development tools in the quarter.

The Analog business was down 0.7% sequentially. Memory business was down 12.6% sequentially.

Microchip acquired Silicon Storage Technology (SST) in 2010. Excluding stock-based compensation expense and one-time items, gross margins came in at 58.2%, down from 59.5% in the previous quarter and 60.2% in the year-ago quarter. Operating margin came in at 32.3%, down from 34.5% in the previous quarter and 36.2% in the year-ago quarter.

Including the above mentioned items, Microchip generated a gross margin of 57.2%, down from 58.7% in the previous quarter. Operating margin came in at 27.7%, down from 31.2% in the year-ago quarter.

Net income of $79.3 million, was down 20.2% sequentially and down 23.0% sequentially. Earnings per share came in at $0.42 per share, missing the Zacks Consensus Estimate by $0.02.

Microchip ended the quarter with cash and cash equivalents of $1.4 billion, down from $1.5 billion at the end of the previous quarter.

Quarter Ahead

Going forward, management expects net sales between $316.8 million and $340.6 million. Gross margin is projected around 56.5%–57.0%. Operating expenses are projected to come around 26.0%–26.5% of sales. Earnings per share are projected between 33 and 37 cents. Excluding special items and stock based compensation expenses, earnings per share are projected between 40 cents and 44 cents.

In order to cut costs, management will close its 2 fabs on Thanksgiving, Christmas and New Year's. Management expects its inventory to be flat to slightly up in the December quarter. The inventory is projected to come down from the March quarter.

Although the inventory is slightly on the high side, Microchip believes that short lead times is one of is competitive strengths and the products for the company have very long life cycles. Gross margin is also estimated to recover in the March quarter.  

The results did not have much of an impact on the stock price.

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