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Microchip Technology Inc (MCHP - Analyst Report) reported GAAP net income of $10.2 million or 5 cents per share in third quarter of fiscal 2013, down from $77.5 million or 38 cents per share in the year-ago quarter. The decrease in GAAP earnings was due to higher expenses related to acquisition activities. Adjusted net income for third quarter was $84.5 million or 41 cents per share versus $85.4 million or 42 cents per share in the year-earlier quarter. The quarterly adjusted earnings beat the Zacks Consensus Estimate of 32 cents.

Microchip generated GAAP net revenue of $416.0 million in third quarter 2013, up 26.4% year over year, aided by a healthy microcontroller business. The quarterly revenues beat the Zacks Consensus Estimate of $413 million.

In terms of product mix, net sales of microcontroller products were up 1.8% sequentially to $266 million, driven by robust sales of16-bit and 32-bit microcontrollers. While 16-bit microcontroller business surged 12.6% sequentially, 32-bit microcontroller revenues were up 17.4% sequentially, driven by new design wins and applications.

Analog revenues grew 7.7% sequentially in the third quarter. Memory business was down 11.2% on a sequential basis.

Excluding stock-based compensation expense and one-time items, gross margin stood at 56.0% versus 56.8% in the year-ago quarter. Operating margin came in at 25.4% versus 30.5% in the year-ago quarter.
 
The company incurred approximately $9.9 million in capital expenditures. As of Dec, 2012, cash and short-term investments came in at $1.6 billion compared with $1.5 billion at the end of Mar, 31.

Outlook

Concurrent with the third quarter earnings release, management provided guidance for the fourth quarter of fiscal 2013. Management expects GAAP net sales between $420.2 million and $432.7 million while adjusted gross margin is expected to be in the range of 55.75% to 56.25%. Adjusted EPS is expected in the range of 45 cents-49 cents and GAAP EPS in the range of 18 to 21 cents. The company expects net cash generation of approximately $110 million to $130 million in the fourth quarter. The company expects to incur $24 million in capital expenditure in the next quarter, bringing its tally to about $60 million for fiscal 2013.

Microchip believes that the seasonality related to the Chinese New Year in the upcoming quarter will lead to strong bookings and robust business activities.

However, the company needs to be wary of intense competition from industry bigwigs, which include formidable names as MagnaChip Semiconductor Corporation , NXP Semiconductors NV. (NXPI - Snapshot Report), and ON Semiconductor Corp. (ONNN - Analyst Report), all carrying Zacks Rank #2 (Buy). Microchip also carries a Zacks Rank #2 (Buy).
 

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