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Microchip (MCHP) Q1 Earnings Lag Despite Higher Revenues
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Despite a challenging macroeconomic environment, premium semiconductor manufacturer Microchip Technology Incorporated (MCHP - Free Report) reported relatively healthy first-quarter fiscal 2017 results. GAAP net loss for first-quarter fiscal 2017 (ended Jun 30, 2016) was $109.2 million or loss of 51 cents per share as against net income of $130.5 million or 65 cents per share in the year-ago quarter. The year-over-year decrease, despite a healthy top-line improvement, was primarily attributable to high operating expenses.
Non-GAAP net income (from continuing operations) for the reported quarter was $194.0 million or 84 cents per share compared with $148.9 million or 69 cents per share in the year-earlier quarter. Recurring earnings (with stock-based compensation adjustments) were 67 cents per share, which missed the Zacks Consensus Estimate by a penny.
Revenues
Net revenue (GAAP) for the reported quarter was $799.4 million, up 49.7% year over year, while non-GAAP revenues were up 58.1% to an all-time high of $844 million. The non-GAAP revenues for first-quarter fiscal 2017 exceeded the Zacks Consensus Estimate of $821 million.
In terms of product mix, revenues from Microcontroller products accounted for 62.3% of GAAP revenues in the quarter, while Analog, Memory and Licensing products generated 26.6%, 5.7% and 2.6% of the same, respectively. From the geographical perspective, bulk of the GAAP revenues were generated in Asia ($474.3 million, 59.3% of the total revenue), followed by Europe ($182.5 million, 22.8%) and Americas ($142.7 million, 17.9%).
In terms of product lines, GAAP revenues from microcontrollers were $498.3 million, with healthy performances across 8-bit, 16-bit and 32-bit microcontrollers, augmented by the addition of Atmel's products. Microchip continued to gain market share with new product momentum and customer engagement across the industry.
GAAP revenues from the analog products were $212.3 million. The company continued to develop and introduce a wide range of innovative and proprietary new linear, mixed signal, power, interface, and timing products to fuel the future growth of the analog business.
The memory business recorded GAAP revenues of $45.9 million in the reported quarter. Microchip made significant progress integrating Atmel's memory business during the quarter and implemented its disciplined pricing process to ensure competitiveness in the business. GAAP revenue from the licensing business was $20.6 million in the reported quarter.
Microchip recorded non-GAAP gross margin of 55.8% for the reported quarter, down from 58.3% in the year-ago quarter. Non-GAAP operating income improved to $231.1 million from $174.3 million in the year-ago period for respective operating margins of 27.4% and 32.6%.
Balance Sheet
Cash and short-term investments were $601.8 million at quarter end with $1,913.7 million under its long term line of credit. Net cash generation for the quarter (excluding acquisition, dividend payment, and reduction in borrowings) was $184 million. The company increased its quarterly cash dividend to 36 cents per share. Capital expenditure was approximately $18.5 million with a consolidated inventory of $518.4 million.
Outlook
Management provided guidance for the second quarter of fiscal 2017. It expects non-GAAP net sales between $844 million and $877.8 million, while non-GAAP gross margin is expected in the range of 55.6% to 56.2%. Non-GAAP net income is anticipated in the range of $192.7 million to $213.2 million, with non-GAAP earnings of 83 cents to 91 cents per share. Microchip expects to generate approximately $175 million to $200 million cash in the upcoming quarter prior to the dividend payment and acquisitions. The company expects to incur $30 million in capital expenditure in the next quarter, bringing its tally to about $141 million for fiscal 2017.
Moving forward, management expects continued accretion from Micrel and Atmel acquisitions. We remain impressed with the bullish outlook of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the industry include MaxLinear, Inc. (MXL - Free Report) and Microsemi Corporation , both carrying a Zacks Rank #2 (Buy) and Silicon Laboratories Inc. (SLAB - Free Report) , sporting a Zacks Rank #1 (Strong Buy).
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Microchip (MCHP) Q1 Earnings Lag Despite Higher Revenues
Despite a challenging macroeconomic environment, premium semiconductor manufacturer Microchip Technology Incorporated (MCHP - Free Report) reported relatively healthy first-quarter fiscal 2017 results. GAAP net loss for first-quarter fiscal 2017 (ended Jun 30, 2016) was $109.2 million or loss of 51 cents per share as against net income of $130.5 million or 65 cents per share in the year-ago quarter. The year-over-year decrease, despite a healthy top-line improvement, was primarily attributable to high operating expenses.
Non-GAAP net income (from continuing operations) for the reported quarter was $194.0 million or 84 cents per share compared with $148.9 million or 69 cents per share in the year-earlier quarter. Recurring earnings (with stock-based compensation adjustments) were 67 cents per share, which missed the Zacks Consensus Estimate by a penny.
Revenues
Net revenue (GAAP) for the reported quarter was $799.4 million, up 49.7% year over year, while non-GAAP revenues were up 58.1% to an all-time high of $844 million. The non-GAAP revenues for first-quarter fiscal 2017 exceeded the Zacks Consensus Estimate of $821 million.
MICROCHIP TECH Price, Consensus and EPS Surprise
MICROCHIP TECH Price, Consensus and EPS Surprise | MICROCHIP TECH Quote
In terms of product mix, revenues from Microcontroller products accounted for 62.3% of GAAP revenues in the quarter, while Analog, Memory and Licensing products generated 26.6%, 5.7% and 2.6% of the same, respectively. From the geographical perspective, bulk of the GAAP revenues were generated in Asia ($474.3 million, 59.3% of the total revenue), followed by Europe ($182.5 million, 22.8%) and Americas ($142.7 million, 17.9%).
In terms of product lines, GAAP revenues from microcontrollers were $498.3 million, with healthy performances across 8-bit, 16-bit and 32-bit microcontrollers, augmented by the addition of Atmel's products. Microchip continued to gain market share with new product momentum and customer engagement across the industry.
GAAP revenues from the analog products were $212.3 million. The company continued to develop and introduce a wide range of innovative and proprietary new linear, mixed signal, power, interface, and timing products to fuel the future growth of the analog business.
The memory business recorded GAAP revenues of $45.9 million in the reported quarter. Microchip made significant progress integrating Atmel's memory business during the quarter and implemented its disciplined pricing process to ensure competitiveness in the business. GAAP revenue from the licensing business was $20.6 million in the reported quarter.
Microchip recorded non-GAAP gross margin of 55.8% for the reported quarter, down from 58.3% in the year-ago quarter. Non-GAAP operating income improved to $231.1 million from $174.3 million in the year-ago period for respective operating margins of 27.4% and 32.6%.
Balance Sheet
Cash and short-term investments were $601.8 million at quarter end with $1,913.7 million under its long term line of credit. Net cash generation for the quarter (excluding acquisition, dividend payment, and reduction in borrowings) was $184 million. The company increased its quarterly cash dividend to 36 cents per share. Capital expenditure was approximately $18.5 million with a consolidated inventory of $518.4 million.
Outlook
Management provided guidance for the second quarter of fiscal 2017. It expects non-GAAP net sales between $844 million and $877.8 million, while non-GAAP gross margin is expected in the range of 55.6% to 56.2%. Non-GAAP net income is anticipated in the range of $192.7 million to $213.2 million, with non-GAAP earnings of 83 cents to 91 cents per share. Microchip expects to generate approximately $175 million to $200 million cash in the upcoming quarter prior to the dividend payment and acquisitions. The company expects to incur $30 million in capital expenditure in the next quarter, bringing its tally to about $141 million for fiscal 2017.
Moving forward, management expects continued accretion from Micrel and Atmel acquisitions. We remain impressed with the bullish outlook of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the industry include MaxLinear, Inc. (MXL - Free Report) and Microsemi Corporation , both carrying a Zacks Rank #2 (Buy) and Silicon Laboratories Inc. (SLAB - Free Report) , sporting a Zacks Rank #1 (Strong Buy).
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