Microchip Technology Announces Second Quarter Fiscal Year 2012 Financial Results

Microchip Technology Incorporated (NASDAQ: MCHP), a leading provider of microcontroller, analog and Flash-IP solutions, today reported results for the three months ended September 30, 2011 as summarized in the following table:

Net sales for the second quarter of fiscal 2012 were $340.6 million, down 9.1% sequentially from net sales of $374.5 million in the immediately preceding quarter, and down 10.9% from net sales of $382.3 million in the prior year’s second fiscal quarter. GAAP net income for the second quarter of fiscal 2012 was $79.3 million, or 40 cents per diluted share, down 20.1% from GAAP net income of $99.3 million, or 49 cents per diluted share, in the immediately preceding quarter, and down 24.3% from GAAP net income from continuing operations of $104.7 million, or 55 cents per diluted share, in the prior year’s second fiscal quarter.

Non-GAAP net income for the second quarter of fiscal 2012 was $92.6 million, or 46 cents per diluted share, down 16.8% from non-GAAP net income of $111.4 million, or 55 cents per diluted share, in the immediately preceding quarter, and down 22.6% from non-GAAP net income of $119.6 million, or 63 cents per diluted share, in the prior year’s second fiscal quarter. For the second quarter of fiscal 2012 and fiscal 2011, our non-GAAP results exclude the effect of share-based compensation, expenses related to our acquisition activities (including intangible asset amortization, inventory valuation costs, severance costs and legal and other general and administrative expenses associated with acquisitions), losses on equity securities, and non-cash interest expense on our convertible debentures. A reconciliation of our non-GAAP and GAAP results is included in this press release.

Microchip also announced today that its Board of Directors declared a quarterly cash dividend on its common stock of 34.8 cents per share. The quarterly dividend is payable on December 5, 2011 to stockholders of record on November 21, 2011.

"Our September quarter results are consistent with what others in the industry have reported. The poor economic conditions are impacting the broader semiconductor industry as can be seen from the earnings reports over the past few weeks,” said Steve Sanghi, President and CEO. "The overall macroeconomic environment is weak and the Christmas build season did not materialize as expected during the quarter. We saw broad-based weakness across all sales channels in all geographies.”

Mr. Sanghi added, "We continue to invest in new products and technologies and believe we are well-positioned to gain market share in our strategic product lines as market conditions improve.”

"Our 32-bit microcontroller business demonstrated strong revenue growth in the September quarter and was up 10.4% on a sequential basis, and was up over 158% from the year-ago quarter to achieve a new record,” said Ganesh Moorthy, Chief Operating Officer.

"Our analog revenue was down only 0.7% sequentially which was significantly better than most of our industry peers. Our analog attach strategy is working well and we are continuing to gain market share in analog,” added Mr. Moorthy.

Mark Reiten, Vice President of Microchip’s Licensing division, commented, "Our licensing business achieved a new record in the September quarter, producing $22 million in revenue, up 6.5% sequentially and up 27.3% over the year-ago quarter. Our SuperFlash technology continues to be recognized as a best-in-class flash technology for embedded applications. We continue to expand the number of licensees that are using this technology at various wafer foundries, as well as fabs owned by integrated device manufacturers.”

Eric Bjornholt, Microchip’s Chief Financial Officer, said, "Microchip’s cash and investment balance at the end of the September quarter was $1.78 billion and grew by $58.1 million during the quarter. Microchip paid a dividend of $66.3 million in the September quarter and cumulative dividends paid have now exceeded $1.5 billion.”

"While the floods in Thailand have been devastating for its citizens and for many businesses, particularly those north of Bangkok, our two facilities located almost 50 miles east of Bangkok have continued to operate normally,” said Mr. Moorthy. "We have experienced sporadic issues with our supply chain, all of which have been mitigated by triggering our contingency plans and use of alternative sourcing. We continue to work to ensure the safety and well-being of all our employees, while supporting our customers’ business needs.”

Mr. Sanghi concluded, "The macroeconomic conditions continue to be weak, but we believe that the shipment rates in December will be below the consumption rates of our customers. We expect the inventory burn-off to be largely over by the end of the December quarter and anticipate the December quarter to mark the bottom of this industry cycle for revenue, gross margin and earnings per share. We are modeling December quarter revenue to be flat to down seven percent. We expect the March 2012 quarter to be sequentially up in revenue, gross margin and earnings.”

Microchip’s Recent Highlights:

• Microchip announced the shipment of its 10 billionth PIC^® microcontroller (MCU) to Samsung Electronics Co., Ltd. Microchip delivered this 10 billionth MCU, the 32-bit PIC32MX340F256, approximately 10 months after delivering its nine billionth.
• Microchip continues to bring industry-leading innovation to the 8-bit MCU market, having just introduced several new low-cost and low-power microcontrollers with configurable logic and a high level of peripheral integration in 6- to 20-pin packages. These chips were awarded the Embeddy Hardware Best in Show at the Boston Embedded Systems Conference.
• Microchip shipped 43,084 development systems during the September quarter, demonstrating the continued strong interest in its products. The total cumulative number of development systems shipped now stands at 1,200,215.
• In order to further speed customer designs, Microchip launched the Embedded Code Source, an application store for the embedded community that provides free software and firmware for PIC MCUs, along with the ability to rate and review each download. This interactive site includes free code from both Microchip and its large network of third-party developers, who are also available for expert advice and contract programming.
• In the human-interface arena, Microchip introduced two new development tools. One enables the design of PIC32-based graphical user interfaces without an external graphics chip, while the other enables touch-screen development.
• For the rapidly expanding global energy-metering market, Microchip and Kalkitech announced a certified DLMS software stack that enables the worldwide interoperability of smart meters that are based on its 16-bit PIC MCUs. Microchip also announced its first six-channel analog front end for three-phase energy metering. Finally, the Company unveiled a utility-band power-line soft-modem development kit, which enables low-cost communication and control in utility power meters, in-home energy monitoring, and the smart grid.
• Microchip continued to grow its broad analog portfolio with lower-noise, auto-zero operational amplifiers for sensor, signal-conditioning and instrumentation applications. The Company also introduced a new family of voltage regulators, and a Wi-Fi^® RF power amplifier.
• To facilitate development with its 32-bit microcontrollers, Microchip introduced two new kits. One speeds the design of speech and audio recording/playback products, such as docks, and home and automotive sound systems. To further enable hobbyist and student development with the PIC32, Microchip and Digilent unveiled expansion boards and software libraries for their Arduino™-compatible chipKIT™ platform, along with a new online forum and wiki for chipKIT users.
• In other award news, Microchip was selected as one of "Arizona’s Most Admired Companies” for 2011 by Arizona Business Magazine and BestCompaniesAZ. Microchip earned the award based on its excellence in four categories—workplace culture, leadership excellence, corporate and social responsibility, and customer opinion.

Third Quarter Fiscal Year 2012 Outlook:

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially.

• Microchip’s inventory at December 31, 2011 is expected to be about flat to slightly up from the September quarter. This will enable us to continue to service our customers with very short lead times while allowing us to push out future capital expenditures. The actual inventory level will depend on the inventory that our distributors decide to hold to support their customers, overall demand for our products and our production levels.
• Capital expenditures for the quarter ending December 31, 2011 are expected to be approximately $11 million. Capital expenditures for all of fiscal year 2012 are anticipated to be approximately $70 million. We are continuing to take actions to invest in the equipment needed to support the expected growth of our new products and technologies.
• The diluted common shares outstanding presented in the guidance table above assumes an average Microchip stock price in the December 2011 quarter of $35 per share.
• We expect net cash generation during the December quarter of approximately $75 million to $85 million prior to the dividend payment.

Microchip will host a conference call today, November 3, 2011 at 5:00 p.m. (Eastern Time) to discuss this release. This call will be simulcast over the Internet at www.microchip.com. The webcast will be available for replay until November 10, 2011.

A telephonic replay of the conference call will be available at approximately 9:00 p.m. (Eastern Time) November 3, 2011 and will remain available until 8:00 p.m. (Eastern Time) on November 10, 2011. Interested parties may listen to the replay by dialing 719-457-0820 and entering access code 3242805.

Cautionary Statement:

The statements in this release relating to poor economic conditions impacting the semiconductor industry, the weak overall macroeconomic environment, continuing to invest in new products and technologies, being well-positioned to grow market share as market conditions improve, analog attach strategy working well, continuing to gain market share in analog, our SuperFlash technology continuing to be recognized as best-in-class, expanding the number of licensees using our SuperFlash technology, our two facilities near Bangkok continuing to operate normally, sporadic issues with our supply chain, our ability to continue to support our customers’ business needs, our shipment rates in the December quarter, the December quarter marking the bottom of this industry cycle, expecting net sales to be flat to down seven percent sequentially, expecting the March 2012 quarter to be up sequentially in revenue, gross margin and earnings, continuing to bring industry-leading innovation to the 8-bit microcontroller market, continued strong interest in our products, our third quarter fiscal 2012 guidance including GAAP and non-GAAP data as applicable for net sales, gross margin, operating expenses, other income (expense), tax rate, net income, diluted common shares outstanding, earnings per diluted share from continuing operations, inventory levels, capital expenditures for the December quarter and for fiscal 2012, inventory levels enabling us to service our customers with very short lead times and allowing us to push out future capital expenditures, investing in the equipment needed to support our expected growth, and net cash generation are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause our actual results to differ materially, including, but not limited to: the continued economic uncertainty or any unexpected fluctuations or further weakness in the U.S. and global economies, changes in demand or market acceptance of our products (including our licensed technology) and the products of our customers; the mix of inventory we hold and our ability to satisfy short-term orders from our inventory; changes in utilization of our manufacturing capacity and our ability to effectively manage our production levels; competitive developments including pricing pressures; the level of orders that are received and can be shipped in a quarter; the level of sell-through of our products through distribution; changes or fluctuations in customer order patterns and seasonality; foreign currency effects on our business; the impact of any significant acquisitions that we make; costs and outcome of any current or future tax audit or any litigation involving intellectual property, customers or other issues; the risk that our customers may fail to continue to accept the SST product offerings; our actual average stock price in the December 2011 quarter and the impact such price will have on our share count; disruptions in our business or the businesses of our customers or suppliers due to natural disasters (including the recent floods in Thailand), terrorist activity, armed conflict, war, worldwide oil prices and supply, public health concerns or disruptions in the transportation system; and general economic, industry or political conditions in the United States or internationally.

For a detailed discussion of these and other risk factors, please refer to Microchip's filings on Forms 10-K and 10-Q. You can obtain copies of Forms 10-K and 10-Q and other relevant documents for free at Microchip’s website (www.microchip.com) or the SEC's website (www.sec.gov) or from commercial document retrieval services.

Stockholders of Microchip are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date such statements are made. Microchip does not undertake any obligation to publicly update any forward-looking statements to reflect events, circumstances or new information after this November 3, 2011 press release, or to reflect the occurrence of unanticipated events.

About Microchip:

Microchip Technology Incorporated is a leading provider of microcontroller, analog and Flash-IP solutions, providing low-risk product development, lower total system cost and faster time to market for thousands of diverse customer applications worldwide. Headquartered in Chandler, Arizona, Microchip offers outstanding technical support along with dependable delivery and quality. For more information, visit the Microchip website at www.microchip.com.

Note: The Microchip name and logo, and PIC are registered trademarks of Microchip Technology Inc. in the USA and other countries. chipKIT is a trademark of Microchip Technology Inc. in the USA and other countries. All other trademarks mentioned herein are the property of their respective companies.