Microchip Technology Incorporated (MCHP) reported net revenues of $329.2 million in the third quarter of fiscal 2012, down 3.4% sequentially and 10.5% from the year-ago quarter and missed the Zacks Consensus Estimate of $332 million.
On a geographical basis, revenues from Americas were down 3.4% sequentially. Europe was down 15.3% sequentially and Asia was up 1.9% sequentially. Almost all geographies were impacted by the weak business conditions, Europe being the weakest compared to management’s expectations. Asia was the strongest.
Quarter in Detail
In terms of product mix, revenues from microcontrollers were down 4.4% sequentially with both 8-bit and16-bit businesses down sequentially. The 16-bit business was down 5.4% sequentially as the company experienced some short-term pushouts from customers in the computing segments who were affected by supply-chain issues stemming from the flooding in Thailand.
Microchip expects to resume growth in the March quarter as customer demand rebounds. 32-bit recorded a sequential growth of 33.7% and a year over year growth of 137.3%. Management stated that despite the challenges in the economic environment, this product line continues to demonstrate growth as new designs go into production.
Microchip shipped 43,100 development tools in the quarter.
The Analog business was up 1.75% sequentially. Memory business, comprising of Serial E-squared memory and SuperFlash memory was down 6.6% sequentially.
Microchip acquired Silicon Storage Technology (SST) in 2010. Excluding stock-based compensation expense and one-time items, gross margins came in at 56.8%, down from 57.2% in the previous quarter and 59.8% in the year-ago quarter. Operating margin came in at 30.5%, down from 35.6% in the year-ago quarter but up from 27.7% in the previous quarter.
Including the above mentioned items, Microchip generated a gross margin of 55.8% down from 57.2%, in the previous quarter. Operating margin came in at 26.8%, down from 27.7% in the previous quarter.
Net income of $77.5 million, was down 2.3% sequentially and down 24.0% in the year-ago quarter. Earnings per share came in at 38 cents per share, beating the Zacks Consensus Estimate by a penny.
Microchip ended the quarter with cash and cash equivalents of $1.3 billion, down from $1.4 billion at the end of the previous quarter.
Quarter Ahead
December quarter results were in line with management expectations as the industry was going into a broad-based demand weakness and inventory correction. Management believes that the December quarter was a bottom quarter and the company should see sequential growth in March quarter.
The company believes that the recovery from inventory correction is underway with December quarter being the bottom. Taking into account the effects of the Lunar New Year in Asia, management expects net sales to be up 1% – 5% sequentially in the March quarter. Gross margin is expected to improve significantly and come between 57.5% and 58.2%. Microchip projects operating margin between 31.75% and 32.25%. EPS is forecasted between 43 cents and 47 cents.
The company expects to see further improvement in the gross margin in subsequent quarters and targets a gross margin of 60% by end of fiscal 2012.
The results did not have much of an impact on the stock price as it was marginally up at 0.82% at $38.00.
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