Microchip Tech Q2 '96
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Microchip Tech Q2 '96
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Microchip Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MCHP)") else Response.Write("(NASDAQ: MCHP)") end if %> UNION CITY, Ca., October 20, 1996/FOOLWIRE/ --- Microchip Technology reported second quarter results last week. Net sales were $79.5 million, up 12% compared to net sales of $71.3 million for the same quarter a year ago. They were also up 7% sequentially. The September quarter shipments contained a higher percentage of turns orders which are those orders both received and shipped during the quarter. And turns orders which have historically varied between approximately 35% and 50% were at the upper end at 50% for the quarter. Gross profit margins were exactly 50%, down slightly from a high-water mark of 51.9% recorded in the same quarter a year ago, but up sequentially from 49.4%. A moderate sequential improvement in gross margins is consistent with the guidance given last quarter which indicated that Microchip would continue to run its fabs at less than full capacity during the second quarter in order to trim inventory levels. Gross margins improved during the quarter due to improved product mix, production cost improvements, and a slight increase in wafer loading during the quarter.
Total operating expenses were stable as a percent of sales at 26.7% versus 26.6% in the prior year quarter. The two components of operating expenses, R&D and SG&A, were both flat in percentage terms with R&D expenses at 9.6% of sales versus 9.5% in the prior year quarter and SG&A expenses at 17.1% this year versus 17.2% last year.
Net non-operating expenses increased approximately $300,000 during the quarter due to an increase in interest expense primarily associated with funds borrowed during the latter part of the June quarter and early September quarter to repurchase approximately 900,000 shares of Microchip common stock. The roughly 1% per share increase in interest expense due to the repurchase was fully offset by a nearly 2.5% decrease in shares outstanding.
For the quarter, Microchip continues to report a worldwide tax rate of 27%. As a result of all of the foregoing, net income was $13.1 million, up 8% sequentially and up 3% from the year-ago quarter. Net income per share was $0.37, up 9% sequentially from EPS of $0.34 and up 5% over net income per share of $0.35 in last year's second quarter.
Microchip shipped approximately 5300 new application development systems to customers during the quarter which brings the cumulative total of development systems shipped to over 76,000 systems. At this rate of shipment, still over half of all development systems shipped by Microchip in the past five years have been shipped to customers within the past 18 months. Additionally, a number of third-party companies building and selling Microchip-compatible development systems and tools has now increased to 106 third-party partners, up from just 2 in 1993.
Capital spending in the quarter was $19.8 million, in line with prior guidance on investments for the entire fiscal year of approximately $100 million. As stated last quarter, approximately half of the planned FY 1997 capital investment is associated with bringing Microchip's Bangkok test facility online and another substantial portion is associated with the installation of the company's initial 8-inch wafer line in their Tempe fab 2. Depreciation expenses for the quarter were $9.9 million.
As of September 30th, Microchip's total inventories decreased slightly to $59.1 million, down $700,000 from last quarter. This total figure breaks down into approximately $18 million worth of finished goods inventory which represents 5.5 weeks worth of sales, which they feel is very appropriate for the high turns content of their current business.
COMPETITIVE LANDSCAPE. There is no change in the fundamental landscape of the microcontroller market. What continues to happen is Microchip is the leader in OTP microcontrollers and has made OTP a real issue in the market. In the last couple of years Motorola and others have endorsed that OTP solution and have brought out their own OTP microcontroller offering which has simply legitimized Microchip's solution even further and has made the market larger. Microchip continues to lead this market and is not concerned about any current competitive responses in the market. They continue to be very competitive, they are gaining market share, and their gross margin actually went up during these times of excess inventories, dropping prices, etc.
As the marketplace has shifted to turns orders, once customers learn the advantages of OTP, they never go back. They continue to see a very large number of customers (95% of last year's business) wanting OTP microcontrollers even though Microchip has a large number of ROM-compatible products. Once a customer gets a feel for it, it is so good for his inventory and cost structure, that people do not go back to ROM-based microcontrollers. So, their feeling is that this will continue to be a permanent issue in the marketplace and the market will keep shifting to OTP more and more.
The Quick ASIC product line and other of these very fast turn conversion products really fill a niche between the traditional FPGAs which are immediate-time-to-market and the traditional gate arrays with longer lead times and typically pretty stiff NRE charges. In their particular business model for the Quick ASIC product line, there is no NRE charge at all. They take a deposit that is fully refunded back on the first several thousand parts, so the cross-over point is actually quite low. For anybody that is doing 5,000 parts per year and up, it becomes a very attractive alternative. It is not as cost effective as a full custom gate array to buy so if someone is looking at many millions of parts, they will still find the traditional gate array approach to be more appropriate. If they are really only building a few hundred devices, never really get beyond the prototype, or are strictly low volume, they will probably stick with FPGAs. It's really not so much of an issue of a crossover point as it is time to market. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |