Microchip Reports Better-than-Expected Results for Q1 of FY2020

August 08, 2019 by Paul Shepard

Microchip Technology announced results for the quarter ended June 30, 2019, including net sales of $1.323 billion, down 0.5% sequentially and up 9.1% from the year ago quarter. The midpoint of the company’s guidance provided on May 7, 2019 was net sales of $1.33 billion. Additional highlights include:

  • On a GAAP basis: gross margin of 61.6%; operating income of $171.6 million; net income of $50.7 million; and EPS of $0.20 per diluted share. Guidance provided on May 7, 2019 was GAAP EPS of $0.07 to $0.27 per diluted share.
  • On a Non-GAAP basis: gross margin of 62.0%; operating income of $478.5 million and 36.2% of net sales; net income of $357.6 million and EPS of $1.41 per diluted share. Guidance provided on May 7, 2019 was Non-GAAP EPS of $1.26 to $1.49 per diluted share.
  • End-market demand of $1.350 billion compared to end-market demand of $1.340 billion in the March quarter.
  • Paid down $257.5 million of debt in the June 2019 quarter. Cumulatively paid down $1.414 billion of debt over the last four quarters.
  • Record quarterly dividend declared of 36.60 cents per share.
  • GAAP net income for the first quarter of fiscal 2020 was $50.7 million, or $0.20 per diluted share, up from GAAP net income of $35.7 million, or $0.14 per diluted share, in the prior year's first fiscal quarter. For the first quarters of fiscal 2020 and fiscal 2019, GAAP net income was significantly adversely impacted by purchase accounting adjustments associated with acquisitions.

"Our June quarter financial results were better than we expected in spite of a challenging economic environment," said Steve Sanghi, Chief Executive Officer. "Our net sales were 0.5% below the midpoint of our May 7, 2019 guidance and were adversely impacted by the Huawei shipment restrictions that were announced after our guidance was provided to investors. Historically, Huawei has represented between 1% and 2% of our net sales. We produced 36.2% non-GAAP operating margin and exceeded the midpoint of our non-GAAP diluted earnings per share guidance by 3.5 cents."

Mr. Sanghi added, "End-market demand, which reflects sell-through activities in the distribution channel, was $27.1 million higher than GAAP (sell-in) revenue in the June 2019 quarter, and was up 0.7% sequentially compared to the March 2019 quarter. As a result, distribution inventory days declined from 35 to 32 days. Our commentary in our February 2019 earnings conference call that the March 2019 quarter would mark the bottom of the current semiconductor cycle for Microchip on an end-market demand basis is proving to be correct."

"The end-market demand for our microcontroller business was up 1.8% and for our FPGA business was up 7% compared to the March 2019 quarter. Our FPGA business set an all-time quarterly record with almost $101 million in end-market demand. Design wins on our new, low power, mid-range PolarFire® family continued to grow strongly, and we are optimistic about this product family adding another leg to our future growth," said Ganesh Moorthy, President and Chief Operating Officer.

Mr. Moorthy added, "The integration of Microsemi with Microchip continues to progress well. Our business units and sales organization have substantially completed their integration activities. We are pleased with the synergies we have achieved since we closed the acquisition despite the weaker macro-economic environment over the past several quarters. As previously indicated, the business system and operations integrations will take the longest to complete as we execute this complex integration in phases."

Eric Bjornholt, Microchip's Chief Financial Officer, said, "We paid down $257.5 million of total debt during the June quarter, reflecting a cumulative pay down of $1.414 billion over the past four quarters, as we continued to manage our working capital requirements for the business. We will continue to use substantially all of our excess cash generation after dividends to reduce the amount of debt on our balance sheet as quickly as possible."

Mr. Sanghi concluded, "There is continued uncertainty in the economic environment, specifically as it relates to U.S. and China trade tensions. That being said, we are seeing a stabilization in our bookings activity and our backlog for the September 2019 quarter is higher than our backlog was for the June 2019 quarter at a similar point in time. Based on the multi-quarter inventory correction we have seen at distributors and end customers, we expect some growth to resume despite a very challenging business environment. We expect our net sales in the September 2019 quarter to be flat to up 4% sequentially."