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conference date: July 20, 2006
for quarter ending: June 30, 2006 (1st fiscal quarter 2007)
Overview: Another record quarter, but only the slightest increase in earnings due to employee stock options expensing.
Basic data:
Revenues of $262.6 million are up 6.2% sequentially and up 20.2% from year-earlier. GAAP earnings of $77 million or .35 per share are up 2% sequentially and 20.7% from year-earlier. ($81.4 million net income non-GAAP). First time for expensing employee share-based compensation. Expect
Increased dividend to 23.5 cents per share.
Gross margins of 60.4% (non-GAAP).
Cash and equivalents ended at $1.2 billion. $136.5 cash generation during quarter.
$114.9 million ending inventory (116.6 adjusted for share-based compensation). Receivables declined slightly.
Guidance:
September quarter sales to be up 4% sequentially. Believes that is conservative. Gross margins about flat (60.6%). Earnings per share (GAAP) of 37 cents. Net cash generation before divident payment will be $125 million. Expects inventories to decline. Fiscal 2007 capital expenses remain targeted at $80 million.
Rational: positive signs in business demand. Overall book to bill was 1.01. Inventory lean.
Conference Highlights:
Microcontroller sales which grew 8.2% sequentially and 21.0% over the year-ago quarter. Flash microcontroller business grew 12.1% sequentially and over 46% from the year-ago quarter; now are over 60% of business. OTP microcontrollers continue to sell well despite new development having ceased 4 years ago. Development system shipments hit a new record.
10% sequential increase in 16-bit microcontrollers (most current sales are 8-bit). Now has 65 models in production. Had some product mix issues, so some growth is in backlog. Book to bill is 1.5! Expect 16-bit to be up 35% in Sept. quarter.
Memory business is weak. Pricing flat. Revenues down slightly.
Analog products up only 1% sequentially, but 48% over year-ago. Design momentum is strong.
8-bit microcontrollers led in dollar growth.
All geographic sectors showed growth, but Americas market was weakest (1.8%). 44% of total sales are to Asia.
Inventories are at low end of historic range.
Aims for 62% gross margins (excluding share-based compensation expense).
Have taken more control of demand creation by adding design/sales staff to aid distributors.
Q&A:
Customer attitude? Demand remains strong.
Believes 16-bit architectures are getting design wins over competitor's 32-bit architecture.
16-bit mix issue? Just due to newness of products. Whole group is very compatible, so switches are common. Issue should be over by end of this quarter.
Conservative guidance is due to macroeconomic concerns, not to guidance on future needs from customers.
Analog? Just some customers took a pause after a very rapid growth period; don't believe it will continue.
Book to bill without 16-bit? Yes, probably flat to slightly negative. Business growth for Microchip often does not correspond to book-to-bill ratio because the response time is so fast, they don't need to book much in advance.
2 year lead time from design of microcontroller-using products to production, so rapid increase in 16-bit tools shipped usually does not affect next quarter, will be seen 2 years from now.
Will continue to prefer to give investors cash in the form of dividends rather than stock buy-backs.
Discussion of why stock price appears low on a comparable basis; no clear reason.
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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. Before making or terminating an investment you should always verify any factual basis of your decision from multiple independent sources.
Copyright 2006 William P. Meyers