|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
conference date: October 25, 2006
for quarter ending: September 30, 2006 (2nd fiscal quarter 2007)
Overview: Record quarter tempered by prediction of slow December quarter with EPS declining 3 cents. See guidance below.
Basic data:
Record net sales of $267.9 million were up 2% sequentially and 17.9% over Sept. 2005 quarter (more if stock-based compensation is neglected). That was the midpoint of the updated guidance from Sept. 20 announcement.
GAAP net income of $79.5 million resulting in EPS of .36 per share, up 3% sequentially.
Quarterly cash dividend increased to .25 per share. That will be $54 million for next quarter.
60.45% gross margin, a record.
Operating expenses 24%, R&D 9.9%, S&A 14.1% of sales, excluding stock-based compensation expenses.
Positive cash flow 128.9 million. Cash and equivalents ended at 1.3 billion (but that must include "long term investments." The balance sheet in the press release said $612 million for cash and short term investments. That is down about $150 million since March 31, 2006.)
Guidance:
For December quarter believes revenues will decline by 5% and GAAP EPS decline to 33 cents. Gross margins of 60.25%. Inventories are expected to increase by 7%.
Conference Highlights:
Ganesh Moorthly promoted to executive vice-president.
Stock buy-back of 10 million shares authorized.
Christmas builds in Asia were delayed somewhat. The Thailand factory is operating normally despite the recent coup.
Microcontrollers generally had 1.6% sequential growth. 16-bit microcontrollers had 53% sequential growth. They believe 16-bit business has reached a "tipping point." Flash microcontrollers 6.7% sequential growth.
Expects 15 to 20% sequential increase in 16-bit microcontrollers.
Asia was the strongest growth area with 4.5% sequential growth; America and Europe were flat.
Inventory days were 99, down 2 days sequentially.
Expects some challenges in December quarter due to reduction in inventories by distributors and reduced demand growth. Currently distributor inventory is lowest in years.
Many new products came on line this quarter, as per previous product announcements.
16275 new development kits were shipped.
Projected capital expenses for 2007 reduced to $70 million (from $80 million).
Believes gained substantial market share from Freescale.
Book to bill was 0.94, which is not good for the future. Lead times remain at 3 to 5 weeks.
They have seen softer than expected build activities in Asia.
Q&A:
Distributor inventory situation? MCHP does not count distributor inventory as sales. Don't see signs of inventory correction at customers, but run rates are slow as businesses are cautious going forward.
Distribution arrangement changes? Made the right choices, in particular adjusting prices for global fulfillers who were not creating demand.
Some customers have taken down inventories on balance sheets, which they can do with shorter lead times.
non-16 bit weakness: does not break out. Most weakness came out of Asia due to delay in Christmas build.
Cap Ex? Capital expenditure is usually driven by growing sales. Reduced expense expectations is due to having enough equipment in place for slowing demand growth. Believes long term growth will be based on new products, so long-term outlook is bright.
Operating expenses? Will cut sequentially, but must be able to grown in long run, with some investments in areas like 16-bit microcontrollers. Already the most profitable chip company in return on R&D investments.
Stock buyback plan? Committed to increasing dividends over time. Buys stock when they believe it is underpriced due to misunderstanding by Wall Street.
Deferred income decline? Lower than they expected going into quarter. Due to distributors holding less inventory and fast lead times.
Analog v. microcontroller? Slowdown seems to be same for both; most customers buy both.
Slowing wafer starts? Does not make changes in wafer starts unless they see a more significant change in long-term demand.
March quarter? Believes inventory will move down a bit in that quarter.
33 cent guidance share count? Buy-back depends on stock price, but 33 cents does not include any buy-back assumption.
Customer base has risen to 55,000 customers from 50,000, so lots of smaller new customers. Their orders are taken by distributors. Major client's (? Arrow) book to bill ratio was 1.01, so MCHP's book to bill may not be down due to lessened end demand, but due to better inventory management.
Ganesh promotion? Ganesh is not transitioning to CEO. Rather there is so much business that they need 2 people to keep on top of it.
U.S. and Euro run rates? Europe is doing good, U.S. is slightly weaker.
Thai coup impact? Only part of one day in quarter, but was a few days before end of quarter. Also shifted to new airport, which was not really ready for opening, but did not lose much that was not made up by end of quarter.
Inventory downside? Does not know for sure, but does not think distributors can take inventory much lower.
Sales breakout by type? 80.1% microcontrollers, 12% memory, 7.9% analog.
DSPic is a 16-bit microcontroller with DSP.
OpenIcon Analyst Conference Summaries Main Page
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.
Copyright 2006 William P. Meyers