Analyst Conference Summary


conference date: May 5, 2011 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2011 (Q4 fiscal 2011)

Forward-looking statements

Overview: Strong quarter.

Basic data (GAAP):

Revenues were $380.0 million, up 3% sequentially from $367.8 million, and up 37% from $278.0 million year-earlier.

Net income was $125.5 million, up 25% sequentially from $100.8 million, and up 66% from $75.8 million year-earlier.

EPS (earnings per share) were $0.62, up 22% sequentially from $0.51, and up 55% from $0.40 year-earlier.


For the first quarter (Q1) of fiscal 2012 ending June 30, 2011 revenues expected between $383 and $403 million (1% to 6% sequentially). Gross margin: GAAP 59.3%, non-GAAP 60.3%. Operating expense 26.25 to 26.5% GAAP, 24.0 to 24.25% non-GAAP. Tax rate 12.25%. GAAP net income $106.5 to $112.9 million, non-GAAP $119.0 to $125.9 million. EPS from continuing operations: GAAP $0.52 to $0.55, non-GAAP $0.58 to $0.62.

Capital expenditures for Q1 expected around $37 million, and at $125 million for full fiscal 2012.

Conference Highlights:

"We exceeded the high end of our gross margin and earnings per share guidance even with the challenging backdrop of the world economy and the Japan crisis."

Non-GAAP numbers: gross margin 60.2%, operating income $137.3 million, net income $119.0 million, EPS $0.59.

GAAP net income includes a one-time tax benefit of $24.4 million.

A quarterly dividend of 34.6 cents/share to stockholders of record on May 19, 2011 will be paid out on June 2, 2011. Cash used will be about $64.5 million.

Licensing revenue in the quarter was a record.

Microcontroller revenue was up 4% sequentially and 17% y/y, a record. 16-bit segment was up 24% sequentially and 86% y/y. 32-bit up 35% sequentially and 226% y/y. Microchip dropped to number 2 in 8-bit microcontroller sales despite gaining market share due to Renesas merger with NEC.

Analog segment was up 3.5% sequentially and up 45% y/y. 17,500 customers.

Memory business down 5% sequentially.

44,657 development systems shipped in the quarter.

Inventory held was flat from the December quarter and below optimum, so will try to build more inventory in the current quarter. No disruption of supplies from Japan situation in quarter.

"We have a strong backog position for the June quarter, but there is still some uncertainty regarding the impact from the Japan crisis." Initially had a $2 to $3 million impact from order push outs and lower Japanese demand. Positive effect from closed microcontroller factories in Japan, but most substitutions involve redesigns.

Cash and short term investments ended at $1.24 billion, long term investments at $465 million. Cash up about $135 million in the quarter. Inventories at $180.8 million. Convertible debenture liability was $347.3 million. Capital spending $24.3 million. $22.8 million depreciation in quarter.

Acquired MMT (Millenium Microtech Thailand) in the quarter had $2 million in revenue in the quarter. They provide assembly and testing, and were a Microchip supplier. Decided buying MMT was less expensive than building a second facility in Thailand.

Cost of sales was $154.4 million, leaving gross profit of $225.6 million. Operating expense of $101.2 million included $44.2 million for R&D, $56.9 million selling, general, and administrative, and a $0.2 million special charge. Leaving operating income of $124.4 million. Other expense was $4.3 million. Income tax benefit was $10.6 million. Net loss from discontinued operations was $5.1 million.

Impressive results were despite the less than 1 book to bill ratio in December quarter. Bookings were excellent in the March quarter. Will not provide book-to-bill going forward as it does not correlate with future sales.


Why automotive business not more impacted by Japan? The $2 to $3 million negative impact described above was largely in the Japan automative market. We believe starting in September quarter sales in Japan may make up for earlier shortfalls.

One automotive executive was willing to qualify a Microchip part far faster than usual, and it will ship in June.

Was trend in March or April due to stocking from fear of shortages post Japan? Very likely. April started out very very strong.

Japan business impact on gross margins? Our Japan business is very small. Outside Japan sales mix should be similar, so margins should be similar.

I believe in the long run Japanese companies will continue to prefer to buy from other Japanese companies.

Comments on how well Atmel has done competitively? We have had more consistently profitability than Atmel and other companies. Our long term model is very successful.

Touch technology? It is the only touch on metal solution on the market. ASPs would be enhanced if it is combined with microcontollers.

If we had committed to substitution parts to new customers without knowing demand for current customers we could end up not having parts for designs already in place. Increased visibility and bookings resulted. In the past having a good level of inventory has helped us keep customers when others had a crunch. We are prepared to have the availability to help our customers while they wait for Japanese supplies to recover.

Any margin improvement in remainder of year would tend to come from analog products. Memory products have lower margins.

We expect China to drive much of the growth in the June quarter because they are coming off the New Year holidays. But Asia margins are lower than those for other reasons. Europe had a good March quarter, but is likely to be flat in June quarter.

Discontinued operations loss? Business licensed to PCC as part of SST restructuring. That particular product had less than expected demand, so we had inventory they did not need.

Pricing trends? Microcontroller, bulk of business, we try to keep pricing steady. We don't jack up prices to existing customers when there are shortages.

We believe we have products that designers control for ARM for most applications.

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Copyright 2011 William P. Meyers