Analyst Conference Summary



conference date: May 4, 2016 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2016 (Q4, fiscal fourth quarter 2016)

Forward-looking statements

Overview: Record fiscal Q4. Great guidance.

Basic data (GAAP):

Revenues were $557.6 million, up 3.2% sequentially from $540.3 million, and up 2.6% from $543.2 million in the year-earlier quarter.

Net income was $67.4 million, up 10% sequentially from $61.2 million, and down 32% from $99.4 million in the year-earlier quarter (which had a $36.5 million tax benefit).

EPS (diluted earnings per share) were $0.31, up 11% sequentially from $0.28 and down 32% from $0.45 year-earlier.


For the first fiscal quarter 2017 ending June 30, including the acquisition of Atmel, revenue is expected between $799.1 million and $841.9 million [WPM: note the strange precision despite the broad span. Why not say $800 to $842 million?] Resulting non-GAAP net income of $160.7 to $181.2 million. Will have just over 230 million shares on a diluted basis, and non-GAAP EPS of $0.70 to $0.79.

Capital expenditures $170 million for fiscal 2017.

Conference Highlights:

CEO Mr. Sanghi added, "We entered the June quarter with a stronger backlog than we had going into the March quarter and the bookings and turns for the quarter so far have been strong. " March quarter marked the end of the inventory correction, he believes.

On January 19 Microchip signed an agreement to acquire Atmel for $8.14 per share using a combination of cash and MCHP shares. Completed U.S. anti-trust filing. Closed on April 4, 2016. "We remain confident we can achieve 25 cents of accretion to non-GAAP diluted earnings per share from Atmel in fiscal 2017."

Microchip is developing detailed integration plans for Atmel. Will rebuild Atmel's 8-bit microcontroller business. But closed the Atmel Dresden wireless development center. Atmel's mobile touch business will be sold. Atmel has crypto products that will be helpful.

A dividend of 0.3595 cents per share will be paid on June 6, 2016 to shareholders of record on May 23. The prior dividend was 35.9 cents per share.

Non-GAAP numbers: Sales were $568.4 million. Net income was $153.0 million, up 11% sequentially from $138.4 million and up 3% from $148.8 million year-earlier. EPS was $0.70, up 9% sequentially from $0.64 and up 3% from $0.68 year-earlier. 58.4% gross margin. 31.4% operating margin.

Microcontroller revenue was $334 million [based on 59.9% of GAAP revenue], up 5.5% sequentially. Believes gaining market share. 59.9% of overall revenue.

Analog chip revenue was $192.9 million, up about flat sequentially, and was up 34.6% y/y. 30.2% of overall revenue.

[Note: I could not reconcile the microchip or analog segment data given to itself or my prior data. Microchip used to give more segment data.]

Memory business revenue was $ million, down 1.8% sequentially from $27.7 million. 4.8% of overall revenue.

Licensing revenue was not stated.

Other revenue was not stated.

GAAP gross margin was %, and operating margin was %.

Cash and investments ended at $2.57 billion, up sequentially from $2.40 billion. Cash generation was $196 million. $16.5 million capital spend in quarter. Debt was about $1 billion. $ million paid in cash dividends. $ million depreciation expense.

Cash will drop in June quarter as paid $7 per share cash (plus $1.15 in stock) to acquire Atmel.

Cost of goods sold was $254.6 million, leaving gross profit of $302.8 million. Operating expenses of $222.8 million consisted of: research and development $95.6 million; selling, general and administrative $78.3 million; amortization $48.1 million; and special charge $0.8 million. Leaving operating income of $79.9 million. Other expense $22.2 million. Income tax benefit of $9.7 million.

Eventually, once the products are shifted to other Fabs, the Micrel San Jose fab will be closed, likely in December.

Inventory at distributors ended at 32 days.

Expects effective tax rate including Atmel between 8% and 9%.


Atmel best growth segments? They were focuses on 32-bit and touch. We will add 8-bit. Security could also be a growth area. It depends in part on investment decisions we make. We would like to attach our analog circuits to their 8-bit AVR. They also have ARM. We are not presuming a big shake up in their road maps.

COGS v. op ex savings? Can't break down the synergies for you. We think we can achieve the numbers we gave.

IoT business? Our wireless business has been doing well. Atmel's wireless business was smaller than ours and was losing money. So we are merging them. But they did have some good products. It was not as good as they had indicated to analysts and investors.

Inventory correction? We completed the correction in December. Inventory was about flat in March. So we are in normal mode for demand and inventory.

When can the Atmel business get back to growth? Their mobile touch business is about $14 million per quarter. They were in the middle of an inventory correction, they had a lot at distributors as well as internally. We recognize revenue on a more conservative basis than they did. We see stabilization already, with improvement as we go foreward. 2H should be significantly better than 1H.

Mobile touch business? 33% gross margin and losing money. It's expenses were kept high by Atmel management. We are aggressively cutting expenses to get it to break even, then we will sell it.

16 and 32 bit growth drivers? Both are broad based with thousands of customers. Nothing specific to point to.

China? June quarter China will be up sequentially, which is normal seasnally, but the demand environment is fine. Can't be broken down by industry.

The semiconductor industry is consolidating. We have purchased several companies, each had some unexpected problems, but we turned each around. Same with Atmel. We competed with them for years. They have good products and technology and they fit well with ours and our road maps. But they did not control their costs; they were poorly managed in several ways, including giving themselves bonuses regardless of how the company was doing. They had poor pricing discipline and poor teamwork.

16 bit Atmel? They had no 16-bit business.

How long to get things in line at Atmel? Size and scale makes it challenging, but we have deep experience in integrations. But there are lots of great employees at Atmel who are excited to be under better management.

Capital expense plan? We have the factory footprint we need. We will make incremental investments as required. We have some capacity to grow into. We think $140 million is a good placeholder for the current fiscal year. Atmel revenue has been trending down, so there is substantial space in their factories.

Do you see any of Atmel's larger customers taking business elsewhere? Atmel had a poor pricing business. Some parts were sold at negative gross margins to some customers. Three variables: brand, product, and price. Atmel had good products, medium brand, poor pricing. We will put discipline in place. We have no large customers who are designing out. To the contrary, we are seeing more customers that are attracted to our increased size.

Atmel also made deals with distributors at quarter end to boost revenue. We don't do that.

Restructuring charge in June quarter? We don't know yet.

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Copyright 2016 William P. Meyers