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Microchip Technology Reports Strong First Quarter Fiscal 2003 Results

7/18/2002 - Microchip Technology Incorporated today reported net sales and earnings for the first fiscal quarter ended June 30, 2002. Net sales for the quarter were $159.7 million, up over 7% from the March 2002 quarter, and up approximately 15% from the prior year’s first quarter. Diluted earnings per share for the quarter were 15 cents, up approximately 17% from the March 2002 quarter, and up approximately 39% from the prior year’s first quarter, all prior to a charge related to in-process research and development costs associated with the Company’s acquisition of PowerSmart, Inc., which closed on June 5, 2002. After the one-time charge of $9.3 million, diluted earnings per share for the quarter ending June 30, 2002 were 10 cents, down approximately 18% from the March 2002 quarter, and essentially flat with the prior year’s first quarter.

“I am extremely pleased with the performance of the Company in the June quarter,” said Steve Sanghi, Microchip’s President and CEO. “All product areas posted strong sequential revenue gains in the quarter, with our microcontroller product line growing 6%, our analog product line growing 16% and our Serial EEPROM product line growing 8%. The sequential revenue growth in microcontrollers evidences the rapid design win acceptance we continue to experience in our customers’ applications.”

Sanghi continued, “During the quarter, we also shipped a record 10,500 new development systems, surpassing the old shipment record by over 10%. Key factors in the growth of our analog products during the quarter were the expansion of our analog customer base, increased analog sales to our existing microcontroller customers, and reduced dependence on customers in the cellular phone industry. Average selling prices in Serial EEPROMs were essentially unchanged from the March quarter, with sales growth coming from increased unit demand from our customers and improving product mix. During the quarter, the Asia and Americas geographies performed the best.”

“Returning to a pattern of growth year over year in both revenues and earnings per share in the face of the difficult market conditions we have experienced exhibits the strength of our product offering and our overall business model,” Sanghi said.

Sanghi concluded, “As I look to the September quarter, we expect revenue growth of approximately 7% sequentially, based on strength in our proprietary product lines. We anticipate that the geographical strength in sales in the September quarter will continue to be predominantly in Asia and the Americas. With gross margins being in the same range as the June quarter, we anticipate earnings per share will be approximately 16 cents, up approximately 7% sequentially.”

Also today, Microchip Technology announced that it has executed a definitive agreement to acquire a semiconductor manufacturing complex in Gresham, Oregon from Fujitsu Microelectronics, Inc. for $183.5 million in cash. The transaction is subject to results of Microchip’s due diligence and other closing conditions. Closing of the transaction is expected to occur by the end of October, however, Fujitsu Microelectronics has the option to accelerate closing to the end of August 2002 upon completion of all closing conditions.

Microchip’s First Quarter Highlights:

• Microchip completed its acquisition of PowerSmart, Inc., paying approximately $54 million in a cash transaction. PowerSmart delivers a unique battery management whole product solution which improves system runtimes with a lower system cost for the user. Included in the whole product solution is an application tools suite to speed up implementation during the user’s development and production.
• Microchip announced its sixth annual MASTERs conference at the Pointe South Mountain Resort in Phoenix, Arizona, July 24-27, 2002. MASTERs stands for Microchip’s Annual Summer Technical Exchange Review. The conference provides design engineers with an annual forum for sharing and exchanging technical information through more than 55 technical courses on the Company's PICmicro® microcontrollers, high-performance linear and mixed-signal solutions, KEELOQ® security devices, dsPIC™ digital signal controllers and microID® RFID devices. Based on registrations for the conference, we expect a record attendance of over 600 engineers.
• Microchip shipped its two billionth PICmicro® microcontroller, the PIC16F877 high-performance Flash microcontroller. The two billionth PICmicro® was sold to Carrier Corporation. Microchip delivered its one-billionth microcontroller in the fall of 1999 after 10 years of operation The two-billionth milestone was achieved less than 30 months from the ship date of the one-billionth microcontroller. This announcement continues to demonstrate the industry’s acceptance of Microchip’s PICmicro microcontrollers as the high-performance, cost-effective solution for embedded control designs.
• Microchip began sampling its new high-performance 8-pin Flash microcontroller, an ideal solution for distributed intelligence applications. The PIC12F675 microcontroller packs twice the amount of Flash, RAM and data EEPROM memory than competitive offerings, a lower voltage range and precision analog peripherals.
• The Company introduced its PIC16F72 Flash microcontroller, which is code and pin-out compatible with Microchip’s PIC16CR72 ROM- and PIC16C72A OTP-based microcontrollers. The PIC16F72 offers users a proven migration path to address applications that now require reprogrammable Flash memory to meet market demands, thus allowing existing boards and software to be used and design cycles shortened.
• Microchip’s products continue to be recognized by leading trade publications. The MCP7382X family of three Li-Ion battery chargers was featured on the May 2002 issue cover of Battery Power Products & Technology magazine. As the Company's first stand-alone charge management integrated circuits, this family of battery chargers offers advanced battery management features to maximize battery operating life and reduce the printed circuit board footprint, while minimizing overall system cost and improving time-to-market.
• Microchip introduced its PICDEM™ LIN (Local Interconnect Network) Development Kit that enables designers to easily and efficiently develop solutions using the LIN bus protocol with PICmicro® microcontroller-based systems. The LIN protocol is ideal for low-end networks in the automotive market as well as in other market segments, such as appliances.
• Committed to providing engineers with the whole product solution, Microchip enhanced its top-selling PICDEM™ 2 Demonstration Board with an in-circuit debugger port, liquid crystal display read-out, sounder and temperature sensor. For $99, designers receive a demonstration tool that provides immediate programming and debugging and has the benefit of auxiliary features with I/O capabilities to interface to the outside world.
• The readers of Electronic Design magazine selected the “Dual Digital Pot Creates Accurate, Temperature-Stable Amp” article by Microchip’s Bonnie Baker in the April 15, 2002 issue as the most popular “Idea For Design.” The article, originally published in the Dec. 17, 2001 issue, highlighted the benefits of designing with Microchip’s digital potentiometers, allowing designers to dynamically change circuit conditions, thereby designing a "smart" analog system which could respond to the surrounding electronic environment.

Q2 FY2003 Outlook:

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. Microchip will provide a mid-quarter update on Wednesday, September 18, 2002. See “Conference Call and Updates” section below for details.

• Revenue for the second fiscal quarter ending September 30, 2002 is currently anticipated to be approximately $171 million.
• Gross margins for the second fiscal quarter ending September 30, 2002 are currently expected to be approximately 52.5%, essentially flat with the quarter ended June 30, 2002. Generally, gross margins will fluctuate over time, driven primarily by the product mix of microcontrollers, analog products and memory products, manufacturing yields, fixed cost absorption, wafer fab loading levels, Serial EEPROM pricing, and competitive and economic conditions.
• Operating expenses for the second fiscal quarter ending September 30, 2002 are expected to be between $45.5 and $46.0 million. Operating expenses fluctuate over time, primarily due to revenue and profit levels.
• Included in operating expenses, Research and Development (R&D) for the second fiscal quarter ending September 30, 2002 is expected to be approximately $23 million. We continue to invest in R&D in order to provide Microchip with new manufacturing technologies and an increased product offering.
• Capital expenditures for fiscal 2003 are expected to be between $250 and $270 million. Included in capital expenditures for fiscal 2003 is the $183.5 million capital expenditure to purchase a semiconductor manufacturing complex in Gresham, Oregon from Fujitsu Microelectronics, Inc. The level of capital expenditures varies from time to time as a result of actual and anticipated business conditions.
• Depreciation expense for the fiscal quarter ending September 30, 2002 is expected to be approximately $28 million.
• Based on these assumptions, earnings per share for the September quarter are anticipated to be approximately 16 cents.
• The tax rate for the second fiscal quarter is anticipated to be approximately 25.5%.
• Microchip’s cash balance as of September 30, 2002 is anticipated to be approximately $330 million, an increase of approximately $45 million from the cash balance of $284 million as of the end of June. Microchip expects to generate approximately $60 million of cash in the quarter ending September 30, 2002. If the recently announced acquisition of a semiconductor manufacturing complex in Gresham, Oregon closes in the September quarter, then our cash balance is anticipated to be approximately $150 million.

Conference Call and Updates:
Microchip will host a conference call today at 5:30 p.m. (Eastern Time) to discuss this release. This call will be simulcast over the Internet at www.microchip.com. The webcast will be available for replay until July 24, 2002. A telephonic replay of the conference call will be available at approximately 8:30 p.m. (Eastern Time) July 17, 2002 and will remain available until 8:00 p.m. (Eastern Time) on Wednesday, July 24, 2002. Interested parties may listen to the replay by dialing 719-457-0820 and entering access code 478816.

Microchip will make a second quarter business update available after market close on September 18, 2002. This update will be posted on the Company’s website at www.microchip.com. Those who do not have access to the Internet may contact Microchip’s Investor Relations department directly at 480-792-7761 to hear a recorded summary of the business update.

Cautionary Statement: The statements in this release relating to the sequential revenue growth in our microcontroller product line evidencing rapid design win acceptance in our customers’ applications, the strength of our product offering and our overall business model, sequential revenue growth of approximately 7% in the September quarter, the strength in our proprietary product lines, geographical strength of our sales in the September quarter continuing to be predominantly in Asia and the Americas, gross margins and earnings per share estimates for the September quarter, the expected closing of our acquisition of a semiconductor manufacturing complex in Gresham, Oregon, the industry’s acceptance of our PICmicro® microcontrollers as the high-performance, cost-effective solution for embedded control designs, guidance on the September quarter revenue, gross margins, operating expenses, R&D, depreciation expense, earnings per share, tax rate, cash generation, cash balances, capital expenditures for fiscal 2003, and the possible acceleration of the closing of our acquisition of a semiconductor manufacturing complex in Gresham, Oregon at the sole option of the seller, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially, including, but not limited to: demand for our products and the products of our customers; our ability to ramp products into volume production; the level of orders that are received and can be shipped in a quarter; levels of inventories at our distributors and other customers; inventory mix and timing of customer orders; changes in customer order patterns and seasonality; the level at which design wins become actual orders and sales; pricing pressures; disruptions in international transport or delivery occasioned by unexpected increases in prices or supply of oil or by terrorist activity or armed conflict; impact of events outside the United States, such as the business impact of fluctuating currency rates or unrest or political instability; disruptions in international transport or delivery; general industry, economic and political conditions; our ability to maintain operating margins; financial stability in foreign markets; our timely introduction of new technologies; market acceptance of our new products and those of our customers; competitive factors, such as competing architectures and manufacturing technologies and acceptance of new products in the markets we generally serve; the costs and outcome of any litigation involving intellectual property, customer and other issues; difficulties associated with successfully integrating Microchip and PowerSmart’s businesses and technologies and failure to achieve anticipated synergies in the PowerSmart acquisition; whether the seller of the semiconductor manufacturing complex in Gresham, Oregon exercises its option to accelerate the closing date of the acquisition; and failure of the acquisition of the Gresham facility to close due to failure of the parties to satisfy the closing conditions or other factors.

For a detailed discussion of these and other risk factors, please refer to Microchip's filings on Form 10-K and 10-Q. You can obtain copies of Forms 10-K and 10-Q and any other relevant documents for free at the SEC's Web site (www.sec.gov) or from commercial document retrieval services.

About Microchip:
Microchip Technology Inc. manufactures the popular PICmicro® field-programmable RISC microcontrollers, which serve 8- and 16-bit embedded control applications, and a broad spectrum of high-performance linear and mixed-signal, power management and thermal management devices. The Company also offers complementary microperipheral products including interface devices; microID® RFID devices; serial EEPROMs; and the patented KEELOQ® security devices. This synergistic product portfolio targets thousands of applications and a growing demand for high-performance designs in the automotive, communications, computing, consumer and industrial control markets.

The Company's quality systems are ISO 9001 (1994 version) and QS9000 (1998 version) certified. Microchip is headquartered in Chandler, Arizona with design facilities in Mountain View, California and Bangalore, India; semiconductor fabrication facilities in Tempe and Chandler, Arizona and Puyallup, Washington; and assembly and test operations near Bangkok, Thailand. Microchip employs approximately 3,200 people worldwide and has sales offices throughout Asia, Europe, Japan and the Americas. More information on the Company can be found at www.microchip.com

The Microchip logo and name, PICmicro®, KEELOQ® , microID® and PowerSmart® are registered trademarks of Microchip Technology Incorporated. dsPIC™ and rfPIC™ are trademarks of Microchip Technology Incorporated. All rights reserved.

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