Microchip Technology Comments on Fiscal Fourth Quarter 2003

4/10/2003 - Microchip Technology Incorporated, a leading provider of microcontroller and analog semiconductors, announced that net sales and earnings per share for the fourth quarter of fiscal 2003 ended March 31, 2003 are expected to be lower than its previous guidance. Net sales for the fourth quarter are expected to be approximately $159 to $160 million. Earnings per share for the fourth quarter are expected to be approximately $0.16, up approximately three cents, or approximately 28%, from the fourth quarter of fiscal 2002. Microchip expects to release its March quarter and audited fiscal 2003 results after the close of market on Wednesday, April 23, 2003.

“Since our March 18 Business Update, we have continued to see a sharp drop off in business, which we attribute to the impact of the war in Iraq. At the time of our Business Update, we had approximately 95% of the quarter booked, and we expected to achieve the remaining turns in the balance of the quarter. However, customers continued to delay purchasing decisions, which we attribute to lingering concerns about demand for their end products in light of the war and continued economic weakness. Additionally, the spread throughout Asia of SARS, an acute respiratory illness, is inhibiting business travel and, in some cases, purchasing decisions, as many customers are temporarily closing plants to avoid the spread of the disease. Therefore, we are lowering our estimates for net sales and earnings per share for the fourth quarter,” said Steve Sanghi, Microchip’s President and CEO.

The Company also announced its intention to combine the operations of its Fab 1 (Chandler, AZ) and Fab 2 (Tempe, AZ) into its Fab 2 clean room space. Over the next few months, Microchip will transfer Fab 1 processes and products to Fab 2. After that, Fab 1 will cease operations as a wafer fabrication facility. The newly defined Fab 2 will be staffed with combined personnel from both Fab 1 and Fab 2.

Microchip will also offer certain personnel from Fabs 1 and 2 the opportunity to relocate to Gresham, Oregon to staff Fab 4 which is scheduled for production commencing in October 2003. It is currently expected that the combination of Fabs 1 and 2 will result in a reduction in force of approximately 140 employees.

Microchip will incur restructuring charges related to the shut down of Fab 1. These charges will consist primarily of costs associated with the planned discontinued use of various Fab 1 assets and salary continuation costs related to the anticipated reduction in force. We expect the restructuring charges will be taken in the first quarter of fiscal 2004 ending June 30, 2003, and are currently expected to be between $27 and $33 million.

“Fab 1 is our oldest manufacturing facility and utilizes our least advanced process technologies. In this market environment, demand for products using our older technologies is weakest and, thus, it is prudent to combine the Fab 1 and 2 activities into Fab 2,” said Mr. Sanghi. “However, demand for products using our advanced technology continues to increase, and this demand will require us to commence production at Fab 4 in the October 2003 timeframe. We believe our decision to combine Fabs 1 and 2 will enable us to preserve our gross margins at approximately 54% after the combination is complete and we expect our gross margins to improve once Fab 4 is in production. The combined capacity of Fabs 2 and 4 will provide sufficient wafer fabrication capacity to allow us to respond to increases in future demand,” added Mr. Sanghi.

“We are very disappointed with the dramatic effect of world events and the resulting economic uncertainty on our business in the fourth quarter. Despite this, we are maintaining our long-term strategy and product development initiatives. We shipped a record of over 10,500 new development systems in the fourth quarter, up from approximately 6,500 in the immediately preceding third quarter. In fiscal 2003, we shipped a total of 35,000 development systems, an increase of approximately 50% over fiscal 2002. We believe the increase in shipments of development systems demonstrates the continuing solid momentum of our design win success. Our customer base for Analog products continues to expand. We are now sampling our Digital Signal Controller product line to our early adopter customers and are pleased with the very strong reception,” concluded Mr. Sanghi.

Microchip plans to announce March quarter and audited fiscal year 2003 sales and earnings results after market close on Wednesday, April 23, 2003.

Stockholders of Microchip are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date such statements are made. Microchip does not undertake any obligation to publicly update any forward-looking statements to reflect events, circumstances or new information after this release, or to reflect the occurrence of unanticipated events.

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, Plano, Texas, Bangalore, India, and Lausanne, Switzerland; semiconductor fabrication facilities in Tempe and Chandler, Arizona, Puyallup, Washington, and Gresham, Oregon, and assembly and test operations near Bangkok, Thailand. Microchip employs approximately 3,350 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.

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