Microchip cuts second quarter view

Microchip Technology Incorporated has announced its preliminary financial results for the second quarter of fiscal 2008 ending September 30, 2007. Earnings per diluted share on a GAAP basis is expected to be approximately 35 cents, and earnings per diluted share on a non-GAAP basis, excluding the effect of share-based compensation, is expected to be approximately 38 cents. For the September quarter of fiscal 2008, Microchip expects to be able to sustain near record level gross margins of approximately 60.4%. “Our business results for the September quarter have been adversely impacted by several factors,” said Steve Sanghi, Microchip’s President and CEO. “Net sales associated with the U.S. housing market continued to be weak, and we also experienced weakness in other segments of our consumer-related business.” “Geographically, net sales in both the Americas and Asia were below our expectations. We believe that weakness in Asia is tied to U.S. multinational companies who manufacture at Asian subcontractors. Europe, although down sequentially, met our expectations based on the normal seasonal trends for the region,” Mr. Sanghi continued. Mr. Gordon Parnell, Microchip’s Chief Financial Officer, said, “We expect days of inventory to increase based on these revenue levels. Days of inventory at September 30 are expected to be approximately 112 days, up 5 days from overall inventory levels as of the end of June.” Mr. Sanghi added, “Our book-to-bill ratio for the September quarter was 0.94, leading our business into a more seasonally challenging period in the December quarter. While we are not in a position to give specific guidance at this point, we expect that December net sales will be sequentially down. Based on the current level of uncertainty in the consumer segment of the business, we expect that the range of our guidance will be wider than our typical level.” Mr. Sanghi continued, “Our fundamental business model is still intact. We expect our gross margin for the September quarter to be sustained at approximately 60.4%. We continue to execute our strategic plan with substantial progress made in 16-bit microcontrollers and analog products. During the September quarter, we introduced 9 new products in 16-bit microcontrollers, and now have 101 products in production. We also expect 16-bit microcontroller revenue to be sequentially up in both the September and December quarters.” “While we are facing the headwind in the U.S. housing and consumer segments, we are executing on other ways to create shareholder value. We expect to maintain our quarterly increase in dividends. We also purchased 4 million shares of Microchip stock last quarter against our 11.5 million stock buy-back authorization, and we are prepared to purchase more shares opportunistically,” Mr. Sanghi concluded.