Premier semiconductor manufacturer Microchip Technology Inc. (MCHP) recently revised its earnings guidance for fourth-quarter fiscal 2015 on the back of certain refinancing transactions. At the same time, the company stated that the transactions will lead to an annual non-GAAP earnings accretion of approximately 12 cents, the details of which are not available at present.
Microchip sold $1.5 billion worth convertible senior subordinated notes due 2025 to increase its liquidity and reduce its debt burden. The transaction resulted in net proceeds of $1.47 billion, part of which were utilized to repurchase $575 million in principal amount of convertible junior subordinated debentures due 2037. Microchip used the remainder of the proceeds to repay debt under its credit facility.
The repurchase of the convertible junior subordinated debentures is expected to provide higher earnings per share benefit compared to the increase in interest expense from the refinancing transactions. Microchip expects its share count to reduce by approximately 10.5 million to 11 million shares on a quarterly basis. Consequently, the company revised its earnings guidance for fourth-quarter fiscal 2015. Non-GAAP earnings are currently anticipated to be within 66 cents to 68 cents per share compared with the earlier expected range of 65 cents to 67 cents.
Microchip expects to generate approximately $160 million cash in the fourth quarter prior to the dividend payment and acquisitions. The company expects to incur $40 million in capital expenditure in the fourth quarter, bringing its tally to about $160 million for fiscal 2015.
With solid revenues from microcontroller and analog products, better-than-expected bookings and increasing requests on the back of strong demand and robust product designs, we expect Microchip to continue its bull run in the forthcoming quarters.
Microchip presently has a Zacks Rank #2 (Buy). Other players in the industry that are worth mentioning include Inphi Corporation (IPHI), Maxim Integrated Products, Inc. (MXIM) and Monolithic Power Systems Inc. (MPWR), each carrying the same Zacks Rank as Microchip.
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