Microchip Technology, Inc MCHP reported GAAP net income of $130.7 million or 60 cents per share in the first quarter of fiscal 2016 (ended Jun 30, 2015) compared with $89.9 million or 40 cents per share in the year-ago quarter. The year-over-year increase in earnings was driven by a rise in revenues.
Non-GAAP net income for the reported quarter was $148.9 million or 69 cents per share compared with $151.6 million or 68 cents a share in the year-earlier quarter. Recurring earnings (with stock-based compensation adjustments) were 67 cents per share, which comfortably beat the Zacks Consensus Estimate of 66 cents.
Revenues
Net revenue (GAAP) for the reported quarter was $534 million, up 1.0 % year over year, aided by strong sales of microcontrollers. The quarterly revenues missed the Zacks Consensus Estimate of $556 million and were below the previous guidance of $547-$564 million owing to the negative effects of a weak economy in China and challenges in Europe.
In terms of product mix, revenues from microcontroller products accounted for 65.2% of the total revenue in the quarter. Revenues stood at $348.2 million, up 1.3% from the prior-year quarter. Revenues from the analog products were down 0.6% from the year-ago quarter to $127.1 million, representing 23.8% of the total revenue.
With revenues of $31.8 million in the reported quarter, memory business was down 4.8% year over year. Revenue from the licensing business was $23.3 million in the reported quarter. By geography, $314.7 million of the total revenue was generated from Asia, followed by $114.7 million from Europe and $104.5 million from the Americas. Bulk of the revenues was generated in Asia as most of the contract manufacturing business takes place in this continent.
Margins
Microchip recorded gross margin (non-GAAP) of 58.3% for the reported quarter, while operating income (non-GAAP) was $174.3 million, compared with the respective figures of 59.8% and $176.3 million in the year-ago period. Non-GAAP operating margin for the quarter was 32.6% versus 33.2% in the year-ago quarter.
Acquisition
In concurrence with the quarterly results, Microchip also announced that it has completed the acquisition of Micrel Incorporated (MRCL) for approximately $430 million in cash and issuance of 8,626,795 shares of Microchip’s stock. The acquisition is expected to be accretive to future earnings.
Balance Sheet
Cash and short-term investments were $1.53 billion at quarter end, with $497 million under its long term line of credit. Net cash generation for the quarter (excluding ISSC acquisition, dividend payment, and reduction in borrowings) was $143.8 million.
With a diligent focus on rightsizing the various components of inventory holdings, Microchip’s consolidated inventory at the quarter end was $303.7 million or 123 days. The company declared a quarterly cash dividend of 35.80 cents per share payable on Sep 25, 2015 to shareholders of record as on Sep 11.
Outlook
Concurrent with the first-quarter earnings release, management provided guidance for the second quarter of fiscal 2016. Management expects non-GAAP net sales between $532 million and $569 million, while non-GAAP gross margin is expected in the range of 57.6% to 57.8%. Non-GAAP net income is anticipated in the range of $127.3 million to $145.4 million, with non-GAAP earnings per share of 58 cents to 66 cents per share.
Microchip expects to generate approximately $100 million to $120 million cash in the second quarter prior to the dividend payment and acquisitions. The company expects to incur $35 million in capital expenditure in the next quarter, bringing its tally to about $125 million for fiscal 2016.
Microchip currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look now include M/A-Com Technology Solutions Holdings, Inc. MTSI, Maxim Integrated Products, Inc MXIM and Ambarella, Inc AMBA, each carrying a Zacks Rank #2 (Buy).
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