Microchip Technology CEO Discusses F2Q2011 Results – Earnings Call Transcript

Microchip Technology Inc. (

MCHP

)

F2Q2011 (Qtr End 09/30/10) Earnings Conference Call

November 4, 2010 5:00 PM ET

Executives

Steve Sanghi – President and CEO

Eric Bjornholt – VP and CFO

Ganesh Moorthy – COO

Analysts

Doug Freedman – Gleacher & Company

Shawn Boyd – Westcliff Capital Management

Terence Whalen – Citi

James Schneider – Goldman Sachs

Chris Caso – Susquehanna Financial Group

Chris Danley – J.P. Morgan

John Barton – Cowen and Company

Brendan Furlong – Miller Tabak

Ray Rund – Shaker Investments

Steve Elisque [ph] – UBS

Kevin Cassidy – Stifel Nicolaus

John Pitzer – Credit Suisse

Janet Ramkissoon – Quatra Capital

Craig Ellis – Caris & Company

Presentation

Operator

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Good day everyone and welcome to the Microchip Technology second quarter and fiscal year 2011 earnings results conference call. As a reminder, today’s call is being recorded. At this time, I’d like to turn the call over to Microchip’s President and Chief Executive Officer, Mr. Steve Sanghi. Please go ahead sir.

Steve Sanghi

Thank you operator and good afternoon everyone. During the course of this conference call, we will be making projections and other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions and that actual events or results may differ materially. We refer you to our press release of today as well as our recent filings with the SEC that identify important risk factors that may impact Microchip’s business and results of operations.

In attendance with me today are Ganesh Moorthy, Microchip’s Chief Operating Officer, Eric Bjornholt, Chief Financial Officer and Gordon Parnell, Vice President of Business Development and Investor Relations.

I will first comment on the status of the restructuring and integration of Silicon Storage Technology. All of our financial reserves flow from the understanding of how this acquisition is being accounted for. Eric Bjornholt will then give you the details of our financial performance. Ganesh will give his comments on the results of the product line, and then I will discuss the current business environment and discuss our guidance. We will then be available to respond to specific investor and analyst questions.

Microchip acquired Silicon Storage Technology, SST, on April 8, 2010. At that time we determined that we would hold SST’s super flash memory solid state drive, smart card and RF businesses as assets held for sale.

On May 21, 2010 we consummated and announced a transaction in which we sold solid state drive, smart card and certain older flash memory product lines to Greenline Systems Inc. Then we announced a second transaction on July 8, 2010 in which we exclusively licensed certain flash memory products in certain geographic markets of Asia, mainly Taiwan and China to Professional Computer Technology, or PCT.

After that, we still had remaining super flash memory business and RF business held for sale. After operating the SST business for two quarters, we have found synergy between SST’s RF business and Microchip’s wireless controller and analog business. On the memory side, after selling the low margin end of the business to PCT of Taiwan, we have substantially improved our gross margin for the rest of the super flash memory business.

Additionally, we have found and running from volume on the memory business is critical to proving out the technology before it can be licensed. There are also significant operational synergies with Microchip’s memory business and technology synergies with Microchip’s micro controller business.

As such, we have very substantially eliminated the excess overhead and dramatically reduced the operating expenses of the SST business. With that, we have decided to keep the super flash memory and RF businesses of SST as ongoing businesses of Microchip.

In this press release and in future filings with the SEC, the first quarter of fiscal quarter of 2011 will be presented as if the SST super flash memory and RF divisions were always included in the continuing operations of Microchip.

Microchip’s second quarter of fiscal 2011 guidance provided on August 5, 2010 did not include the super flash memory and RF divisions of SST. Without these divisions, Microchip guided its net sales to be $340 to $343 million for the September quarter, and compared to that, our actual results for these businesses achieved $343.3 million, which is near the high end of our previous guidance.

The super flash memory and RF divisions of SST added approximately $40 million of revenue in the September 2010 quarter. The restructuring and integration of SST is now complete. We have transformed SST into a very profitable entity that is an accretive to Microchip’s non-GAAP earnings per share by about $0.08 for the September quarter.

We expect SST to add approximately $0.32 to Microchip’s non-GAAP earnings for fiscal ‘11 compared to our original of EPS accretion for fiscal year ‘11 of only $0.14 to $0.18. For fiscal year ‘12, we expect the SST business to add about $0.40 to our earnings per share.

We are very pleased to have completed this project and believe that we have delivered on our commitment of providing significant shareholder value through this acquisition.

I will now pass this on to Eric Bjornholt who will cover the financials on a fully consolidated basis including all continuing operations of Microchip on the revised basis including the super flash memory and RF businesses of SST.

Eric Bjornholt

Thanks Steve, and good afternoon everyone. We are including information in our press release and in this conference call on various GAAP and non-GAAP measures. We have posted a full GAAP to non-GAAP reconciliation on our investor relations page of our website at www.microchip.com, which we believe you will find useful when comparing GAAP and non-GAAP results.

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