Micrel Inc., ( MCRL)

Q3 2010 Earnings Conference Call

October 21, 2010 16:30 pm ET

Executives

Ray Zinn - President and Chief Executive Officer

Ray Wallin - Vice President and Chief Financial Officer

Andrew Cowell - VP Analog Marketing

Christopher Dingley - VP Worldwide Sales

Analysts

Tore Svanberg - Stifel Nicolaus

Christopher Longiaru - Sidoti & Company

Doug Freedman - Gleacher

Adam France - 1492 Capital Management

Presentation

Operator

Good afternoon ladies and gentlemen, thank you for standing by. Welcome to the Micrel Incorporated 2010 Third Quarter Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator instructions). This conference is being recorded today, Thursday, October 21, 2010.

At this time, I would now like to turn the conference over to Mr. Ray Zinn, Micrel’s President and Chief Executive Officer. Please go ahead, sir.

Ray Zinn

Thank you. Welcome to our Third Quarter 2010 Conference Call. We’re happy to have you with us this afternoon. With me today is Ray Wallin, who is our Vice President and Chief Financial Officer, as well as Chris Dingley, who is our Vice President of Worldwide Sales and also Andy Cowell, who is our Vice President for Analog Marketing Group.

So with that I'd like to turn the time over to Ray Wallin to give you the prepared remarks'. Ray, go ahead please.

Ray Wallin

Thank you very much Ray. In conjunction with this conference call, a number of supplemental charts will be made available on Micrel's website during the following prepared remarks. To access these charts, go to www.micrel.com and click on the link to the third quarter 2010 conference call slides.

We will begin today's call with the legal disclaimers and Safe Harbor statement. All material contained in the webcast is the sole property and copyright of Micrel Incorporated with all rights reserved. Certain statements in this conference call, which are not historical facts, may be considered forward-looking statements that involve risks and uncertainties. Forward-looking statements include statements regarding future business results, future levels of sales and profitability, future customer demand, inventory level and economic and industry projections. Various factors could cause actual results to differ materially from what is set forth in such forward-looking statements. Some of the factors that could affect the company's results have been set forth in our press release dated October 21, 2010 and are also described in detail in the company's SEC filings, including but not limited to our Annual Report on Form 10-K for the year ended December 31, 2009.

Listeners who do not have a copy of our quarter earnings press release may view the press release on the company's website at www.micrel.com. We will review the financial results for the third quarter ending September 30, 2010 and then discuss our outlook for the fourth quarter of 2010. Our prepared remarks will then be followed by a question-and-answer session with the financial community.

Let’s begin with our third quarter financial and operational highlights. Micrel generated very strong financial results in the third quarter and achieved record earnings per share. At the top line, revenues of 80.6 million was the highest quarterly level in nearly 10 years and were driven by strong demand in the industrial and communications end market.

On a year-to-date basis, design wins were up more than 40% compared to last year, a record level for the company. This reflects the positive impact of our served available market expansion initiative including our focus on energy efficiency and green power that we began implementing nearly 3 years ago. We also continued to release new products at an impressive rate. In fact, new product introductions are nearly 50% higher than they were just 4 years ago.

Third quarter bookings declined from the second quarter levels, resulting in a book-to-bill ratio below 1 for the quarter. However, our book-to-bill ratio remains above 1 on a year-to-date basis. This reflects the distribution channel bringing their inventories in line with the reduced lead times.

From an operational standpoint, we continue to be pleased with our execution. Gross margin increased for the sixth quarter in a row. In addition, our operating margin expanded once again in the third quarter. In fact, our operating margin has increased sequentially in each quarter during the year, and is the highest since the company’s revenue peak in the fourth quarter of 2000. This is indicative of our focus on controlling costs and our ability to generate profitable growth, and thanks in part to Micrel’s aggressive stock repurchase program. At the bottom line, third quarter earnings per diluted share continued to grow faster than revenues and was the highest level in the history of the company.

Looking at our balance sheet, our ongoing focus on working capital management continues to result in improvement in many of the key balance sheet metrics and we ended the quarter with a cash and short term investment balance of 101 million. Third quarter cash flows from operations are 14.1 million also remains solid, which enabled us to invest approximately 10.9 million to repurchase 1.1 million shares of Micrel’s common stock during the third quarter.

We also maintained a quarterly cash dividend of $3.50 per common share. Since 2001, we’ve repurchased more than 370 million of Micrel’s common stock, which has helped to reduce the diluted shares outstanding during the last decade by 37%. As a company, we remain extremely focused on enhancing shareholder value.

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