Sunday, November 28, 2010

Microchip (MCHP) Accelerates Dividends

Microchip continues to be on a roll, with demand for its semiconductor solutions high, and its product sales from its acquisition of SST ramping better than expected. As a result the dividend has been increased again, and the dividend for Q1 2011 has been pulled into December.

There is expected to be a dip in Q4 revenues due to the record shipments of Q3, but sequential growth is expected to resume in Q1 2011.

The GAAP numbers tell the story beautifully, even taking into account revenue increases from the SST acquisition earlier this year. Revenues were $382.3 million, up 19% sequentially from $320.8 million and up 69% from $226.7 million year-earlier. Net income was $103.1 million, up 15% sequentially from $89.6 million and up 132% from $44.5 million year-earlier. EPS (earnings per share) were $0.54, up 13% sequentially from $0.48 and up 125% from $0.24 year-earlier.

As I explained in Microchip Expands Markets, the microcontroller market can be expected to grow for years as microcontrollers are inserted into increasing numbers of appliances (including automobiles) and as the number of appliances expands in nations like China, India, Indonesia, Brazil and developing nations.

Microchip dominates the microcontroller market largely because its multitude of chip variations allow engineers to get the design job done at minimal cost and, if they like, with minimal power consumption. The SST acquisition added a number of key technologies and device types. Microchip sold some SST lines and discontinued others, but announced during its analyst conference call (11/04/2010) that SST Superflash memory and RF lines, which had been listed as discontinued in the prior quarter, had proven to be unexpectedly profitable and now have been un-discontinued.

Orders slowed in September, which would be a negative indicator for Q4 revenues. But after a 20% jump from Q2, I am not worried about a leveling off or slight drop in Q4. I think a lot of equipment makers are being cautious, not sure of consumer sentiment in the U.S. or what's going on with debt issues in Europe. My take is the end demand is actually growing, though we are also seeing more seasonality than last year. With a good consumer season underway in the U.S. and growth still strong in Asia, I don't think Europe will be that much of an issue.

The Q4 dividend of 34.4 cents per share will be payable on December 2, 2010 to stockholders of record back on November 18, 2010. The Q1 dividend of 34.5 cents per share will be paid on December 27, 2010 to shareholders of record on December 13, 2010.

Microchip is a great company for customers, employees, and shareholders, but there are always a variety of risks to consider with any technology company. So ... Keep Diversified!

See also
My Microchip analyst call Q3 2010 summary

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