Microchip Technology Announces Record Net Sales and Earnings for Fisca

Microchip Technology Announces Record Net Sales and Earnings for Fiscal Year 2005; Financial Results and Quarterly Cash Dividend for Fourth Quarter Fiscal Year 2005

    Business Editors

    CHANDLER, Ariz.--(BUSINESS WIRE)--April 27, 2005--Microchip Technology Inc. (NASDAQ: MCHP)

--	RECORD NET SALES OF $846.9 MILLION IN FISCAL YEAR 2005, UP 21.1% YEAR OVER YEAR
--	RECORD GROSS MARGINS OF 57.1% FOR FISCAL YEAR 2005, AND NEW RECORD HIGH GROSS MARGINS OF 57.4% IN THE MARCH 2005 QUARTER
--	RECORD OPERATING MARGINS OF 30.5% AND NET INCOME OF $213.8 MILLION ESTABLISHED FOR FISCAL YEAR 2005 (GAAP BASIS)
--	RECORD OPERATING MARGINS OF 33.0% AND NET INCOME OF $226.8 MILLION ESTABLISHED FOR FISCAL YEAR 2005 (NON-GAAP BASIS)
--	RECORD ANNUAL CASH FLOW OF $328.3 MILLION FOR FISCAL 2005, PRIOR TO STOCK BUY-BACK OF $68.3 MILLION
--	INCREASED DIVIDEND BY 36%, TO 9.5 CENTS PER SHARE. REPRESENTS AN INCREASE OF 138% FROM DIVIDEND LEVELS AT THE END OF FISCAL 2004
--	RECORD DEVELOPMENT SYSTEM SHIPMENTS OF 53,311 SYSTEMS FOR FISCAL YEAR 2005, RECORD OF 15,706 SYSTEMS FOR THE MARCH 2005 QUARTER

    Microchip Technology Inc. (NASDAQ: MCHP), a leading provider of microcontroller and analog semiconductors, today reported results for the fiscal year ended March 31, 2005 and the three months ended March 31, 2005. Net sales for the fiscal year ended March 31, 2005 were $846.9 million, an increase of 21.1% from net sales of $699.3 million in the prior fiscal year. On a GAAP basis, net income for the fiscal year ended March 31, 2005 was $213.8 million, or $1.01 per diluted share, an increase of 55.8% from net income of $137.3 million, or 65 cents per diluted share in the prior year. On a non-GAAP basis, net income for the fiscal year ended March 31, 2005 was $226.8 million, or $1.07 per diluted share, an increase of 44.6% from net income of $156.8 million, or 74 cents per diluted share in the prior year. Non-GAAP diluted earnings per share for fiscal years 2005 and 2004 exclude special charges related to the settlement of patent license litigation and costs associated with the closure of Fab 1, respectively. A reconciliation of non-GAAP and GAAP results is included in this press release.
    Net sales for the fourth quarter of fiscal year 2005 were $208.1 million, up 1.3% sequentially from sales of $205.4 million in the immediately preceding quarter, and up 8.7% from sales of $191.5 million in the prior fiscal year's fourth quarter. GAAP net income for the fourth quarter of fiscal 2005 was $56.4 million or 27 cents per diluted share, up 6.1% from GAAP net income of $53.1 million or 25 cents per diluted share in the immediately preceding quarter, and up 20.4% from GAAP net income of $46.8 million or 22 cents per diluted share in the prior fiscal year's fourth quarter.
    Microchip also announced today that its board of directors has declared a quarterly cash dividend on its common stock of $0.095 per share. The quarterly dividend is payable on June 3, 2005 to stockholders of record on May 13, 2005. Microchip initiated quarterly cash dividend payments in the third quarter of fiscal year 2003.
    "Establishing record levels in fiscal 2005 in many key areas of our enterprise continues to demonstrate the strength of our business model," said Steve Sanghi, Microchip's president and CEO. "Record levels in net sales, gross and operating margins and net income reflect our strong market position."
    "We also returned to a pattern of sequential revenue growth in the March 2005 quarter after only one quarter of inventory correction, with growth of 1.3%. We have also focused on cost improvements in our business, resulting in record gross margins of 57.4% and EPS of 27 cents for the March quarter," Sanghi continued.
    Gordon Parnell, Microchip's chief financial officer, said, "Inventory days at the end of March were 107 days. While up sequentially by 6 days, inventory was at the low end of our expectations. We fully expect that inventory days will begin to decline in the June quarter, validating our factory utilization and inventory strategy."
    "Our annual cash flow for fiscal 2005 established new record levels of $328.3 million for Microchip. With confidence in our future cash flows, we have increased our dividend payment to 9.5 cents, representing a sequential increase of 36%, an annual increase of 138% and a 375% increase since dividend inception," Parnell added.
    Sanghi concluded, "Based on our assessment of our business and the overall economic environment, we anticipate sequential net sales growth of about 5% in the June quarter. With our book-to-bill ratio reaching approximately parity in the March 2005 quarter and continuing strong customer demand in April to date, we believe we are well positioned to achieve a solid growth quarter. Based on our expectations, EPS will be about 28 cents."

    Microchip's Fourth Quarter Fiscal Year 2005 Highlights:

    -- Microchip shipped 15,706 new development systems in the
    quarter and 53,311 during fiscal year 2005. Both are record
    numbers, demonstrating the continued strong interest in our
    products. The total cumulative number of development systems
    shipped now stands at 358,311.

    -- Microchip announced four new high-pin count, high-density
    members of the PIC18F microcontroller family, offering the
    most cost-effective 96 and 128 Kbytes of self-reprogrammable,
    high-endurance Flash memory with up to 10 MIPS performance
    over a wide operating voltage range of 2.0 to 5.5V. These
    features, combined with nanoWatt Technology power management
    and a rich set of analog and digital peripherals, allow this
    microcontroller series to compete with 16-bit devices in
    high-end embedded applications while retaining ease of use and
    helping designers to preserve their 8-bit development tool and
    software investments.

    -- Microchip introduced the PIC16F785 8-bit Flash microcontroller
    which provides a complete set of integrated peripherals for
    cost-effective digital control in power-conversion designs.
    This device has a large complement of onboard analog
    peripherals, including A/D converters, comparators, a voltage
    reference and two operational amplifiers, which also appeals
    to a broad range of sensing and closed-loop control
    applications.

    -- Four new 16-bit dsPIC(R) digital signal controllers (DSCs)
    began volume production, offering designers performance speeds
    of 20 and 30 million instructions per second, self-programming
    capabilities via Flash memory, and industrial and extended
    temperature ranges. The dsPIC30F3014 and dsPIC30F4013 extend
    the package and memory range of the General Purpose Family,
    adding 24 and 48 Kbytes of Flash program memory respectively,
    in a package as small as an 8x8 millimeter QFN. In the Motor
    Control and Power Conversion Family, the dsPIC30F3010 and
    dsPIC30F3011 feature 24 Kbytes of Flash program memory and can
    operate at full speed using an internal oscillator.

    -- Microchip launched five software libraries for its 16-bit
    dsPIC DSCs, making it easy for engineers to add new
    functionality to their designs. The Acoustic Echo Cancellation
    and Noise Suppression Libraries for dsPIC DSC-based speaker
    and microphone applications provide a cost-effective, easy way
    to improve sound quality and intelligibility. The Symmetric
    and Asymmetric Key Encryption Libraries for secure embedded
    transaction communications cost effectively reduce the risk of
    unwanted data manipulation or interpretation with single dsPIC
    DSCs. The Speech Recognition Library provides engineers with a
    way to use one dsPIC DSC for both controlling an application
    and recognizing speech commands, eliminating the need for a
    dedicated speech IC.

    -- Microchip kicked off registration for the ninth annual
    Microchip's Annual Summer Technical Exchange Review (MASTERs)
    conference at the Westin Kierland Resort in Scottsdale,
    Ariz., July 20-23, 2005. A valuable resource for designing
    with Microchip products, the MASTERs Conference provides
    design engineers with an annual forum for sharing and
    exchanging technical information on the company's complete
    product lines.

    -- Microchip extended its technology leadership in serial EEPROMs
    by introducing 2x3 millimeter DFN (dual flat no leads) package
    options across its entire product line of I2C(TM) and
    Microwire serial EEPROMs. This provides an extremely small
    footprint and low profile for space-constrained applications
    like portable devices and laptop computers. Microchip offers
    the highest-density memory serial EEPROMs in the smallest
    standard package available today.

    -- The new MCP1612 single 1.0 amp 1.4 MHz synchronous buck
    regulator is capable of regulating battery and bus voltages
    down to levels required by operating systems. The device is
    ideally suited to be powered from a single Lithium Ion cell,
    multiple alkaline or Nickel Metal Hydride cells or 5.0/3.3V DC
    bus voltages.

    -- Microchip expanded its thermal management solutions with the
    proprietary MCP9700/MCP9701 temperature sensors. These devices
    offer a small SC-70 package, low power of 6 microamp current
    consumption (typical) and low cost of 30 cents each in
    thousand-unit quantities, creating an attractive alternative
    to using thermistors. They provide a complete, easy-to-use
    solution for hundreds of embedded applications that require
    thermal protection, temperature measurement or thermal
    calibration.

    First Quarter Fiscal Year 2006 Outlook:

    The following statements are based on current expectations. These statements are forward looking, and actual results may differ materially.

    -- Net sales for the first fiscal quarter ending June 30, 2005
    are currently anticipated to be approximately $218 million, up
    approximately 5% from the March 2005 quarter.

    -- Gross margins for the first fiscal quarter ending June 30,
    2005 are expected to be approximately 57.5%. Generally, gross
    margins fluctuate over time, driven primarily by the mix of
    microcontrollers, analog products and memory products sold;
    variances in manufacturing yields; fixed cost absorption;
    wafer fab loading levels; pricing pressures in our
    non-proprietary product lines; and competitive and economic
    conditions.

    -- Operating expenses for the first fiscal quarter ending June
    30, 2005 are expected to be approximately 25%. Operating
    expenses fluctuate over time, primarily due to revenue,
    foreign currency effects on our business and profit levels.

    -- The tax rate for the first fiscal quarter ending June 30, 2005
    is anticipated to be approximately 24%.

    -- Earnings per diluted share for the first fiscal quarter ending
    June 30, 2005 are anticipated to be approximately 28 cents.

    -- Inventories at June 30, 2005 are anticipated to be
    approximately 100 to 104 days. The level of inventories
    fluctuates over time, primarily due to sales volume and
    overall capacity utilization.

    -- Capital expenditures for the quarter ending June 30, 2005 are
    expected to be approximately $15 million, and capital
    expenditures for fiscal year 2006 are expected to total
    approximately $55 to $60 million. The level of capital
    expenditures varies from time to time as a result of actual
    and anticipated business conditions.

    -- Based on cash projected to be generated from operations and
    current projected capital expenditure levels, we expect to add
    approximately $80 million to our existing cash balances during
    the quarter ending June 30, 2005. This amount is before the
    effect of any stock buy-back activity.

    -- Microchip announced on March 11, 2004 that its board of
    directors had authorized a stock buy-back of up to 2.5 million
    shares, and on April 22, 2004 that its board of directors had
    authorized an additional stock buy-back of up to 2.5 million
    shares. At March 31, 2005, approximately 1.6 million shares
    remained available for purchase under these programs. Future
    purchases will depend upon market conditions, interest rates
    and corporate considerations.

    Use of Non-GAAP Financial Measures

    We provide non-GAAP financial information in order to provide meaningful supplemental information regarding our operational performance and to enhance our investors' overall understanding of our core financial performance. We believe that our investors benefit from seeing our results "through the eyes" of management in addition to the GAAP presentation. Management measures enterprise performance using non-GAAP financial measures such as those that are disclosed in this press release. This information facilitates management's internal comparisons to the company's historical core operating results and comparisons to competitors' core operating results as determined by management. Management believes that non-GAAP information allows for additional transparency and such information is used by management in its financial and operational decision making. The non-GAAP measures that management determines as being informative to investors allows them to focus on the ongoing operations and the core results of our business. Historically, we have reported similar non-GAAP information to our investors and believe that the inclusion of comparative numbers provides consistency in our financial reporting. This information is not in accordance with, or an alternative for, information prepared using generally accepted accounting principles (GAAP) in the United States. It excludes items such as restructurings and special charges, that may have a material effect on the company's net income (loss) and net income (loss) per share calculated in accordance with GAAP. We exclude these charges and the related tax benefit from the charges when analyzing our financial results as the items are distinguishable events and have no impact to our ongoing results of operations. We believe that by viewing our results of operations excluding these charges, investors are given an indication of the ongoing results of our operations.

    MICROCHIP TECHNOLOGY INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENT OF INCOME
    (in thousands except per share amounts)

Three Months Ended Twelve Months Ended March 31, March 31, ------------------- ------------------- 2005 2004 2005 2004 --------- --------- --------- --------- Net sales $208,083 $191,524 $846,936 $699,260 Cost of sales 88,732 85,299 362,961 349,301 --------- --------- --------- --------- Gross profit 119,351 106,225 483,975 349,959

Operating expenses: Research and development 23,331 22,101 93,040 85,389 Selling, general and administrative 27,900 24,788 111,188 92,411 Special charges 0 0 21,100 865 --------- --------- --------- --------- 51,231 46,889 225,328 178,665

Operating income 68,120 59,336 258,647 171,294 Other income, net 6,094 3,544 18,621 6,602 --------- --------- --------- --------- Income before income taxes 74,214 62,880 277,268 177,896 Income taxes 17,811 16,035 63,483 40,634 --------- --------- --------- ---------

Net income $56,403 $46,845 $213,785 $137,262 --------- --------- --------- ---------

Basic net income per share $0.27 $0.23 $1.03 $0.67 --------- --------- --------- --------- Diluted net income per share $0.27 $0.22 $1.01 $0.65 --------- --------- --------- ---------

Basic shares used in calculation 207,385 207,986 206,740 206,032 ========= ========= ========= ========= Diluted shares used in calculation 211,778 214,679 211,962 212,172 ========= ========= ========= =========

    MICROCHIP TECHNOLOGY INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED BALANCE SHEETS
    (in thousands)

    ASSETS

March 31, March 31, 2005 2004 (Unaudited) ----------- -----------

Cash and short-term investments $734,604 $474,550 Accounts receivable, net 119,361 109,231 Inventories 103,728 94,514 Other current assets 133,632 205,650 ----------- ----------- Total current assets 1,091,325 883,945

Property, plant & equipment, net 693,302 689,206 Other assets 48,904 48,992 ----------- ----------- Total assets $1,833,531 $1,622,143 =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Short-term debt $45,454 $0 Accounts payable and other accrued liabilities $169,481 $185,235 Deferred income on shipments to distributors 91,730 84,816 ----------- ----------- Total current liabilities 306,665 270,051

Long-term debt and deferred taxes 41,132 31,575

Stockholders' equity 1,485,734 1,320,517 ----------- -----------

Total liabilities and stockholders' equity $1,833,531 $1,622,143 =========== ===========

    MICROCHIP TECHNOLOGY INC. AND SUBSIDIARIES
    RECONCILIATION OF GAAP INFORMATION TO NON-GAAP INFORMATION
    (Unaudited)
    (in thousands except per share amounts)

Three Months Ended Twelve Months Ended March 31, March 31, ------------------ ------------------- 2005 2004 2005 2004 --------- -------- --------- --------- GAAP Net income $56,403 $46,845 $213,785 $137,262 --------- -------- --------- ---------

Special charges, net of tax (a) Philips royalty settlement 0 0 12,976 0 (b) Fab 1 shutdown, severance, contract cancellations and other costs 0 0 0 19,572 --------- -------- --------- --------- 0 0 12,976 19,572

Non-GAAP net income $56,403 $46,845 $226,761 $156,834 --------- -------- --------- ---------

Diluted GAAP net income per share $0.27 $0.22 $1.01 $0.65 --------- -------- --------- --------- Diluted non-GAAP net income per share $0.27 $0.22 $1.07 $0.74 --------- -------- --------- ---------

Diluted shares used in calculation 211,778 214,679 211,962 212,172 ========= ======== ========= =========

    (a) In the three-month period ended June 30, 2004, we recorded a special charge of $21.1 million with a related tax benefit of $8.1 million for a patent license litigation settlement with U.S. Philips Corp. and Philips Electronics North America Corp. (together "Philips") which had been ongoing for the past several years. The settlement included a dismissal of the pending litigation and the cross-license of certain patents between Philips and Microchip.

    (b) In the three-month period ended June 30, 2003, we closed our Chandler, Ariz. (Fab 1) wafer fabrication facility and integrated certain Fab 1 personnel and processes into our Tempe, Ariz. (Fab 2) wafer fabrication facility. These actions resulted in $30.6 million of accelerated depreciation on Fab 1 assets and $1.1 million in related charges, including severance, material and other costs, which had a combined impact on $31.8 million on cost of sales. In the three-month period ended June 30, 2003, operating expenses included $1.6 million of special charges recorded principally for contract cancellation, severance and other costs related to the closure of Fab 1 and other actions. We incurred $0.9 million of such expenditures during Fiscal Year 2004. In the quarter ended Dec. 31, 2003, we reversed $0.7 million of the special charges recorded in the quarter ended June 30, 2003 as a result of a favorable outcome in a settlement of a contract cancellation. The tax benefit on the Fab 1 shutdown, severance, contract cancellations and other costs was $13.0 million.

    Conference Call and Updates:

    Microchip will host a conference call today, April 27, 2005 at 5 p.m. (Eastern Time) to discuss this release. This call will be simulcast over the Internet at www.microchip.com. The webcast will be available for replay until May 4, 2005.
    A telephonic replay of the conference call will be available at approximately 8 p.m. (Eastern Time) April 27, 2005 and will remain available until 5 p.m. (Eastern Time) on May 4, 2005. Interested parties may listen to the replay by dialing 719-457-0820 and entering access code 3084052.

    Cautionary Statement:

    The statements in this release relating to the continuing strength of our business model, our strong market position, our pattern of sequential growth, our expectation that inventory days will begin to decline in the June quarter, confidence in our future cash flows, our anticipation of net sales growth of about 5% in the June quarter, continuing strong customer demand, our belief that we are well positioned to achieve a solid growth quarter, our expectation that EPS will be about 28 cents, continued strong interest in our products, and the statements containing our guidance for the quarter ending June 30, 2005 with respect to net sales, gross margins, operating expenses, tax rate, earnings per diluted share, days of inventory, capital expenditures for the quarter ending June 30, 2005 and for fiscal year 2006, additions to cash balances and future stock repurchases are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause our actual results to differ materially, including, but not limited to: changes in demand or market acceptance of our products and the products of our customers; the mix of inventory we hold and our ability to satisfy short-term orders from our inventory; changes in utilization of our manufacturing capacity; our ability to continue to secure sufficient assembly and testing capacity; competitive developments including pricing pressures; the level of orders that are received and can be shipped in a quarter; the level of sell-through of our products through distribution; changes or fluctuations in customer order patterns and seasonality; foreign currency effects on our business; costs and outcome of any tax audit or any litigation involving intellectual property, customers or other issues; disruptions in our business or our customers' businesses due to terrorist activity, armed conflict, war, worldwide oil prices and supply, public health concerns or disruptions in the transportation system; and general economic, industry or political conditions in the United States or internationally.
    For a detailed discussion of these and other risk factors, please refer to Microchip's filings on Form 10-K and 10-Q. You can obtain copies of Forms 10-K and 10-Q and other relevant documents for free at Microchip's Web site (www.microchip.com) or the SEC's Web site (www.sec.gov) or from commercial document retrieval services.
    Stockholders of Microchip are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date such statements are made. Microchip does not undertake any obligation to publicly update any forward-looking statements to reflect events, circumstances or new information after this April 27, 2005 press release, or to reflect the occurrence of unanticipated events.

    About Microchip:

    Microchip Technology Inc. is a leading provider of microcontroller and analog semiconductors, providing low-risk product development, lower total system cost and faster time to market for thousands of diverse customer applications worldwide. Headquartered in Chandler, Ariz., Microchip offers outstanding technical support along with dependable delivery and quality. For more information, visit the Microchip Web site at www.microchip.com.

    The Microchip name and logo, PIC and dsPIC are registered trademarks of Microchip Technology Inc. in the United States and other countries. I2C is a trademark of Philips. All other trademarks mentioned herein are the property of their respective companies.

--30--SIG/ix*

CONTACT: Microchip Technology Inc., Chandler Gordon Parnell, 480-792-7374 (Investor Relations)

KEYWORD: ARIZONA INDUSTRY KEYWORD: HARDWARE SOFTWARE EARNINGS SOURCE: Microchip Technology Inc.

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