Semiconductor products maker Microchip Technology Inc. (MCHP) on Wednesday reported a 4% decline in profit for the third quarter from last year, which included a higher income tax benefit. However, adjusted earnings for the quarter surged 65% from last year. The company also said it will buy flash chip maker Silicon Storage Technology, Inc. (SSTI) for $2.85 per share in cash. Microchip expects to gain access to SST's flash technology and patent portfolio through the deal.
The Chandler, Arizona-based Microchip posted GAAP net income for the third quarter of $69.40 million or $0.37 per share, down from $72.36 million or $0.39 per share in the prior-year quarter. The company had earlier said it expects earnings at the upper end of its previous forecast at about $0.29 per share for the quarter. The quarter's results include an $8.5 million favorable income tax benefit associated with an IRS audit settlement, while the year-ago quarter results included a $51.3 million favorable income tax benefit related to an IRS settlement, changes in tax regulations and the reinstatement of the R&D tax credit.
Excluding items, non-GAAP net income for the latest quarter increased to $70.1 million or $0.38 per share from $41.2 million or $0.23 per share in the year-ago quarter, and exceeded the company's forecast for earnings of approximately $0.35 per share.
On average, fourteen analysts polled by Thomson Reuters expected the company to report earnings of $0.29 per share for the third quarter. Analysts' estimates typically exclude special items.
Net revenue for the third quarter surged 30.1% to $250.10 million from $192.17 million in the same period last year, and increased 10.3% sequentially from $226.7 million in the preceding second quarter. Analysts had a consensus revenue estimate of $243.00 million for the third quarter.Microchip had forecast net sales for the third quarter to be up 6% to 8% sequentially.
Steve Sanghi, Microchip's President and CEO said, "During the December quarter we experienced strong growth in all geographies and product lines, which resulted in us exceeding the revenue, gross margin, operating profit and earnings per share guidance that we revised positively in late November."
Total operating expenses for the third quarter rose to $73.43 million from $64.31 million in the prior-year quarter. Of this, research and development expenses increased to $30.33 million from $26.97 million last year.
Microchip's operating income for the third quarter rose to $72.57 million from $40.47 million in the same period last year.
Microchip's board authorized a stock buy back of up to 10.0 million shares in December 2007. At December 31, 2009, about 2.5 million shares remained available for purchase under this program.
During the third quarter, Microchip shipped 41,492 development systems, a new record that demonstrates the continued strong interest in Microchip's products. The total cumulative number of development systems shipped now stands at 884,502.
For the nine months of fiscal 2010, Microchip reported net income of $141.26 million or $0.76 per share, down from $223.62 million or $1.19 per share in the previous-year period.On a non-GAAP basis, net income for the period dropped to $158.28 million or $0.85 per share from $207.27 million or $1.12 per share in the prior-year period.
Net sales for the nine months declined to $669.71 million from $730.04 million in the year-ago period.
For the fourth quarter, Microchip expects GAAP earnings in a range of $0.34-$0.36 per share, and non-GAAP earnings in a range of $0.39-$0.41 per share. The company's revenue forecast for the quarter is between $257.5 million and $267.5 million. Analysts currently expect the company to report earnings of $0.30 per share on revenues of $247.88 million for the fourth quarter.
The company projects capital spending for the fourth quarter to be about $22 million.
Sanghi said, "We started the March 2010 quarter with a record high opening backlog. On the other hand, the Lunar New Year holidays will have an adverse seasonal impact on our business in Asia. Taking all these factors into consideration we expect revenue to be up 3% to 7% sequentially."
The company forecasts capital expenditures for the year to be approximately $50 million.
Microchip also announced that its board of directors declared a quarterly cash dividend on its common stock of 34.1 cents per share. The quarterly dividend is payable on March 4, 2010 to stockholders of record on February 18, 2010.
Additionally, Microchip announced that it has signed a definitive agreement to acquire Silicon Storage Technology, Inc. (SSTI) for $2.85 per share in cash. Silicon Storage, or SST is a Sunnyvale, California-based semiconductor devices company.
The deal trumps a previous agreement for SST to be acquired by Technology Resources Holdings, a unit of Texas-based private equity firm Prophet Equity LP, for $2.10 per share. Through the deal, Microchip gains access to SST's flash technology and patent portfolio.
The offer price represents a premium of about 35.7% to the $2.10 per share that holders of SST common stock would have received under the previously announced merger agreement between SST and Technology Resources Holdings, Inc., and an approximate 53.2% premium to the closing price per share of SST's stock on November 12, 2009, the last day of trading prior to the announcement of the execution of the definitive merger agreement with Technology Resources.
The companies expect the transaction to close early in the second calendar quarter of 2010. The transaction, which will be funded with cash on hand, is not subject to financing.SST said it has terminated its previously announced merger agreement with Technology Resources Holdings prior to entering into the definitive agreement with Microchip.
The acquisition has been approved by the boards of directors of both companies and is expected to close in the second quarter of calendar 2010, subject to approval of SST's stockholders and other customary closing conditions.
Microchip's President and CEO Sanghi said, "SST's Superflash technology and extensive patent portfolio are critical building blocks for advanced microcontrollers. This acquisition enables Microchip to gain earlier access to SST's advanced technologies, as well as the ability to customize technology variants that can give us an advantage over competing technologies."
SST said it plans to delay its financial results for the fourth quarter and fiscal year 2009 until February 4, 2010. On November 13, 2009, SST had announced a definitive merger agreement to be acquired by Technology Resources and members of SST's management team for $2.10 per share. The offered price per share represented about a 13% premium to the closing share price of Silicon Storage's stock on November 12, 2009.
In December 2009, SST said it was holding talks with several other potential buyers. As part of a "go-shop" process, the Strategic Committee of the company's board contacted over 140 prospective buyers. The company had said at that time it was permitted to continue discussions with several of these parties with respect to a non-binding indication of interest submitted by them.
In Wednesday's regular trading session, MCHP is trading at $26.55, down $0.01 or 0.04%, on a volume of 1.64 million shares. The stock has been trading in a range of $17.55-$29.56 in the past 52 weeks.
SSTI is trading at $2.83, up $0.14 or 5.20%, on a volume of 8.28 million shares. In the past 52 weeks, the stock has been trading in a range of $1.30-$2.88.
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