Microchip Technology met profit expectations for its fiscal fourth quarter after twice lowering its forecasts because of the Iraq war and the deadly SARS outbreak.
The Chandler-based semiconductor manufacturer said Wednesday it earned $33 million, or 16 cents a diluted share, in the quarter ended March 31. That was down 9 percent sequentially from the preceding quarter but up 25 percent from the same quarter a year ago.
Revenue was $159.7 million, which also met the reduced forecast — down 5 percent from the previous quarter and up 7 percent from the same quarter a year ago. Microchip first warned in March that its results would fall short of previous expectations because of preparations for war in Iraq and tension with North Korea. On April 7 the company again reduced its forecast, predicting sales of between $159 million and $160 million and earnings of 16 cents per share.
CEO Steve Sanghi said customers were delaying purchasing decisions because of the war and the spread of severe acute respiratory syndrome, which curtailed business travel in Asia. For the fiscal year, the company reported sales of $651.5 million, up 14 percent from the prior fiscal year. Net income was $88.2 million, or 42 cents per diluted share, a decrease of 7 percent. Sanghi expressed positive comments about the company's performance in a “very difficult” business environment.
“Although the year did not finish as we anticipated, our fiscal year 2003 achievements validate that our business model is working solidly,” he said. Last month, the company announced it will end chip manufacturing at its Chandler complex, consolidating the work at the company's manufacturing fab in Tempe.
The restructuring, which is expected to be completed by the end of June, will cause a net loss of 140 jobs, or about 4 percent of the work force. Microchip said Wednesday it expects to take a one-time charge of $27 million to $33 million in the current quarter for accelerated depreciation and other expenses related to the Chandler fab closing. The company plans to keep its corporate headquarters, research, testing and other activities in Chandler.
Looking ahead, Microchip predicted net sales in the current quarter ending June 30 will be between $157 million and $164 million, and net income will be 15 cents to 16 cents per diluted share. Company spokesman Eric Sells said it's too soon to know what impact the end of the war in Iraq will have on the company's business. Semiconductor companies have generally reported good quarterly earnings for the January-March period. On April 15, Intel Corp. beat Wall Street expectations by announcing earnings of 14 cents per share.
Motorola, which has a large semiconductor division, reported earnings of 7 cents a share, matching expectations. The semiconductor unit lost $74 million, a third of the loss in the same quarter last year. Motorola CEO Chris Galvin predicted all of the company's businesses will be profitable in 2003. Jim Feldhan, president of Semico Research Corp., a Phoenix-based technology research firm, said he is “somewhat encouraged” by the earnings reports so far.
He said IBM and Texas Instruments had good quarters while Motorola's results were better than expected. He also was pleased that cell-phone maker Nokia, a large user of semiconductors, announced a good quarter. A recovery in the cell phone business will be needed for the semiconductor industry to meet Semico's forecast of 23 percent income growth this year, Feldhan said.
But he also sees warning flags that may keep the industry from meeting that optimistic scenario. Although the Iraq war proved to be short, the SARS situation could have a bigger impact, he said. “When you can't travel, its tougher to make business decisions,” he said. “It may delay or dampen the recovery."