Microchip Technology Inc. (NASDAQ:MCHP) Q4 2018 Earnings Conference Call Transcript

May 08, 2018 • 08:30 am ET

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Microchip Technology Inc. (NASDAQ:MCHP) Q4 2018 Earnings Conference Call Transcript

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Presentation
Executive
Steve Sanghi

up 1% to 6% sequentially, giving us a midpoint of the guidance at 3.5%. Given the amount of revenue beat in March quarter, this guidance is modestly better than the expectation we had provided during the Analyst Day.

Regarding gross margin. We see a steady improvement in overall gross margin of the company based on Microchip 2.0 margin drivers. We expect gross margin for the June quarter to be between 61.6% and 62% of sales. We expect overall operating expenses to be between 22% and 22.4% of sales. We expect operating profit percentage to be between 39.2% and 40% of sales. And we expect earnings per share to be between $1.39 and $1.49 per share. All these numbers do not include Microsemi.

Now I wanted to make a couple of comments on the pending acquisition of Microsemi. On April 12, 2018, we received a US anti-trust clearance. On April 19, 2018, China's MOFCOM accepted Microchip's filing for review under simplified procedure. We cannot confirm yesterday's report in the press that China's MOFCOM has cleared the transaction. We believe that the review process is running smoothly, and we remain optimistic that we will receive clearance shortly. In addition, yesterday, on May 7, we did receive Japan's anti-trust clearance. We expect several other countries to clear their anti-trust review this month. The Microsemi shareholder vote is scheduled for May 22, 2018, and we believe that we are on schedule for closing the acquisition some time during early June 2018.

I want to remind investors that during our Analyst and Investor Day presentations, we increased our long-term financial model with the Microsemi acquisition to a non-GAAP gross margin of 63%, operating expense of 22.5% and an operating profit of 40.5%. As you all know, we will be borrowing about $8 billion to close the Microsemi transaction. I want to assure you that after the closure of Microsemi acquisition, we plan to use all of our cash generation after dividend and capital, of course, to rapidly delever the balance sheet until the leverage comes down to about 2.5 times, which is our long-term target.

In addition, given all the complications of accounting for the acquisitions, including amortization of intangibles, restructuring charges and inventory writeup on acquisitions, Microchip will continue to provide guidance and track its results on a non-GAAP basis. We believe that non-GAAP results provide more meaningful comparison to prior quarters, and we request that the analysts continue to report their non- GAAP estimates to first call. With this, operator, will you please poll for questions?