Microchip Technology Announces Record Net Sales and Net Income for Second Quarter Fiscal Year 2007 and Record Quarterly Cash Dividend

CHANDLER, Ariz.—(BUSINESS WIRE)—October 25, 2006— Microchip Technology Incorporated (NASDAQ: MCHP)

-- RECORD NET SALES OF $267.9 MILLION FOR THE SEPTEMBER QUARTER; NET SALES INCREASED 2.0% SEQUENTIALLY

-- IN THE SEPTEMBER QUARTER, ON A NON-GAAP BASIS, PRIOR TO SHARE-BASED COMPENSATION:

-- RECORD GROSS MARGINS OF 60.45%

-- RECORD OPERATING PROFIT OF 36.4%

-- RECORD NET INCOME OF $84.2 MILLION AND 31.4%

-- ON A GAAP BASIS, GROSS MARGINS OF 60.45%, OPERATING PROFIT OF 34.1% AND NET INCOME OF $79.5 MILLION AND 29.7%

-- NET CASH GENERATED OF $128.5 MILLION DURING THE SEPTEMBER QUARTER BEFORE DIVIDEND PAYMENT OF $50.5 MILLION

-- INCREASED DIVIDEND BY 6.4% TO A RECORD 25 CENTS PER SHARE; REPRESENTS AN INCREASE OF 56.3% FROM DIVIDEND LEVEL ONE YEAR AGO

Microchip Technology Incorporated (NASDAQ: MCHP), a leading provider of microcontroller and analog semiconductors, today reported results for the three months ended September 30, 2006. Net sales for the second quarter of fiscal 2007 were $267.9 million, up 2.0% sequentially from $262.6 million in the immediately preceding quarter, and up 17.9% from sales of $227.3 million in the prior year's second fiscal quarter. The Company adopted SFAS No. 123 (revised 2004) "Share-Based Payment" at the beginning of the fiscal year 2007. As such, the Company has included additional information in its disclosures to assist shareholders with appropriate comparative information. Non-GAAP net income for the second quarter of fiscal 2007, which excludes the effect of all share-based compensation expense, was $84.2 million, or 38 cents per diluted share, up 3.4% from non-GAAP net income of $81.4 million, or 37 cents per diluted share, in the immediately preceding quarter; and up 28.2% from GAAP net income of $65.7 million, or 31 cents per diluted share, in the prior year's second fiscal quarter. GAAP net income for the second quarter of fiscal 2007 was $79.5 million or 36 cents per diluted share. A reconciliation of GAAP to non-GAAP earnings per share is included as part of this press release.

Microchip also announced today that its Board of Directors has declared a quarterly cash dividend on its common stock of 25 cents per share. The quarterly dividend is payable on November 22, 2006 to stockholders of record on November 8, 2006. Microchip initiated quarterly cash dividend payments in the third quarter of fiscal 2003.

Microchip also announced today that its Board of Directors has promoted Mr. Ganesh Moorthy to Executive Vice President of Microchip.

Microchip also announced today that its Board of Directors has authorized a buy-back of up to 10 million shares of Microchip common stock in the open market or in privately negotiated transactions. The purchases will depend upon market conditions, interest rates and corporate considerations.

"In the face of challenging industry conditions, Microchip delivered record results in net sales, operating profit and net income in the September quarter. Net sales for the quarter ended up at approximately the mid-point of our updated guidance which we provided on September 20, 2006," said Steve Sanghi, Microchip's President and CEO. "As we indicated in that update, the Christmas builds in Asia were delayed from our initial expectations, impacting net sales from our original forecasts. Our factory in Thailand is operating at normal levels post the military coup in that country."

"Sixteen-bit microcontrollers achieved 53% growth sequentially and 210% over the year ago quarter, albeit from a small base," said Ganesh Moorthy, Microchip's Executive Vice President. "Two and one-half years since the start of production, we believe our 16-bit microcontollers have now reached the tipping point. A large number of designs are turning to production, and we expect continued strong growth ahead."

"Flash microcontrollers grew 6.7% sequentially and 42.3% over the year ago quarter, and now represent approximately 64% of total microcontroller revenues," added Mr. Moorthy.

Mr. Sanghi continued, "Geographically, Asia was our strongest territory in the September quarter, growing approximately 4.5% sequentially, while both Americas and Europe were essentially flat. Europe's performance, in the summer vacation quarter, delivered results above normal seasonality."

"We achieved record gross margins of 60.45% and non-GAAP operating margins of 36.4% in the September 2006 quarter," Mr. Sanghi added.

Sanghi continued, "We are also pleased to be increasing our quarterly dividend payment to our shareholders by 6.4% sequentially, to 25 cents per share. The increase in dividends and the 10 million share buy-back authorization announced today continue to evidence Microchip's commitment to return value to our shareholders."

Gordon Parnell, Microchip's Chief Financial Officer, said, "Inventory days on our balance sheet at the end of September, prior to the effects of share-based compensation, were 99 days, down 2 days from the inventory levels at June 30, 2006. Inventory days including the effects of share-based compensation at the end of September were 101 days."

"Inventory in the distribution channel at the end of September 2006 was 1.9 months, down from 2.0 months as of the end of June 2006," Mr. Parnell added. "Combined channel inventories in support of our customers at the end of September 2006 are at the lowest levels in our business in the last several years.

Mr. Sanghi said, "The outlook for the December quarter continues to be challenging. We expect distributors to continue to reduce inventories in response to the industry leadtimes and overall conditions. This was certainly reflected in the book-to-bill ratio for the September quarter, which was 0.94. Although this is normally a stronger quarter for Asia, our customers' response to date has been rather muted. Additionally, it is a seasonally weak quarter in the Americas and Europe because of the Christmas holidays."

"With all the variables that we are monitoring in our business, we are anticipating revenues to be down approximately 5% in the December quarter. Earnings per share are expected to be about 36 cents on a non-GAAP basis, excluding the effect of share-based compensation. EPS on a GAAP basis is expected to be about 33 cents," Sanghi concluded.

Microchip's Recent Highlights:

-- Microchip continued its tradition of innovation in the 8-bit microcontroller space with the PIC18F97J60 family, which integrates a full Ethernet controller to provide embedded systems designers with a single-chip remote-communication solution for a wide range of applications. Other recent high-end 8-bit introductions included a family of Controller Area Network microcontrollers with large memory and small package sizes for automotive and industrial applications, and a family with an onboard 12-bit analog-to-digital converter (ADC) that eliminates the cost and complexity of interfacing to an external ADC, while providing the precision required for high-speed, high-resolution sensor measurements in applications such as medical, industrial and utility metering.

-- Activity with Microchip's burgeoning 16-bit microcontrollers was also strong last quarter, with 10 more devices going into volume production, bringing the total number of 16-bit microcontrollers and digital signal controllers in production to 75. Additionally, Microchip became the first 16-bit supplier to offer advanced security features that allow multiple parties in a collaborative system design to share the memory, interrupts and peripherals of a single chip without compromising their intellectual property. Called CodeGuard(TM) security, this memory segmentation reduces system costs for OEMs and their design partners by eliminating the need to store programs on separate chips.

-- Microchip squeezed its Baseline 8-bit PIC(R) microcontrollers into an even smaller package, the 2x3 DFN, which allows the Company to serve an ever-widening range of low-cost, space-constrained, non-traditional applications for digital intelligence.

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