Micrel Reports Third Quarter 2006 Financial Results

* GAAP earnings per diluted share of $0.15, up from $0.11 in second quarter and $0.09 in year-ago period

SAN JOSE, Calif., Oct. 26 /PRNewswire-FirstCall/ -- Micrel, Incorporated (NASDAQ: MCRL), an industry leader in analog, high bandwidth communications and Ethernet IC solutions, today announced financial results for the third quarter ended September 30, 2006.

Revenues for the third quarter were $73.5 million, an increase of 5% from second quarter revenues of $70.2 million and 18% higher than revenues of $62.5 million recorded in the year-ago period. Third quarter GAAP net income was $11.8 million, or $0.15 per diluted share, compared with GAAP net income of $9.0 million, or $0.11 per diluted share, in the previous quarter and GAAP net income of $7.7 million, or $0.09 per diluted share, in the year-ago period. Third quarter GAAP net income per diluted share increased 38% from the second quarter and was up 67% from the third quarter of 2005. Included in the third quarter 2006 financial results are $2.9 million of revenue and $714 thousand in cost of revenues related to settlement of intellectual property matters, which increased third quarter 2006 net income by $0.02 per diluted share. Also included in third quarter 2006 GAAP net income is pre-tax equity-based compensation expense of $2.0 million, equivalent to $0.02 per diluted share.

Third quarter 2006 non-GAAP net income was $12.3 million or $0.15 per diluted share, an increase from $12.0 million, or $0.14 per diluted share in the previous quarter and $7.8 million, or $0.09 per diluted share in the third quarter of 2005. Third quarter non-GAAP net income per diluted share increased 8% from the second quarter and 72% from the year-ago period. Non-GAAP results exclude the impact of revenue and cost of revenues related to intellectual property settlements, equity-based compensation, unusual other operating income and expense items, restructuring charges and related tax effects. A reconciliation of the adjustments made to GAAP net income to compute non-GAAP net income is contained in the financial tables of this press release.

"Micrel continued to grow revenues and improve its financial performance in the third quarter," stated Ray Zinn, president and CEO of Micrel. "We are encouraged by the higher demand that we experienced during the third quarter from an increasingly diversified customer base of wireless handset manufacturers. The increase in shipments of Micrel's portable power products to wireless handset manufacturers, combined with higher sales to industrial customers, were key market elements of Micrel's revenue growth in the third quarter, which more than offset reduced demand from customers serving the wireline communications end market. Our gross margins improved sequentially, with third quarter GAAP gross margin matching the highest point in the Company's history, while operating margins, net income and earnings per share also increased on both a GAAP and non-GAAP basis in the quarter. Third quarter earnings per share continued to grow faster than revenues, reaching the highest quarterly level since the fourth quarter of 2000. The Company's cash flows remained strong which enabled us to spend $27.8 million to repurchase 2.9 million shares of Micrel common stock during the third quarter."

Outlook

Third quarter bookings declined from second quarter levels primarily due to reduced order rates from the Company's distributors, resulting in a book- to-bill ratio below one for the quarter. Order lead times for the Company's products remain fairly stable at four to six weeks, and a relatively high proportion of quarterly revenue must still be booked and shipped within the quarter to OEM customers or resold through the Company's distributors. As a result, the Company has less visibility than at the same time last quarter making it even more difficult to accurately predict fourth quarter revenues. Based upon current backlog levels and demand estimates, the Company projects fourth quarter revenues will be in a range of 67.0 million to $70.5 million, and GAAP earnings per diluted share will be in a range of $0.11 to $0.13.

Zinn continued, "The sequential decline in third quarter bookings was anticipated. In the first half of this year, our customers placed orders beyond their normal requirements in anticipation of longer lead times and extended backlog coverage to guarantee delivery -- a phenomenon we call 'order pipelining'. When lead times stabilized, customers adjusted their order patterns. During the third quarter, our customers placed orders primarily to meet previously unanticipated requirements and consumed backlog in an effort to control inventory levels. Unlike in 2004, when the semiconductor industry experienced a similar pattern in order rates and inventory growth, overall unit demand for semiconductors has not yet fallen off. If demand and lead times remain at present levels, it appears it will take until the first quarter of 2007 to work through the current inventory correction. While overall bookings for semiconductors remain soft, we are encouraged that the global economic environment continues to be healthy. This bodes well for the semiconductor industry in 2007."

Zinn concluded, "We are encouraged with the resurgence in Micrel's wireless handset business. While our wireline communication business has softened in the second half of 2006, we expect this business to rebound in the first quarter of 2007."

Conference Call

The Company will host a conference call at 4:30 p.m. Eastern time (1:30 p.m. Pacific time) today, October 26, 2006. Chief Executive Officer Raymond Zinn and Chief Financial Officer Richard Crowley will present an overview of third quarter 2006 financial results, discuss current business conditions and then respond to questions.

The call is available, live, to any interested party on a listen only basis by dialing (800) 867-0448. For international callers, please dial (303) 262-2140. Interested callers should dial in at least five minutes before the scheduled start time and ask to be connected to the Micrel, Incorporated Conference Call. A live webcast will also be available through www.vcall.com. An audio replay of the conference call will be available through November 2, 2006, by dialing (303) 590-3000 or (800) 405-2236 and entering access code number 11073199. The webcast replay will also be available on the Company's website at: www.micrel.com.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This press release includes statements that qualify as forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about the following topics: our expectations regarding future financial results, including revenues, earnings, order lead times, turns fill requirements, customer demand, customer and supply chain inventory levels and the nature of macro-economic and industry trends. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially. Those risks and uncertainties include, but are not limited to, such factors as: softness in demand for our products; customer decisions to cancel, reschedule, or delay orders for our products; the effect that lead times and channel inventories have on the demand for our products; economic or financial difficulties experienced by our customers; the effect of business conditions in the computer, telecommunications and industrial markets; the impact of any previous or future acquisitions; changes in demand for networking or high bandwidth communications products; the impact of competitive products and pricing and alternative technological advances; the accuracy of estimates used to prepare the Company's financial statements; the global economic situation; the ability of the Company's vendors and subcontractors to supply or manufacture the Company's products in a timely manner; the timely and successful development and market acceptance of new products and upgrades to existing products; softness in the economy and the U.S. stock markets as a whole; fluctuations in the market price of Micrel's common stock and other market conditions; the effect of the Company's restatement of previous financial statements; the difficulty of predicting our future cash needs; the nature of other investment opportunities available to the Company from time to time; and Micrel's operating cash flow. For further discussion of these risks and uncertainties, we refer you to the documents the Company files with the SEC from time to time, including the Company's Annual Report on Form 10-K for the year ended December 31, 2005, and quarterly report on Form 10-Q for the quarter ended June 30, 2006. All forward-looking statements are made as of today, and the Company disclaims any duty to update such statements.

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