January 29, 2009 / 10:13 PM / 9 years ago

UPDATE 2-Microchip Q3 profit falls, to cut production

* To cut Q4 production

* Declines to give Q4 revenue outlook

* Q3 inventory level rises

* Jan booking on weak side (Recasts, adds conference call details, share movement)

Jan 29 (Reuters) - Chipmaker Microchip Technology Inc (MCHP.O) posted a 9 percent fall in quarterly profit, and said it would cut production and declined to give an outlook, blaming the worsening global as well as semiconductor industry conditions.

Production levels in its facilities in the United States and Thailand would be reduced to moderate inventory growth, and fourth-quarter production would be about 40 percent lower than the second quarter, Chief Executive Steve Sanghi said.

The semiconductor industry’s woes have been triggered by chronic oversupply and falling prices as the global financial crisis cuts demand for chips in electronics products and automobiles.

Inventory levels at the end of the third quarter grew to 143 days compared with 110 days at the end of the second quarter.

The company, as well as its distributors, had high levels of inventory that would take a couple of quarters to burn off, Sanghi said on a conference call with analysts.

Microchip said it would charge the underutilization to cost of goods sold to reflect lower-than-normal production levels, besides implementing various other actions to reign in costs.

Microchip also implemented a company-wide pay cut, removed bonuses, and canceled or pushed out certain growth plans to conserve cash.

“The December quarter was the most difficult quarter ever in the history of our company. It was a quarter that the industry and I would like to forget,” Sanghi said.


“Bookings in January are still on the weak side. Such a reduced visibility is making revenue determination very challenging,” Sanghi said.

Microchip did not give a definite fourth-quarter outlook, but however, said it was “planning” for revenue of about $173 million.

The plan calls for earnings of 9 cents to 11 cents a share, including items, and 13 cents to 15 cents, before items.

The plan for capital expenditures for the quarter is about $15 million, the company said.

For the third quarter, profit fell to $73.2 million from $80.1 million in the year-ago period. However, earnings per share rose 2 cents to 40 cents due to a lower share count in the latest third quarter. [ID:nWNAB5914]

Gross margins fell to 55.2 percent from 61.2 percent. Book to bill ratio in the quarter was 0.7, which means that $70 worth of orders were received for every $100 of product shipped.

Shares of the company closed down about 4 percent at $18.39 Thursday on Nasdaq. (Reporting by Savio D’Souza in Bangalore; Editing by Deepak Kannan)

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