Microchip Technology Incorporated, a leading provider of microcontroller, mixed-signal, analog and flash-IP solutions, has announced that it has completed its acquisition of Atmel Corporation. ?Microchip also announced that it expects it net sales for fiscal fourth quarter ended March 31, 2016 to be an all-time record and between the mid-point and high end of the guidance of $552.0 million to $568.5 million it provided during its earning conference call on February 3, 2016. Microchip also expects its non-GAAP earnings per share to be near the high end of its February 3, 2016 guidance of 65 cents to 69 cents per diluted share.
Microchip will announce its financial results on May 4, 2016 and will hold a conference call at that time and will provide guidance for the June 30, 2016 quarter for the combined sales and earnings of Microchip and Atmel. Microchip is not able to provide an estimate of its GAAP earnings per share at this time but will report its GAAP results and provide reconciliations of its GAAP and Non-GAAP results with its earnings release on May 4, 2016.
Microchip also announced that Atmel’s sales and earnings for the quarter ending March 31, 2016 are expected to be significantly lower than Atmel’s December 31, 2015 quarterly results. Specifically, Atmel’s net sales are expected to be in the range of $219 million to $221 million in its quarter ended March 31, 2016, down 15.8% at the mid-point from Atmel’s net sales in the quarter ended December 31, 2015. In calendar year 2015, Atmel’s distributors where revenue is recognised on a sell-in basis increased their inventory levels significantly and the inventory in this sales channel saw a severe inventory contraction in the March 2016 quarter. Prior to the acquisition closing, Atmel recognised revenue in the Americas and Europe based on sell-through from distribution, but recognised revenue in Asia based on sell-in to distribution.
Microchip will consolidate Atmel’s results into Microchip on a non- GAAP basis based on sell-through revenue recognition from the very beginning to provide an additional indication of the size of the Atmel business. Based on sell-through revenue recognition, Atmel’s March 31, 2016 quarter net sales are expected to be between $250 million to $253 million, down 6.1% at the mid-point from its net sales based on sell-through in the quarter ended December 31, 2015. Following the closing of the acquisition, GAAP net sales from Atmel will continue to be reflected based on sell-in revenue recognition in Asia until the contracts with distributors are changed to support revenue recognition based on sell-through. This process is expected to take a few quarters to implement based on Microchip’s experience with prior acquisitions.
Microchip also announced that in consolidating Atmel’s results, it expects to treat the mobile touch business of Atmel as an asset held for sale and will report the net profit/loss of this business below the operating line of Microchip’s income statement. For reference, for the quarter ending March 31, 2016, the net sales for Atmel’s mobile touch business is expected to be about $6 million to $7 million on a GAAP revenue basis (sell-in revenue recognition in Asia) compared to $18 million in the December 2015 quarter. Atmel also has a non-mobile touch business which is predominantly sold in the automotive and industrial markets that will remain an ongoing business that will be reported as part of Microchip’s ongoing financial reporting.
Steve Sanghi, Microchip’s Chairman and CEO said, “The performance of Atmel since we engaged in discussions in August of 2015 has been disappointing. We believe that the large drop in Atmel revenue in the March 2016 quarter is likely the result of an inventory correction in the distribution channel as distributors reduced inventory levels, overall weak business conditions, and concerns on the part of distributors surrounding the impact of the sale of Atmel to Microchip. We took some of this weakness into consideration in dropping the final acquisition price from our original offer.”
“While the starting point of the size of Atmel’s business is smaller than we originally modelled, it does not fundamentally change the value proposition to Microchip. We understand Atmel’s business well and we plan to rapidly integrate Atmel into Microchip, grow its sales, improve its gross margin percentage, bring down operating expenses and improve profitability. Our short- and long-term accretion and synergy targets for the transaction remain unchanged, and we have commenced driving towards these targets starting today,” concluded Mr. Sanghi.
