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WIKI ANALYSIS
Microchip Technology (NASDAQ: MCHP) makes analog microcontrollers, memory, and other electronic components for embedded systems, which are small, low-power computers designed to perform specific tasks. The company primarily competes in the microcontroller market, where the company generated 80% of its 2008 revenue. Since 2003, MCHP has occupied the largest market share in the microcontroller market. [1]
The weak U.S. housing market hurt sales of MCHP's products used in household electronics, from garage door openers to thermostats. Revenue fell 12.8% or $132.4 million to $903.3 million in 2009, reflecting declining demand for memory products and fluctuating exchange rates.[2] [3]
MCHP primarily competes with STMicroelectronics and Atmel.[4] In April 2009, Microchip Technology acquired R&E International, a privately-held developer of integrated circuits. [5]
Business
| Products | 2009 | 2008 | 2007 | 2006 |
|---|---|---|---|---|
| Microcontrollers | 731.6 | 832.9 | 834.3 | 736.2 |
| Memory Products | 89.3 | 120.3 | 122.7 | 125.3 |
| Analog and Interface Products | 82.3 | 82.5 | 82.6 | 66.4 |
| Total Revenue | 903.3 | 1035.7 | 1039.6 | 927.9 |
| Operating Income | 233.3 | 301.67 | 347.81 | 326.36 |
The struggling U.S. housing and Asian markets contributed to the decline in sales in all areas.[2]
Business Segments
Microcontrollers (81.0% of 2009 sales[3])
The largest component of Microchip's revenue, this segment decreased by 0.17% from fiscal 2007 to fiscal 2008 because of a weak housing market, weak sales in Asia, and declining demand for its memory products.[7]
Microcontrollers are essentially computers condensed to a single chip, containing a processor, memory, and a input/output interface. MCHP produces microcontrollers under its PIC brand name. PIC microcontrollers are designed for high performance, low power and cost effectiveness. MCHP microcontrollers use a dual-bus architecture, which has separate pathways for data and instruction, making them faster than the majority of other microcontroller products on the market that tend to use single-bus architectures. MCHP manufactures products in the 8-bit, 16-bit, and 32-bit microcontroller markets and has the largest market share in the 8-bit market.[8] The 8-bit microcontroller is the smallest and most popular of the three, as an estimated 55% of all computers use 8-bit microcontrollers.[9] The 16-bit and 32-bit microcontrollers are more computationally powerful and physically bigger.
MCHP also makes the Development Tools that system designers use to program PIC microcontrollers. These tools are hardware products that let these designers program MCHP's microcontrollers and other electronics products. As of fiscal 2008, MCHP has shipped more than 600,000 development tools worldwide.[8]
Memory Products (9.9% of 2009 sales [3])
Memory products consist of Serial EEPROMs (Electrically Erasable Programmable Read-Only Memory), which are useful in embedded devices because they do not require power to keep data stored. MCHP is the largest manufacturer of EEPROMs. This segment was responsible for 11.8% of revenue in 2007, but this number fell to only 11.6% of total revenue in 2008 due to fluctuations in customer demand. [7]
Analog and Interface Products (9.1% of 2009 sales[3])
Analog and Interface Products consist of MCHP's power management, linear, mixed-signal, thermal management and interface products, which number over 500. Its line of mixed-signal products primarily includes data converters that convert data from analog to digital or vice versa. Linear products refer to Microchip's products that transfer either analog or digital data, without any conversions.[7]
Key Trends and Forces
The struggling U.S. housing market has negatively affected MCHP's domestic revenue
By the end of 2006, the number of vacant homes in the U.S. had increased by 34% to 2.1 million, a number that continued to increase in 2007. MCHP's microcontrollers are used in garage door openers, security systems, thermostats, irrigation equipment, and air conditioning, which are driven by the housing market. Fiscal 2008 Q2 earnings fell short of company predictions by $8.3 million, or 3.1%, which MCHP attributed to the weak housing market.[10][11]
Microchip's business has suffered from decreasing demand for its products
Products in the semiconductor industry tend to have short shelf lives, with their selling prices decreasing rapidly over the course of their existence. In the case of Microchip, the average selling prices of its microcontroller and analog and interface products remained relatively constant as of fiscal 2008, but average selling prices of its memory products and non-proprietary analog and interface products decreased. Memory sales dropped by 1.95%, the most of all segments.[12]
Weak U.S. Dollar benefits Microchip's international sales
Because MCHP reports its revenues in U.S. dollars but most of its business is international (74% in 2008), it is affected by exchange rates. When the value of the dollar depreciates, MCHP's international sales grow in dollar terms. From 2006-2008, the dollar depreciated relative to the Euro and Japanese Yen.[13][14]
Competitors
- Atmel (ATML) competes with all three of MCHP's segments and is most notably successful for its business in the smart card market.[15][16]
- STMicroelectronics (STM) manufactures a wide variety of products in its 3 segments: application specific product group (54% 2007 revenue), industrial and multi-segment group (32% 2007 revenue), and flash memory group (14% 2007 revenue). In the application specific product group, STM competes with Microchip in the production of mixed signal and power technologies. STM's industrial and multi-segment group, on the other hand, competes with MCHP in the production of microcontrollers and memory products.[17][18]
| Company | 2008 Revenue ($ in millions) | 2008 Net Income ($ in millions) | 2008 Microcontroller Revenue ($ in millions) | Net profit margin |
|---|---|---|---|---|
| Microchip Technology (MCHP)[3] | 1035.7 | 297.7 | 832.9 | 27.55% |
| STMicroelectronics (STM)[19] | 9,842 | -786 | 936[20] | -7.93% |
| Atmel Corporation (ATML)[21] | 1567 | -27.2 | 522.6 [22] | -1.74% |
STMicroelectronics microcontroller segment also includes its line of memory and smartcard products
References
- ↑ Global Spec "Microchip"
- ↑ 2.0 2.1 MCHP 2008 10-K, Item 7: Management Discussion and Analysis of Financial Condition, page 30
- ↑ 3.0 3.1 3.2 3.3 3.4 3.5 MCHP 2009 10-K, Item 7 "Management's Discussion," page 30
- ↑ 4.0 4.1 MCHP 2008 10-K, Item 1: Business, page 7
- ↑ MCHP Press Release, 8 Apr 2090
- ↑ MCHP 2009 10-K, Item 6 "Selected Financial Data," page 22
- ↑ 7.0 7.1 7.2 7.3 MCHP 2008 10-K, Item 7: Management Discussion and Analysis of Financial Condition, page 30-31
- ↑ 8.0 8.1 MCHP 2008 10-K, Item 1: Business, page 4-5
- ↑ Wikipedia: 8-bit
- ↑ SeekingAlpha: Microchip Blames Housing Weakness for FY Q2 Low Revs
- ↑ The Market Oracle: US Housing Market Crash to result in the Second Great Depression
- ↑ MCHP 2008 10-K, Section 1A: Risk Factors, page 11
- ↑ EUR to USD Exchange Rates
- ↑ USD to JPY Exchange Rates
- ↑ Wikinvest: Atmel
- ↑ Atmel: Products
- ↑ Wikinvest: STMicroelectronics
- ↑ STMicroelectronics: Company Profile
- ↑ Google Finance: STM
- ↑ FTM 10-K 2009, Item 7 "Results of Operations," page 26
- ↑ Google Finance: STM
- ↑ ATML 10-K 2008, Item 7 "Management's Discussion," page 36
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