GAAP net income for the first quarter of fiscal 2020 was $50.7 million, or $0.20 per diluted share, up from GAAP net income of $35.7 million, or $0.14 per diluted share, in the prior year's first fiscal quarter. For the first quarters of fiscal 2020 and fiscal 2019, GAAP net income was significantly adversely impacted by purchase accounting adjustments associated with our acquisitions.
Non-GAAP net income for the first quarter of fiscal 2020 was $357.6 million, or $1.41 per diluted share, down 11.9% from non-GAAP net income of $405.8 million, or $1.61 per diluted share, in the prior year's first fiscal quarter. For the first quarters of fiscal 2020 and fiscal 2019, our non-GAAP results exclude the effect of share-based compensation, expenses related to our acquisition activities (including intangible asset amortization, inventory valuation costs, severance and other restructuring costs, and legal and other general and administrative expenses associated with acquisitions including legal fees and expenses for litigation related to our Microsemi acquisition), IT security remediation costs, non-cash interest expense on our convertible debentures, losses on the settlement of debt, and gains and losses related to available-for-sale investments. For the first quarters of fiscal 2020 and fiscal 2019, our non-GAAP income tax expense is presented based on projected cash taxes for the fiscal year, excluding transition tax payments under the Tax Cuts and Jobs Act. For the first quarter of fiscal 2019, our non-GAAP results exclude the effect of our distributors increasing or decreasing their inventory holdings in order to present a measure of the end-market demand for our products. A reconciliation of our non-GAAP and GAAP results is included in this press release.
Prior to the fourth quarter of fiscal 2019, we reported non-GAAP net sales based on end-market demand, which excluded the effect of our distributors increasing or decreasing their inventory holdings. Beginning with the fourth quarter of fiscal 2019, we changed the information included in our financial guidance and provide net sales guidance based on sell-in revenue recognition under the new GAAP standard. See the "Use of Non-GAAP Financial Measures" section of this release.
Microchip announced today that its Board of Directors has declared a record quarterly cash dividend on its common stock of 36.60 cents per share. The quarterly dividend is payable on September 4, 2019 to stockholders of record on August 21, 2019.
"Our June quarter financial results were better than we expected in spite of a challenging economic environment," said Steve Sanghi, Chief Executive Officer. "Our net sales were 0.5% below the midpoint of our May 7, 2019 guidance and were adversely impacted by the Huawei shipment restrictions that were announced after our guidance was provided to investors. Historically, Huawei has represented between 1% and 2% of our net sales. We produced 36.2% non-GAAP operating margin and exceeded the midpoint of our non-GAAP diluted earnings per share guidance by 3.5 cents."
Mr. Sanghi added, "End-market demand, which reflects sell-through activities in the distribution channel, was $27.1 million higher than GAAP (sell-in) revenue in the June 2019 quarter, and was up 0.7% sequentially compared to the March 2019 quarter. As a result, distribution inventory days declined from 35 to 32 days. Our commentary in our February 2019 earnings conference call that the March 2019 quarter would mark the bottom of the current semiconductor cycle for Microchip on an end-market demand basis is proving to be correct."
"The end-market demand for our microcontroller business was up 1.8% and for our FPGA business was up 7% compared to the March 2019 quarter. Our FPGA business set an all-time quarterly record with almost $101 million in end-market demand. Design wins on our new, low power, mid-range PolarFire® family continued to grow strongly, and we are optimistic about this product family adding another leg to our future growth," said Ganesh Moorthy, President and Chief Operating Officer.
Mr. Moorthy added, "The integration of Microsemi with Microchip continues to progress well. Our business units and sales organization have substantially completed their integration activities. We are pleased with the synergies we have achieved since we closed the acquisition despite the weaker macro-economic environment over the past several quarters. As previously indicated, the business system and operations integrations will take the longest to complete as we execute this complex integration in phases."
Eric Bjornholt, Microchip's Chief Financial Officer, said, "We paid down $257.5 million of total debt during the June quarter, reflecting a cumulative pay down of $1.414 billion over the past four quarters, as we continued to manage our working capital requirements for the business. We will continue to use substantially all of our excess cash generation after dividends to reduce the amount of debt on our balance sheet as quickly as possible."
Mr. Sanghi concluded, "There is continued uncertainty in the economic environment, specifically as it relates to U.S. and China trade tensions. That being said, we are seeing a stabilization in our bookings activity and our backlog for the September 2019 quarter is higher than our backlog was for the June 2019 quarter at a similar point in time. Based on the multi-quarter inventory correction we have seen at distributors and end customers, we expect some growth to resume despite a very challenging business environment. We expect our net sales in the September 2019 quarter to be flat to up 4% sequentially."
Microchip's Highlights for the Quarter Ended June 30, 2019:
- Announced the production release of a family of SiC power devices, the 700 V SiC MOSFETs and 700 V and 1200 V SiC Schottky Barrier Diodes (SBDs), offering proven ruggedness and the performance benefits of wide-bandgap technology.
- Extended its automotive USB 2.0 Hi-Speed family with new one-port devices that offer single-port Integrated Circuits (ICs) in smaller footprint packages-optimizing a customer’s Bill of Materials (BoM) and lowering total system costs.
- Unveiled its META-DX1 family of Ethernet Physical-Layer (PHY) devices, the industry’s first terabit-scale Ethernet PHY that enables highest-density 400 GbE and FlexE connectivity.
- Provided a benchmark solution based on its DIGI OTN processor family that was key in enabling China Mobile to complete multi-vendor interoperability tests and deploy the world's first bandwidth-on-demand services.
- Introduced the 24-bit MCP356x and 16-bit MCP346x delta-sigma analog-to-digital converter (ADC) families with data rates of up to 153.6 kSPS and a compact package size, improving system performance in high precision applications.
- Released three new maXTouch® touchscreen controllers and optimization services that significantly increase Signal-to-Noise Ratio (SNR) with a new differential mutual signal acquisition method.
- Announced four new 20-output differential clock buffers that exceed PCIe® Gen 5 jitter standards for next-generation data center applications.
- Announced the IEEE 802.3bt-compliant PDS-408G PoE switch, a cost-effective eight-port PoE switch that provides maximum power for enterprise connected lighting applications.
- Enhanced its TimeProvider® 4100 family adding 10 Gigabit Ethernet (GE) support and the industry's most accurate time transfer over mobile and latest generation of cable networks.
- Collaborated with STAR-Dundee to create an evaluation platform that implements SpaceFibre technology, speeding up the development of flexible, high-speed SpaceVPX (VITA-78)-compliant data-networking systems for space applications.
- Introduced an upgraded user experience to its MHM-2020 hydrogen maser atomic clock with a color touch panel display and secure network management port.
- Delivered its 25 billionth MCU alongside its 30th anniversary and awarded the milestone purchase of its PIC24 MCU to long-time supplier of electro-optical products for the global automotive industry, Gentex Corporation.
- Recognized for his commitment to the humanities and philanthropic work, Steve Sanghi, Microchip’s chairman and CEO, was conferred an honorary Doctorate of Humane Letters degree by Northern Arizona University (NAU) at the college’s spring 2019 commencement ceremony.
Second Quarter Fiscal Year 2020 Outlook:
Beginning with the fiscal quarter ending March 31, 2019, we changed the information included in our financial guidance in response to comments from and discussions with the Staff of the Securities and Exchange Commission. We are now providing net sales guidance based on sell-in revenue recognition under the new GAAP standard. We are also providing guidance and reporting non-GAAP gross margin percentage, operating expense percentage, operating profit percentages and diluted earnings per share based on sell-in GAAP revenue. We are also providing information on end-market demand so that investors will have information on the consumption in the marketplace of our products by our customers or our distributors. We do not use end-market demand for any of our non-GAAP income statement calculations. Please see "Use of End-Market Demand Metric" below for information on how we calculate end-market demand.
