Microchip Technology Reports First Quarter Fiscal 2002 Results.

Business Editors/High-Tech Writers

CHANDLER, Ariz.--(BUSINESS WIRE)--July 19, 2001

Microchip Technology Inc. (Nasdaq: MCHP) reported net sales and earnings for the first fiscal quarter ended June 30, 2001.

Net sales for the quarter were $138.9 million, a decrease of 9 percent from sales of $153.4 million in the immediately preceding quarter. Diluted earnings per share for the quarter were 16 cents on 137.6 million average shares outstanding, down approximately 17 percent from diluted earnings per share of 19 cents (before special charges) in the immediately preceding quarter.

Net sales for the quarter ended June 30, 2001 were down 22 percent from sales of $177.7 million in the prior year's first quarter. Diluted earnings per share for the first quarter of fiscal 2002 decreased approximately 49 percent from diluted earnings per share of 31 cents in the prior year's first quarter.

"I am very encouraged by our performance in the June quarter, particularly when considering the conditions faced by the semiconductor industry and the overall economy," said Steve Sanghi, Microchip's president and chief executive officer.

"Despite these challenging times in the industry and economy, our first quarter results are in line with the original guidance provided during our fourth quarter and fiscal year 2001 earnings release in April, and reaffirmed in our June 14, 2001 Business Update.

"We have taken the actions to right-size our business. With these actions, our gross margins are approximately 50 percent, and operating profits are over 20 percent, significantly better than the performance of many of our competitors.

"Our balance sheet position remains strong, with inventories maintained at the same levels as last quarter, reflecting our capacity actions, and growing cash balances while at the same time significantly reducing our accounts payable.

"Our overall performance reflects our diversified customer base, design win activity, a high proprietary content in our product portfolio, and our proactive response to market and industry changes.

"As indicated in our June 14 business update, we believe that the inventory correction has almost run its course, based on an increase in turns orders and slowing of pushouts and cancellations. While we are confident that our high rate of design-in activity will position us well to return to a pattern of growth, visibility continues to be low.

"We plan to maintain our stance of cautious optimism for the near term, and will continue to monitor industry and market conditions very closely. We are pleased with the current positioning of Microchip, and remain optimistic on our long-term outlook."

Microchip's First Quarter Highlights

-- Microchip recently unveiled architecture details for its proprietary 16-bit
dsPIC(TM) digital signal controllers. The dsPIC core is a 16-bit (data)
non-pipelined modified Harvard RISC machine that combines the control
advantages of a high-performance 16-bit microcontroller with the high
computation speed of a fully implemented digital signal processor (DSP) to
produce a tightly coupled, single-chip single-instruction stream solution for
embedded systems designs. The electronics industry has recognized Microchip's
technology leadership here as the dsPIC architecture was the cover story for
the June 4 issue of Electronic Design, one of the most widely read and
respected trade publications among design engineers.

-- In June, Microchip launched a family of advanced 8-bit configurable analog
microcontrollers for various measurement and control applications. Providing
unmatched levels of flexibility and integration with high-performance analog
and digital peripherals, the PIC16C781 and PIC16C782 microcontrollers form a
complete system-on-a-chip in a small 20-pin package.

-- Microchip in June introduced its first proprietary products for infrared
wireless communication -- the MCP2120 Encoder/Decoder and the MCP2150 Infrared
Communications Controller supporting the IrDA(R) standard. The MCP2150 is the
only low pin count communication controller on the market that supports both
the IrDA standard protocol stack and bit encoding/decoding.

-- At the Embedded Systems Conference in April, Microchip announced the
PIC18F0x0 Flash microcontrollers that pack industry-leading performance of 10
MIPS, 4K bytes of program memory, 256 bytes of user RAM and 64 bytes of EEPROM
data memory into a small 8-pin package. These microcontrollers feature
Microchip's In-Circuit Serial Programming(TM) (ICSP(TM)) technology, available
on our broad Flash microcontroller portfolio, which allows the devices to be
programmed after being placed in a circuit board.

-- The June issue cover of Wireless Design & Development Asia featured
Microchip's 24LC09, the world's first serial EEPROM supporting the Advanced
Communications Riser Special Interest Group (ACR SIG) specification, providing
the enumeration memory for next-generation PC Audio Modem Riser cards.

-- In May, Microchip announced an alliance agreement with Oki Electric Industry
Co. Ltd., a Japanese semiconductor manufacturer located in Tokyo, naming them a
distributor of Microchip's PIC16C5x and PIC16Cxx families of 8-bit
microcontrollers.

-- Microchip expanded its offering of proprietary operational amplifiers (op
amps) with the MCP61x family of unity gain stable op amps with low offset
voltage. The devices are single supply op amps offering a gain bandwidth
product of 190 MHz with a typical operating current of 20 uA.

-- Microchip's first ROMless microcontrollers, the PIC18C601 and PIC8C801,
began volume production during the first quarter of fiscal 2002. We have
already won several designs based on these devices. The first is a leading
short message service (SMS) platform that operates on standard telephone lines
and uses the external memory capability to accommodate multiple language
options.

-- Microchip shipped approximately 6,000 development systems during the quarter
ended June 30, 2001, bringing our cumulative shipments to approximately
209,000. This represents one of the largest user bases of development tools in
the semiconductor industry, and continues to be a positive indicator of new
customer activity.

Q2 FY2002 Outlook

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially.

Continuing uncertainty in the global semiconductor industry and low visibility make it very difficult to predict demand and other related matters. Therefore, Microchip will not provide guidance beyond the quarter ending Sept. 30, 2001.

Microchip will provide a mid-quarter update on Sept. 13, 2001. See "Conference Call and Updates" section below for details.

-- Revenue for the second fiscal quarter ending Sept. 30, 2001 is

currently anticipated to be flat compared to first quarter,

plus or minus 2 percent, or between $136 and $141 million.

-- Gross margins for the second fiscal quarter ending Sept. 30,

2001 are expected to be approximately 50 percent. Factors

driving margins include the positive effects of capacity and

cost reduction programs that were completed in the June

quarter and that are expected to offset the pricing pressure

on Serial EEPROM products. Generally, gross margins will

fluctuate over time, driven primarily by the product mix of

microcontrollers and related memory products, manufacturing

yields, fixed cost absorption, wafer fab loading levels and

competitive and economic conditions.

-- Operating expenses for the second fiscal quarter ending Sept.

30, 2001 are expected to be between $40 and $41 million.

Operating expenses fluctuate over time, primarily due to

revenue and profit levels.

-- Included in operating expenses, Research and Development (R&D)

for the second fiscal quarter ending Sept. 30, 2001 is

expected to be approximately $20 million. We are maintaining

our research and development initiatives in order to provide

Microchip with new manufacturing technologies and an increased

product offering.

-- Depreciation expense for the fiscal quarter ending Sept. 30,

2001 is expected to be approximately $28 to $29 million.

-- The tax rate is expected to remain unchanged at approximately

27 percent.

-- Based on these assumptions, earnings per share for the

September quarter is anticipated to be flat with first

quarter, plus or minus 1 cent, or approximately 15-17 cents.

-- Capital expenditures for fiscal 2002 are expected to be

approximately $55 million. We plan to invest in equipment to

maintain, and selectively increase, capacity at our existing

wafer fab and product test facilities. The level of capital

expenditures varies from time to time as a result of actual

and anticipated business conditions.

-- Cash flow is expected to remain positive during the September

quarter and the balance of fiscal 2002, based on cash

generated from operations and current projected capital

expenditure levels. We expect to add approximately $30 million

to our existing cash balances during the fiscal quarter ending

Sept. 30, 2001, and approximately $100 million for the balance

of the fiscal year ending March 31, 2002.

Conference Call and Updates

Microchip will host a conference call today at 5 p.m. (Eastern Time) to discuss this release. This call will be simulcast over the Internet at www.microchip.com. The webcast will be available for replay until July 26, 2001.

A telephonic replay of the conference call will be available at approximately 8 p.m. (Eastern Time) July 19, 2001 and will remain available until 8 p.m. (Eastern Time) on Thursday, July 26, 2001. Interested parties may listen to the replay by dialing 719/457-0820 and entering access code 612697.

Microchip will make a second quarter business update available after market close on Sept. 13, 2001. This update will be posted on the company's website at www.microchip.com. Those who do not have access to the Internet may contact Microchip's Investor Relations department directly 480/792-7761 to hear a recorded summary of the business update.

Cautionary Statement

The statements contained in this release relating to right-sizing our business, visibility of customer demand, the end of the inventory correction, design activity positioning us to return to a pattern of growth, positive long-term outlook, shipments of development systems as a positive indicator of new customer activity, and our expected second quarter and fiscal year 2002 operating results, including revenue levels, gross margins, operating expenses, Research & Development expenses, capital expenditures, depreciation expense, tax rate and cash flow, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements involve risks and uncertainties that could cause actual results to differ materially, including, but not limited to, demand for our products and the products of our customers; the level of orders that are received and can be shipped in a quarter; levels of inventories at our distributors and other customers; inventory mix and timing of customer orders; the success of our ongoing cost-reduction efforts; our timely introduction of new technologies and products; market acceptance of our new products and those of our customers; our ability to ramp new products into volume production; competitive products and pricing in the markets we generally serve; financial stability in foreign markets; our ability to maintain operating margins; difficulties associated with successfully integrating TelCom's business with our business and technologies; and general industry economic and political conditions.

For a detailed discussion of these and other risk factors, please refer to Microchip's filings on Form 10-K and 10-Q. You can obtain copies of Forms 10-K, 10-Q, and any other documents for free at the SEC's website (www.sec.gov) or from commercial document retrieval services.

About Microchip

Microchip Technology Inc. manufactures the popular PICmicro(R) field-programmable RISC microcontrollers, which serve 8- and 16-bit embedded control applications, and a broad spectrum of high-performance linear and mixed-signal, power management and thermal management devices.

The company also offers complementary microperipheral products including interface devices; microID(TM) RFID devices; serial EEPROMs; and the patented KEELOQ(R) security devices. This synergistic product portfolio targets thousands of applications and a growing demand for high-performance designs in the automotive, communications, computing, consumer and industrial control markets.

The company's quality systems are ISO 9001 (1994 version) and QS9000 (1998 version) certified. Microchip is headquartered in Chandler, design facilities in Mountain View, Calif. and Bangalore, India; semiconductor fabrication facilities in Tempe and Chandler, Ariz. and Puyallup, Wash.; and assembly and test operations near Bangkok, Thailand.

Microchip employs approximately 2,950 people worldwide and has sales offices throughout Asia, Europe, Japan and the Americas. More information on the company can be found at www.microchip.com.

The Microchip logo and name, PICmicro(R), and KEELOQ(R) are registered trademarks of Microchip Technology Inc. microID(TM) and PICDEM.net(TM) are trademarks of Microchip Technology Inc.

dsPIC, In-Circuit Serial Programming, ICSP are trademarks of Microchip Technology Inc. in the United States and other countries. IrDA is a registered trademark of Infrared Data Association. All rights reserved.

              Microchip Technology Inc. and Subsidiaries
              Condensed Consolidated Statement of Income

                (in thousands except per share amounts)

                                                 Three Months Ended
                                                      June 30,
                                                 2001          2000
                                              ---------     ---------

Net sales                                    $ 138,894      $ 177,749
Cost of sales                                   69,488         81,902
  Gross profit                                  69,406         95,847


Operating expenses:
  Research and development                      19,534         17,434
  Selling, general and
   administrative                               21,443         26,016
                                             ---------      ---------
                                                40,977         43,450

Operating income                                28,429         52,397

Gain on sale of investment                           0          1,427
Net loss in equity investment                        0           (208)
Other income, net                                1,398          4,099

Income before income taxes                      29,827         57,715

Income taxes                                     8,054         15,583

Net income                                   $  21,773      $  42,132

Basic net income per share                   $    0.17      $    0.33

Diluted net income per share                 $    0.16      $    0.31

Basic shares used in
 calculation                                   131,402        127,978

Diluted shares used in
 calculation                                   137,590        137,141


              Microchip Technology Inc. and Subsidiaries
                 Condensed Consolidated Balance Sheets

                            (in thousands)

                                Assets

                                              June 30,      March 31,
                                                2001          2001
                                            -----------    -----------

Cash and short term investments             $  138,419     $  129,909
Accounts receivable, net                        67,383         76,543
Inventories                                     96,118         95,699
Other current assets                            65,892         69,408

     Total current assets                      367,812        371,559


Property, plant & equipment, net               764,903        780,016
Other assets                                     9,353          9,774

     Total assets                           $1,142,068     $1,161,349


                 Liabilities and Stockholders' Equity


Lines of credit                             $        0     $        0
Accounts payable and other
 accrued liabilities                            92,177        130,517
Deferred income on shipments
 to distributors                                53,924         64,106

     Total current liabilities                 146,101        194,623


Long term debt and deferred taxes               23,896         23,878

Stockholders' equity                           972,071        942,848

Total liabilities and stockholders'
 equity                                     $1,142,068     $1,161,349