Microchip

A Decade of Excellence
Microchip Technology Incorporated
2003 Annual Report

Initial
Public Offering

93

To Our Shareholders

In recognizing our 10 year anniversary as a publicly traded company, Microchip 
Technology is proud of the many accomplishments we have achieved for our 
customers, shareholders and employees.   

What began in April 1989 as a money-losing enterprise was transformed by our employees 
into one of the most remarkable turnaround stories in the semiconductor industry.  Microchip launched its
initial public offering (IPO) on March 19, 1993, and in the subsequent 10 years, we have created a high-
performance stock investment that has yielded consistent returns and significant value to our shareholders:

•  At the time of the IPO, a share of Microchip stock was offered for $0.57 (split adjusted) 
    compared to $19.90 on March 31, 2003, resulting in a 3,391% appreciation.
•  Microchip’s market capitalization has jumped from approximately $81 million at the IPO
    to more than $4 billion at the end of fiscal year 2003.
•  Microchip’s annual net revenues have increased from $89 million in fiscal year 1993 to 
    more than $651 million in fiscal year 2003.
•  Our annual earnings per diluted share, before non-operating charges, have grown from 
    $0.04 to $0.64 (split adjusted) in the same period.
•  We have implemented seven stock splits.

During this 10 year period, our business model has been successfully tested through three semiconductor 
industry cycles, in which Microchip has consistently outperformed the industry in both the peaks and valleys.

Annual sales for the Company’s flagship product line, PIC® microcontrollers, have grown in the past decade 
from $32 million in fiscal year 1993 to $516 million in fiscal year 2003, and the portfolio has expanded from
seven to more than 180 proprietary devices.  With our PIC microcontrollers achieving 30% unit growth from
calendar year 2001 to calendar year 2002, Microchip is now the number one supplier of 8bit microcontrollers, 
based on worldwide unit shipments, according to Gartner Dataquest††.   We believe this milestone 
demonstrates that engineers worldwide turn to Microchip for superior 8bit microcontroller solutions.

Sales exceed 
$100 million 
run rate

Tempe, AZ
“Fab 2” purchased

2for1
stock split

#8 position in
8-bit microcontrollers†

94

Market valuation
reaches $1 billion

3for2 
stock split

10th Anniversary 
Initial Public Offering

 
 
Financial Highlights

(in thousands, except per share amounts)

1999

2000

2001

2002

Net Sales   

$460,723

$553,051

$715,730

$571,254

Gross Profit

$220,553

$283,440

$380,714

$286,736

Pro Forma Net Income*

$70,858

$113,586

$155,473

$94,814

Pro Forma Diluted Earnings Per Share*

$0.37

$0.58

$0.76

$0.45

2003

$651,462

$352,235

$133,875

$0.64

Stockholders Equity

$384,715

$662,878

$942,848

$1,075,779

$1,178,949

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All charts in this shareholders letter are based on fiscal year data, except where noted.

#6 position in
8-bit microcontrollers†

Expansion of Fab 2 & 
Bangkok, Thailand 
assembly and test facilities

KEELOQ® 
technology
acquisition

3-for-2 
stock split

100 millionth PIC®
microcontroller shipped

95

Sales exceed
$300 million 
run rate

MPLAB® Integrated
Development 
Environment debuts

While we acknowledge our numerous achievements that reflect Microchip’s decade of excellence, we also 
remain focused on the current business environment. No matter what the industry cycle or business 
environment is, our goal is for Microchip to continue to outpace the semiconductor industry.

For fiscal year 2003, net sales were $651.5 million, an increase of 14% from net sales of $571.3 million in
fiscal year 2002.  Pro forma diluted earnings per share for fiscal year 2003 were $0.64, an increase of 41% over
diluted earnings per share in the prior year of $0.45*.  We achieved gross margins of approximately 54% and 
maintained pro forma operating profits above 26%*, significantly better than the performance of most of our 
competitors. Our balance sheet is strong and debt free.  Microchip continues to generate strong operating cash
balances, allowing us to invest in acquisitions and capital expenditures as determined by our business requirements. 
In this past fiscal year, Microchip declared a 3-for-2 stock split and instituted a quarterly cash dividend.

*Excludes restructuring and acquisitionrelated special charges/special income. Please see “Reconciliation of Pro Forma Net Income to Reported Results” for additional information, located at the 
end of this document, following page F28 of Form 10K.

 
 
 
 
 
 
 
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In fiscal year 2003, Microchip undertook many steps to position itself for continued growth 
and success.  In many ways, these recent milestones reflect Microchip’s successful business 
philosophy and illustrate how the Company has performed so well over the past decade.

A recent example is our acquisition of the semiconductor manufacturing facility in Gresham, 
Oregon from Fujitsu Microelectronics, Inc.  Referred to as “Fab 4,” the facility is anticipated 
to substantially enhance Microchip’s short- and long-term global manufacturing capacity 
and help accommodate the Company’s projected worldwide demand for its field-
programmable microcontrollers, analog products, and complementary silicon solutions.

Microchip paid $183.5 million in cash for the 140-acre campus, which included 200,000 
square feet of clean room space and the required process and semiconductor manufacturing 
equipment. We believe the former owner had invested nearly $1.8 billion to build and 
equip this facility.

#5 position 
in 8-bit 
microcontrollers†

96

PICSTART® Plus
development 
system debuts

Additional public
stock offering

World’s first 8-pin
microcontrollers 
debut

97

3-for-2 
stock split

ISO 9001
certification

100,000th development
system shipped

World’s smallest serial
EEPROM introduced

In the past decade, the Company acquired its Tempe, 
Arizona “Fab 2” facility in 1994 and its Bangkok, Thailand 
assembly and test facility in 1995 using the same strategy of 
securing very low cost manufacturing. The result is a sound 
enterprise that posts strong profit margins, even in the current 
downcycle, and can respond to competitive pricing pressures.

Through Microchip’s continuous improvement efforts this past 
year, the Company generated record fabrication line and die 
yields of more than 90% at its Fab 2.  As Fab 4 ramps up for 
volume production in fiscal year 2004, Microchip is installing 
the same proven highyielding manufacturing processes.

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Securing extremely low-cost manufacturing facilities has complemented our 
proprietary products, resulting in strong gross margin performance. We believe 
the development of advanced products and technology will continue to provide 
the basis for cost improvements and future growth.  

In fiscal year 2003, Microchip extended its advanced PMOS Electrically Erasable 
Cell (PEEC) process technology with a 0.4 micron 2.0-5.5 volt capability.  Our 
proprietary PEEC technology continues to lay the foundation for industry-leading 
Flash microcontrollers, providing best-in-class erase/write endurance, retention 
and disturb reliability for both program and on-chip data EEPROM memory.  

Sales exceed
$400 million
run rate

#2 position in
8bit microcontrollers†

Automotive Products
Group formed

98

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10 millionth 8bit Flash
microcontroller shipped

MPLAB® ICE InCircuit
Emulator debuts

MPLAB ICD InCircuit
Debugger debuts

99

The Company launched 11 lowpin-count Flash microcontrollers in fiscal year 
2003, including a unique family of 14-pin PIC16F630 and PIC16F676 devices 
which feature an analog-to-digital converter, internal oscillator, comparator and 
quick start up for distributed intelligence applications.

Using the advanced PEEC technology, along with unique circuit design and 
manufacturing techniques, Microchip debuted the nanoWatt Technology 
family of power managed Flash microcontrollers, which enables designers to 
command complete control of overall system power consumption.  More than 
12 products began shipping in fiscal year 2003, providing an ideal solution for 
thousands of battery-managed embedded control applications worldwide.

Recognizing this growing opportunity for intelligent battery 
management, Microchip acquired PowerSmart, Inc., a
privately held semiconductor company in June 2002.  
PowerSmart® products provide a unique battery management 
whole product solution which improves system run-times and 
increases predictability of use with a lower system cost for 
the user.  By leveraging our existing microcontroller customer 
infrastructure with the leading-edge PowerSmart technology, 
we expect to gain market share in the office automation and 
consumer product markets.

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Helping to fuel the success of the past 10 years has been the 
availability of world-class development systems. This year, 
Microchip shipped a record 35,000 development systems, 
an increase of about 50% over fiscal year 2002.  In the past 
decade, Microchip has delivered nearly 262,000 development 
systems to engineers worldwide, representing one of the largest 
installed base of such tools in the entire semiconductor industry.

Microchip debuted the next-generation version of its MPLAB® 
Integrated Development Environment (IDE) this year.  Available 
at no cost to users, the MPLAB IDE v6.10 is a 32-bit desktop
development environment that can decrease design time by 
offering the flexibility to edit, compile, debug and emulate
embedded designs without ever leaving the MPLAB environment.
The Company also introduced the MPLAB In-Circuit Emulator

4000 system which provides full speed, low voltage emulation, 
interchangeable processor modules and device adapters to support the 
PIC18F microcontroller and dsPIC™ digital signal controller families.

In fiscal year 2003, Microchip began sampling its dsPIC digital signal controllers
and related development tools to key customers. This marks Microchip’s formal
entry into the nearly $2.9 billion 16-bit microcontroller market†† with a highly 
competitive product offering.  The dsPIC digital signal controller provides a high 
performance 16-bit Flash microcontroller solution with an on-board digital 
signal processor, allowing Microchip to penetrate numerous computationally 
intensive applications that could not be served by an 8-bit solution. 

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One billionth 
PIC microcontroller
shipped

00

First operational
amplifier
family introduced

QS9000
certification

PIC18 8bit microcontroller
architecture debuts

First 12bit 
analogtodigital
family debuts

 
 
 
 
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Our analog and interface products continued to gain 
acceptance in the competitive analog market. The strategy 
of attaching our analog products to our microcontroller 
design wins is working well and offers significant growth 
opportunities for these products.

For example, the MCP6S2X programmable gain amplifier 
was developed to provide digital control over the amplifier 
function and reduce board space and cost.  Another 
proprietary innovation is the MCP3221, a 12-bit low power 
analog-to-digital converter in the tiny SOT-23 package.

The Company’s serial EEPROM portfolio continues to 
expand, including the highest density serial EEPROMs 
available in an 8-lead MSOP package.  Because of its small 
size, this package offers designers an unprecedented level 
of flexibility when implementing non-volatile memory in 
space-constrained applications.

In addition to launching compelling new products, 
Microchip has dedicated groups to support the unique 
needs of specific markets.  Microchip’s Home Appliance 
Solutions Group has penetrated additional appliance OEM
customers worldwide with targeted applications support.

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3-for-2 
stock split

3-for-2 
stock split

Additional public
stock offering

Puyallup, WA
 “Fab 3” acquisition

Our Automotive Products Group continues to reap additional opportunities, including winning 
several high volume safety critical applications that will go into production starting in Model 
Year 2006.  The MCP201 transceiver debuted, allowing engineers to add connectivity to the 
Local Interconnect Network (LIN) bus for automotive applications.  

While the appliance and automotive markets are important, they represent just two industry 
segments that we support.  Microchip’s decade of excellence can be seen in its successful 
model of sales diversification.

 
dsPIC digital
signal controller
architecture unveiled

First infrared
products debut

TelCom Semiconductor
acquisition

01

200,000th 
development
system shipped

Today, Microchip serves more than 40,000 customers 
creating thousands of diverse applications in the 
consumer, automotive, industrial control, office 
automation and communications markets.  Our top 10 
customers represent less than 11% of our business, 
and overall sales are diversified across Europe, Asia 
and the Americas.  This ongoing strategy helps insulate 
our business, ensuring that Microchip’s performance 
is not tied to the successes or failures of any one 
customer, market or geographic region.

8-pin Flash PIC
microcontroller debuts

02

PEEC process
technology implemented

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Because of this strategy, Microchip was able to significantly outperform 
the rest of the semiconductor industry during this multiyear downcycle.  
In fiscal year 2003, our total sales increased by 14% over fiscal year 
2002, despite challenging business conditions worldwide.  Our direct 
and distribution sales channels both contributed double-digit percentage 
growth, and Microchip expanded its share of the nearly $5.1 billion 8-bit 
microcontroller market to 16% (based on unit shipments)††.

Sales in Asia grew by approximately 28% in fiscal year 2003 compared 
to fiscal year 2002.  Given the large sales potential in China, Microchip 
opened sales offices in QingDao and Shunde and plans to open an 
office in Wuhan this fiscal year, providing nine total sales offices including 
Hong Kong in this country alone.

 
 
 
3-for-2 
stock split

Two billionth PIC
microcontroller shipped

Home Appliance
Solutions Group
formed

PowerSmart Inc.
acquisition

Quarterly cash
dividend instituted

Gresham, OR
“Fab 4” acquisition

#1 position in 8bit 
microcontrollers††

Microchip has attracted numerous engineering customers over the past decade 
by making it easy for them to engage with us. To shorten design-in cycle times, 
Microchip this year instituted online product sampling capability on our website, 
giving designers the ability to request and receive product samples within days.  
Providing ongoing technical training, more than 750 engineers worldwide 
attended Microchip’s Annual Summer Technical Exchange Review (MASTERs) 
conferences in fiscal year 2003 to learn about designing embedded control 
systems using the Company’s products.

Despite the continued tough business environment and the prolonged industry 
downcycle, Microchip yet again outperformed the semiconductor industry, as we 
have over the past decade.  

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We remain very optimistic about our future given our 
acquisition of Fab 4, growth in standalone analog 
products, sampling of the new digital signal controllers, 
and a portfolio of products that continues to expand. 
And, Microchip is now the number one supplier of 8bit 
microcontrollers, based on worldwide unit shipments††.

With sincere appreciation to our shareholders, customers 
and employees for helping Microchip make the last 10 
years truly a decade of excellence.  

Steve Sanghi
President and CEO
Microchip Technology Incorporated

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Corporate Profile

Microchip Technology Incorporated (NASDAQ:  MCHP) is a leading provider of microcontroller and analog 
semiconductors, providing risk-free product development, lower total system cost and faster time to 
market for thousands of diverse customer applications worldwide.  Headquartered in Chandler, Arizona, 
Microchip offers outstanding technical support along with dependable delivery and quality.  For more 
information, visit the Microchip website at www.microchip.com.

03

Microchip celebrates 
10 years of being public

†Rankings based on total worldwide unit shipments, as listed in the following reports:

Gartner Dataquest, Final 1993 Microcontroller Market Share and Shipments, May 30, 1994
Gartner Dataquest, Final 1994 Microcontroller Market Share and Shipments, June 19, 1995
Gartner Dataquest, 1996 Microcontroller Market Share and Unit Shipments, August 11, 1997
Gartner Dataquest, 1997 Microcontroller Market Share and Unit Shipments, June 1, 1998

††Gartner Dataquest, 2002 Microcontroller Market Share and Unit Shipments, Tom Starnes, June 2003

The statements contained in this annual report relating to our goal that we will continue to outpace the semiconductor industry, our ability to continue generating 
strong operating cash balances to allow us to invest in acquisitions and capital, our belief that we have positioned ourselves for continued growth and success, 
expectations that Fab 4 will substantially enhance our short- and long-term manufacturing capacity and help accommodate worldwide demand, our belief 
that we can respond to competitive pricing pressures, ramping of Fab 4 to volume production in fiscal year 2004, that the installation of proven processes in 
Fab 4 will generate high yielding manufacturing processes, that development of advanced products and technology will continue to provide the basis for cost 
improvements and future growth, our belief that our proprietary PEEC technology will continue to lay the foundation for industry-leading Flash microcontrollers, 
that there is a growing opportunity for intelligent battery management, that leveraging our existing microcontroller customer infrastructure with the PowerSmart 
technology will provide us market share gains in the office automation and consumer segments, that the MPLAB IDE v.6.10 can decrease design time, our ability 
to penetrate numerous computationally intensive applications, that our attach strategy for analog to our microcontroller business is working well and will offer 
significant growth opportunities, that additional opportunities are continuing in alternative applications, several high volume automotive safety critical applications 
going into production starting in Model Year 2006, our belief that our diversification strategy insulates our business and ensures that our performance is not tied 
to the successes or failures of any one customer, market or geographic region, our plans to open a sales office in Wuhan, China in fiscal year 2004, our optimism 
about our future, our growth in standalone analog products, and the expansion of our product portfolio are forward looking statements made pursuant to the 
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Actual results may differ materially because of the following factors, among others:  
demand for our products and the products of our customers; our ability to ramp products into volume production; 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; changes in customer order 
patterns and seasonality; the level at which design wins become actual orders and sales; pricing pressures; disruptions in international transport or delivery 
occasioned by terrorist activity, armed conflict, war or an unexpected increase in the price of, or decrease in supply of, oil; impact of events outside the United 
States, such as the business impact of fluctuating currency rates or unrest or political instability; general industry, economic and political conditions; the impact 
on our business and on customer order patterns due to major health concerns (such as the spread of the SARS virus); financial stability in foreign markets; 
our ability to maintain operating margins; our timely introduction of new technologies; market acceptance of our new products and those of our customers; 
competitive factors, such as competing architectures and manufacturing technologies and acceptance of new products in the markets we generally serve; 
the costs and outcome of any litigation involving intellectual property, customer and other issues; changes in utilization of our current manufacturing capacity; 
unanticipated costs in bringing Fab 4 on-line; timely facilitization of Fab 4, including the availability of equipment and other supplies; our ability to ramp products 
into volume production at Fab 4; and the ability to attract and retain qualified personnel in the Gresham, Oregon area.

For a detailed discussion of these and other risk factors, please refer to Microchip’s filings on Forms 10-K and 10-Q.  Our fiscal year 2003 Form 10-K follows 
this letter to shareholders.  Additionally, you can obtain copies of Forms 10-K and 10-Q and any other relevant documents for free at the SEC’s web site 
(www.sec.gov) or from commercial document retrieval services.

 
 
 
 
Independent Auditors

Common Stock

Ernst & Young LLP

Phoenix, Arizona

Legal Counsel

Wilson Sonsini Goodrich & Rosati, P.C.

Palo Alto, California

Austin, Texas

Transfer Agent & Registrar

Wells Fargo Bank Minnesota, N.A.

Shareowner Services

161 North Concord Exchange

P.O. Box 64854

St. Paul, Minnesota  55075-1139

800-468-9716

Form 10-K

A copy of the Company’s Form 10-K as filed 

with the Securities and Exchange Commission 

is available upon request to:

Investor Relations

Microchip Technology Incorporated

2355 West Chandler Boulevard

Chandler, Arizona  85224-6199

480-792-7761

Annual Meeting

The annual meeting of the stockholders of 

Microchip Technology Incorporated will be held at 

the Company’s Chandler facility, 2355 West Chandler 

Boulevard, Chandler, Arizona on Friday, August 15, 

2003 at 9:00 a.m. Pacific Standard Time.

©2003 Microchip Technology Inc.  All rights reserved.  The 
Microchip logo and name, PIC, PICmicro, KEELOQ, MPLAB, 
PICSTART and PowerSmart are registered trademarks of Microchip 
Technology Incorporated.  dsPIC is a trademark of Microchip 
Technology Incorporated.  All other trademarks are the property of 
their respective owners.  Printed in USA 6/03

Microchip Technology’s common stock is traded on the 

Nasdaq National Market under the symbol “MCHP.”  The 

following table sets forth the quarterly high and low closing 

prices as reported by the Nasdaq National Market for the 

last two years, adjusted to reflect a 3-for-2 stock split 

effected in May 2002.

Fiscal 2003  

  First Quarter 

  Second Quarter 

  Third Quarter 

  Fourth Quarter 

Fiscal 2002  

  First Quarter 

  Second Quarter 

  Third Quarter 

  Fourth Quarter 

High 

$33.07 

$27.54 

$29.29 

$27.51 

High 

$22.29 

$25.59 

$27.84 

$28.81 

Low

$26.52

$15.36

$19.44

$19.90

Low

$14.96

$16.89

$16.81

$22.26

Internet Address

Additional Company information, along with the most 

recent financial and product information and press 

releases, can be accessed at:  www.microchip.com

Corporate Facilities

Microchip Technology Incorporated

2355 West Chandler Boulevard

Chandler, Arizona  85224-6199

Microchip Technology Incorporated

1200 South 52nd Street

Tempe, Arizona  85281

Microchip Technology Incorporated

21015 SE Stark Street

Gresham, Oregon  97030

Microchip Technology (Thailand) Co., Ltd.

14 Moo 1 T. Wangtakien

A. Muangchachoengsao

Chachoengsao, 24000, Thailand

www.microchip.com
A Leading Provider of Microcontroller and Analog Semiconductors

04

The excellence
continues