Microchip Technology Inc, leading provider of microcontroller and analog semiconductors, saw significant increases in inventory during Q3 and 2009 Q4 net sales are expected to be down 8 to 12%.

The company said Tuesday, earnings per share on a GAAP basis are expected to be 9 to 11 cents and non-GAAP basis 13 to 15 cents, and excluding acquisition related expenses and gains or losses on trading securities.

While general economic and semiconductor industry conditions have continued to be difficult and visibility continues to be limited, we have progressed according to our internal plan for this quarter, said Steve Sanghi, Microchip's President and CEO.

In response to the current environment, Microchip dramatically cut its capital expenditure budget to only $15 million for fiscal year 2010, consisting primarily of maintenance-type capital items, Mr. Sanghi added.

As of December 31, 2008, the company reported inventories of $136.5 million jump up from $126.8 million at the end of the prior quarter. Deferred income on shipments to distributors were $98.4 million down from $5.1 million as of September 30, 2008

Microchip did not provide any financial guidance for the quarter ending March 31, 2009, but disclosed its internal plan for the quarter was for net sales of $173 million.

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