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Microchip Raises Q3 View, On Track with Long-Term Target


Microchip Technology Inc. MCHP recently revised its sales and earnings guidance for third-quarter fiscal 2017. Further, the company stated that it is on track to achieve long-term operating margin target of 33% by fourth quarter 2018.

The company now forecasts non-GAAP net sales to decline in the range of 1% to 4% with the mid-point to decrease 2.5% compared with the earlier guidance range of flat to down 6% with the mid-point declining 3%.

Further, non-GAAP earnings are now expected to be in the range of 87–94 cents per share compared with previous guidance range of 85–89 cents per share.

The revised guidance reflects the impact of the recent acquisitions of Atmel and Micrel. The company stated that integration of both the businesses is almost on the verge of completion.

The closure of Micrel’s 6-inch fab is anticipated to drive gross margin expansion as the higher cost inventory from the closed facility is sold and company realizes sales from its low cost higher volume factories.

Product Expansion Key Catalyst

In the last reported quarter (second-quarter fiscal 2017), operating margin expanded 10 basis points (bps) from the year-ago quarter to 26.8%. The expansion was driven by 56.2% growth in revenues and lower operating expenses, which were down 210 bps. (Read More: Microchip Beats Q2 Earnings, Sales Estimates).

Microchip is one of the fastest-growing providers of 16-bit and 32-bit microcontrollers in the world. The microcontroller business of the company continued to outperform the industry and enabled it to gain significant market share.

Moreover, the company is increasingly expanding its touch business beyond handsets and tablets into areas, such as automotive industrial applications. This is further expected to drive top-line growth in the rest of fiscal 2017.

Stock Price Momentum Positive

We note that Microchip’s stock price has surged 46.6% compared with the Zacks Semi-Analog & Mixed Industry’s gain of almost 30% on a year-to-date basis.

Moreover, current year earnings estimate have increased 7.5% (22 cents) to $3.17 per share in the last 30 days as four out of six analysts revised their figures upward.

Zacks Rank & Key Picks

Microchip currently sports a Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA NVDA, Marvell Technology MRVL and Taiwan Semiconductor TSM are three stocks in the broader sector that have the same rank as of Microchip.

Long term earnings growth rate for NVIDIA, Marvell and Taiwan Semiconductor is pegged at 10.3%, 12.3% and 15%, respectively compared with Microchip’s 12.5%.

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