Microchip Narrows Q2 Revenue Guidance Range

Zacks

Leading semiconductor manufacturer Microchip Technology Inc. (MCHP) recently narrowed its second quarter fiscal 2014 guidance range to better reflect an improving business environment and strong earnings potential with increased bookings.

Microchip now anticipates net sales to increase 3% to 5% sequentially compared with earlier expectations of a 2% to 6% sequential rise. Concurrent with the first quarter earnings release, management had provided guidance for the second quarter of fiscal 2014. GAAP gross margin was expected to be in the range of 57.6% to 58.2%. GAAP net income was anticipated to be in the range of $86.7 million to $95.5 million, with earnings per share of 40 to 44 cents.

Microchip expected cash and investments to go up by approximately $110 million to $130 million in the second quarter prior to dividend payment. The company also expected to incur $27 million in capital expenditure in the second quarter, bringing its tally to about $90 million for fiscal 2014.

Stronger demand pull has also forced Microchip’s management to take immediate steps to align its inventory levels and thereby avoid the risk of losing out on the opportunity. Workers have been asked to ramp up production, while all employees are directed to work full-time.

With better-than-expected bookings and expediting requests in its business driven by strong demand and robust product designs, Microchip anticipates continuing its bull run in the coming quarters. We also remain encouraged by the strong results of the company and its bullish guidance.

Microchip develops and manufactures microcontrollers, memory and analog and interface products for embedded-control systems, which are small, low-power computers designed to perform specific tasks. Striking features like quality, performance, reliability, ease of use, pricing and diversity of products have been the forte of Microchip and has helped it to become one of the better-positioned companies in the semiconductor universe.

Microchip presently has a Zacks Rank #2 (Buy). Other players in the industry that are worth mentioning include Monolithic Power Systems Inc. (MPWR), MagnaChip Semiconductor Corporation (MX) and MaxLinear, Inc. (MXL), each carrying a Zacks Rank #2 (Buy).

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