Microchip (MCHP) Q1 Earnings & Revenues Surpass Estimates
Microchip Technology Incorporated MCHP reported first-quarter fiscal 2021 non-GAAP earnings of $1.56 per share, beating the Zacks Consensus Estimate by 9.1%. Moreover, the bottom line improved 10.6% on a year-over-year basis.
Net sales declined 1% from the year-ago quarter to $1.31 billion. However, the top line surpassed the Zacks Consensus Estimate by 2.2%.
Revenues declined 1.3% sequentially, led by coronavirus crisis-induced broad-based macroeconomic weakness across automotive and industrial end-markets. However, strength in demand across computing and data center, and medical end-markets was a positive.
Quarter in Detail
In terms of product line, microcontroller business (54.9% of net sales) declined 1.3% sequentially to $716.4 million. Nevertheless, management noted that the decline was lower than anticipated.
Microchip Technology Incorporated Price, Consensus and EPS Surprise
Microchip Technology Incorporated price-consensus-eps-surprise-chart | Microchip Technology Incorporated Quote
During the reported quarter, Microchip rolled out Adaptec SmartRAID 3100E RAID adapters that are designed to provide reliable hardware RAID protection for customer data in cost-sensitive end applications. Moreover, the company expanded its maXTouch portfolio with the new MXT288UD touch controller family, comprising compact automotive grade packaged touch screen controllers.
We believe that Microchip's expanding product portfolio driven by new microcontroller roll outs will aid it in expanding customer base and sustaining its market-leading position. Moreover, the company is well poised to capitalize on synergies from accretive Microsemi and Atmel acquisitions.
Analog net sales of $370.2 million (28.1%) improved 0.7% sequentially.
FPGA revenues (6.7%) were $86.8 million, down 10.3% on a quarter-over-quarter basis. The decline was led by shut down of operations across “one significant aerospace customer” owing to COVID-19 restrictions.
Licensing, memory and other, or LMO product line (10.4%) reported revenues of $136.3 million, almost flat sequentially.
Geographically, revenues from Americas, Europe and Asia contributed 26.2%, 18.7% and 55.1% to net sales, respectively.
Margins
Non-GAAP gross margin contracted 30 basis points (bps) on a year-over-year basis to 61.7%.
Non-GAAP research & development expenses, as a percentage of net sales, contracted 150 bps year over year to 13.6%. Non-GAAP selling, general & administrative (SG&A) expenses, as a percentage of net sales, contracted 120 bps year over year at 9.5%. Non-GAAP operating expenses, as a percentage of net sales, contracted 270 bps year over year to 23.1%.
Consequently, non-GAAP operating margin expanded 240 bps on a year-over-year basis to 38.6%.
Balance Sheet & Cash Flow
As of Jun 30, 2020, cash and short-term investments came in at $380.2 million, compared with $403 million as of Mar 31, 2020.
As of Jun 30, 2020, total debt (long-term plus current portion) amounted to $9.33 billion compared with $9. 48 billion as of Mar 31, 2020. Notably, the company paid down $394 million of debt during the quarter.
Cash flow from operating activities was $501.8 million compared with $371.7 million reported in the prior quarter.
Notably, on Aug 4, 2020, Microchip’s board of directors announced a cash dividend of 36.8 cents, up from prior dividend payment of 36.75 cents per share, payable Sep 4, 2020, to shareholders as on Aug 21, 2020.
Guidance
Improving demand across data center, office equipment and communication infrastructure, driven by requirement for cloud computing solution amid coronavirus crisis induced work-from-home wave, bodes well.
The company is also anticipated to witness strength in medical end market, driven by growth in demand for hospital equipment like ventilators, oxygen monitors, respirators, ultrasound machines and other COVID-19 related items.
Microchip forecast second-quarter fiscal 2021 net sales of $1.205-$1.310 billion (mid-point $1.26 billion). The Zacks Consensus Estimate for the same is pegged at $1.28 billion.
For the fiscal second quarter, non-GAAP earnings are anticipated in the range of $1.30-$1.52 per share (mid-point $1.41 billion). The Zacks Consensus Estimate for the same is pegged at $1.42 per share.
Non-GAAP gross margin is anticipated in the range of 61.2-62.2%. Non-GAAP operating margin is anticipated in the range of 37-39%.
Zacks Rank & Other Key Picks
Microchip currently has a Zacks Rank #2 (Buy).
Some other top-ranked stocks in the broader technology sector are are Dropbox DBX, Asure Software, Inc. ASUR and Analog Devices ADI. While both Dropbox and Asure Software sport a Zacks Rank #1 (Strong Buy), Analog Devices carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Dropbox, Asure Software, and Analog Devices are scheduled to report earnings on Aug 6, Aug 10 and Aug 19, respectively.
Long-term earnings growth rate of Dropbox, Asure Software, and Analog Devices is pegged at 16.83%, 14% and 13.33%, respectively.
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