Microchip Technology Inc. (MCHP - Free Report) recently revised its second-quarter fiscal 2021 outlook for the top and the bottom line. Markedly, the stock closed at $101.45, down 1.4% following the announcement on Sep 9.
The company now anticipates fiscal second-quarter net sales to decline in the range of 2-6% (mid-point indicating decline of 4%) sequentially. The company had earlier guided sales growth in the range of breakeven to decline of 8% (mid-point indicating decline of 4%) from the first quarter of fiscal 2021.
The Zacks Consensus Estimate for the second quarter is currently pegged at $1.26 billion, which suggests a decline of 3.8% from the first quarter of fiscal 2021.
Microchip citied that the automotive and industrial end markets that bore the brunt of the coronavirus crisis are now recovering but at the same time, the end-market demand from data centers and computing that had earlier gained from the work-from-home trend, is now weakening. Management also added it had witnessed strong booking activity for the months of July and August.
Non-GAAP earnings per share are predicted in the range of $1.36-$1.46 per share (mid-point of $1.41), compared with the previous guidance of $1.30-$1.52 per share (mid-point of $1.41). The Zacks Consensus Estimate currently stands at $1.42 per share for the second quarter.
Notably, Microchip has not provided any update on gross and operating margin outlook. On Aug 12, management had guided non-GAAP gross margin to be in the range of 61.2-62.2% whereas non-GAAP operating margin was anticipated in the range of 37-39%.
Q1 at a Glance
For the first quarter of fiscal 2021, Microchip reported non-GAAP earnings of $1.56 per share, which beat 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%.
Portfolio Strength Holds Promise
Microchip is well poised to gain from strong demand for memory and analog as well as interface products. Strength in 8-bit, 16-bit and 32-bit microcontrollers portfolio augurs well.
Moreover, synergies from accretive Microsemi and Amtel acquisitions are enabling the company to expand total addressable market.
Also, FGPA segment sales are likely to witness improvement as coronavirus restrictions are lifted across the world.
In addition, the company is expected to witness strength in medical end market, driven by higher demand for hospital equipment like respirators, ventilators, oxygen monitors, ultrasound machines and other COVID-19 related healthcare devices.
Improving automotive and industrial sectors also bode well for Microchip’s top-line growth in the days ahead. We believe this should offset the weakening demand in data center, office equipment and communication infrastructure markets, which had witnessed a massive spurt owing to the coronavirus-crisis triggered work-from-home wave
Zacks Rank & Stocks to Consider
Currently, Microchip carries a Zacks Rank #3 (Hold).
Few top-ranked stocks in the broader technology sector are Etsy (ETSY - Free Report) , Zoom Video Communications (ZM - Free Report) and Blackbaud (BLKB - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term earnings growth rate for Etsy, Zoom Video and Blackbaud is currently pegged at 26.5%, 25% and 7.6%, respectively.
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