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Microchip (MCHP) Boosts Portfolio With New Securities Platform

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Microchip Technology (MCHP - Free Report) recently announced the launch of its new CEC1736 solution that extends its offerings to ensure the cyber resiliency of different platforms.

The global emergence of AI and developing technologies has created a huge demand for updating different platforms’ security as cyber-attacks are increasing. Organizations have to be extremely wary of malicious cyber threats and evolve rapidly to counter the same.

In order to address the growing necessity in the market for complete cyber protection services, Microchip has launched its fully configurable microcontroller-based CRC1736 Trust Shield Family solutions. This new solution provides full end-to-end protection for data centers, telecommunications and network systems against cyber-attacks in real-time, specifically during start-up and system updates.

In order to protect the systems against ongoing cyber-attacks, Microchip’s CEC1736 advanced hardware crypto cipher suite is equipped with AES-256, SHA-512, RSA-4096, ECC with key size up to 571 bits and Elliptic Curve Digital Signature Algorithm (ECDSA) with a 384-bit key length. The 384-bit hardware is a physically unclonable function, which enables a unique root key, symmetric secret, private key generation and protection. The new security solutions meet the NIST 800-193 and OCP security guidelines and intend to fulfill the customers’ needs for firmware protection.

Microchip Expects Analog Business Segment to Drive Bottom Line

Microchip is one of the fastest-growing providers of 8-bit, 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.

However, a persistent supply chain constraint due to the lockdown in China, which extended from March to May and is still continuing, has disrupted operations in several factories of the company. Microchip anticipates supply chain constraints to continue through 2022 to 2023, consequently increasing backlogs as it fails to meet increasing demand with adequate supply. In order to meet rising demand company has to improve capital spending to increase the capacity of production.

However, this is a risky maneuver for Microchip since its balance sheet is extremely leveraged. As of Mar 31, 2022, the company’s cash and short-term investments totaled $319.4 million, while total debt (long-term plus current portion) amounted to $7.9 billion. Owing to significant debt levels, the company has to constantly generate adequate operating cash flow to service its debt.

In order to diversify income from the supply chain issue-riddled microcontroller business, the company continues to develop and introduce a wide range of innovative and proprietary new linear, mixed-signal, power, interface, and timing products to spur future growth of the analog business. These enable the company to maintain sustainable revenue growth and expand margins.

In the fourth quarter 2022, analog net sales of $514.5 million increased 3% sequentially and 24.2% year over year. Analog contributed 27.9% to total revenues. Positive growth in the analog business segment offers a lucrative investment proposition for investors looking to own blue-chip stocks that promise a healthy return on investments.

Microchip, currently carrying a Zacks Rank #3 (Hold), has fallen 24% in the year-to-date period compared with the Zacks Semiconductor - Analog and Mixed industry’s decline of 15.3%. The broader Zacks Computer and Technology sector has fallen 24.8% in the same time frame.

Stocks to Consider

While MCHP is a stock worth retaining in the portfolio, here are some better-ranked stocks to consider in the broader sector to gain more returns.

Analog Devices (ADI - Free Report) currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ADI’s shares have fallen 9% in the year-to-date period compared with the Zacks Semiconductor - Analog and Mixed industry’s decline of 18.7%.

Cisco Systems (CSCO - Free Report) presently carries a Zacks Rank of 2.

Cisco’s shares have decreased 21.8% in the year-to-date period compared with the Zacks Computer-Networking industry’s decline of 22.2%.

Axcelis Technologies(ACLS - Free Report) carries a Zacks Rank 2.

ACLS’ shares have fallen 23.5% in the year-to-date period compared with the Zacks Electronics - Manufacturing Machinery industry’s decline of 22.7%.

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