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Microchip (MCHP) Aids Portfolio Via New Time Measurement System

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Microchip Technology (MCHP - Free Report) recently announced the launch of its time measurement system, which offers an alternative to Global Navigation Satellite Systems (GNSS) to deal with cyber security threats.

For the operational efficiency of infrastructures, nations are increasingly dependent on the accuracy of time. GNSS is the most common and widely used technology to broadcast timing and orbital information globally. It is a network of satellites, which broadcasts timing and orbital information used for navigation and positioning measurements. These satellites transmit signals, which report where they are and at what time. This information is used to determine the people’s location on earth and at what time.

However, with the emergence of AI and developing technologies, cyber-attacks on GNSS are ever-increasing. This is a matter of national security as these cyber-attacks on GNSS will disrupt a nation’s operations completely.

GNSS plays a vital role in all forms of transportation, such as space stations, aviation, maritime, railroads, road and mass transit. It also plays a critical role in the proper functioning of telecommunications, agriculture, mining, finance, law enforcement, scientific research. Disruption of any of these activities due to cyber attacks will cripple a nation’s wellbeing.

The role of a country’s national time scale is changing from being just a scientific measurement to a critical component of the infrastructure to keep GNSS vulnerabilities at bay.

To address the growing necessity in the market for an alternate time system, Microchip launched its Precise Time Scale System (PTSS), comparable with the Universal Coordinated Time (UTC) and not dependent on GNSS. UTC is the international timing standard computed by taking the weighted average of 300 atomic clocks located at laboratories around the world. This provides nations, organizations and critical infrastructure operators complete control over the time source their infrastructure depends on.

The PTSS is guaranteed by Factory Acceptance Test and offers nations the ability to independently and efficiently operate their own time scale system. At the same time, to detect and protect against possible cyber-attacks, Microchip’s atomic clocks are continuously measured against one another to generate the ensemble of time scale frequency and monitored by a built-in database to alert and report against any discrepancy.

To avail this feature, users have to use Microchip's SyncServer S600/S650 and TimeProvider 4100 time servers, compatible with both Network Time Protocol (NTP) and Precision Time Protocol (PTP).

Microchip Faces Supply-Chain Constraints

Microchip is one of the fastest-growing providers of 8-bit, 16-bit and 32-bit microcontrollers in the world. The microcontroller business of MCHP continued to outperform the industry and enabled it to gain a significant market share.

However, due to continued lockdown in China, which extended from March to May, supply-chain constraints still persist. This, in turn, disrupted operations in several factories of MCHP.

Microchip anticipates supply-chain concerns to continue through 2022 and even into 2023, consequently increasing backlogs as it fails to meet increasing demand with adequate supply. To match rising demand, MCHP must improve capital spending to ramp up its production capacity.

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

To diversify income from the microcontroller business riddled by supply-chain issues , Microchip continues to develop and introduce a wide range of innovative and proprietary new linear, mixed-signal, power, interface and timing products to spur growth for the analog business. These enable MCHP to maintain sustainable revenue growth and expand its margins.

In the fourth quarter of 2022, analog net sales of $514.5 million increased 3% sequentially and 24.2% year over year. Analog contributed 27.9% to total revenues. 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 24.2% in the year-to-date period compared with the Zacks Semiconductor - Analog and Mixed industry’s decline of 18.7%. The broader Zacks Computer and Technology sector has dropped 28.2% 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 sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ADI’s shares have decreased 8.4% in the year-to-date period compared with the Zacks Semiconductor - Analog and Mixed industry’s decline of 18.7%.

Axcelis Technologies (ACLS - Free Report) carries a Zacks Rank of 1 at present.

ACLS’ shares have lost 23.2% in the year-to-date period compared with the Zacks Electronics - Manufacturing Machinery industry’s decline of 27.1%.

Avnet (AVT - Free Report) presently carries a Zacks Rank of 1.

AVT’s shares have risen 13% in the year-to-date period against the Zacks Electronics - Parts Distributionindustry’s decline of 4.2%.