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Microchip (MCHP) Expands Ethernet Physical Layer Portfolio

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Microchip Technology (MCHP - Free Report) recently announced that it is launching the industry’s first terabit-scale secure Ethernet Physical layer (PHY) to support the transition to 112G Pulse Amplitude modulation 4- level (PAM4) connectivity used to transmit signal in ethernet switching platforms.

With the advent of cloud computing, a hybrid work environment, big data and an increase in the geographical distribution of networks, which is redefining borderless networking, demand for bandwidth is rising rapidly.

Per Microchip, due to the rise in artificial intelligence (AI) and machine learning (ML) applications, the total port bandwidth for 400G (gigabits per second) and 800G is forecasted to grow at more than 50% annually. As a result, demand for 112G PAM4 connectivity is increasing beyond the cloud data center and telecom services to enterprise ethernet switching platforms.

To meet the demand for better connectivity to address key megatrends such as AI and ML, which are at the forefront of the fourth industrial revolution, Microchip is expanding its Ethernet PHY with the launch of four new META-DX2+ Ethernet PHYs.

Microchip Expands Portfolio to Drive Top-Line Growth

The entire Semiconductor - Analog and Mixed industry is reeling under various operational challenges due to the macro-economic turmoil and geopolitical tensions. This has affected Microchip’s shares along with its peer Analog Devices (ADI - Free Report) .

Microchip shares have fallen 23.2% in the year-to-date period (YTD) compared with the Zacks Semiconductor - Analog and Mixed industry’s decline of 21.2%.

ADI shares are down 14.9% in the YTD period even though it continues enjoying solid demand for high-performance analog and mixed-signal solutions, which consistently impacted its revenue growth positively. Overall negative sentiment in the market made investors bearish on the stock.

However, even though Microchip still grapples with a negative supply-chain impact, it has formed a strategic decision to develop products like the four new META-DX2+ Ethernet PHYs after President Biden signed the CHIPS and Science Act, supporting investments in domestic semiconductor manufacturing and reducing dependence on foreign markets like China. MCHP peers onsemi (ON - Free Report) is already benefiting from the recent declaration of the act by the government.

onsemi shares have inched up 3.3% in the YTD period, reflecting positive impacts from the newly-signed act and bullish investor sentiments as it provides returns in double digits in high-growth industries like automotive.

However, as MCHP is looking to diversify its portfolio to address the growing needs for increasing bandwidth, other tech companies like Broadcom (AVGO - Free Report) are also jumping at the opportunity.

Broadcom also recently announced that it is launchingits new Trident 4C Ethernet switch ASIC to address the growing security issues with increasing network bandwidth. Broadcom has been expanding its switch series for a while to address one of the most prevalent issues in the market currently, to accurately and securely handle growing network bandwidth.

To diversify income from its microcontroller business, riddled with supply-chain disturbances, Microchip continues developing and introducing a wide range of innovative and proprietary new linear, mixed-signal, power, interface and timing products to spur growth in the analog business. These factors will enable this Zacks Rank #3 (Hold) company to maintain sustainable revenue growth and expand its margins in the long run. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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