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Microchip (MCHP) Beats on Q1 Earnings & Revenues, Rises Y/Y

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Microchip Technology Inc. (MCHP - Free Report) reported first-quarter fiscal 2019 non-GAAP earnings of $1.61 per share, surpassing the Zacks Consensus Estimate of $1.49 per share. The figure also improved 22.9% year over year.

The year-over-year upside was driven by higher net sales, which increased 24.7% from the year-ago quarter to $1.213 billion on a GAAP basis. On a non-GAAP basis revenues came in at $1.216 billion. The Zacks Consensus Estimate for revenues is pegged at $1.208 billion.

Quarter Details

In terms of product line, microcontroller business (60% of net sales) increased 10.8% sequentially to $728.6 million. Analog net sales came in at $328.5 million (accounted for 27% of the total revenues) and increased 35% sequentially. Memory, FPGA, Licensing and MMO contributed 4%, 3%, 2% and 4% of total revenues, respectively.

Microchip recently introduced new 32-bit SAM L10 and SAM L11 microcontrollers (MCUs) families based on Arm Cortex-M23 core. With the new products, the company intends to enhance security of Internet of Things (“IoT”) endpoints.

Microchip also announced dsPIC33CH Digital Signal Controller (“DSC”) family, featuring two dsPIC DSC cores on a single chip. The new DSC enables the software developers to integrate code from multiple design teams.

Further, Microchip is now focusing on improving driving experience to strengthen its position in producing autonomous vehicle controllers. Toward this purpose, the company recently launched the world’s first-ever three-dimensional (3D) automotive-qualified MGC3140 controllers to enhance the in-car capability of the drivers.

The MGC3140 is supported by Microchip’s new Electromagnetic Compatibility (“EMC”) resistance and is a versatile companion chip to advance multi-touch performance.

Microchip's MGC3140 features high adaptability and can be used in diverse products such as navigating infotainment systems, sun shade operation, interior lighting and other industrial controls. With such innovative and proprietary products, the company continues to capitalize on its business potential.

The company also completed the acquisition of Microsemi for $10.3 billion. The deal worth $10.15 billion in total enterprise value was announced on Mar 1, 2018. The deal is anticipated to be immediately accretive for Microchip’s earnings on a non-GAAP basis.                                                       

Microchip is well poised to capitalize on Microsemi’s growth catalysts. Apart from a robust portfolio, the buyout is likely to expand Microchip’s total addressable markets. Strong demand for Microsemi’s solutions in Data Center, Communications, Defense & Aerospace markets make us optimistic about Microchip’s long-term growth prospects.

Geographically, revenues from Americas, Europe and Asia contributed 22%, 23% and 55% of total revenues, respectively.

Microchip posted non-GAAP gross margin of 62.2%, which expanded 180 basis points (bps) on a year-over-year basis.

Non-GAAP operating expenses, as percentage of revenues, were up 40 bps year over year to 23.3%. The increase was primarily due to higher research & development (R&D) expenses and selling, general & administrative (SG&A) expenses.

Non-GAAP operating margin advanced 140 bps from the year-ago quarter to 38.9%.

Balance Sheet

The company exited the reported quarter with $649.7 million of cash and short-term investments as compared to $2.2 billion reported in the previous quarter. Total debt (long plus current portion) amounted to $10 billion.

During the quarter, Microchip generated $302.4 million of operating cash flow.

The company announced a quarterly cash dividend of 36.40 cents per share, payable on Sep 4, 2018.

Microchip Technology Incorporated Price

Guidance

Microchip forecasts second-quarter fiscal 2019 net sales of $1.474-$1.550 billion (mid-point $1.512 billion). The Zacks Consensus Estimate for the same is pegged at $1.59 billion.

Non-GAAP gross margin is anticipated in the 61.3-61.9% range. Non-GAAP operating expenses, as percentage of sales, are projected at 23.6-24.2%, and operating margin is expected at 37.1-38.2%.

For the fiscal second quarter, non-GAAP earnings are anticipated in the range of $1.65-$1.83 per share (mid-point $1.74). The Zacks Consensus Estimate for the same is pegged at $1.69 per share.

Microchip's inventory days in the impending quarter are expected between 119 and 127 days. Capital expenditures are estimated in the range of $70 million.

For fiscal 2019, capital expenditures are projected at $220-$250 million.

Zacks Rank & Stocks to Consider

Microchip has a Zacks Rank #3 (Hold).

Microsoft Corporation (MSFT - Free Report) , Micron Technology, Inc. (MU - Free Report) and Paycom Software, Inc. (PAYC - Free Report) are some better-ranked stocks in the broader computer and technology sector, each flaunting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected EPS growth rate for Microsoft, Micron and Paycom Software is currently pegged at 12.32%, 8.18% and 24.82%, respectively.

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