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Microchip (MCHP) Q4 Earnings Beat Estimates, Revenues Miss

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Microchip Technology Incorporated (MCHP - Free Report) reported fourth-quarter fiscal 2020 non-GAAP earnings of $1.46 per share, beating the Zacks Consensus Estimate by 6.6%. However, the bottom line declined 1.4% on a year-over-year basis.

Net sales declined 0.3% from the year-ago quarter to $1.326 billion. The top line lagged the Zacks Consensus Estimate of $1.327 billion.

Management noted sluggish demand across automotive, industrial and consumer home appliance end-markets due to coronavirus crisis-induced broad-based macroeconomic weakness.

Nevertheless, revenues improved 3% sequentially, driven by strength in growth in bookings in the fiscal fourth quarter. The upside can be attributed to coronavirus crisis-induced supply chain disruptions. Further, demand across communication and data center end-markets favored top-line growth sequentially.
 

Microchip Technology Incorporated Price, Consensus and EPS Surprise

 

Microchip Technology Incorporated Price, Consensus and EPS Surprise

Microchip Technology Incorporated price-consensus-eps-surprise-chart | Microchip Technology Incorporated Quote

Quarter in Detail

In terms of product line, microcontroller business (54.7% of net sales) improved 5.9% sequentially to $726.1 million. Microchip benefited from robust demand for its 8-bit, 16-bit and 32-bit microcontrollers.

The company has rolled out a new cryptography enabled 32-bit microcontroller developed with an aim to stop malware for systems. We believe that Microchip's expanding product portfolio driven by new microcontrollers’ roll outs will aid it in expanding customer base and sustain its leading position in the market. Moreover, the company is well poised to capitalize on synergies from accretive Microsemi and Atmel acquisitions.

Analog net sales of $367.5 million (27.7%) improved 1.2% sequentially.

FPGA revenues (7.3%) came in at $96.7 million, up 4.4% on a quarter-over-quarter basis.

Licensing, memory and other, or LMO product line (10.3%) reported revenues of $136.1 million, which declined 6.6% sequentially.

Geographically, revenues from Americas, Europe and Asia contributed 26.7%, 22.1% and 51.2% to net sales, respectively.

Margins

Non-GAAP gross margin contracted 20 basis points (bps) on a year-over-year basis to 62%.

Non-GAAP research & development expenses, as a percentage of net sales, expanded 50 bps year over year to 15.2%. Non-GAAP selling, general & administrative (SG&A) expenses, as a percentage of net sales, remained contracted 80 bps year over year at 10.2%. Non-GAAP operating expenses, as a percentage of net sales, contracted 40 bps year over year to 25.4%.

Consequently, non-GAAP operating margin expanded 20 bps on a year-over-year basis to 36.6%.

Balance Sheet & Cash Flow

As of Mar 31, 2020, cash and short-term investments came in at $403 million, compared with $402.3 million as of Dec 31, 2019.

As of Mar 31, 2020, total debt (long-term plus current portion) amounted to $9.48 billion compared with $9.58 billion as of Dec 31, 2019. Notably, the company paid down $236 million of debt during the quarter.

Cash flow from operating activities was $371.7 million compared with $395.5 million reported in the prior quarter.

Notably, on May 7, 2020, Microchip’s board of directors announced a cash dividend of 36.75 cents, up from prior dividend payment of 36.70 cents per share, payable Jun 4, 2020, to shareholders as on May 21, 2020.

Guidance

Management expects improving demand across data center, office equipment and communication infrastructure, driven by demand for cloud computing solution amid coronavirus crisis led work-from-home wave.

The company is also anticipated to witness strength in medical end market, driven by growth in demand for hospital equipment like ventilators, oxygen monitors, respirators, ultrasound machines and other COVID-19 related items.

Microchip forecasts first-quarter fiscal 2021 net sales of $1.194-$1.3 billion (mid-point $1.247 billion). The Zacks Consensus Estimate for the same is pegged at $1.26 billion.

For the fiscal first-quarter, non-GAAP earnings are anticipated in the range of $1.25-$1.45 per share (mid-point $1.35 billion). The Zacks Consensus Estimate for the same is pegged at $1.27 per share.

Non-GAAP gross margin is anticipated in the range of 60.4-61.2%. Non-GAAP operating margin is anticipated in the range of 24.4-25.2%.

Zacks Rank & Key Picks

Microchip currently has a Zacks Rank #3 (Hold).

ASE Technology Holding Co., Ltd. (ASX - Free Report) , Twilio Inc. (TWLO - Free Report) and InterDigital, Inc. (IDCC - Free Report) are some better-ranked stocks worth considering in the broader computer and technology sector, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for ASE Technology, Twilio and InterDigital is pegged at 26.63%, 26.61% and 15%, respectively.

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