Analog chipmaker Microchip Technology (NASDAQ:MCHP) reported results in line with analysts' expectations in Q2 CY2024, with revenue down 45.8% year on year to $1.24 billion. On the other hand, next quarter's revenue guidance of $1.15 billion was less impressive, coming in 12.3% below analysts' estimates. It made a non-GAAP profit of $0.53 per share, down from its profit of $1.64 per share in the same quarter last year.
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Microchip Technology (MCHP) Q2 CY2024 Highlights:
- Revenue: $1.24 billion vs analyst estimates of $1.24 billion (small miss)
- Adjusted Operating Income: $390.5 million vs analyst estimates of $390.9 million (small miss)
- EPS (non-GAAP): $0.53 vs analyst expectations of $0.52 (in line)
- Revenue Guidance for Q3 CY2024 is $1.15 billion at the midpoint, below analyst estimates of $1.31 billion
- Gross Margin (GAAP): 59.4%, down from 68.1% in the same quarter last year
- Inventory Days Outstanding: 236, up from 223 in the previous quarter
- Free Cash Flow of $304.2 million, down 22% from the previous quarter
- Market Capitalization: $47.63 billion
"We delivered June 2024 quarterly results in line with our guidance as we continued to navigate a challenging macro environment in combination with our customers focusing on reducing their inventory positions based on short lead times for our products," said Ganesh Moorthy, President and Chief Executive Officer.
Spun out from General Instrument in 1987, Microchip Technology (NASDAQ: MCHP) is a leading provider of microcontrollers and integrated circuits used mainly in the automotive world, especially in electric vehicles and their charging devices.
Analog Semiconductors
Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.
Sales Growth
Microchip Technology's revenue growth over the last three years has been unremarkable, averaging 8.1% annually. This quarter, its revenue declined from $2.29 billion in the same quarter last year to $1.24 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
Microchip Technology had a difficult quarter as revenue dropped 45.8% year on year, missing analysts' estimates by 0%. This could mean that the current downcycle is deepening.
Microchip Technology's revenue growth has decelerated over the last three quarters and its management team projects revenue to fall next quarter. As such, the company is guiding for a 49% year-on-year revenue decline while analysts are expecting a 4.9% drop over the next 12 months.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Microchip Technology's DIO came in at 236, which is 92 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.
Key Takeaways from Microchip Technology's Q2 Results
It was encouraging to see Microchip Technology narrowly top analysts' EPS expectations this quarter. On the other hand, its revenue guidance for next quarter missed analysts' expectations and its operating margin shrunk. Overall, this was a mediocre quarter for Microchip Technology. The stock traded down 5.4% to $79.94 immediately after reporting.
Microchip Technology may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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