Microchip issued a press release today:
MICROCHIP TECHNOLOGY ANNOUNCES PRELIMINARY NET SALES FOR SECOND QUARTER FISCAL 2015
It is not pretty, but I believe the market over-reacted.
First, second quarter fiscal 2015 for Microchip ended September 30, so it is Q3 2014 for the rest of us.
Second, it was a bad quarter only in respect to prior guidance. Microchip has been on a tear this year, and guided to $560.0 million to $575.9 million for revenue.
The preliminary revenue estimate $546.2 million, which is well below the low end of guidance. But it is up from $492.7 million year-earlier. That is a nearly 11% y/y increase. Part of that increase is from the ISSC acquisition, but even excluding ISSC revenue is $529.3 million, which is up over 7% y/y.
What does it mean? Does this bode ill for the future?
Of course it is hard to say. Microsoft sells microcontrollers and analog chips to a very large number of customers. On a regional basis the demand was worst, compared to expectations, in China. Is there a problem in the Chinese domestic market, or a problem with end demand in Europe or the United States? Or are manufacturers just being cautious? For now, I am leaning to the just being cautious camp, because I believe Europe and China will rebound sooner rather than later. But I could be wrong.
I may even be more optimistic than Steve Sanhi, Microchip's CEO, who stated "We
believe that another industry correction has begun and that this correction will be seen more broadly across the industry in the near future.”
Rather, my guess is any problems are device specific. End markets for microcontrollers include automobiles, medical and industrial equipment. Maybe the sanctions against Russia a backfiring to hit U.S. investors.
After closing yesterday at $45.54, Microchip dropped as low as $39.02 today, but as I write it has recovered to $40.57. Microchip is a strong cash generator and pays a dividend that amounts to over 3.1% at the price I just quoted. It last paid the dividend on September 4.
Microchip has a trailing P/E ratio of 24.7, which is quite reasonable even taking into account the newly announced, slower annual growth rate.
I don't like it when a stock I own goes down, or misses guidance, but Microchip has a great long-term track record, so I see no point to selling my holdings. It will be interesting to see if the bulk of the semiconductor industry is seeing the same pain, or if it is specific to Microchip. It is very possible that demand in Q4 will make up for any slack in demand in Q3.
Showing posts with label MCHP. Show all posts
Showing posts with label MCHP. Show all posts
Friday, October 10, 2014
Wednesday, August 7, 2013
Microchip (MCHP), Akamai (AKAM), SGI, and Hansen Medical (HNSN)
Earnings season is in full swing to me, as small and mid-cap firms that I follow report.
Today the editors at Seeking Alpha accepted and posted these articles I wrote:
Akamai Remains Volatile, So Buy on Dips
Microchip for Solid Growth and Dividends
I also posted my notes on the analyst conferences:
SGI June quarter 2013 analyst call
Hansen Medical (HNSN) June quarter 2013 analyst call
Neither SGI nor HNSN were very inspiring, which I'll explain when I have time to write articles on them, though it is pretty obvious from the June quarter results.
As I write this I own Microchip (MCHP), Silicon Graphics International (SGI) and Hansen Medical (HNSN) stock, but not Akamai (AKAM).
Today the editors at Seeking Alpha accepted and posted these articles I wrote:
Akamai Remains Volatile, So Buy on Dips
Microchip for Solid Growth and Dividends
I also posted my notes on the analyst conferences:
SGI June quarter 2013 analyst call
Hansen Medical (HNSN) June quarter 2013 analyst call
Neither SGI nor HNSN were very inspiring, which I'll explain when I have time to write articles on them, though it is pretty obvious from the June quarter results.
As I write this I own Microchip (MCHP), Silicon Graphics International (SGI) and Hansen Medical (HNSN) stock, but not Akamai (AKAM).
Wednesday, July 31, 2013
Microchip (MCHP) fiscal Q1 analyst call notes posted
Microchip had a good quarter. You can read my notes on their analyst call at:
Microchip (MCHP) fiscal Q1 2014 Analyst Call report
This is a dividend and growth stock, a nice combination for investors.
Microchip (MCHP) fiscal Q1 2014 Analyst Call report
This is a dividend and growth stock, a nice combination for investors.
Friday, February 8, 2013
Microchip Record Revenue should be Topped in March Quarter
Microchip (MCHP) yesterday reported December quarter (fiscal Q3 2013) results slightly above analysts' consensus and in line with the mid-range of its prior guidance. Normally the March quarter is seasonally down from the December quarter, but in its guidance Microchip predicted sequential revenue growth. As a result in Microchip, which closed at $33.94 before reporting results, has climbed to $36.60 so far today. Microchip's current 52 week low is $28.92, and its 52 week high is $37.50.
Part of the strong revenue results resulted from the acquisition of SMSC. The same acquisition led to charges that hit GAAP profits pretty hard, but excluding those items non-GAAP profits and free cash flow were strong.
Microchip's model involves a focus on microcontrollers and related analog functions (touch screen control, wireless, and power management), with a wide variety of parts available to meet specific customer needs. Record revenue in quarter reflected a broad-based uptick in demand across industries and geographies. Revenues were $416.0 million, up 9% sequentially from $382.3 million and up 26% from $329.2 million in the year-earlier quarter.
Guidance to March quarter revenue of between $420.2 and $432.7 million, despite the usual hit from Chinese Lunar New Year, is based both on a continuation of the underlying trend and on design wins. Quite a number of design wins were announced in 2012; these are now resulting in orders that should ramp through 2013.
Microsoft has been a reliable dividend payer. At today's price the dividend yield is 4.15%.
Normally I use GAAP profits as a baseline, but non-GAAP numbers can be more informative for the long run when GAAP is affected by acquisition charges, as was the case in calendar Q4.
GAAP net income was $10.2 million, up sequentially from negative $21.2 million and down 87% from $77.5 million year-earlier. GAAP EPS (earnings per share) were $0.05, up sequentially from negative $0.11, but down 87% from $0.38 year-earlier.
In contrast non-GAAP net income was $84.5 million, EPS was $0.41, which is an improvement on, but consistent with, prior quarters. Free cash flow was $123.2 million, of which Microchip paid $68.7 million in dividends.
Microchip is still recovering from the cautious buying and weak end demand earlier this year. Inventories were reduced in Q4 and will continue to be reduced through June. On the customer side inventories are believed to be extremely lean, which could also result in increased buying if final demand shows signs of improving with the global economy.
I first invested in Microchip in 2006, based largely on my familiarity with their microcontroller products. It has been a reliable source of dividends and appears to have a first-class management team. I would recommend the stock to almost any class of investor.
Disclaimer: I own Microchip stock. I will not trade MCHP for at least 1 week after this story is published.
See also:
www.microchip.com
My main Microchip analyst conferences page.
My Microchip February 2013 analyst call notes
Part of the strong revenue results resulted from the acquisition of SMSC. The same acquisition led to charges that hit GAAP profits pretty hard, but excluding those items non-GAAP profits and free cash flow were strong.
Microchip's model involves a focus on microcontrollers and related analog functions (touch screen control, wireless, and power management), with a wide variety of parts available to meet specific customer needs. Record revenue in quarter reflected a broad-based uptick in demand across industries and geographies. Revenues were $416.0 million, up 9% sequentially from $382.3 million and up 26% from $329.2 million in the year-earlier quarter.
Guidance to March quarter revenue of between $420.2 and $432.7 million, despite the usual hit from Chinese Lunar New Year, is based both on a continuation of the underlying trend and on design wins. Quite a number of design wins were announced in 2012; these are now resulting in orders that should ramp through 2013.
Microsoft has been a reliable dividend payer. At today's price the dividend yield is 4.15%.
Normally I use GAAP profits as a baseline, but non-GAAP numbers can be more informative for the long run when GAAP is affected by acquisition charges, as was the case in calendar Q4.
GAAP net income was $10.2 million, up sequentially from negative $21.2 million and down 87% from $77.5 million year-earlier. GAAP EPS (earnings per share) were $0.05, up sequentially from negative $0.11, but down 87% from $0.38 year-earlier.
In contrast non-GAAP net income was $84.5 million, EPS was $0.41, which is an improvement on, but consistent with, prior quarters. Free cash flow was $123.2 million, of which Microchip paid $68.7 million in dividends.
Microchip is still recovering from the cautious buying and weak end demand earlier this year. Inventories were reduced in Q4 and will continue to be reduced through June. On the customer side inventories are believed to be extremely lean, which could also result in increased buying if final demand shows signs of improving with the global economy.
I first invested in Microchip in 2006, based largely on my familiarity with their microcontroller products. It has been a reliable source of dividends and appears to have a first-class management team. I would recommend the stock to almost any class of investor.
Disclaimer: I own Microchip stock. I will not trade MCHP for at least 1 week after this story is published.
See also:
www.microchip.com
My main Microchip analyst conferences page.
My Microchip February 2013 analyst call notes
Monday, September 10, 2012
Microchip (MCHP) Pays Dividends
Microchip (MCHP) is one of the largest global manufacturers of microcontrollers, which are semiconductor chips incorporating computers and capabilities to receive data from sensors and send control signals to motors or other external parts. For investors the company is noted for its relatively high dividend and its ability to generate profits even during down cycles.
Today Microchip stock closed at $34.14, against a 52 week high of $38.87 and low of $30.07. At that price MCHP market capitalization is $6.6 billion, and the dividend yield is 4.05%.
Last week Steve Sanghi, the CEO, reported that after a sequentially up calendar Q1 and Q2, the business environment weakened towards the end of Q2, with Europe particularly slow. The situation has not improved, so Microchip is now guiding revenues to be about flat in Q3 compared to Q2, excluding the increased revenue from the recent SMSC acquisition. [Note calendar Q2 was fiscal Q1]
The SMSC acquisition closed August 2, at a value of $946 million. For fiscal 2012 SMSC had sales of $412 million and a non-GAAP operating margin of 12%. It will fit well with Microchip's product line, as SMSC is a specialist in smart mixed signal connectivity. Its revenues are 43% from microcontrollers and 57% analog products. These are used for automotive entertainment, wireless audio, and USB and Ethernet. Sanghi believes Microchip will be able to increase gross and operating margins of the acquisition closer to its own, high-marin model.
Microchip sells to a very diverse set of customers, including manufacturers of automobiles, household appliances, and medical and industrial equipment. Microchip also has an advanced touch screen set of solutions.
SMSC will provide a boost about 3 cents per share in the first partial quarter, then 6 to 7 cents in the first full quarter, fiscal Q3.
Steve pointed out that when Microchip bought SST it had not made a profit in five years, but has had good margins once integrated. He sees SMSC as a much less difficult business to integrate and profit from.
There is plenty of competition for microcontroller chips, but Microchip now has over 7% of the market, compared to under 2% in 1994, with the market share climb being pretty steady. In 2011 Microchip was the 4th largest player in the market after Renesas, Freescale, and TI. It is second in the 8-bit segment to Renesas, which moved ahead only when it absorbed NEC.
For fiscal Q2 2013, ending September 30, 2012, revenues are now expected between $12 and $430 million and non-GAAP EPS is expected between $0.50 and $0.52.
Given the high dividend, relatively low volatility of the stock price, and further opportunity for growth, Microchip remains a good core technology investment for long term investors. The main risk I see is macroeconomic.
Disclaimer: I have been long MCHP since 2006. I will not trade in the stock for at least one week from today.
See also: Microchip.com investors page; my Microchip fiscal Q1 call notes
Today Microchip stock closed at $34.14, against a 52 week high of $38.87 and low of $30.07. At that price MCHP market capitalization is $6.6 billion, and the dividend yield is 4.05%.
Last week Steve Sanghi, the CEO, reported that after a sequentially up calendar Q1 and Q2, the business environment weakened towards the end of Q2, with Europe particularly slow. The situation has not improved, so Microchip is now guiding revenues to be about flat in Q3 compared to Q2, excluding the increased revenue from the recent SMSC acquisition. [Note calendar Q2 was fiscal Q1]
The SMSC acquisition closed August 2, at a value of $946 million. For fiscal 2012 SMSC had sales of $412 million and a non-GAAP operating margin of 12%. It will fit well with Microchip's product line, as SMSC is a specialist in smart mixed signal connectivity. Its revenues are 43% from microcontrollers and 57% analog products. These are used for automotive entertainment, wireless audio, and USB and Ethernet. Sanghi believes Microchip will be able to increase gross and operating margins of the acquisition closer to its own, high-marin model.
Microchip sells to a very diverse set of customers, including manufacturers of automobiles, household appliances, and medical and industrial equipment. Microchip also has an advanced touch screen set of solutions.
SMSC will provide a boost about 3 cents per share in the first partial quarter, then 6 to 7 cents in the first full quarter, fiscal Q3.
Steve pointed out that when Microchip bought SST it had not made a profit in five years, but has had good margins once integrated. He sees SMSC as a much less difficult business to integrate and profit from.
There is plenty of competition for microcontroller chips, but Microchip now has over 7% of the market, compared to under 2% in 1994, with the market share climb being pretty steady. In 2011 Microchip was the 4th largest player in the market after Renesas, Freescale, and TI. It is second in the 8-bit segment to Renesas, which moved ahead only when it absorbed NEC.
For fiscal Q2 2013, ending September 30, 2012, revenues are now expected between $12 and $430 million and non-GAAP EPS is expected between $0.50 and $0.52.
Given the high dividend, relatively low volatility of the stock price, and further opportunity for growth, Microchip remains a good core technology investment for long term investors. The main risk I see is macroeconomic.
Disclaimer: I have been long MCHP since 2006. I will not trade in the stock for at least one week from today.
See also: Microchip.com investors page; my Microchip fiscal Q1 call notes
Monday, November 28, 2011
Microchip (MCHP) Inventory Correction End May Be Near
There is no way to describe Q3 2011 as a good quarter for Microchip (MCHP). The maker of microcontroller and analog chips reported revenues of $340.6 million, down 9% sequentially from $374.5 million in Q2 and down 11% from $382.3 million in the year-earlier quarter.
GAAP net income was $79.3 million, down 20% sequentially from $99.3 million and down 24% from $104.7 million year-earlier. GAAP EPS were $0.40, down 18% sequentially from $0.49 and down 26% from $0.54 year-earlier.
Given that and the general stock-market and macroeconomic malaise, the main thing propping up Microchip's stock price (closing today at $33.07) is the dividend, now running at $1.392 per share per year, or 4.3% at today's price.
As to the outlook, Q4 guidance was week, with revenue in the range of flat to down 7% from Q3.
I don't think that Microchip is failing to compete in its market segments. It continues to be the world's leading microcontroller provider. Economic uncertainty caused weakend demand, which in turn caused OEMs to tighten up their inventories.
Then again, the picture could be brighter for Q1 2012. The first quarter is typically seasonally slow for semiconductor chip makers, but within that seasonality Microchip's management, as early as the analyst call on November 3, foresaw an uptick, predicting that "shipment rates in December will be below the consumption rates of our customers."
Here it is important for analysts to note that, unlike most chip manufacturers, Microchip does not recognize revenue when it makes shipments to distributors. Because of the nature of Microchip's business (selling a large number of parts to a large number of OEMs), a lot of sales are through distributors. Microchips recognizes the revenue when the distributors have shipped the chips to end customers.
This means that Microchip tends to see results (reported revenue) of general semiconductor trends, both up and down, a quarter earlier than its peers. While there can be differences in results because of focus and competition for market share, a Microchip revenue downturn is a fair predictor of a sector downturn one quarter later, and the same for upturns.
If this December shapes up to be a good one for electronics sales in the U.S., and if Europe holds together, January may look very different than most investors would have expected until recently. If end sales cause inventory shortages at OEMs, the pace chip sales in Q1 could be strong, compared to the usual range from seasonality.
So keep an eye on Microchip's Q4 results and Q1 2011 results. In the meantime, if you are holding MCHP, enjoy the dividends.
Keep in mind that the semiconductor industry, including its microcontroller and analog segments, is very competitive.
Disclaimer: I am long MCHP and have no plans to change my position this year.
See also:
www.microchip.com
GAAP net income was $79.3 million, down 20% sequentially from $99.3 million and down 24% from $104.7 million year-earlier. GAAP EPS were $0.40, down 18% sequentially from $0.49 and down 26% from $0.54 year-earlier.
Given that and the general stock-market and macroeconomic malaise, the main thing propping up Microchip's stock price (closing today at $33.07) is the dividend, now running at $1.392 per share per year, or 4.3% at today's price.
As to the outlook, Q4 guidance was week, with revenue in the range of flat to down 7% from Q3.
I don't think that Microchip is failing to compete in its market segments. It continues to be the world's leading microcontroller provider. Economic uncertainty caused weakend demand, which in turn caused OEMs to tighten up their inventories.
Then again, the picture could be brighter for Q1 2012. The first quarter is typically seasonally slow for semiconductor chip makers, but within that seasonality Microchip's management, as early as the analyst call on November 3, foresaw an uptick, predicting that "shipment rates in December will be below the consumption rates of our customers."
Here it is important for analysts to note that, unlike most chip manufacturers, Microchip does not recognize revenue when it makes shipments to distributors. Because of the nature of Microchip's business (selling a large number of parts to a large number of OEMs), a lot of sales are through distributors. Microchips recognizes the revenue when the distributors have shipped the chips to end customers.
This means that Microchip tends to see results (reported revenue) of general semiconductor trends, both up and down, a quarter earlier than its peers. While there can be differences in results because of focus and competition for market share, a Microchip revenue downturn is a fair predictor of a sector downturn one quarter later, and the same for upturns.
If this December shapes up to be a good one for electronics sales in the U.S., and if Europe holds together, January may look very different than most investors would have expected until recently. If end sales cause inventory shortages at OEMs, the pace chip sales in Q1 could be strong, compared to the usual range from seasonality.
So keep an eye on Microchip's Q4 results and Q1 2011 results. In the meantime, if you are holding MCHP, enjoy the dividends.
Keep in mind that the semiconductor industry, including its microcontroller and analog segments, is very competitive.
Disclaimer: I am long MCHP and have no plans to change my position this year.
See also:
www.microchip.com
Sunday, November 28, 2010
Microchip (MCHP) Accelerates Dividends
Microchip continues to be on a roll, with demand for its semiconductor solutions high, and its product sales from its acquisition of SST ramping better than expected. As a result the dividend has been increased again, and the dividend for Q1 2011 has been pulled into December.
There is expected to be a dip in Q4 revenues due to the record shipments of Q3, but sequential growth is expected to resume in Q1 2011.
The GAAP numbers tell the story beautifully, even taking into account revenue increases from the SST acquisition earlier this year. Revenues were $382.3 million, up 19% sequentially from $320.8 million and up 69% from $226.7 million year-earlier. Net income was $103.1 million, up 15% sequentially from $89.6 million and up 132% from $44.5 million year-earlier. EPS (earnings per share) were $0.54, up 13% sequentially from $0.48 and up 125% from $0.24 year-earlier.
As I explained in Microchip Expands Markets, the microcontroller market can be expected to grow for years as microcontrollers are inserted into increasing numbers of appliances (including automobiles) and as the number of appliances expands in nations like China, India, Indonesia, Brazil and developing nations.
Microchip dominates the microcontroller market largely because its multitude of chip variations allow engineers to get the design job done at minimal cost and, if they like, with minimal power consumption. The SST acquisition added a number of key technologies and device types. Microchip sold some SST lines and discontinued others, but announced during its analyst conference call (11/04/2010) that SST Superflash memory and RF lines, which had been listed as discontinued in the prior quarter, had proven to be unexpectedly profitable and now have been un-discontinued.
Orders slowed in September, which would be a negative indicator for Q4 revenues. But after a 20% jump from Q2, I am not worried about a leveling off or slight drop in Q4. I think a lot of equipment makers are being cautious, not sure of consumer sentiment in the U.S. or what's going on with debt issues in Europe. My take is the end demand is actually growing, though we are also seeing more seasonality than last year. With a good consumer season underway in the U.S. and growth still strong in Asia, I don't think Europe will be that much of an issue.
The Q4 dividend of 34.4 cents per share will be payable on December 2, 2010 to stockholders of record back on November 18, 2010. The Q1 dividend of 34.5 cents per share will be paid on December 27, 2010 to shareholders of record on December 13, 2010.
Microchip is a great company for customers, employees, and shareholders, but there are always a variety of risks to consider with any technology company. So ... Keep Diversified!
See also
http://www.microchip.com/
My Microchip analyst call Q3 2010 summary
There is expected to be a dip in Q4 revenues due to the record shipments of Q3, but sequential growth is expected to resume in Q1 2011.
The GAAP numbers tell the story beautifully, even taking into account revenue increases from the SST acquisition earlier this year. Revenues were $382.3 million, up 19% sequentially from $320.8 million and up 69% from $226.7 million year-earlier. Net income was $103.1 million, up 15% sequentially from $89.6 million and up 132% from $44.5 million year-earlier. EPS (earnings per share) were $0.54, up 13% sequentially from $0.48 and up 125% from $0.24 year-earlier.
As I explained in Microchip Expands Markets, the microcontroller market can be expected to grow for years as microcontrollers are inserted into increasing numbers of appliances (including automobiles) and as the number of appliances expands in nations like China, India, Indonesia, Brazil and developing nations.
Microchip dominates the microcontroller market largely because its multitude of chip variations allow engineers to get the design job done at minimal cost and, if they like, with minimal power consumption. The SST acquisition added a number of key technologies and device types. Microchip sold some SST lines and discontinued others, but announced during its analyst conference call (11/04/2010) that SST Superflash memory and RF lines, which had been listed as discontinued in the prior quarter, had proven to be unexpectedly profitable and now have been un-discontinued.
Orders slowed in September, which would be a negative indicator for Q4 revenues. But after a 20% jump from Q2, I am not worried about a leveling off or slight drop in Q4. I think a lot of equipment makers are being cautious, not sure of consumer sentiment in the U.S. or what's going on with debt issues in Europe. My take is the end demand is actually growing, though we are also seeing more seasonality than last year. With a good consumer season underway in the U.S. and growth still strong in Asia, I don't think Europe will be that much of an issue.
The Q4 dividend of 34.4 cents per share will be payable on December 2, 2010 to stockholders of record back on November 18, 2010. The Q1 dividend of 34.5 cents per share will be paid on December 27, 2010 to shareholders of record on December 13, 2010.
Microchip is a great company for customers, employees, and shareholders, but there are always a variety of risks to consider with any technology company. So ... Keep Diversified!
See also
http://www.microchip.com/
My Microchip analyst call Q3 2010 summary
Thursday, August 19, 2010
Microchip Revenue Ramps On
On August 5, 2010, Microchip reported strong Q2 2010 results. Here I'll discuss forward looking trends. For details on the quarter results, see my Microchip (MCHP) Q2 2010 Analyst Call notes.
Microchip specializes in microcontrollers, which are semiconductor chips that have, at minimum, a computer and the ability to send and receive control signals integrated on a single chip. Microcontroller are a big, if largely invisible to consumers, part of the global semiconductor industry, and Microchip has become the industry leader over this last decade. If something needs to be controlled, whether it is the temperature of a home refrigerator or the intricate chemical manipulations of a gene sequencer, a microcontroller will be present. Modern automobiles typically contain over a dozen microcontrollers.
Basic microcontroller (MCU) technology is less complicated than the CPUs and GPUs of personal computers, but the chips are often specialized for the wide variety of tasks they are required to perform. The most basic division of microcontrollers is into 8-bit, 16-bit, and 32-bit, which reflects the size of the data chunks that are processed by the computer aspect of the chip. Microchip is the market share leader in the 8-bit segment, which is by far the largest segment. Microcontrollers are workhorses for engineers; there is a disadvantage to using a 16-bit controller when an 8-bit controller will get the job done. Once you have picked your data path size, usually the next consideration is memory size. Memory is increasingly on the microcontroller chip itself, but they also integrate easily with external memory. The controller part of the chip, at its simplest, has connections that either see if an input is on or off, or control an output that is either on or off. But increasingly the ability to measure a variable voltage, or convert to a specified output voltage, can be built onto chips when desired.
As a result Microchip has hundreds of standard models of microcontrollers to chose from, as well as being able to make specific configurations to order. In the industry as a whole thousands of types are available. Top competitors include Renesas, Freescale, Infineon, Fujitsu and TI. Architectures of the CPUs of microcontrollers tend to be proprietary, but several companies base them on ARM designs. Microchip's is called PICmicro.
Microchip navigated the economic downturn quite well. While revenues shrank, because it was in a strong cash position, it kept up its research and development efforts, as well as sales. In addition it used cash to make some acquisitions, most recently Silicon Storage Technology (SST). You can see the results in 66% y/y revenue growth, with GAAP net income more than doubling. Microchip has also ventured into areas like analog chips where it can help its microcontroller customers or integrate the analog components into microcontrollers.
The microcontroller industry is likely to continue to consolidate as some small players are unable to operate profitably. While microcontroller designs can linger far longer than PC CPU designs, a healthy R&D budget is necessary to keep up with new market needs. In particular cramming more functionality into a smaller form factor operating at lower voltages and power consumption is a trend that still has a ways to go.
Microchip's profit margins were healthy in Q2, it book 1.4 times the business that it billed out, and it is adding manufacturing capacity to keep up with demand. With no disruptive technology on the horizon, the best managed companies will continue to forge ahead in the microcontroller space. With Microchip's stellar management record, while it is always possible something could go wrong, the future seems reliably bright. In Microchip's case, it also comes with hefty dividend payments.
See also Microchip.com.
Still, all investments involve risk, so keep diversified!
Microchip specializes in microcontrollers, which are semiconductor chips that have, at minimum, a computer and the ability to send and receive control signals integrated on a single chip. Microcontroller are a big, if largely invisible to consumers, part of the global semiconductor industry, and Microchip has become the industry leader over this last decade. If something needs to be controlled, whether it is the temperature of a home refrigerator or the intricate chemical manipulations of a gene sequencer, a microcontroller will be present. Modern automobiles typically contain over a dozen microcontrollers.
Basic microcontroller (MCU) technology is less complicated than the CPUs and GPUs of personal computers, but the chips are often specialized for the wide variety of tasks they are required to perform. The most basic division of microcontrollers is into 8-bit, 16-bit, and 32-bit, which reflects the size of the data chunks that are processed by the computer aspect of the chip. Microchip is the market share leader in the 8-bit segment, which is by far the largest segment. Microcontrollers are workhorses for engineers; there is a disadvantage to using a 16-bit controller when an 8-bit controller will get the job done. Once you have picked your data path size, usually the next consideration is memory size. Memory is increasingly on the microcontroller chip itself, but they also integrate easily with external memory. The controller part of the chip, at its simplest, has connections that either see if an input is on or off, or control an output that is either on or off. But increasingly the ability to measure a variable voltage, or convert to a specified output voltage, can be built onto chips when desired.
As a result Microchip has hundreds of standard models of microcontrollers to chose from, as well as being able to make specific configurations to order. In the industry as a whole thousands of types are available. Top competitors include Renesas, Freescale, Infineon, Fujitsu and TI. Architectures of the CPUs of microcontrollers tend to be proprietary, but several companies base them on ARM designs. Microchip's is called PICmicro.
Microchip navigated the economic downturn quite well. While revenues shrank, because it was in a strong cash position, it kept up its research and development efforts, as well as sales. In addition it used cash to make some acquisitions, most recently Silicon Storage Technology (SST). You can see the results in 66% y/y revenue growth, with GAAP net income more than doubling. Microchip has also ventured into areas like analog chips where it can help its microcontroller customers or integrate the analog components into microcontrollers.
The microcontroller industry is likely to continue to consolidate as some small players are unable to operate profitably. While microcontroller designs can linger far longer than PC CPU designs, a healthy R&D budget is necessary to keep up with new market needs. In particular cramming more functionality into a smaller form factor operating at lower voltages and power consumption is a trend that still has a ways to go.
Microchip's profit margins were healthy in Q2, it book 1.4 times the business that it billed out, and it is adding manufacturing capacity to keep up with demand. With no disruptive technology on the horizon, the best managed companies will continue to forge ahead in the microcontroller space. With Microchip's stellar management record, while it is always possible something could go wrong, the future seems reliably bright. In Microchip's case, it also comes with hefty dividend payments.
See also Microchip.com.
Still, all investments involve risk, so keep diversified!
Thursday, February 4, 2010
Microchip Gains Market Share
Microchip (MCHP) reported impressive results for the December quarter this Wednesday.
Revenues were $250.1 million, up 10% sequentially from $226.7 million and up 30% from $192.2 million in the year-earlier quarter.
Net income was $69.4 million, up 56% sequentially from $44.5 million and down 4% from $72.4 million in the year-earlier quarter. EPS (earnings per share) were $0.37, up 54% sequentially from $0.24, but down 5% from $0.39 year-earlier.
Of course the December quarter of 2008 was an easy comparison, as the recession was in full swing. But the take away should be that Microchip outperformed its rivals in the microcontroller space during 2009. In retrospect it is easy to see why.
Microchip entered the recession with plenty of cash. Rather than laying off large numbers of employees, it retained most but reduced benefits and pay. It kept investing in new product development, and in new customer relationships. It even bought some small companies with key technologies. It kept its lead times short, while rivals underinvested, resulting in long lead times. Microchip gained market share.
Microchip looks ready for strong growth in 2010, but of course that is dependent on the global economy. It is also notable that year/year revenue increases were strongest in Asia, at 12.4%, and weakest in the Americas, at 6.1%. At this point over 50% of sales are to Asia.
For a more detailed report, see my Microchip Fiscal Q3 2010 analyst conference summary.
Normally I classify chip technology companies as having at least a moderate amount of risk, but Microchip is a dividend paying company (typically around 5% of the stock price), so it is a good way to get both growth and safety in the semiconductor sector.
See also www.microchip.com
And Keep Diversified!
Revenues were $250.1 million, up 10% sequentially from $226.7 million and up 30% from $192.2 million in the year-earlier quarter.
Net income was $69.4 million, up 56% sequentially from $44.5 million and down 4% from $72.4 million in the year-earlier quarter. EPS (earnings per share) were $0.37, up 54% sequentially from $0.24, but down 5% from $0.39 year-earlier.
Of course the December quarter of 2008 was an easy comparison, as the recession was in full swing. But the take away should be that Microchip outperformed its rivals in the microcontroller space during 2009. In retrospect it is easy to see why.
Microchip entered the recession with plenty of cash. Rather than laying off large numbers of employees, it retained most but reduced benefits and pay. It kept investing in new product development, and in new customer relationships. It even bought some small companies with key technologies. It kept its lead times short, while rivals underinvested, resulting in long lead times. Microchip gained market share.
Microchip looks ready for strong growth in 2010, but of course that is dependent on the global economy. It is also notable that year/year revenue increases were strongest in Asia, at 12.4%, and weakest in the Americas, at 6.1%. At this point over 50% of sales are to Asia.
For a more detailed report, see my Microchip Fiscal Q3 2010 analyst conference summary.
Normally I classify chip technology companies as having at least a moderate amount of risk, but Microchip is a dividend paying company (typically around 5% of the stock price), so it is a good way to get both growth and safety in the semiconductor sector.
See also www.microchip.com
And Keep Diversified!
Friday, June 5, 2009
Microchip Looks for Market Share
Microchip (MCHP) specializes in microcontrollers and related semiconductor integrated circuits (ICs). Microcontrollers typically integrate a computer and memory with the ability to output control signals and receive input signals. They are truly ubiquitous in our era. Almost every machine made, from household thermostats to cell phones and automobiles, contains one or more microcontrollers.
There is plenty of competition for microcontroller sales. Because they go into such a large variety of machines, many designs are possible and the market is still fragmented. However, Microchip has the largest market share in the largest market segment, 8-bit microcontrollers. There are also 16-bit and 32-bit microcontrollers, which tend to incorporate more powerful computers (a 16 bit data path is twice as wide as an 8-bit path).
Microchip has thousands of firms that buy its chips and incorporate them into products for end markets like telecommunication, industrial equipment, and consumer items. Because of this, when end market demand is broadly down, there is no way for Microchip to avoid slump in its sales.
If you take a historical view of Microchip, however, you see a corporate culture that drives success. Over time, on the whole, Microchip tends to gain market share. It does this by focusing on customer needs.
So how is Microchip doing right now, and how will the future play out? The results for the fourth quarter of fiscal 2009, or the first calendar quarter of 2009, looked pretty grim at first glance. Revenues of $173.3 million were down 10% from the previous quarter and down 33% from the year-earlier quarter. Net income on a GAAP basis fell to $23 million, down from $73 million in the December quarter and from $77 million in the year-earlier quarter.
One point to notice: even at these low levels of production, Microchip turned a profit. And they continued to pay a remarkably high dividend. Microchip has consistently returned profits to shareholders through dividends. There may be scenarios where they would have to cut the dividend, but cash flow is covering most of the dividend payments even now. They also have a cash balance of $1.4 billion.
They say, and it appears to be true, that they are making money in this market even as most of their competitors are losing money. In a way it might be better for Microchip, in the long run, if the recession is long and deep enough to force some consolidation in microcontrollers.
Microchip will be dependent on an uptick in overall global consumption to start back towards previous record revenues and profits. But in the meantime they are winning plenty of placement in customers new products, as well as bringing out new products themselves. Notable is their touch-sense input business, which has grown through both an acquisition and internal development.
Dismal as the quarter was, the end of the quarter showed something of an uptick. They even cancelled a scheduled shutdown of their Thailand plant to deal with the resumption in demand. A notable source of demand is in the Chinese telecommunications market.
Buy Microchip at the current price, $21.67 per share, and you get a dividend of 6.13%. That is hard to beat.
I own Microchip stock.
Keep diversified!
More data:
www.microchip.com
My Microchip Analyst Conference Summary page
There is plenty of competition for microcontroller sales. Because they go into such a large variety of machines, many designs are possible and the market is still fragmented. However, Microchip has the largest market share in the largest market segment, 8-bit microcontrollers. There are also 16-bit and 32-bit microcontrollers, which tend to incorporate more powerful computers (a 16 bit data path is twice as wide as an 8-bit path).
Microchip has thousands of firms that buy its chips and incorporate them into products for end markets like telecommunication, industrial equipment, and consumer items. Because of this, when end market demand is broadly down, there is no way for Microchip to avoid slump in its sales.
If you take a historical view of Microchip, however, you see a corporate culture that drives success. Over time, on the whole, Microchip tends to gain market share. It does this by focusing on customer needs.
So how is Microchip doing right now, and how will the future play out? The results for the fourth quarter of fiscal 2009, or the first calendar quarter of 2009, looked pretty grim at first glance. Revenues of $173.3 million were down 10% from the previous quarter and down 33% from the year-earlier quarter. Net income on a GAAP basis fell to $23 million, down from $73 million in the December quarter and from $77 million in the year-earlier quarter.
One point to notice: even at these low levels of production, Microchip turned a profit. And they continued to pay a remarkably high dividend. Microchip has consistently returned profits to shareholders through dividends. There may be scenarios where they would have to cut the dividend, but cash flow is covering most of the dividend payments even now. They also have a cash balance of $1.4 billion.
They say, and it appears to be true, that they are making money in this market even as most of their competitors are losing money. In a way it might be better for Microchip, in the long run, if the recession is long and deep enough to force some consolidation in microcontrollers.
Microchip will be dependent on an uptick in overall global consumption to start back towards previous record revenues and profits. But in the meantime they are winning plenty of placement in customers new products, as well as bringing out new products themselves. Notable is their touch-sense input business, which has grown through both an acquisition and internal development.
Dismal as the quarter was, the end of the quarter showed something of an uptick. They even cancelled a scheduled shutdown of their Thailand plant to deal with the resumption in demand. A notable source of demand is in the Chinese telecommunications market.
Buy Microchip at the current price, $21.67 per share, and you get a dividend of 6.13%. That is hard to beat.
I own Microchip stock.
Keep diversified!
More data:
www.microchip.com
My Microchip Analyst Conference Summary page
Friday, January 30, 2009
Maxim and Microchip Report Fourth Quarter 2008
Maxim Integrated Products (MXIM) and Microchip (MCHP) both reported on their fourth quarters yesterday. Both are makers of digital and analog semiconductor chips, and to a certain extent are rivals. However, they serve different markets with different styles, so comparing them may give a good view of how the semiconductor market is evolving.
Microchip is known for its microcontrollers, which are microprocessors combined on a single chip with inputs and outputs designed to control external devices. A typical use might be controlling a consumer appliance or coordinating the systems in an automobile. It makes a wide variety of microcontrollers that are usually sold as standard parts. It also makes some analog devices (capable of creating radio wave forms, for instance) and other special parts.
Maxim makes standard parts that can be incorporated into circuit designs, but more of its business is in making special parts for particular products. These parts may or may not include a microcontroller; they often include both digital and analog circuits on the same chip.
Both companies saw demand dry up in Q4 as manufacturers who use their chips cut back on orders, both because of weak demand from their own customers and because they could save cash by depleting inventories.
Both companies cut back on their own production in order to save cash and to cut their own inventories, but both still believe their own inventories are too high if the economy remains down.
Microchip revenues were $192 million, down 29% sequentially from $270 million and down 24% from $253 million year-earlier.
Maxim revenues were $410.7 million, down 18% sequentially from $501.2 million and down 24% from $540.0 million year-earlier.
One reason that Maxim's revenues were not down as much sequentially as Microchip, but were down the same from year-earlier, had to do with notebook computers. Maxim makes parts for notebook computers, and had made a part for a particular Intel standard design. They lost that part in the latest transition. However, they have new design wins that they believe will enable them to regain some traction in notebooks in 2009, if notebook end demand does not crash even futher.
Both companies had a variety of one time charges and benefits in the quarter. Stripping those out, especially if you look only at cash flows, both were positive. Both sit on large accumulations of cash kept from more prosperous times. Both give investors generous dividends and see no need to cut the dividend at the current level of recession. At this moment's prices, Maxim pays a dividend of 6.22% at $12.45, and Microchip pays a 7.37% at 18.98. You can't get that from a Treasury or CD.
What about the future? Neither firm has good visibility, although it is fair for us to assume that when (or if, for pessimists) the economy revives the demand for their chips will also increase. Both plan on even lower revenues in the March quarter. Maxim believes that it will do well in its communications segment (which does not include parts for cell phones, but for infrastructure) because they are supplying parts for base stations in China, which is committed to continuing its 3G rollouts. They think their computer segment will do poorly as there is a lot of notebook inventory in the distribution channels. They believe cell phone inventories have been depleted (their parts are in high-end phones), so unless consumer demand drops off further, they expect their customers to start restocking soon.
Microchip has more customers, typically using smaller numbers of chips for a particular product. This makes it harder to know what their customers' plans are. Their book to bill ratio was a horrendous 0.7 at year's end, but they have seen a slight uptick in January orders over December. They believe they can return to growth even in a downturn by introducing new products, but their best trick is the flexibility of their expense side. They can cut expenses rapidly, already having done so in 2008. They believe they can remain profitable at almost any level of economic activity.
Microchip is known for its microcontrollers, which are microprocessors combined on a single chip with inputs and outputs designed to control external devices. A typical use might be controlling a consumer appliance or coordinating the systems in an automobile. It makes a wide variety of microcontrollers that are usually sold as standard parts. It also makes some analog devices (capable of creating radio wave forms, for instance) and other special parts.
Maxim makes standard parts that can be incorporated into circuit designs, but more of its business is in making special parts for particular products. These parts may or may not include a microcontroller; they often include both digital and analog circuits on the same chip.
Both companies saw demand dry up in Q4 as manufacturers who use their chips cut back on orders, both because of weak demand from their own customers and because they could save cash by depleting inventories.
Both companies cut back on their own production in order to save cash and to cut their own inventories, but both still believe their own inventories are too high if the economy remains down.
Microchip revenues were $192 million, down 29% sequentially from $270 million and down 24% from $253 million year-earlier.
Maxim revenues were $410.7 million, down 18% sequentially from $501.2 million and down 24% from $540.0 million year-earlier.
One reason that Maxim's revenues were not down as much sequentially as Microchip, but were down the same from year-earlier, had to do with notebook computers. Maxim makes parts for notebook computers, and had made a part for a particular Intel standard design. They lost that part in the latest transition. However, they have new design wins that they believe will enable them to regain some traction in notebooks in 2009, if notebook end demand does not crash even futher.
Both companies had a variety of one time charges and benefits in the quarter. Stripping those out, especially if you look only at cash flows, both were positive. Both sit on large accumulations of cash kept from more prosperous times. Both give investors generous dividends and see no need to cut the dividend at the current level of recession. At this moment's prices, Maxim pays a dividend of 6.22% at $12.45, and Microchip pays a 7.37% at 18.98. You can't get that from a Treasury or CD.
What about the future? Neither firm has good visibility, although it is fair for us to assume that when (or if, for pessimists) the economy revives the demand for their chips will also increase. Both plan on even lower revenues in the March quarter. Maxim believes that it will do well in its communications segment (which does not include parts for cell phones, but for infrastructure) because they are supplying parts for base stations in China, which is committed to continuing its 3G rollouts. They think their computer segment will do poorly as there is a lot of notebook inventory in the distribution channels. They believe cell phone inventories have been depleted (their parts are in high-end phones), so unless consumer demand drops off further, they expect their customers to start restocking soon.
Microchip has more customers, typically using smaller numbers of chips for a particular product. This makes it harder to know what their customers' plans are. Their book to bill ratio was a horrendous 0.7 at year's end, but they have seen a slight uptick in January orders over December. They believe they can return to growth even in a downturn by introducing new products, but their best trick is the flexibility of their expense side. They can cut expenses rapidly, already having done so in 2008. They believe they can remain profitable at almost any level of economic activity.
I own Microchip stock, but not Maxim. I also own competitor Marvell (MRVL). Maxim is on my list to buy at some point, but I have a pretty lengthy list of companies to choose from given their valuations and compared to my ability to generate cash to buy them.
For more detailed coverage of their December quarters, see my Microchip analyst conference summary for Q4 2008, and my Maxim analyst conference summary for Q4 2008.
See also their company sites:
Keep diversified!
Monday, April 28, 2008
The Microchip Model
At the Xilinx analyst conference the other day [see my Xilinx analyst conference summary] one of the analysts asked if Xilinx would consider imitating "the Microchip model" and paying out higher dividends.
How the worm has turned.
Today Microchip reported on its Q1 2008 results and held its own conference [See my Microchip (MCHP) analyst conference summary]. The results were pretty good. Anyone who has followed Microchip this last year would have been worried that Q1 could be another quarter of declining revenues. Instead revenues were up sequentially 3% and up 1% from year earlier, to $260.4 million. Non-GAAP earnings per share hit a record.
The Microchip model (which in addition to knowing and having used their products attracted me to their stock) includes paying out dividends. For years Microchip management resisted doing share buy backs and instead kept increasing the dividend, at least in good times. And how Wall Street seemed to hate that. Every analyst conference included suggestions to take some (or most) of Microchip's cash and buy back stock.
What is great about Microchip, aside from their microcontroller products, is that management cares about long term investors. Such investors aren't going to sell their stock during a share buy back, nor do any short term gains from this game help them. Dividends mean revenue. You can do what you want with your dividends. Sure, you have to pay taxes on the dividends you receive, but you don't have to sell stock (and pay capital gains taxes) to get a stream of money. As far as I know, Microchip had (and has) the highest dividend payout in the semiconductor industry, where many companies pay little or no dividend.
This change of sentiment towards higher dividends may not last. Oddly, last fall the board of Microchip finally relented and set up a share buy back. They borrowed money to do it, too; I don't like that. But they are so profitable that are likely to be able to both continue to increase dividends and to pay down the debt (which is in the form of convertible debentures).
Best part of the conference? They raised the dividend yet again, to 33 cents per share per quarter.
In case it has not been perfectly clear, I own Microchip stock.
Keep diversified!
How the worm has turned.
Today Microchip reported on its Q1 2008 results and held its own conference [See my Microchip (MCHP) analyst conference summary]. The results were pretty good. Anyone who has followed Microchip this last year would have been worried that Q1 could be another quarter of declining revenues. Instead revenues were up sequentially 3% and up 1% from year earlier, to $260.4 million. Non-GAAP earnings per share hit a record.
The Microchip model (which in addition to knowing and having used their products attracted me to their stock) includes paying out dividends. For years Microchip management resisted doing share buy backs and instead kept increasing the dividend, at least in good times. And how Wall Street seemed to hate that. Every analyst conference included suggestions to take some (or most) of Microchip's cash and buy back stock.
What is great about Microchip, aside from their microcontroller products, is that management cares about long term investors. Such investors aren't going to sell their stock during a share buy back, nor do any short term gains from this game help them. Dividends mean revenue. You can do what you want with your dividends. Sure, you have to pay taxes on the dividends you receive, but you don't have to sell stock (and pay capital gains taxes) to get a stream of money. As far as I know, Microchip had (and has) the highest dividend payout in the semiconductor industry, where many companies pay little or no dividend.
This change of sentiment towards higher dividends may not last. Oddly, last fall the board of Microchip finally relented and set up a share buy back. They borrowed money to do it, too; I don't like that. But they are so profitable that are likely to be able to both continue to increase dividends and to pay down the debt (which is in the form of convertible debentures).
Best part of the conference? They raised the dividend yet again, to 33 cents per share per quarter.
In case it has not been perfectly clear, I own Microchip stock.
Keep diversified!
Tuesday, October 9, 2007
Microchip (MCHP) Dives on Warning
The stock price of Microchip (MCHP) dove over 10% this morning following yesterday's after-hours Q3 revenue warning by the company. I already owned Microchip, so of course I was disappointed. But my portfolio model allows me to buy more of this stock, which pays a substantial dividend. I consider it to be the safest stock in my portfolio because it pays a very substantial dividend for a technology stock. At a price of $32.77 the current yield is 3.6%, which is a bit less than you can get on a 90-day treasury bill right now.
If you read my analyst conference summary for Microchip's Q2, you will see that management's guidance for Q3 was "September quarter revenues expected flat to up 2%. GAAP EPS $0.36; non-GAAP EPS $0.39. " Q2 revenues were $264 million, up from $258 million in Q1.
The warning today stated Q3 revenues will come in around $258 to $259 million, or back to Q1 levels. GAAP EPS is estimated at $0.35 and non-GAAP (which excludes stock-based compensation) will be around $0.38.
So now Microchip is saying it will miss its earnings guidance by one penny per share. Hardly cause for an over 10% price drop on a stock with a high dividend yield.
On the other hand, I had predicted a good Q3 because I believe manufacturers who use Microchip's microcontrollers have been overly cautious about inventory levels and their own final demand. I still think that, because there are stories circulating of microcontroller-based devices like toys (these may be microcontrollers from other manufacturers) not being ready to meet holiday demands. It is lost money all around if stocks are insufficient to meet consumer demand.
Of course I like making more than 3.6% on my investments. Microchip has steadily increased its dividend over the years, so expect more in the future when the demand constraint disappears. I think the stock has considerable upside potential, dependent of course on revenue and net profit increases in future quarters. And compared to the much more risky biotechnology and technology stocks I tend to invest in, Microchip is a no-brainer for my portfolio.
You can see a list of stocks I like to follow at my analyst conferences list page. You can see more commentary at my Microchip (MCHP) page.
If you read my analyst conference summary for Microchip's Q2, you will see that management's guidance for Q3 was "September quarter revenues expected flat to up 2%. GAAP EPS $0.36; non-GAAP EPS $0.39. " Q2 revenues were $264 million, up from $258 million in Q1.
The warning today stated Q3 revenues will come in around $258 to $259 million, or back to Q1 levels. GAAP EPS is estimated at $0.35 and non-GAAP (which excludes stock-based compensation) will be around $0.38.
So now Microchip is saying it will miss its earnings guidance by one penny per share. Hardly cause for an over 10% price drop on a stock with a high dividend yield.
On the other hand, I had predicted a good Q3 because I believe manufacturers who use Microchip's microcontrollers have been overly cautious about inventory levels and their own final demand. I still think that, because there are stories circulating of microcontroller-based devices like toys (these may be microcontrollers from other manufacturers) not being ready to meet holiday demands. It is lost money all around if stocks are insufficient to meet consumer demand.
Of course I like making more than 3.6% on my investments. Microchip has steadily increased its dividend over the years, so expect more in the future when the demand constraint disappears. I think the stock has considerable upside potential, dependent of course on revenue and net profit increases in future quarters. And compared to the much more risky biotechnology and technology stocks I tend to invest in, Microchip is a no-brainer for my portfolio.
You can see a list of stocks I like to follow at my analyst conferences list page. You can see more commentary at my Microchip (MCHP) page.
Monday, August 6, 2007
Microchip, Housing, and Semiconductor Demand
Microchip (MCHP) reported Q2 revenues last Tuesday that were down from April guidance but slightly better than they had warned about in June. Revenues were $264.1 million, up 2.3% sequentially from $258.2 million and up 0.6% from $262.6 million year-earlier. That is not exactly high-growth but it is better than many semiconductor companies reported, notably Motorola (MOT).
The slump in the semiconductor chip industry, which appeared to have have hit bottom for most companies in Q1, was mainly caused by inventory restructuring at end customers and distributors. Given that, while unit shipments increased in many cases, pricing was weak and the result were drops in revenues. Of course the semiconductor industry is complex. Many companies reported weak demand for telecommunication infrastructure chips as a result of industry consolidation. Motorola also lost market share in the low-end of the cell phone market to Nokia.
Microchip had predicted a 5% sequential rise in revenues. At their analyst conference (See my summary) they accounted for their 2.7% miss of that prediction partly because of the housing industry slump. You might think that houses don't have microcontrollers and other semiconductor chips in them, but you would be wrong. Microchip supplies parts that go into five things that can go into new home construction: garage door openers, security systems, thermostats, irrigation equipment, and airconditioning. Yet despite the rather broad slump in the housing market, this did not cause Microchip revenues to fall; instead they failed to grow as quickly as expected by about 1%. It's stock price has held up well because it pays a hefty dividend and has good profit margins even in weak periods.
Slow housing construction hits specific industries like lumber and concrete pretty hard, but many economic sectors are only affected by a drop in housing construction if that is accompanied by lower consumer demand. In addition, most U.S. semiconductor companies do more than half their sales outside the U.S.
Microchip's management, humbled by missing guidance, now only expects revenues to be flat to up 2% in Q3. Usually demand in Europe is slow in Q3 because the whole subcontinent goes on those nice vacations only the elite are allowed in the U.S. But Q3 is when Asian manufacturers have to gear up for Q4 sales in the U.S., and while demand in India & China is not quite as seasonal, it is growing rapidly.
While not wanting to minimize the pain of individuals who took out adjustable rate mortgages, or became the ultimate owners of those mortgages, after the Federal Reserve had (belatedly) started raising interest rates, I don't think that particular situation says much about the economy at present. Housing demand always returns when prices get low enough to entice cautious people back into buying. Some paper profits will dissappear, but very little actual money will be lost on net by anyone.
It is just one more reminder that if you can, buy at the bottom of the cycle when others are panicking. Don't be the greater fool. Refrain from buying when prices lose touch with reality.
Note: I own Microchip stock
More data: Microchip investor relations page
The slump in the semiconductor chip industry, which appeared to have have hit bottom for most companies in Q1, was mainly caused by inventory restructuring at end customers and distributors. Given that, while unit shipments increased in many cases, pricing was weak and the result were drops in revenues. Of course the semiconductor industry is complex. Many companies reported weak demand for telecommunication infrastructure chips as a result of industry consolidation. Motorola also lost market share in the low-end of the cell phone market to Nokia.
Microchip had predicted a 5% sequential rise in revenues. At their analyst conference (See my summary) they accounted for their 2.7% miss of that prediction partly because of the housing industry slump. You might think that houses don't have microcontrollers and other semiconductor chips in them, but you would be wrong. Microchip supplies parts that go into five things that can go into new home construction: garage door openers, security systems, thermostats, irrigation equipment, and airconditioning. Yet despite the rather broad slump in the housing market, this did not cause Microchip revenues to fall; instead they failed to grow as quickly as expected by about 1%. It's stock price has held up well because it pays a hefty dividend and has good profit margins even in weak periods.
Slow housing construction hits specific industries like lumber and concrete pretty hard, but many economic sectors are only affected by a drop in housing construction if that is accompanied by lower consumer demand. In addition, most U.S. semiconductor companies do more than half their sales outside the U.S.
Microchip's management, humbled by missing guidance, now only expects revenues to be flat to up 2% in Q3. Usually demand in Europe is slow in Q3 because the whole subcontinent goes on those nice vacations only the elite are allowed in the U.S. But Q3 is when Asian manufacturers have to gear up for Q4 sales in the U.S., and while demand in India & China is not quite as seasonal, it is growing rapidly.
While not wanting to minimize the pain of individuals who took out adjustable rate mortgages, or became the ultimate owners of those mortgages, after the Federal Reserve had (belatedly) started raising interest rates, I don't think that particular situation says much about the economy at present. Housing demand always returns when prices get low enough to entice cautious people back into buying. Some paper profits will dissappear, but very little actual money will be lost on net by anyone.
It is just one more reminder that if you can, buy at the bottom of the cycle when others are panicking. Don't be the greater fool. Refrain from buying when prices lose touch with reality.
Note: I own Microchip stock
More data: Microchip investor relations page
Wednesday, June 20, 2007
Buying Opportunity in Undervalued Microchip (MCHP)
Microchip announced yesterday that sequential revenue growth from Q1 2007 to Q2 2007 is likely to come in around 2%, disappointing investors who had relied on previous guidance for 5% growth. Earnings projections were not as bad. The press release said earnings per share are expected to be $0.36 (GAAP), which is only one penny short of prior guidance.
Investors, of course, had hoped Microchip would do better than guidance; it often does. So the stock plumetted yesterday (due to auction price movement amplification). I believe it is was already slightly undervalued before the news. Yesterday's news and price fall leaves it undervalued. (I own the stock but have no plans to buy or sell in the near future because it has appreciated as a percentage of my portfolio to the point where my rules do not allow me to buy more; but not to where my rules require me to sell it).
If you look at the Q1 results and analyst conference held on April 26, 2007 (See my summary), you'll see revenues were $258.2 million. A 2% increase will bring them to $263.3 million. In Q2 2006 revenues were $262.6 million, so revenues will be about flat year-over-year. GAAP earnings were $0.35 per share, so we can expect only a 3% year-over-year increase in earnings when Q2 2007 results are announced.
Can a stagnant semiconductor company be undervalued when its trailing price-to-earnings ratio is 23.37 (per NASDAQ, at a price of $37.70 per share)? I think there are three details that need to be considered.
First, at the end of Q1 Microchip had $1.3 billion in cash and equivalents. That is 15.8% of today's market capitalization of $8.2 billion. It is especially healthy when you consider MCHP pays out $1.12 per share per year in dividends.
Second, there is the reason revenues are falling below prior guidance. Demand in Europe has been weaker than expected this quarter. Memory prices have been low so management chose to pass up sales that would have hurt profit margins. Memory is an adjunct businesss for Microchip, which is best known for its microcontrollers and which has also moved aggressively into analog chips. Low memory prices are an industry-wide phenomena that has been widely reported.
Last quarter Microchip reported it had finally become the leading global supplier of 8-bit microcontrollers. But the fastest growth is in 16-bit microcontrollers. They report that this quarter they continue to have strong 16-bit microcontroller revenue growth. Hence the good net income expectations despite the dissappointing revenue growth.
Third, I believe that inventories across the industry are lean and that worldwide demand will be good in Q3 as electronic device manufacturers gear up for the holiday Q4 rush. So demand for analog chips and microcontrollers should be strong in Q3. In 2006 Q3 was in the opposite situation: end-users had overstocked in early 2006 and were trying to reduce inventories.
So Q3 year-over-year comparisons should look healthy and justify a higher price-to-earnings ratio than the stock has today.
On the other hand I don't see a period of hypergrowth ahead for Microchip. Steady growth with a very healthy dividend is the picture here. The microcontroller industry is very competitive, but Microchip has worked its way up through the ranks. I expect it to remain at the top; I like management's commitment to profitability.
More information:
Microchip Investor Relations Page
My Microchip (MCHP) Page
Investors, of course, had hoped Microchip would do better than guidance; it often does. So the stock plumetted yesterday (due to auction price movement amplification). I believe it is was already slightly undervalued before the news. Yesterday's news and price fall leaves it undervalued. (I own the stock but have no plans to buy or sell in the near future because it has appreciated as a percentage of my portfolio to the point where my rules do not allow me to buy more; but not to where my rules require me to sell it).
If you look at the Q1 results and analyst conference held on April 26, 2007 (See my summary), you'll see revenues were $258.2 million. A 2% increase will bring them to $263.3 million. In Q2 2006 revenues were $262.6 million, so revenues will be about flat year-over-year. GAAP earnings were $0.35 per share, so we can expect only a 3% year-over-year increase in earnings when Q2 2007 results are announced.
Can a stagnant semiconductor company be undervalued when its trailing price-to-earnings ratio is 23.37 (per NASDAQ, at a price of $37.70 per share)? I think there are three details that need to be considered.
First, at the end of Q1 Microchip had $1.3 billion in cash and equivalents. That is 15.8% of today's market capitalization of $8.2 billion. It is especially healthy when you consider MCHP pays out $1.12 per share per year in dividends.
Second, there is the reason revenues are falling below prior guidance. Demand in Europe has been weaker than expected this quarter. Memory prices have been low so management chose to pass up sales that would have hurt profit margins. Memory is an adjunct businesss for Microchip, which is best known for its microcontrollers and which has also moved aggressively into analog chips. Low memory prices are an industry-wide phenomena that has been widely reported.
Last quarter Microchip reported it had finally become the leading global supplier of 8-bit microcontrollers. But the fastest growth is in 16-bit microcontrollers. They report that this quarter they continue to have strong 16-bit microcontroller revenue growth. Hence the good net income expectations despite the dissappointing revenue growth.
Third, I believe that inventories across the industry are lean and that worldwide demand will be good in Q3 as electronic device manufacturers gear up for the holiday Q4 rush. So demand for analog chips and microcontrollers should be strong in Q3. In 2006 Q3 was in the opposite situation: end-users had overstocked in early 2006 and were trying to reduce inventories.
So Q3 year-over-year comparisons should look healthy and justify a higher price-to-earnings ratio than the stock has today.
On the other hand I don't see a period of hypergrowth ahead for Microchip. Steady growth with a very healthy dividend is the picture here. The microcontroller industry is very competitive, but Microchip has worked its way up through the ranks. I expect it to remain at the top; I like management's commitment to profitability.
More information:
Microchip Investor Relations Page
My Microchip (MCHP) Page
Tuesday, May 1, 2007
Microchip (MCHP) Keeps Chugging Along
I bought Microchip (MCHP) on a dip after long being aware of the company. At this moment it seems fairly priced at $40.22 per share, which gives it a past P/E ratio of 27 and a dividend yield of 2.7%. You don't too often see stocks with both dividend yields and PE ratios that high; it is a company worth examining.
You can get a lot of insight from my summaries of MCHP quarterly results reports and analyst conferences over the last year. Openicon has summaries of analyst conferences for many leading technology companies.
I first became aware of Microchip when I decided to do some self-education about microcontrollers (a big part of me wishes I had studied engineering rather than liberal arts). I bought something called a BASIC Stamp kit from Parallax. I had great fun making LEDs and even regular light bulbs blink on and off to simple computer programs I wrote. That same technology today is ubiquitous in electronic devices and appliances. They almost all have at least one microcontroller, which is a tiny computer-on-a-chip with circuits that can read data from sensors and control external circuits. The chip at the heart of the BASIC Stamp was made by Microchip. From hobbyist and professional magazines I learned its PIC series of microcontrollers were very popular. But the stock had a higher PE ratio than I liked, so I put it on the back burner.
There is a lot of competition in the microcontroller field, as well as in other areas where Microchip competes, like analog circuits. Atmel is an example; their quarterly results and analyst conference will be held later today (See my ATML page). Freescale, Texas Instruments, Phillips and many others make microcontrollers, DSPs, embedded microprocessors, and related devices. Competition can be ruinous; high PEs need serious justification.
In mid-to-late 2006 the semiconductor industry and its analysts were pretty gloomy. First revenues started coming in below prior guidance. It was an inventory correction, we were told. Final demand was not really that bad. But with economic outlooks for 2007 cautious, especially in the United States, no one wanted large inventories of either finished electronics products or the parts needed to make more. In addition computer software enabled inventories to be managed better, and in many cases middlemen were eliminated. The semiconductor chip makers themselves had ramped up inventory in 2005; suddenly they seemed to have too much in 2006.
Microchip was subjected to this adjustment along with other chip makers, though to a lesser degree. Microchip's revenues rose more slowly than usual in Q2 and Q3 of 2006. They fell sequentially (but were up 7% over year-earlier) in Q4. I asked whether this was a one-timer or a major trend. It did not look as if anyone was taking a noticable amount of market share from Microchip, and there is that nice dividend, so I held my shares.
Q1 revenues were up and guidance for Q2 is moderately strong. Hence the recent climb in stock price. More important, Microchip's designs have been adapted at a faster rate than their competitors. This was confirmed by recently released independent data showing the Microchip was number 1 in market share for 8-bit microcontrollers.
I like MCHP's management. They aren't afraid to say that they have good products, but they don't seem to be interested in hyping investors. You can see they are long term planners in the way they design and market chips. It is also visible in their cash management strategy. They generate a lot of cash. They prefer to return it to shareholders through dividends instead of stock buy-backs. Since their stock is not cheap, that makes sense. It favors longer-term investors who like steadily increasing dividends over short-termers who just want to cash out.
You can get a lot of insight from my summaries of MCHP quarterly results reports and analyst conferences over the last year. Openicon has summaries of analyst conferences for many leading technology companies.
I first became aware of Microchip when I decided to do some self-education about microcontrollers (a big part of me wishes I had studied engineering rather than liberal arts). I bought something called a BASIC Stamp kit from Parallax. I had great fun making LEDs and even regular light bulbs blink on and off to simple computer programs I wrote. That same technology today is ubiquitous in electronic devices and appliances. They almost all have at least one microcontroller, which is a tiny computer-on-a-chip with circuits that can read data from sensors and control external circuits. The chip at the heart of the BASIC Stamp was made by Microchip. From hobbyist and professional magazines I learned its PIC series of microcontrollers were very popular. But the stock had a higher PE ratio than I liked, so I put it on the back burner.
There is a lot of competition in the microcontroller field, as well as in other areas where Microchip competes, like analog circuits. Atmel is an example; their quarterly results and analyst conference will be held later today (See my ATML page). Freescale, Texas Instruments, Phillips and many others make microcontrollers, DSPs, embedded microprocessors, and related devices. Competition can be ruinous; high PEs need serious justification.
In mid-to-late 2006 the semiconductor industry and its analysts were pretty gloomy. First revenues started coming in below prior guidance. It was an inventory correction, we were told. Final demand was not really that bad. But with economic outlooks for 2007 cautious, especially in the United States, no one wanted large inventories of either finished electronics products or the parts needed to make more. In addition computer software enabled inventories to be managed better, and in many cases middlemen were eliminated. The semiconductor chip makers themselves had ramped up inventory in 2005; suddenly they seemed to have too much in 2006.
Microchip was subjected to this adjustment along with other chip makers, though to a lesser degree. Microchip's revenues rose more slowly than usual in Q2 and Q3 of 2006. They fell sequentially (but were up 7% over year-earlier) in Q4. I asked whether this was a one-timer or a major trend. It did not look as if anyone was taking a noticable amount of market share from Microchip, and there is that nice dividend, so I held my shares.
Q1 revenues were up and guidance for Q2 is moderately strong. Hence the recent climb in stock price. More important, Microchip's designs have been adapted at a faster rate than their competitors. This was confirmed by recently released independent data showing the Microchip was number 1 in market share for 8-bit microcontrollers.
I like MCHP's management. They aren't afraid to say that they have good products, but they don't seem to be interested in hyping investors. You can see they are long term planners in the way they design and market chips. It is also visible in their cash management strategy. They generate a lot of cash. They prefer to return it to shareholders through dividends instead of stock buy-backs. Since their stock is not cheap, that makes sense. It favors longer-term investors who like steadily increasing dividends over short-termers who just want to cash out.
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