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Is a Beat in Store for Microchip (MCHP) This Earnings Season?

Microchip Technology Incorporated MCHP is slated to report first-quarter fiscal 2021 results on Aug 4.

On Jun 3, Microchip increased its revenue and earnings guidance for fiscal first quarter due to easing of COVID-19-induced supply chain disruptions and reopening of customers’ factories in China, Europe and North America.

The company now anticipates fiscal first-quarter consolidated net sales in the range of $1.247-$1.326 billion.

Notably, the Zacks Consensus Estimate for fiscal first-quarter revenues is currently pegged at $1.28 billion, suggesting a decline of 3.5% from the year-ago quarter.

Non-GAAP earnings are now projected between $1.35 and $1.53 per share.
 

Microchip Technology Incorporated Price and EPS Surprise

Microchip Technology Incorporated Price and EPS Surprise

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

In the past 30 days, the Zacks Consensus Estimate for fiscal first-quarter earnings moved up 0.7% to $1.43 per share, indicates an improvement of 1.4% from the prior-year reported figure.

Factors to Note

Solid uptake of microcontrollers, primarily the latest Bluetooth 5.0 dual-mode audio solutions, is likely to have benefited Microchip’s fiscal first-quarter performance. Robust demand for 8-bit, 16-bit and 32-bit microcontrollers might have contributed to the performance in the quarter to be reported.

Moreover, continued strength in the medical end market, driven by growth in demand for hospital equipment like ventilators, oxygen monitors, respirators, ultrasound machines and other COVID-19 related items, might have contributed to the fiscal first-quarter performance.

In addition, incremental adoption of the company’s META-DX1 suite of Ethernet products may have driven microcontrollers’ fiscal first-quarter performance.

Microchip’s fiscal first-quarter results are likely to reflect synergies from acquisitions including Microsemi, Micrel and Atmel.

Further, solid momentum of Microsemi’s solutions in Data Center, and Communications end-markets, fueled by coronavirus crisis-induced demand for cloud and networking solutions, may have benefited the fiscal first-quarter performance.

Besides improving demand across office equipment and communication infrastructures on account of requirement for cloud computing solutions amid the coronavirus crisis-led work-from-home wave also bodes well.

Also, gains from design wins for Microchip’s latest PolarFire imaging solutions, primarily for 4K high resolutions, might get reflected in FPGA (or Field Programmable Gate Array) revenues in the fiscal first quarter. Further, the incremental adoption of new RT PolarFire FPGA that supports high-performance requirements of complex space applications may have contributed to the fiscal first-quarter performance.

However, sluggish demand across automotive end-market owing to coronavirus-induced macroeconomic weakness and headwinds pertaining to Huawei ban are likely to have weighed on the fiscal first-quarter performance.

Furthermore, increasing expenses on product development amid stiff competition from peers including Cirrus Logic and Silicon Laboratories are likely to have limited fiscal first-quarter profitability.

Portfolio Expansion in Q1 Remains Noteworthy

During the quarter under review, Microchip rolled out Adaptec SmartRAID 3100E RAID adapters that are designed to provide reliable hardware RAID protection for customer data in cost-sensitive end applications.

Moreover, the company expanded its maXTouch portfolio with the new MXT288UD touch controller family, compact automotive grade packaged touch screen controllers.

The company also unveiled the MDA3KP Transient Voltage Suppressor (TVS), a 3kW diode family of more than 25 products with different screening levels, polarities and qualification standards. The latest offering protects circuits from voltage spikes and electrostatic events.

Additionally, in a bid to provide a higher level of protection against GPS vulnerabilities for systems dependent on GPS signal reception, Microchip introduced a major software update for its BlueSky GNSS Firewall product.

The company also launched the Switchtec PAX Advanced Fabric Gen 4 PCIe switch family, which features significant performance improvements and lower latency over legacy PCIe switches.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Microchip this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

Microchip has an Earnings ESP of +3.09% and a Zacks Rank #2. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks that Warrant a Look

Here are a couple of other companies, which also have the right combination of elements to post an earnings beat this quarter:

Fastly, Inc. FSLY has an Earnings ESP of +27.27% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Synaptics Incorporated SYNA has an Earnings ESP of +10.60% and a Zacks Rank of 2.

GoPro, Inc. GPRO has an Earnings ESP of +9.86% and a Zacks Rank of 2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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