Microchip Technology MCHP reported second-quarter fiscal 2025 non-GAAP earnings of 46 cents per share, which beat the Zacks Consensus Estimate by 6.98% but plunged 71.6% year over year.
Net sales of $1.164 billion decreased 48.4% year over year, which surpassed the Zacks Consensus Estimate by 1.09%.
The decline in sales was due to ongoing customer destocking and weak demand across end markets, particularly in the consumer and automotive sectors, with a sequential drop of nearly 22%.
Following the results, Microchip shares were almost unchanged in the pre-market trading. MCHP shares have declined 20.2% against the Zacks Computer and Technology sector’s rise of 23.4% in the year-to-date period.
Microchip Technology Incorporated Price, Consensus and EPS Surprise
Microchip Technology Incorporated price-consensus-eps-surprise-chart | Microchip Technology Incorporated Quote
Microchip’s Segmental Details
Mixed-signal Microcontroller, Analog and Other accounted for 51.1%, 25.1% and 23.8% of net sales, respectively.
Semiconductor Products and Technology Licensing contributed 96.7% and 3.3% to net sales.
Sales from the Americas, Europe and Asia contributed 31.8%, 18.3% and 49.9% to net sales, respectively.
MCHP’s Operating Results
The non-GAAP gross margin contracted 850 basis points (bps) on a year-over-year basis to 59.5%.
Non-GAAP research and development expenses, as a percentage of net sales, increased 650 bps year over year to 18.4%. Non-GAAP selling, general and administrative expenses, as a percentage of net sales, jumped 380 bps to 11.9%.
Non-GAAP operating expenses, as a percentage of net sales, were 30.3% compared with 20% in the year-ago quarter.
Consequently, the non-GAAP operating margin declined to 29.3% compared with 48.1% in the year-ago quarter.
Microchip’s Balance Sheet & Cash Flow
As of Sept. 30, 2024, cash and short-term investments totaled $286.1 million compared with $315.1 million as of June 30, 2024.
As of Sept. 30, 2024, total debt (long-term plus current portion) was $6.42 billion compared with $6.17 billion as of June 30, 2024.
For the fiscal second quarter, cash flow from operating activities was $43.6 million compared with $377.1 million in the previous quarter.
The free cash flow was $22.8 million compared with $304.2 million in the previous quarter.
Microchip returned roughly $261 million to shareholders in the fiscal second quarter through dividends of $243.7 million and share repurchases of $17.3 million.
The company announced a quarterly dividend of 45.5 cents per share, up 3.6% from the year-ago quarter.
MCHP’s Cautious Q3 Guidance
Microchip expects net sales of $1.03-$1.10 billion for the third quarter of fiscal 2025.
Non-GAAP earnings are anticipated between 25 cents and 35 cents per share.
The non-GAAP gross margin is anticipated between 57% and 59%.
Non-GAAP operating expenses are projected to be 33.2-34.8%.
The non-GAAP operating margin is anticipated to be 22.2-25.8%.
Zacks Rank & Stocks to Consider
Microchip currently carries a Zacks Rank #4 (Sell).
Shopify SHOP, Consensus Cloud Solutions CCSI and Fortinet FTNT are some better-ranked stocks that investors can consider in the broader sector, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shopify shares have risen 2.2% year to date. SHOP is set to report third-quarter 2024 results on Nov. 12.
Consensus Cloud’s shares have declined 10.5% year to date. CCSI is set to report third-quarter 2024 results on Nov 7.
Fortinet’s shares have gained 33.9% year to date. FTNT is set to report its third-quarter 2024 results on Nov. 7.
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