Microchip Earnings Surpass Estimates in Q2, Sales Decrease Y/Y

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 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.

Zacks Names #1 Semiconductor Stock

It's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.

With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.

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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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