Personal Finance

Why Microchip Technology Stock Plunged Today

Road signs with "Trade" and "USA" facing opposite directions

What happened

Shares of Microchip Technology (NASDAQ: MCHP) have plunged today, down by 10% as of 1:15 p.m. EDT, after the company reported fiscal first-quarter earnings results. Management warned that tariffs associated with the escalating trade war between the U.S. and China could adversely impact its business.

So what

Revenue in the fiscal first quarter rose 25% to $1.2 billion, which led to non- GAAP net income of $405.8 million, or $1.61 per share. Compare those results to consensus estimates that called for $1.2 billion in revenue and $1.49 per share in adjusted profit. On a non-GAAP basis, Microchip reported record gross margin of 62% and record operating income of $473.5 million. It also declared a record quarterly dividend of 36.4 cents per share. The company completed its acquisition of Microsemi during the quarter.

Road signs with "Trade" and "USA" facing opposite directions

Image source: Getty Images.

Now what

Guidance for the fiscal second quarter calls for non-GAAP revenue of $1.474 billion to $1.55 billion, with non-GAAP net income of $415.7 million to $466.4 million, or $1.65 to $1.83 per share. Analysts were modeling for $1.56 billion in revenue and $1.69 per share in adjusted profit in the coming quarter.

Investors appear to be particularly concerned about comments on how tariffs could hurt sales. On the earnings call, CEO Stephen Sanghi said:

All the talk about tariffs and trade war is making our customers nervous. While it is hard to put your finger on it, it is hurting business confidence, which makes people pull back on investments, expansion and capital spending. A very small portion of products are made in China and even a smaller portion are imported back in the U.S. So we are not worried about duties on our products imported into U.S., but we are concerned about our customers' products imported into U.S.

Sanghi added that those concerns are indeed negatively affecting order activity as well as distribution sell-through for customers.

10 stocks we like better than Microchip Technology

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Microchip Technology wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 6, 2018

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

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


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

In This Story

MCHP

Other Topics

Stocks

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More