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After Microchip Technology reported its November results, we updated our fair value. We raised our projections for how quickly profitability can return to peak levels and added two new primary growth drivers to what we track: aerospace and defense, and acquisitions for edge computing. We have also started monitoring the rate of new design wins in the data center business, which doubled over the past three months.
The company declared its latest quarterly dividend of 45.5 cents per share. This is a routine cash payment to shareholders, which companies typically pay out of their profits. For a long-term owner, a steady dividend is a sign that management remains confident in the company's ability to generate cash even as it navigates the ups and downs of the chip market.
Source: GlobeNewsWire
The company brought in $1.62 billion in sales last quarter, which is a 42 percent jump from the same time last year. This growth shows that the glut of excess chips that had been sitting in warehouses is finally clearing out, and customers in the automotive and industrial sectors are placing new orders again.
Profitability is also moving in the right direction. Operating margins, which measure how much profit is left after paying for the day-to-day costs of running the business, climbed to nearly 40 percent. This is a key sign that Microchip is successfully filling its own factories, which lowers the cost of every chip it makes. The stock fell about 11 percent today despite the beat, though this likely reflects broader selling across the entire chip industry rather than a problem with these specific results.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
The company reports its latest quarterly results today. Analysts expect revenue of about 1.6 billion dollars, and the focus will be on whether the company is successfully filling its own factories to lower the cost of each chip it makes. We are also watching for signs that the glut of excess inventory at distributors is staying low. If demand from car makers and industrial firms is picking up as expected, it should help the company move back toward the high profit levels it saw before the recent industry downturn.
Microchip added new networking capabilities to its PolarFire line of chips, which are specialized processors that can be reprogrammed after they are built. These updates help industrial machines and robots communicate with each other instantly and reliably while using very little power. This matters because the company is focusing on the industrial market to drive its recovery. By making its chips more capable of handling the high-speed data needed for automated factories, Microchip makes it harder for customers to switch to a rival's system.
Source: GlobeNewsWire
Management consistently sets a conservative bar and clears it with small, steady beats. This pattern shows they have a firm handle on their business recovery even as sales grow quickly.
| Expectation | |
|---|---|
| EPS | $0.96 |
| Revenue | $1.63B |
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