Analog chipmaker Microchip Technology (NASDAQ:MCHP) reported Q4 FY2022 results topping analyst expectations, with revenue up 25.7% year on year to $1.84 billion. Guidance for next quarter's revenue was $1.95 billion at the midpoint, 5.34% above the average of analyst estimates. Microchip Technology made a GAAP profit of $437.9 million, improving on its profit of $116 million, in the same quarter last year.
Is now the time to buy Microchip Technology? Access our full analysis of the earnings results here, it's free.
Microchip Technology (MCHP) Q4 FY2022 Highlights:
- Revenue: $1.84 billion vs analyst estimates of $1.82 billion (1.29% beat)
- EPS (non-GAAP): $1.35 vs analyst estimates of $1.25 (7.71% beat)
- Revenue guidance for Q1 2023 is $1.95 billion at the midpoint, above analyst estimates of $1.85 billion
- Free cash flow of $633.1 million, down 16.9% from previous quarter
- Inventory Days Outstanding: 125, up from 116 previous quarter
- Gross Margin (GAAP): 66.1%, up from 63.1% same quarter last year
"We delivered yet another quarter of strong growth and profitability during the March quarter and closed out a record fiscal year 2022 with outstanding revenue growth of 25.7% compared to the prior year's fourth fiscal quarter. Our March quarter results came in near the high end of our guidance range, and we achieved new records across key operating non-GAAP metrics," said Ganesh Moorthy, President and Chief Executive Officer.
Spun out from General Instrument in 1987, Microchip Technology (NASDAQ: MCHP) is a leading provider of microcontrollers and integrated circuits used mainly in the automotive world, especially in electric vehicles and their charging devices.
Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. The biggest secular growth drivers currently are the adoption of electric vehicles, 5G networks and Internet of Things connectivity, and demand for chips that reduce power consumption. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.
Sales Growth
Microchip Technology's revenue growth over the last three years has been unremarkable, averaging 9.15% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $1.46 billion to $1.84 billion. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
This was a decent quarter for Microchip Technology as revenues grew 25.7%, topping analyst estimates by 1.29%. This marks 6 straight quarters of revenue growth, implying we are mid-cycle for Microchip Technology, as a typical upcycle tends to last 8-10 quarters.
Microchip Technology believes the growth is set to continue, and is guiding for revenue to grow 24.5% YoY next quarter, and Wall St analysts are estimating growth 10.6% over the next twelve months.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.
This quarter, Microchip Technology’s inventory days came in at 125, one day above the five year average, showing that despite the recent increase there is no indication of an excessive inventory buildup at the moment.
Key Takeaways from Microchip Technology's Q4 Results
Sporting a market capitalization of $37.5 billion, more than $319.4 million in cash and with positive free cash flow over the last twelve months, we're confident that Microchip Technology has the resources it needs to pursue a high growth business strategy.
We were impressed by how strongly Microchip Technology outperformed analysts’ earnings expectations this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see the inventory levels increase. Overall, we think this was a really good quarter, that should leave shareholders feeling very positive. The company is up 3.49% on the results and currently trades at $66.65 per share.
Should you invest in Microchip Technology right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.