No Surprises In Microchip Technology's (NASDAQ:MCHP) Q2 Sales Numbers, Next Quarter Sales Guidance Is Optimistic

Jabin Bastian /
2021/11/04 4:38 pm EDT
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Analog chipmaker Microchip Technology (NASDAQ:MCHP) reported results in line with analyst expectations in Q2 FY2022 quarter, with revenue up 25.9% year on year to $1.64 billion. Guidance for next quarter's revenue was $1.74 billion at the midpoint, which is 4.13% above the analyst consensus. Microchip Technology made a GAAP profit of $242 million, improving on its profit of $73.6 million, in the same quarter last year.

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Microchip Technology (MCHP) Q2 FY2022 Highlights:

  • Revenue: $1.64 billion vs analyst estimates of $1.64 billion (small beat)
  • EPS (non-GAAP): $1.07 vs analyst estimates of $1.06 (1% beat)
  • Revenue guidance for Q3 2022 is $1.74 billion at the midpoint, above analyst estimates of $1.67 billion
  • Inventory Days Outstanding: 112, up from 111 previous quarter
  • Gross Margin (GAAP): 64.7%, up from 61.6% same quarter last year

"Our September quarter results continued to be strong, with revenue growing 5.1% sequentially and 26% year-over-year despite ongoing manufacturing capacity constraints," 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.

Sales Growth

Microchip Technology's revenue growth over the last three years has been slower, averaging 10.4% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $1.3 billion to $1.64 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).

Microchip Technology Total Revenue

This was a decent quarter for Microchip Technology as revenues grew 25.9%, topping analyst estimates. This marks 4 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 accelerate, and is guiding for revenue to grow 33.5% YoY next quarter, and Wall St analysts are estimating growth 14.6% 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.

Microchip Technology Inventory Days Outstanding

This quarter, Microchip Technology’s inventory days came in at 112, 11 days below 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 Q2 Results

With a market capitalization of $43.7 billion, more than $255.3 million in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We enjoyed the positive outlook Microchip Technology provided for the next quarter’s revenue. And we were also glad to see the improvement in gross margin. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 3.77% on the results and currently trades at $86.12 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.