Microchip (MCHP) stock down as guidance falls short; Q4 results in line

Shares of Microchip Technology (NASDAQ: MCHP) fell more than 4% in premarket trading Tuesday after the company issued fiscal Q1 2025 guidance below analyst estimates.

For the fiscal Q4 2024, Microchip reported earnings per share (EPS) of $0.57, matching consensus expectations. The quarterly revenue totaled $1.33 billion, also aligning with the consensus projections.

However, MCHP forecasts first-quarter 2025 EPS to range between $0.48 and $0.56, falling short of the analyst estimates of $0.57. Similarly, it projects revenue for that quarter to be between $1.22 billion and $1.26 billion, also missing the forecasted $1.34 billion.

Moreover, the company’s Board of Directors declared a quarterly cash dividend of 45.2 cents per share on its common stock. The dividend will be paid on June 5, 2024, to shareholders recorded as of May 22, 2024.

"We experienced a major inventory correction in fiscal 2024, leading to a 9.5% decline in revenue to $7.6 billion. Despite this, our resilient operating model and rapid adjustment to the adverse business environment enabled us to navigate these challenges to achieve a non-GAAP operating margin of 43.9%," said Ganesh Moorthy, President and CEO.

"We remained committed to our capital return program, returning $1.89 billion through dividends and share buybacks during fiscal 2024, up 15.4% from the prior year, and we are tracking towards achieving our goal of returning 100% of adjusted free cash flow to shareholders by the current fiscal year-end."

Despite guidance miss, Goldman Sachs analysts pointed out several positive aspects of MCHP's print. Specifically, management pointed to encouraging early indicators like sequential improvement in monthly bookings and are also taking strategic measures, including production adjustments, capital expenditure cuts, and operating expense reductions, to navigate the current cyclical downturn.

Moreover, the company "remains steadfast in its capital return commitments," analysts led by Toshiya Hari said.

"That said, we maintain our Neutral rating on the stock given our expectation for a more gradual recovery in
profitability vis-à-vis peers (given elevated inventory and the expected normalization in opex) and with the stock sitting near its highs," they added.

"We await a more favorable risk/reward set-up before considering turning more constructive."

Similarly, analysts at KeyBanc Capital Markets highlighted that Microchip management expects Q1 will mark the bottom, citing several promising signs of "green shoots."

They noted that cancellations and push-outs have stabilized, bookings have risen steadily from February through April, new bookings are aging more quickly, and expedite requests are on the rise.

"We're encouraged by signs of a bottom and are increasing our PT to $110, as we introduce FY26 ests. Reiterate Overweight," KeyBanc added.

By Vahid Karaahmetovic

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