Earnings preview: With a diverse portfolio, Microchip is poised for a strong Q2

Most microprocessor companies have maintained a healthy growth trajectory in recent years despite increasing competition, while retaining their market share to a large extent on the back of the growing demand. Microchip Technology (MCHP) is riding on its product diversification initiatives and operational efficiencies, while also enjoying the synergies from recent acquisitions.

After a successful June quarter, the semiconductor firm is all set to report its second-quarter earnings Wednesday after the closing bell. At $1.74 per share, the Analysts’ consensus earnings estimate is within the management’s guidance range and more than 23% higher compared to the year-ago quarter. Revenues are forecast to grow about 50% year-on-year to $1.51 billion, which falls at the midpoint of the company’s outlook.

Microchip is riding on its product diversification efforts and operational efficiencies, while also enjoying synergies from recent acquisitions

The Chandler, Arizona-based company has enhanced its Internet of Things (IoT) offerings by rolling out the latest 32-bit SAM L10 and SAM L11 microcontroller series and a new family of digital signal controller that allows software professionals to integrate code from more than one design team. The result is a broader product portfolio that helps the company in expanding its user base. Also, the increasing focus on the development of autonomous vehicle controllers is a promising step forward.

In the first quarter, earnings got a push from a 25% sales growth aided by strong demand for the flagship microcontroller products and contributions from Microsemi, which was added to the Microchip fold earlier this year. Earnings rose to $1.61 per share in the June quarter from $1.31 a year earlier.

Related: Microchip Technology Q4 2018 Earnings Conference Call Transcript

Among the other chipmakers, Intel (INTC) reaffirmed its market-leading position by recording a 42% earnings growth in the third-quarter when strong demand for the Intel platforms drove revenues sharply higher. Last month, Advanced Micro Devices (AMD) reported a 67% jump in earnings for its most recent quarter helped by higher revenue and lower expenses.

Microchip Q1 earnings beat street view; stock falls on weak guidance

Recently, leading market researchers lowered their rating on the Microchip shares and cut the price target to reflect its lackluster performance.

The stock hit a record high early June but pared most of the gains in the following weeks. It lost about 24% over the past twelve months and so much since the beginning of the year. The shares opened Tuesday’s session higher and stayed in the positive territory in the early trading hours.

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