Microchip Technology had a strong Q4. What the future holds

After staying resilient to market uncertainties initially, semiconductor companies like Microchip Technology Inc. (NASDAQ: MCHP) are starting to feel the pinch of the slowdown. However, the industrial chipmaker ended the last fiscal year on a high note, reporting positive results for the fourth quarter aided by the strength of its product portfolio.

When a selloff battered stock markets in recent months, MCHP was one of the least affected tech stocks. Rather, it maintained an uptrend and often outperformed its peers. There is enough reason to believe that the stock would maintain its momentum for the rest of the year. As per estimates, MCHP is headed for a rally that would take it close to the $100 mark. Last week, the company raised dividend by 38.8% as part of its aggressive capital return program, which underscores its financial strength.

Outlook

Considering the important role semiconductors play in the technical innovations happening in various segments today, the company is likely to see a spike in the demand for its products in the long term. Meanwhile, unfavorable market conditions and economic uncertainties could weigh on the tech firm’s finances in the near term, though it has delivered strong results for the fourth quarter.

The Market

Most of Microchip’s customers are currently focused on maintaining balanced inventories as demand keeps fluctuating due to factors like slowing PC and smartphone sales, softness in the data center segment, and the cyclical nature of the industry. High exposure to the aerospace & defense, communications, and computing markets makes the company susceptible to the slowdown in those areas. Another concern is the weak recovery in China, a key market where new COVID infections have derailed market reopening.

“Given our very long product life cycles, we see very little obsolescence risk with the higher inventory balances and we believe we are well-positioned to respond to growth when the macro environment strengthens. Longer-term, our total systems solutions strategy combined with our focus on key market megatrends is driving a robust pipeline of new-design opportunities, and we plan to introduce an exciting line-up of innovative new products throughout fiscal 2024 to address the growing demand for our solutions,” said Microchip’s CEO Ganesh Moorthy in a recent statement.

Record Revenues

Over the years, Microchip has constantly impressed its stakeholders by reporting stronger-than-expected earnings regularly. The company maintained that trend in the final three months of fiscal 2023 when adjusted profit increased by a fifth to $1.64 per share. The growth reflects an increase of the same degree at the top line — revenues climbed to a record high of $2.23 billion. Interestingly, around 50% of fourth-quarter sales came from Asia. The company has issued first-quarter revenue guidance above analysts’ estimates.

Recovering from the surprise loss that followed the earnings release, Microchip’s stock maintained an uptrend this week. It traded higher on Wednesday afternoon.