Factors Setting the Tone for Microchip’s (MCHP) Q2 Earnings

Microchip Technology Incorporated MCHP is set to release second-quarter fiscal 2020 results on Nov 5.

The company has outpaced the Zacks Consensus Estimate in the trailing four quarters, with an average positive surprise of 4.60%.

Guidance & Estimates for Q2

Microchip forecasts second-quarter fiscal 2020 net sales of $1.323-$1.375 billion (mid-point $1.349 billion). The Zacks Consensus Estimate for the same is pegged at $1.35 billion, suggesting a decline of 10.7% from the prior-year quarter figure.

For the fiscal second quarter, non-GAAP earnings are anticipated in the range of $1.37-$1.49 per share (mid-point $1.43). The Zacks Consensus Estimate for earnings is pegged at $1.43, indicating a decline of 21% from the year-ago reported figure.

Q1 at a Glance

Microchip had reported mixed first-quarter results, wherein earnings topped estimates, while revenues lagged the same.

First-quarter fiscal 2020 non-GAAP earnings of $1.41 per share surpassed the Zacks Consensus Estimate by 3 cents. However, the figure declined 12.4% on a year-over-year basis.

Meanwhile, net sales improved 9.1% from the year-ago quarter to $1.323 billion on a non-GAAP basis. However, the figure missed the Zacks Consensus Estimate of $1.332 billion.

Let's see how things are shaping up for this announcement.

Factors at Play

Microchip is likely to have benefited from continued momentum in new design wins on strong demand for PolarFire FPGA imaging solutions primarily for 4K high resolutions, in the fiscal second quarter.

Moreover, incremental adoption of the company’s latest META-DX1 suite of Ethernet products is likely to have driven microcontrollers’ revenues in the second quarter.

Further, robust demand for 8-bit, 16-bit and 32-bit microcontrollers is likely to get reflected in the top line in the second quarter.

Furthermore, Microchip’s second-quarter results are likely to have benefited from synergies from acquisitions of Microsemi, Micrel, Atmel, to name a few. Notably, solid demand for Microsemi’s solutions in Data Center, Communications, Defense & Aerospace markets is likely to have aided top line performance in the second-quarter.

However, significant exposure to Asian markets amid imposition of tariffs thanks to the U.S.-China trade war and Huawei ban is likely to have affected the second-quarter revenues.

Moreover, the company’s second-quarter financial performance is likely to reflect weakness in Europe.

Additionally, increasing expenses on product development amid stiff competition from peers like Silicon Laboratories SLAB, Cirrus Logic, among others, is likely to have limited profitability.

Notable Product Roll Outs in Q2

During the quarter under review, Microchip launched the SST26VF Serial Quad I/O 3V Flash family of NOR plug-and-play Flash storage devices. The products utilize the company’s proprietary SuperFlash technology, to deliver high endurance and low power consumption to facilitate complex consumer and industrial cloud-connected applications.

With an aim to capitalize on the memory infrastructure market, the company unveiled serial memory controller, SMC 1000 8x25G. The latest offering supports high memory bandwidth to power next-generation CPUs with higher core counts. The news solution is aimed at accelerating high-performance data center computing processes.

The company also rolled out USB705x family of USB-IF-compliant USB 3.1 SmartHub devices. The new solutions are integrated with PDBalancing and HostFlexing capabilities to facilitate fast device charging. While PDBalancing controls system power, HostFlexing removes cryptic labels, to improve functionality.

We believe incremental adoption of latest products loaded with robust features augurs well for the company’s financial performance in the days ahead.

What Our Model Says

Our proven model doesn’t conclusively predict an earnings beat for Microchip for this time around. According to the Zacks model, a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Microchip has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell).

Stocks to Consider

Here are stocks that you may consider, as our proven model shows that these have the right combination of elements to post an earnings beat this quarter.

The Meet Group, Inc. MEET has an Earnings ESP of +4.17% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

BLACKLINE BL has an Earnings ESP of +21.74% and a Zacks Rank #3.

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