Earnings Preview: Microchip Technology

Jan.29.09 | About: Microchip Technology (MCHP)

Microchip Technology (NASDAQ:MCHP) is expected to report Q3 earnings Thursday, January 29 after market close, with a conference call scheduled for 5:00 pm ET.

Guidance

The consensus estimate is 22c for EPS and $188.88M for revenue, according to First Call.

Analyst Views

On January 6 Microchip lowered the guidance to EPS of 23c to 26c and revenues, down 29% to 31% sequentially. The company attributed this to the continued decline in the general economy and the semiconductor industry. They also announced continual pay cuts for all of their worldwide non-manufacturing employees, reductions of manufacturing capacity in their U.S. wafer fabrication facilities, and their assembly and test facility in Thailand.

Thomas Weisel expects Microchip to report revenue at the mid-point of its revised down guidance at about $188.8M, indicating a more serious semiconductor business decline than expected. Weisel remains slightly cautious as they expect DOI to increase leading to about an 460bps q/q drop in gross margin. The firm expects 25c GAAP EPS, 2c higher than consensus 22c. Weisel adjusted their Q4 estimates downward to $170.0M --a 10.0% q/q decline -- as they feel Microchip's low exposure to consumer and handsets may allow it to slightly outperform the overall semiconductor market. Weisel's Q4 GAAP EPS estimate is 15c. These estimates put Weisel slightly below consensus estimates of $174.52M and 17c.

Yesterday Barclays upgraded Microchip shares to Overweight, with a $22 target, as they feel Microchip will be best positioned once the environment stabilizes. Barclays expects another round of estimates cuts for the company, but asserts that "sequential revenue declines should moderate and the operating margin should remain in solid double digits."