Global Slowdown Causes Microchip To Reverse Outlook

Oct.14.11 | About: Microchip Technology (MCHP)

Microchip Technology Incorporated (NASDAQ:MCHP) recently revised its guidance for the second quarter of fiscal 2012. The company now expects sales to decline by approximately 9.1% sequentially to $340.6 million. Microchip had earlier guided sales to decline by about 1% to 6% sequentially to $352.0 million–$370.8 million.

Microchip stated that sales activity in the September quarter did not progress as expected. The company had earlier expected that business conditions would be impacted by weak, broad-based demand conditions in the September quarter but should improve towards the latter part of the quarter from the seasonal Christmas builds in Asia.

However, Microchip saw no seasonal Christmas build-up in the latter part of the quarter, which in turn adversely impacted all the product lines and sales channels. Moreover, management stated that the overall global outlook continues to be weak and the company’s business will be impacted further.

Nevertheless, Microchip continues to be positive on design win traction in microcontroller and analog product lines. Net sales from the 32-bit microcontroller business were up 10.4% sequentially and licensing business was up 6.4% sequentially. The company also shipped its 10 billionth microcontroller during the quarter.

Meanwhile, management stated that the floods in Bangkok have not affected the company’s two facilities there. Both the facilities are located almost 50 miles east of Bangkok and are running normally and meeting customer demand. The company has taken steps to procure additional inventory to feed production and add alternative suppliers to mitigate supply risk.

The downgrade in guidance led to a 2.01% decline in share price in after-hours trading to close at $34.60. In regular trading, the shares gained 2.47%.

The global slowdown has led many companies in the semiconductor universe to revise their outlook for the third quarter of calendar 2011, namely Altera Corp (NASDAQ:ALTR) and Xilinx, Inc. (NASDAQ:XLNX).