Microchip Technology Inc. (MCHP), Texas Instruments Incorporated (TXN): This Semiconductor Manufacturer Looks Good

Microchip Technology Inc. (NASDAQ:MCHP) is a leading semiconductor manufacturer with a strong track record of paying dividends and has been increasing shareholder payouts consistently since 2002. It looks like the case for buying this semiconductor company is getting stronger by the day, especially since it released strong first quarter results last month. Let’s take a look at the results.

Microchip Technology Inc. (NASDAQ:MCHP)Terrific performance

Microchip Technology Inc. (NASDAQ:MCHP) reported exceptional first quarter results, recording top-line growth and adjusted earnings that beat consensus estimates. Net revenue for the reported quarter hit $462.8 million, beating the consensus estimates of $455 million. This was a 31.4% gain from the year-ago quarter which is an impressive gain.

Revenue was up driven by broad based growth across all product lines. Sales of 32-bit microcontrollers saw a staggering 362% jump, primarily aided by the new design wins and applications. Microchip Technology Inc. (NASDAQ:MCHP) launched a new family of PIC32MX3/4/ microcontrollers in different configurations and these find applications in connectivity, graphics display, capacitive touch and in embedded systems. This provides a complete solution to application designers with its high RAM memory options and superior combination of hardware at a lower cost. Net sales of microcontroller products inched up 24.8% on a year-over-year basis to reach an all-time high record of $300.3 million. Analog revenue moved up 119% year-over-year to reach $103.2 million.

Leaving out non-recurring items, adjusted net income was a record high of $120.4 million, or $0.57 per share, which is a 24.3% improvement over year-ago earnings.

Looking ahead

The future looks good for Microchip Technology Inc. (NASDAQ:MCHP). 16- and 32-bit microcontrollers set a new high for revenue in the quarter and it is expected that 8 bit microcontrollers will definitely achieve this in the coming quarter. The company is gaining new customers in the 8 bit MCU at the expense of competitors.

The company had shipped a record number of development systems in the June quarter and this bodes well for future growth. It is continuing to win new designs and expanding in order to fuel further growth in market share.

In the analog segment, the company is also pushing for developing and introduced a wide range of innovative and proprietary new products to stimulate the future growth of the analog business, which had seen growth of 6.2% sequentially.

In terms of operating profit, it once again exceeded 30%, and Microchip Technology Inc. (NASDAQ:MCHP) is making appreciable progress towards its long-term goal of 32.5% operating profit. The book-to-bill ratio was strongly positive in the June quarter. The starting backlog for the September quarter was significantly higher than the starting backlog for the June quarter.

This year has been soft for smartphones and tablets as evidenced by reports of many chip manufacturers with high exposure to that segment. This year, the strong sectors are housing, industrial and automotive and Microchip Technology Inc. (NASDAQ:MCHP) has very strong exposure in all these three segments of the market, so it will only stand to gain from it.

With better-than-expected orders fueled by excellent demand and robust product designs, Microchip is expected to continue its bull run in the coming quarters.

Looking around

Microchip competes with Texas Instruments Incorporated (NASDAQ:TXN) and Analog Devices, Inc. (NASDAQ:ADI).

Texas Instruments has been investing in R&D in order to focus on high margin analog and embedded markets in order to become a pure analog and embedded processing company. This shift came about after it announced its exit from the wireless market in September 2012 and is in line with the objective to be exposed to less volatile markets like mobile computing.

It accounts for about 15% of the analog market, where it is a leader in voltage regulators. Having acquired National Semiconductors, equipped with a stronger product portfolio than before, growth in high volume analog and logic markets and a strong sales force, Texas Instruments Incorporated (NASDAQ:TXN) is well positioned to reap the benefits of an upswing in demand in the analog segment.

The company has also been focusing on Open Multimedia Applications Platform (OMAP) embedded applications for industry, automotive and enterprise. The embedded market, currently valued at $19 billion, offers sustainable growth as compared to the mobile computing space. Texas Instruments Incorporated (NASDAQ:TXN) expects third quarter revenue in the range of $3.05 billion to $3.09 billion and Earnings Per Share for the quarter is estimated to be in range of $0.49 to $0.57.

Analog Devices, Inc. (NASDAQ:ADI)’ 2Q2013 earnings missed consensus estimates where it reported earnings of $0.50 per share, and revenue was down Y-o-Y by 2.3% to $659.3 million. Analog Devices, Inc. (NASDAQ:ADI), like Texas Instruments Incorporated (NASDAQ:TXN), is a global player in the analog markets. Management is expecting third quarter revenue to be in the range of $655 million to $685 million and still be lower than analysts’ expectations of $688 million.

The risk for this semiconductor manufacturer is lower as it has a beta of 1.22 as compared to 1.35 of Texas Instruments Incorporated (NASDAQ:TXN). Its dividend yield of 2.75% offers another reason to buy.


Microchip Technology Inc. (NASDAQ:MCHP) has been growing at a terrific pace and the growth is expected to continue as the company focuses on research and development and is present in growing markets. As a result, investors should consider adding this stock to their portfolios.

The article This Semiconductor Manufacturer Looks Good originally appeared on Fool.com and is written by ANUP SINGH.

ANUP SINGH has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. ANUP is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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