Asia and Global Semiconductor and Tech Research

Andrew Lu

Equity Bottom-Up

<ul>
<li>Microchip used to be the bellwether for semiconductor demand After many semis guided weaknesses in automotive, industrial, and digital consumer much earlier, Microchip's 19% miss in 1Q24 gives no surprise.</li>
<li>
<strong>Why the worst among all?</strong> We attributed Microchip to over 85% of its products on automotive, industrial, and digital consumer. Other semis have higher exposure on PC and comm.</li>
<li>
<strong>Priced in?</strong> We estimate over 20% y/y decline in 2024 sales vs. Bloomberg's -8% y/y. 2024E EPS of US$2.94 is likely below US$1. Price is only 10% below historical peak.</li>
</ul>


Microchip used to be the bellwether for semiconductor demand After many semis guided weaknesses in automotive, industrial, and digital consumer much earlier, Microchip's 19% miss in 1Q24 gives no surprise.

Why the worst among all? We attributed Microchip to over 85% of its products on automotive, industrial, and digital consumer. Other semis have higher exposure on PC and comm.

Priced in? We estimate over 20% y/y decline in 2024 sales vs. Bloomberg's -8% y/y. 2024E EPS of US$2.94 is likely below US$1. Price is only 10% below historical peak.


From the Bellwether to a Lagging Indicator- Why Does Microchip Guide the Worst Among All?

Independent research on the U.S. markets, Baptista Research

Baptista Research

Independent research on the U.S. markets

Baptista Research is an independent financial research house focused on the U.S. markets. We provide equity research as well as credit research reports on the top-listed U.S. companies with most of our focus on technology, consumer goods and services, automobiles, industrials, oil and gas, pharma, and healthcare. Our research has served more than 3000 institutional investors including mutual funds, hedge funds, banks, family offices, and various buy-side firms. We operate a research subscription service where institutions, as well as retail investors, can have priority access to all our research. We also have a wide distribution of our research reports across some of the top global financial platforms. Apart from equity research and credit research, we also provide advisory services with respect to mergers & acquisitions (M&A), private equity/ venture capital fundraising, valuation reports, and investment management services for corporates.
Baptista Research is owned and managed by Ishan Majumdar, an ex-Venture Capitalist/ Investment Banker, a Chartered Accountant, and a Masters’ degree holder in Management from HEC Paris. Ishan has nearly a decade of experience in Mergers and Acquisitions, Leveraged Buyouts (LBOs), Venture Capital Investing, Corporate Strategy, and Valuation in front-office roles at the likes of BNP Paribas CIB, Credit Agricole CIB, Groupe Danone, and TIW Private Equity. He has worked on and closed multiple acquisition deals, leveraged buyouts, and start-up investment transactions.

<ul><li>Microchip Technology, a leading provider of microcontroller and analogue semiconductors, reported its third quarter 2024 financial results which were below expectations as net sales dropped 21.7% sequentially and 18.6% year-over-year due to increased business uncertainty, slowing economic activity, and higher inventory levels among customers.</li><li>Despite a challenging environment, the company's non-GAAP gross and operating margins showed some resilience at 63.8% and 41.2% respectively.</li><li>Baptista Research looks to evaluate the different factors that could influence the company's price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.</li></ul>

Microchip Technology, a leading provider of microcontroller and analogue semiconductors, reported its third quarter 2024 financial results which were below expectations as net sales dropped 21.7% sequentially and 18.6% year-over-year due to increased business uncertainty, slowing economic activity, and higher inventory levels among customers.Despite a challenging environment, the company's non-GAAP gross and operating margins showed some resilience at 63.8% and 41.2% respectively.Baptista Research looks to evaluate the different factors that could influence the company's price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

Microchip Technology: How Their Latest Innovations Are Set to Dominate the Market! - Major Drivers

<ul><li>Microchip had a mixed quarter with below-par revenues and on-par earnings.</li><li>Cash flow from operating activities reached $616.2 million, including $87.5 million in long-term supply assurance receipts.</li><li>In the quarter, the company also issued a $750 million Term Loan A, retired $1 billion in maturing bonds, and issued $1 billion in commercial paper.</li></ul>

Microchip had a mixed quarter with below-par revenues and on-par earnings.Cash flow from operating activities reached $616.2 million, including $87.5 million in long-term supply assurance receipts.In the quarter, the company also issued a $750 million Term Loan A, retired $1 billion in maturing bonds, and issued $1 billion in commercial paper.

Microchip Technology: I3C Technology Integration Sparks Industry Buzz! - Major Drivers

Equity Long-Short, Semiconductors, Fabricated Knowledge

Douglas O'Laughlin

Equity Long-Short, Semiconductors

Fabricated Knowledge

Learn more about the world's most important manufactured product. Meaningful insight, timely analysis, and an occasional investment idea.

Thematic (Sector/Industry)

<ul><li>Its a quarter too soon to go dumpster diving in the automotive semiconductor industry. Another round of cuts is likely coming. Consider this my earnings preview.</li><li><p>I have leaned bearish automotive semiconductors for a few months, and I think the call has been mostly correct.</p></li><li><p>For me, the beginning of my bearishness started when I highlighted that China would try to murder the supply aspect of the market for the foreseeable future</p></li></ul><div data-component-name="DigestPostEmbed"><a href="https://www.fabricatedknowledge.com/p/chinese-evs-and-the-lagging-edge" target="_blank" rel="noopener"></a></div>

Its a quarter too soon to go dumpster diving in the automotive semiconductor industry. Another round of cuts is likely coming. Consider this my earnings preview.I have leaned bearish automotive semiconductors for a few months, and I think the call has been mostly correct.For me, the beginning of my bearishness started when I highlighted that China would try to murder the supply aspect of the market for the foreseeable future

Hitting the Breaks: Automotive Semiconductors

<ul><li>KLA had a rare miss. The guidance was a bit light for the inspection execution machine.</li><li>KLA rarely misses and is by far the best financially managed of the large-cap semicap companies.</li><li>KLA reports Q2 EPS $6.16 ex-items vs FactSet $5.91</li></ul>

KLA had a rare miss. The guidance was a bit light for the inspection execution machine.KLA rarely misses and is by far the best financially managed of the large-cap semicap companies.KLA reports Q2 EPS $6.16 ex-items vs FactSet $5.91

KLA & LaserTec, AMD, Hyperscaler Capex, SK Hynix, SWKS and QRVO, WOLF, MCHP

United States

Microchip Technology Incorporated designs, manufactures, and markets microcontrollers, related mixed-signal and memory products, and application development systems for high-volume embedded control applications. The Company also designs, develops, and markets linear/mixed-signal, power management, and thermal management products.

Microchip Technology (MCHP US)

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