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

Equity Bottom-Up

<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

Asia and Global Semiconductor and Tech Research

Andrew Lu

<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 Inc.'s first quarter fiscal year 2025 earnings call outlined a series of financial metrics and strategic directions that indicate both strengths and challenges for the company.</li><li>In the reported quarter, net sales amounted to $1.241 billion, marking a sequential decrease of 6.4%.</li><li>This decline reflects an ongoing adjustment to an inventory correction phase that the semiconductor industry is experiencing.</li></ul>

Microchip Technology Inc.'s first quarter fiscal year 2025 earnings call outlined a series of financial metrics and strategic directions that indicate both strengths and challenges for the company.In the reported quarter, net sales amounted to $1.241 billion, marking a sequential decrease of 6.4%.This decline reflects an ongoing adjustment to an inventory correction phase that the semiconductor industry is experiencing.

Microchip Technology: Strategic Approach To Premium Drilling Locations & Critical Growth Drivers

Technology / Semiconductor / Internet Research

Nicolas Baratte

<ul>
<li>Auto &amp; Industrial Semi long boom / bust cycle started during Covid (peak demand) and is ending soon. Revenues declined by -20%. Operating Profits are depressed, down -50% from peak.   </li>
<li>Industry structure, high fragmentation, low transparency led to a protracted and steep bottom. But inventories remain high. The recovery will take time, probably no YoY revenue growth till 2026.   </li>
<li>Two big restructuring are underway, the sector is rationalizing. Lofty expectations of “structural growth” (EV, ADAS, green energy growth) hit the wall of a disappointing reality amplified by trade wars.</li>
</ul>


Auto &amp; Industrial Semi long boom / bust cycle started during Covid (peak demand) and is ending soon. Revenues declined by -20%. Operating Profits are depressed, down -50% from peak.   
Industry structure, high fragmentation, low transparency led to a protracted and steep bottom. But inventories remain high. The recovery will take time, probably no YoY revenue growth till 2026.   
Two big restructuring are underway, the sector is rationalizing. Lofty expectations of “structural growth” (EV, ADAS, green energy growth) hit the wall of a disappointing reality amplified by trade wars.


Auto & Industrial Semi Part1: Background of the Ongoing Crash, Revising Down Lofty Expectations

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.

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Microchip Technology (MCHP US)

Hitting the Breaks: Automotive Semiconductors

Its a quarter too soon to go dumpster diving in the automotive semiconductor industry. Another round of cuts is likely coming. Consider this my...

Fabricated Knowledge

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

Another week of earnings, with KLA having a rare miss and the guidance being a bit light for the inspection execution machine.

Fabricated Knowledge

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

From the Bellwether to a Lagging Indicator- Why Does Microchip Guide the Worst Among All? For next six months, we like both Intel and Qualcomm more...

Andrew Lu

Microchip Technology: Strategic Approach To Premium Drilling Locations & Critical Growth Drivers

Microchip Technology Inc.'s first quarter fiscal year 2025 earnings call outlined a series of financial metrics and strategic directions that...

Baptista Research

Auto & Industrial Semi Part1: Background of the Ongoing Crash, Revising Down Lofty Expectations

Auto & Industrial Semi close to end of long boom/bust cycle, with revenues down -20%. Recovery expected to be slow with no YoY growth till 2026....

Nicolas Baratte

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Hitting the Breaks: Automotive Semiconductors

Its a quarter too soon to go dumpster diving in the automotive semiconductor industry. Another round of cuts is likely coming. Consider this my...

Fabricated Knowledge

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

Another week of earnings, with KLA having a rare miss and the guidance being a bit light for the inspection execution machine.

Fabricated Knowledge

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

From the Bellwether to a Lagging Indicator- Why Does Microchip Guide the Worst Among All? For next six months, we like both Intel and Qualcomm more...

Andrew Lu

Microchip Technology: Strategic Approach To Premium Drilling Locations & Critical Growth Drivers

Microchip Technology Inc.'s first quarter fiscal year 2025 earnings call outlined a series of financial metrics and strategic directions that...

Baptista Research

Auto & Industrial Semi Part1: Background of the Ongoing Crash, Revising Down Lofty Expectations

​Auto & Industrial Semi close to end of long boom/bust cycle, with revenues down -20%. Recovery expected to be slow with no YoY growth till 2026....

Nicolas Baratte

Auto & Industrial Semi close to end of long boom/bust cycle, with revenues down -20%. Recovery expected to be slow with no YoY growth till 2026....