MCHP - Microchip Technology: Solid Microcontroller Performance In A Strong Semiconductor Sector

2023-03-22 15:06:32 ET

Summary

• Microchip Technology’s revenues have been increasing for nine consecutive quarters.
• Microchip Technology generates about 56% of its revenue from its microcontroller product line.
• The company holds a commanding lead in 8-bit microcontrollers and a growing share in 16-bit and 32-bit devices.

Microchip Technology ( MCHP ) reported F3Q 2023 earnings on February 2, 2023, with record net sales of $2.169 billion, up 4.6% sequentially and up 23.4% from the year-ago quarter. This is the 9th consecutive revenue growth quarter for the company.

The strong showing of Microchip in the microcontroller market is a key to the future success of the company, which I detail in this report. Microcontroller revenues for MCHP increased 25.6% QoQ on top of 21.1% for analog.

Importantly, microcontroller share of total revenues increased to a 56.3% share in Q3 2022 compared to a 55.3% share for the year-ago quarter. Analog share decreased to 28.0% in Q3 2022 from 28.5% YoY.

Unit Shipments and ASPs

An important factor is that of the semiconductor sectors standardized by the WSTS consortium, microcontrollers performed the best, which I detail below.

Chart 1 shows Microcontroller Unit Shipments and ASPs (average selling prices) for the period July 2019 to January 2023. It is important to note that, based on the trendlines, both units and ASPs increased over this period.

Chart 1

Another positive for MCHP is that the analog chip sector makes up 28% of its revenues. Although I won't be discussing analog in this article, Chart 2 shows that. Like microcontrollers, the analog sector demonstrated both positive unit shipments and ASPs over this period, as shown in Chart 2.

Chart 2

Microchip's Leading Microcontroller Position

Microcontrollers or MCUs integrate all of the major components of a computing system onto a single semiconductor device. MCUs provide the digital logic, or intelligence, for electronic applications, controlling electronic equipment or analyzing sensor inputs. MCHP's MCU product portfolio ranges from 8-bit products to higher-performance 16-bit and 32-bit products.

Chart 3 shows Microchip's revenues between F1Q 2022 (ending June 2021) and estimated F4 2023 (ending March 2023).

Chart 3

By microcontroller market by type:

• In 8-bit, Microchip led with a 29% share of the $5.4 billion market.
• In 16-bit, Microchip held an 11% share of the $2.8 billion market, which was led by Renesas ( RNECY ).
• In 32-bit, Microchip held a 7% share of the $10.0 billion market, which was led by Renesas.

In 2022, 28.3 billion microcontrollers were sold, with revenues of $24.7 billion and an ASP of $0.87.

On the negative side, Chart 4 shows quarterly days of inventory for the top six microcontroller companies. Microchip's days of inventory at 139 days is comparable to Texas Instruments ( TXN ) and Infineon ( IFNNY ), but higher than NXP Semiconductors ( NXPI ), Renesas, and STMicroelectronics ( STM ).

Chart 4

However, of the companies shown above in Chart 4, Seeking Alpha's Quant is a Strong Buy for only MCHP and IFNNY, as shown in Chart 5.

Chart 5

Besides Microchip's strong financial performance in the December 2022 quarter, resulting in solid cash generation and significant debt reduction, its Board of Directors approved a year-over-year increase in its dividend of 41.5% to 35.8 cents per share, up from its February 2022 dividend of 25.3 cents per share. This represents 82 consecutive quarters of dividend payments for Microchip.

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