7. Microchip Technology Inc. (NASDAQ:MCHP)
Average Upside Potential: 28.24%
Number of Hedge Fund Holders: 46
Microchip Technology Inc. (NASDAQ:MCHP) is a leading provider of microcontroller, mixed-signal, and analog semiconductors that offers a range of products that are used in applications like automotive, industrial, consumer, and communications. Its focus on delivering reliable and high-performance solutions has made it a trusted partner for many industries.
The company’s revenue declined 45.76% as compared to a year-ago period in FQ1 2025, with a 6.4% sequential decrease. Despite missing estimates, the total revenue recorded was still $1.24 billion, with $0.53 in earnings per share. Although quarterly bookings grew close to 50% in the June quarter as compared to the March quarter, overall bookings were still below management’s expectations.
The drop in sales is attributed to a significant inventory correction. Several factors contributed to this inventory adjustment, including a weak macro environment characterized by high interest rates, short lead times, and an uncertain business outlook. Customers at various levels of the supply chain, from direct customers to contract manufacturers and distributors, have been reducing their inventory levels to adjust to the weaker market conditions.
Its recent launch in October of the LAN969x Multi-Gigabit Ethernet Switches and VelocityDRIVE Software Platform provides OEMs with a complete Ethernet solution. The VelocityDRIVE platform, featuring a user-friendly configuration tool based on standardized YANG models, is a groundbreaking innovation as the first to incorporate CORECONF YANG.
The company is well-positioned for future growth thanks to its strategic investments in high-margin products and acquisitions like VSI and Neuronix AI Labs. These moves enhance its capabilities in automotive networking and AI-enabled edge solutions, key areas for data center applications. Combined with its solid financial metrics and ongoing commitment to capital returns, Microchip Technology Inc. (NASDAQ:MCHP) presents a compelling investment opportunity in the data center sector.
Aristotle Capital Value Equity Strategy stated the following regarding Microchip Technology Incorporated (NASDAQ:MCHP) in its Q3 2024 investor letter:
Microchip Technology Incorporated (NASDAQ:MCHP), the microcontroller (MCU) and analog semiconductor producer, was a primary detractor for the period. The company reported results in line with guidance, but its short-term outlook remains challenged. Between 2021-2023, amid a global chip shortage, Microchip implemented a preferred supply program to meet the large demands of its clients, who overestimated their needs and are now working through their inventory levels. While management has started to see some positive signs pointing toward a recovery (e.g., higher expedited orders and fewer order cancelations), it is taking longer than anticipated. Longer term, Microchip has been able to generate 15+ years of robust FREE cash flow and margins, while lowering its debt and consistently returning money to shareholders. This, we believe, speaks to the company’s proven ability to manage the business through economic cycles, while taking advantage of its broad portfolio to continue gaining share in areas including IoT, 5G infrastructure, autonomous driving and data centers.
