Why Is Microchip Technology Stock Diving Premarket Friday?

Microchip Technology Inc MCHP shares are trading lower after the company reported third-quarter FY24 results.

Net sales of $1.766 billion, down 18.6% Y/Y, missing the consensus of $1.774 billion. Adjusted EPS was $1.08, beating the consensus of $1.04.

Adjusted gross margin declined to 63.8% from 68.1%, and adjusted operating margin fell to $728.1 million (from $1.030 billion a year ago), with margins of 41.2% vs. 47.5% prior year quarter.

The company reduced the debt by paying $392 million in the quarter, and its cash and short-term investments stood at $281.0 million as of December 31, 2023.

Ganesh Moorthy, President and Chief Executive Officer, said, “Our December quarter performance fell short of our November guidance, primarily due to weaker business conditions. Revenue declined 21.7% sequentially as weak demand drove customers to cut shipments and extend shutdowns to further de-risk their inventories, which prevented us from fulfilling previously planned shipments from backlog.”

Microchip said it is cautious about demand in the near term, given the weak macro environment and customers’ ongoing actions to reduce inventory. The company intends to have two-week shutdowns in its large wafer fabrication facilities in each of the March and June quarters and reduced activity in many of the other factories, resulting in underutilization charges. 

The company returned around $114.6 million to shareholders through share repurchases under its previously disclosed $4.0 billion stock buyback program. 

Dividend: The Board of Directors raised its quarterly cash dividend per share to $0.45 per share, payable on March 8, 2024, to stockholders of record as of February 23, 2024. Microchip paid a dividend of $0.4390 per share on December 6, 2023.

Outlook: For the fourth quarter, Microchip expects net sales of $1.225 billion-$1.425 billion (vs. consensus of $1.66 billion) and adjusted EPS of $0.46-$0.68 (vs. $0.91 estimate). 

Moorthy further added, “As we enter the March quarter, we anticipate customers may continue to reduce inventory levels in the short-term as they adjust operations and seek to match demand in an increasingly dynamic market.”

Also Read: Biden’s Semiconductor Push: Microchip Lands $162M Incentives To Reinforce US Supply Chain Providing Over 700 Jobs

Price Action: MCHP shares are down 3.47% at $82.68 premarket on the last check Friday.