Why Microchip Technology Stock Plunged Today

Stock SectorAugust 10, 20184min6
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What happened

Shares of Microchip Technology (NASDAQ:MCHP) have plunged today, down by 10% as of 1:15 p.m. EDT, after the company reported fiscal first-quarter earnings results. Management warned that tariffs associated with the escalating trade war between the U.S. and China could adversely impact its business.

So what

Revenue in the fiscal first quarter rose 25% to $1.2 billion, which led to non-GAAP net income of $405.8 million, or $1.61 per share. Compare those results to consensus estimates that called for $1.2 billion in revenue and $1.49 per share in adjusted profit. On a non-GAAP basis, Microchip reported record gross margin of 62% and record operating income of $473.5 million. It also declared a record quarterly dividend of 36.4 cents per share. The company completed its acquisition of Microsemi during the quarter.

Road signs with "Trade" and "USA" facing opposite directions

Image source: Getty Images.

Now what

Guidance for the fiscal second quarter calls for non-GAAP revenue of $1.474 billion to $1.55 billion, with non-GAAP net income of $415.7 million to $466.4 million, or $1.65 to $1.83 per share. Analysts were modeling for $1.56 billion in revenue and $1.69 per share in adjusted profit in the coming quarter.

Investors appear to be particularly concerned about comments on how tariffs could hurt sales. On the earnings call, CEO Stephen Sanghi said:

All the talk about tariffs and trade war is making our customers nervous. While it is hard to put your finger on it, it is hurting business confidence, which makes people pull back on investments, expansion and capital spending. A very small portion of products are made in China and even a smaller portion are imported back in the U.S. So we are not worried about duties on our products imported into U.S., but we are concerned about our customers’ products imported into U.S.  

Sanghi added that those concerns are indeed negatively affecting order activity as well as distribution sell-through for customers.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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