- Pre-market data shows 3% share price decline on the cards
- Recovering from ‘major inventory correction’
- Dividend up 18% despite lower sales
Talk of a chips industry recovery looks a little premature based on what Microchip Technology (MCHP:NASDAQ) laid before investors overnight. Pre-market data has the stock down more than 3% to around $91 after the company issued fiscal first quarter 2025 guidance below analyst estimates.
The Arizona-based business sees Q1 2025 EPS (earnings per share) in a range between $0.48 and $0.56, falling short of consensus estimates of $0.57, and sales guidance was even weaker, projecting revenue for the quarter to be between $1.22 billion and $1.26 billion, versus the forecasted $1.34 billion.
Not an obvious play on AI (artificial intelligence), which has done wonders for shares in companies like Nvidia (NVDA:NASDAQ) and Advanced Micro Devices (AMD:NASDAQ), Microchip sits alongside the likes of Texas Instruments (TXN:NASDAQ) and Micron Technology (MU:NASDAQ) in producing those really crucial, but lower margin, picks and shovels chips that power modern electronics and appliances.
DIVIDEND JUMPS 18%
That focus has typically made Microchip Technology a powerful cash machine that pays dividends at much higher rates than most technology stocks. The forecast yield this year, for example, stands at 2.2%, versus 0.56% for Apple (AAPL:NASDAQ).
This means that despite experiencing what the company called a ‘major inventory correction’ in recent months, the fiscal 2024 (to 31 Mar) dividend was raised 18% to $0.452 per share.
‘We remained committed to our capital return program, returning $1.89 billion through dividends and share buybacks during fiscal 2024, up 15.4% from the prior year, and we are tracking towards achieving our goal of returning 100% of adjusted free cash flow to shareholders by the current fiscal year-end’, the company said.
‘We experienced a major inventory correction in fiscal 2024, leading to a 9.5% decline in revenue to $7.6 billion. Despite this, our resilient operating model and rapid adjustment to the adverse business environment enabled us to navigate these challenges to achieve a non-GAAP operating margin of 43.9%’, said Ganesh Moorthy, president and chief executive of Microchip Technology.
