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China blamed for Microchip dip

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By eeNews Europe

Officials clarified the reasoning behind a forecast revision earlier this month that drove down stock prices for multiple chip companies.

Microchip reported $546.2 million in net sales and previously set a target for "net sales of $560 million to $575 million" on July 31. The decrease in sales was blamed on the economic climate in China rather than internal issues. President and CEO Steve Sanghi said he has heard an "unprecedented amount of spin" as a result.

"In each semiconductor business cycle, this debate rages in the investment and analysis community — does Microchip have inside problem or do our results reflect the weakening macro" environment, Sanghi said. "We do see effects of industry turns a quarter or so early. [This is a] short term kind of problem, we have fixed it, it’s not a deep-rooted capacity kind of problem."

Sanghi pointed to broad-based issues in China, which accounts for a large portion of the company’s business, as cause for a revenue downturn. The country experienced the lowest production rate in five years, a declining gross domestic product, and housing slowdown. The only companies that haven’t been affected are those "tied to one guy in Cupertino," he said.

"We’re disappointed with the level of business activity in the September quarter, the month of September is usually a very strong month from revenue due to the summer holiday period," he added. "The softness is in customer demand level. When demand is down 4-5%, [manufacturers are] drawing that much less from distribution."

Still, Microchip had a few bright spots in overall revenue, microcontroller sales, and its licensing division. Revenue was up 2.8% sequentially from non-GAAP net sales of $531.3 million in Q1 2015, and up 10% from the previous year’s second fiscal quarter.

Including revenue from the ISSC acquisition, Microchip’s overall microcontroller business, which accounts for 66.2% of its overall revenue, grew 5.7% year-over-year with its 16-bit microcontroller business up 8.3% sequentially and 32-bit sales increasing 7.6% from last year to reach a new record.

"Having seen most of the market correction in the September quarter, we expect December quarter revenue to be only slightly below typical seasonal levels. We expect our non-GAAP revenue to be down 2% to 7% sequentially in the December quarter," Sanghi said.

While the IC industry remains skeptical about an overall contraction, Brian Matas, vice president of market research at IC Insights, said he isn’t particularly excited.

"The only thing I can say is that after looking through several quarterly earnings reports, results are mixed and so are 4Q projections. Seems to suggest a fair, not bad, not great overall state of the IC market in the final quarter," he told EE Times.

It was an "easy out for Microchip to blame China in this case, and perhaps that’s a valid excuse," Matas added. "Nevertheless, it seems Microchip might want to evaluate its own operations to see if it needs to be more closely dialed in with its customer base and end markets to prevent these red-faced revisions from happening in the first place," he said.

"Despite all that, it’s reassuring to hear Microchip’s 16- and 32-bit sales did well last quarter and that the IC industry apparently is not on course for a collapse," he added.

— Jessica Lipsky, Associate Editor, EE Times


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