Microchip Technology Inc. (MCHP) is expected to meet inventory goals in the June quarter, thus leading to a jump in wafer starts and ultimately a spike in MCHP’s margins, and MCHP will also benefit from exposure to many end markets in the U.S. and internationally, says Harsh Kumar, Managing Director at Stephens, Inc.
“[Microchip] had built up a little bit of inventory in the downturn in the December quarter. They took a furlough on pay across the board, and they took their wafer starts down, which affected their margins. I think that in the June quarter, they will probably have met their inventory goals, which will lead to a spike in wafer starts, which will lead to a spike in utilization, which will ultimately lead to a spike in margins, which I think will be here to stay,” Kumar said.
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Kumar believes that MCHP has been misunderstood by investors and should also be looked at because of the company’s exposure to the burgeoning automotive and industrial end markets, as well as its exposure to the housing market in the U.S. and abroad.
“We think it is very misunderstood in the minds of the investors. But Microchip has exposure to the automotive market and the industrial market, which are doing well right now, but they also have exposure directly to the housing market both in the U.S. and internationally, as well as the consumer markets. When you think of homes, think of coffee makers, appliances, garage store openers, sprinkler systems, any kind of electronic tool that you might have, they have exposure to all that,” Kumar said.
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