Bookings for the March quarter hit a record and this strength has continued into the June quarter, with backlog for the June quarter up ~9% q/q.
Microchip, however, believes that the strength in bookings may be a result of customer concerns about supply chain disruptions due to the COVID-19 virus.
“With economies around the world contracting rapidly, with millions of people getting laid off and with customer factory closures due to “shelter in place” ordinances in various countries, we believe that product demand is likely to weaken significantly” the company warned.
In addition, due to the uncertainty surrounding COVID-19 and potential product demand weakness, Microchip announced that it is also lowering its cost structure.
Its CEO, President and other executive staff members will take a 20% salary cut effective on April 20, 2020 while the rest of the non-factory employees in the company will take a 10% salary cut.
Microchip expects that its capital expenditures for fiscal 2021 ending March 31, 2021 will be reduced to about $50 million to $70 million, primarily for maintenance capital and to support new product introductions.
“While we see strong bookings and backlog right now, we also see a very high degree of uncertainly in our business due to the impact of the COVID-19 virus,” said Steve Sanghi, Microchip’s CEO. “With millions of job losses, customer factories shutting down and weakening economic activity, we are taking actions to reduce expenses and capital expenditures to prepare.”
Nonetheless the stock continues to win support from the Street, with a Strong Buy analyst consensus. Out of 16 analysts covering the stock, 14 rate MCHP a buy, TipRanks shows. (See Microchip’s stock analysis on TipRanks)
“We continue to view Microchip as a company that will outperform as we exit the current industry down-cycle (strong cash flow, debt repayments, and design wins in microcontrollers and analog)” stated Rosenblatt analyst Hans Mosesmann on April 9. “We reiterate our Buy rating and 12-month price target of $120.”
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