COMPANY DESCRIPTION

Microchip Technology develops, manufactures, and sells semiconductor products used for a range of embedded control applications. Co.'s product portfolio comprises eight-bit, 16-bit, and 32-bit PIC® microcontrollers and 16-bit dsPIC® digital signal controllers, which include on-board Flash (reprogrammable) memory technology. In addition, Co. provides a range of linear, mixed-signal, power management, thermal management, radio frequency, safety and security, and interface devices, as well as serial electrically erasable programmable read-only memories, Serial Flash memories and Parallel Flash memories. Co. also licenses Flash-IP products that are incorporated in a range of products. It operates in Asia, Europe and the Americas. It is headquartered in Chandler, Arizona 

 

ECONOMIC MOAT

In our opinion MCHP moat comes from strength of a firm's proprietary chip designs, as well as switching costs.  MCHP  ( as a chipmakers) faces stringent quality requirements in some end markets, such as the automotive space, for example, where defects can only be tolerated as low as one part per million. MCHP has built a lot of customer loyalty for their  high quality and performance.

 

OUTLOOK

Microchip Technology posted solid full-year results for fiscal 2014. The top line likely advanced around 11%. The outlook appears healthy for fiscal 2015. The housing, industrial, and automotive sectors have been driving a larger percentage of revenue growth, and may continue to do so going forward.  The company has been highly active on the acquisition front. MCHP’s stock is favorably ranked for the next six to 12 months. Furthermore, these shares offer above-average long-term price.

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STRENGTHS

  • Significant market position in microcontrollers market

  • Diversified geographic presence reduces business risk 

WEAKNESSES

  • Overdependence on distributors

  • Reliance on third party contractors and foundries

  • Declining profits and margins 

THREATS

  • Intense competition leads to pricing pressures affecting revenues and profitability

  • Weakened economic conditions and uncertainty could impact operating results

  • Rapid technological changes will impact profitability of operations

OPPORTUNITIES

  • Expansion through acquisitions

  • Positive outlook for automotive semiconductor market

  • Increasing demand for smart energy to drive future growth 

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.

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