I’ve been writing for a little while now that I thought
the semiconductor rally was ahead of itself, and that between ambitious
expectations for a second half bounce, high inventories, shrinking
lead-times, and ongoing uncertainty with trade relations with China,
there were a lot of factors in play that could blunt the “V-shaped”
rally so many investors seemed to be counting on. To that end, I thought
Microchip Technology (MCHP) shares were ahead of themselves in the short term back in February, and the shares are now pretty much flat versus that last article.
With
Microchip revising down for the fourth time, and blaming it largely on
the tariff issue, I wonder if this will be the moment of reckoning for
the larger chip space. Either way, I still see some downside risk over
the near term. Specific to Microchip, I do like the business and
management’s active approach to inventory management and M&A, even
if I think they are occasionally too bullish on guidance. High debt is a
risk (almost 8x my FY20 FCF estimate), and the shares don’t look like a
margin bargain on short-term metrics, but I’d keep an eye on any
sell-off, as I think the shares can go higher over the long term.
Click here for the full article:
Microchip Technology Bumps Along The Bottom
