On Tuesday, Citi reiterated its Buy rating on Microchip Technology (NASDAQ:MCHP) stock with a price target of $82.00. The reaffirmation comes after the semiconductor company, currently valued at $37.8 billion, announced a reduction in its revenue outlook for the December quarter, now expecting a 12% quarter-over-quarter revenue decline, a steeper drop than the previously forecasted range of 6% to 12%.
This adjustment is attributed to a lower turns business, which refers to orders that are filled in the same quarter they are received. According to InvestingPro data, 18 analysts have recently revised their earnings expectations downward for the upcoming period.
Microchip Technology also disclosed the impending shutdown of its wafer fabrication facility in Tempe, Arizona. This move is projected to yield annual cost savings of approximately $90 million by mid-2026.
Despite the lowered guidance and facility closure, Citi's analysis suggests confidence in the company's resilience. The firm's note highlighted that sales are currently about 20% below the levels seen prior to the COVID-19 pandemic.
Notably, InvestingPro analysis shows the company has maintained dividend payments for 23 consecutive years, with a current dividend yield of 2.59%, demonstrating long-term financial stability despite market fluctuations.
Citi's optimism is partly based on the leadership of Steve Sanghi, Microchip's long-serving executive, who has a track record of steering the company through economic downturns. The expectation set by Citi is that Microchip Technology's sales will recover more swiftly than those of its competitors.
The semiconductor industry has faced a challenging environment, with many companies adjusting their financial outlooks in response to changing market conditions. Microchip's proactive measures, including the cost-saving closure of its Tempe facility, are seen as steps to manage the downturn effectively.
The Buy rating and price target of $82 are maintained as Citi signals confidence in Microchip Technology's ability to navigate the current industry challenges. The company's strategic decisions and experienced leadership are key factors in this positive outlook.
In other recent news, Microchip Technology has revised its revenue guidance for the December 2024 quarter, projecting numbers closer to the lower end of its initial forecast of $1.025 billion. The firm has also announced plans to close its Tempe wafer fabrication facility, known as Fab 2, with the shutdown expected to result in annual cash savings of around $90 million.
This move is a response to high inventory levels and aims to streamline operations by transferring processes to the company's Oregon and Colorado factories.
In leadership changes, Steve Sanghi, the company's Interim CEO, President, and Chair of the Board, has committed to his role for an indefinite period to ensure stability. Microchip Technology also plans to participate in the UBS Global Technology and AI Conference in December 2024.
Piper Sandler maintained an Overweight rating for Microchip, while Citi analysts forecast a 9% year-over-year increase in global semiconductor sales in 2025, including Microchip Technology. These are recent developments in the company's business landscape.
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