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Microchip's projection spooks investors, puzzles analysts

Posted: 14 Oct 2014 ?? ?Print Version ?Bookmark and Share

Keywords:semiconductor? Microchip? revenue?

Many in the financial blogospheres quoted analyst Craig Berger with Hedgeye. Microchip "essentially said that the next Semiconductor Downcycle has arrived, with distributor inventories piling up to reach a tipping point," he wrote in a research note Friday. "Historically, Microchip has been an early semiconductor cycle indicator, with its sell-through revenue recognition helping the firm see a turn in distributor demand dynamics earlier than a sell-in chip firm that can keep shipping inventory."

However, not everyone in the financial community is buying the claim that Microchip sees early warning signs of the semiconductor market better than others. Seeking Alpha's Russ Fischer:

In the early days of the semiconductor business "disti stuffing" was a common practice to manage quarterly sales and earnings. That practice has been discredited since the mid-1970s. No supplier that I know of accounts for sales to distribution as real sales. Only when the distributor sells the parts are they included in the manufacturers' sales numbers. It is hard to believe [Microchip's CEO] doesn't know and understand this industry practice.

Rob Lineback, senior market research analyst at IC Insights, told EE Times, "I was as surprised as the stock market by the Microchip statements."

IC Insights is "still forecasting 8 per cent growth for worldwide IC sales in 2014 to $287.1 billion (a lot of the increase comes from DRAMs) followed by a 7 per cent increase in 2015 to $306.6 billion," he said. "As far as microcontrollers are concerned, we're currently showing sales increasing 5 per cent in 2014 to about $16.0 billion after 0 per cent change in 2013. We are forecasting a 6 per cent increase in MCU sales to nearly $17 billion in 2015."

Other chip companies have not issued similar revisions, Lineback said. "We'll know about Intel tomorrow with their 3Q14 results being released, and I think TI is next week."

- Junko Yoshida
??EE Times

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