Leading chipmaker Microchip Technology Incorporated (MCHP) recently trimmed its net sales guidance to $407 million - $408 million for the second quarter of fiscal 2013, ending September 30, 2012, from $412 million - $430 estimated earlier.
The reduction in guidance was primarily due to weak economic environment, which continues to adversely impact the company's business as well as the overall semiconductor industry. Management stated that the lower-than-anticipated net sales activity in the September quarter was driven primarily by macroeconomic and industry conditions.
This apart, Microchip, which competes with companies like Atmel Corporation (ATML), did not provide any further details. On August 2, 2012, Microchip acquired Standard MicroSystems Corporation to expand its smart mixed-signal connectivity solutions for embedded applications in markets such as automotive, industrial, computing, consumer and wireless audio. The integration process is underway and management expects the acquisition to be accretive to the bottom line in the September quarter.
Concurrent with the first quarter results, Microchip stated that it expects a contribution of about $65 million to $70 million from Standard MicroSystems Corporation products in the September quarter.
Excluding one-time items, Microchip currently assumes that the acquisition will contribute approximately 3 cents a share to the bottom line in the September quarter and 6 cents-7 cents in the December quarter and 7 cents-8 cents in the March quarter next year and 8 cents-9 cents in the June quarter next year.
The company's first quarter result missed the Zacks Consensus Estimate by a penny. Earnings estimates for fiscal 2013 have moved up marginally thereafter. Europe continues to be weak with no signs of revival in the coming months. China, which is touted as the company's growth engine, is also slowing down. Hence, a significant improvement in business is not in the cards in the near term.
We, therefore, prefer to be on the sidelines and maintain a Neutral recommendation in the long run. Our recommendation is supported by a Zacks #3 Rank, which translates into a short-term rating of Hold.