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Earlier this month, Microchip Technology reported quarterly earnings showing a year-on-year drop in both revenue and net income, alongside a cautious forward guidance attributed to inventory correction pressures and a softer demand environment.
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An important development for the company is the launch of the LAN866x series, which aims to ease network integration and reduce costs in automotive Ethernet applications by enabling software-less, efficient endpoint connectivity.
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We’ll explore how Microchip’s subdued guidance and continued inventory challenges may influence its outlook for earnings and margin recovery.
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To own shares of Microchip Technology today, you need confidence in its ability to recover from ongoing inventory corrections and margin pressure while capitalizing on secular trends like increased vehicle electrification and edge AI. While the new LAN866x series targets growth in automotive Ethernet, the bigger picture remains driven by managing excess inventory and restoring earnings momentum. The impact of this launch on short-term catalysts, such as margin recovery, is not material, as inventory normalization is still the central near-term challenge for the business.
Among recent announcements, the Ceva partnership to bring advanced Neural Processing Units into Microchip products stands out for its relevance to future growth catalysts. By embedding scalable AI directly in its compute, communication, and security solutions, Microchip aims to expand its reach in next-generation edge and data center markets, key drivers highlighted in the recovery narrative, beyond automotive network innovation.
However, investors should also consider that, unlike the upside from new product cycles, ongoing inventory write-offs and factory underutilization charges remain critical headwinds that…
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Microchip Technology’s outlook anticipates $6.6 billion in revenue and $1.4 billion in earnings by 2028. Achieving these targets implies an annual revenue growth rate of 15.9% and a $1.58 billion increase in earnings from the current level of -$178.4 million.
Uncover how Microchip Technology’s forecasts yield a $74.68 fair value, a 40% upside to its current price.
Six individual fair value estimates from the Simply Wall St Community range between US$22.39 and US$90 per share. Opinions vary, especially given persistent inventory challenges and their broader effects on profitability, so take the time to compare multiple views for a fuller picture.