Analog chipmaker Microchip Technology (NASDAQ: MCHP) announced better-than-expected revenue in Q1 CY2025, but sales fell by 26.8% year on year to $970.5 million. On top of that, next quarter’s revenue guidance ($1.05 billion at the midpoint) was surprisingly good and 5.1% above what analysts were expecting. Its non-GAAP profit of $0.11 per share was in line with analysts’ consensus estimates.
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Microchip Technology (MCHP) Q1 CY2025 Highlights:
- Revenue: $970.5 million vs analyst estimates of $961.2 million (26.8% year-on-year decline, 1% beat)
- Adjusted EPS: $0.11 vs analyst estimates of $0.10 (in line)
- Adjusted Operating Income: $136 million vs analyst estimates of $134.9 million (14% margin, 0.8% beat)
- Revenue Guidance for Q2 CY2025 is $1.05 billion at the midpoint, above analyst estimates of $994.5 million
- Adjusted EPS guidance for Q2 CY2025 is $0.22 at the midpoint, above analyst estimates of $0.15
- Operating Margin: -10.3%, down from 19.1% in the same quarter last year
- Free Cash Flow Margin: 19.8%, down from 29.4% in the same quarter last year
- Inventory Days Outstanding: 251, down from 266 in the previous quarter
- Market Capitalization: $25.86 billion
Steve Sanghi, Microchip’s CEO and President commented that "Our March quarter revenue of $970.5 million exceeded the midpoint of our guidance, and we believe marks the bottom of this prolonged industry down cycle for Microchip. The decisive actions we have taken under our nine-point-plan are enhancing our operational capabilities through more efficient manufacturing, improving inventory management, and a renewed strategic focus. As we move forward from a challenging fiscal year, we believe Microchip is better positioned to capitalize on growth opportunities as market conditions evolve."
Company Overview
Spun out from General Instrument in 1987, Microchip Technology (NASDAQ: MCHP) is a leading provider of microcontrollers and integrated circuits used mainly in the automotive world, especially in electric vehicles and their charging devices.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Microchip Technology’s demand was weak and its revenue declined by 3.6% per year. This wasn’t a great result and is a sign of poor business quality. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.
Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Microchip Technology’s recent performance shows its demand remained suppressed as its revenue has declined by 27.8% annually over the last two years. 
This quarter, Microchip Technology’s revenue fell by 26.8% year on year to $970.5 million but beat Wall Street’s estimates by 1%. Despite the beat, the drop in sales could mean that the current downcycle is deepening. Company management is currently guiding for a 15.8% year-on-year decline in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to decline by 2.5% over the next 12 months. Although this projection is better than its two-year trend, it's tough to feel optimistic about a company facing demand difficulties.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Microchip Technology’s DIO came in at 251, which is 88 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.
Key Takeaways from Microchip Technology’s Q1 Results
It was great to see Microchip Technology’s revenue guidance for next quarter top analysts’ expectations. We were also glad its EPS outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 6.8% to $52.47 immediately after reporting.
Sure, Microchip Technology had a solid quarter, but if we look at the bigger picture, is this stock a buy? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
