Wednesday, September 20, 2006

Calls of Note Part 2

- Goldman Sachs notes that while they maintain a positive long-term view on Microchip (NASDAQ:MCHP), they are more cautious on the near-term, given three recent data points.

1) The firm recently met with a top-3 competitor of Microchip in the microcontroller (MCU) space, who commented on more aggressive pricing in 8-bit microcontrollers, including by Microchip. In particular, this competitor noted that aggregate pricing in 2H2006 has been down 10%, compared to the normal 2-5% decline, largely due to pricing pressure in 4/8-bit MCUs.

2) The automotive end market, which drives around 18% of Microchip's sales, has recently deteriorated, as evidenced by production cuts at the big 3 US automakers and Yahoo's comments on Tuesday on weakness in automotive-related advertising in 3QCY06. While Microchip's sales are more driven by the secular trend of increasing electronics content in cars rather than unit shipments, they do think auto weakness may have some limited impact.

3) There have been softening data points in the consumer end market, which drives around 35% of Microchip's sales.

Firm is trimming FY2007 (Mar) and FY2008 estimates for Microchip to $1.43 and $1.62 from $1.46 and $1.67, respectively. Retains Neutral rating.

Notablecalls: I don't think MCHP will get hit much. It never does.

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