Microchip Down as Trump Policies Spell Doom for Technology

Microchip Technology Inc MCHP was the worst performing S&P 500 stock on Dec 1. Shares of the chip-maker fell almost 7.5% in the last trading session that saw a significant slide in technology stocks particularly semiconductors and software.
    
Overall, tech-laden NASDAQ Composite fell 1.36%, due to weakness in semiconductor as well as 2.8%, 1.8% and 0.9% decline in share prices of Facebook FB, Microsoft MSFT and Apple AAPL, respectively. Per Reuters, S&P 500 technology index had its worst day since August.

We also note that Microchip has not been performing well in the recent times. Since, its second-quarter fiscal results was released on Nov 7, the stock price has declined 1.61% as compared with the Zacks Electronic Semiconductor industry’s gain of 4.72%.

 

Technology Slump: Trump Impact

The slump reflects growing uncertainty and lack of visibility over Trump administration’s economic policy and its impact on the technology sector. During his election campaign days, Donald Trump had threatened to force technology companies to bring their overseas manufacturing operations back to the U.S.

The recent Carrier fiasco – where the heating and air-conditioning company had to partially backtrack in its decision to outsource manufacturing jobs from Indiana to Mexico – will definitely create panic among technology investors.

Moreover, Trump’s views over trade protectionism and unfavourable immigration policy are some of the other headwinds for the U.S. technology companies.

Microchip: Microcontroller Key Catalyst

Although the impact from Trump’s policies is likely to remain an overhang on technology companies like Microchip, we believe that strong demand for microcontroller products will drive the company’s results going ahead.

MICROCHIP TECH Price and Consensus

 

MICROCHIP TECH Price and Consensus | MICROCHIP TECH Quote

Most recently, Microchip raised its third-quarter fiscal 2017 guidance and also stated that it is on track to achieve long-term operating margin target of 33% fourth-quarter 2018.  The company is expanding its touch business beyond handsets and tablets into areas, such as automotive industrial applications, which is positive in our view.

This is further expected to drive top-line growth in the rest of fiscal 2017. Moreover, stringent cost control is a catalyst for operating margin expansion. (Read More: Microchip Raises Q3 View, On Track with Long-Term Target)

Zacks Rank

Currently, Microchip sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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