Microchip Technology (MCHP) , a supplier of microcontrollers (MCUs) and analog chips for a huge number of customers and end-markets, is down over 2% after reporting in-line revenue and issuing June-quarter revenue guidance of $1.26 billion to $1.4 billion, mostly below a consensus estimate of $1.39 billion. Notably, whereas Microchip forecast in February that its sales would bottom in the March quarter, the midpoint of its June-quarter outlook implies sales will be roughly flat sequentially.
Like many peers, Microchip has been dealing with inventory corrections and soft Chinese and automotive demand. The company explains its guidance by saying that its prior forecast for a March-quarter bottom assumed no new adverse trade developments, and that -- with the Trump Administration set to raise the import tariff on $200 billion worth of Chinese imports from 10% to 25% -- trade rhetoric has worsened, which in turn has added to macro uncertainty. As I noted earlier this week, Beijing doesn't need to carry out retaliatory measures for continued trade tensions to weigh on many U.S. tech companies.
But while Microchip slumps due to soft guidance, RF chipmaker Qorvo (QRVO) is up over 4% after beating March-quarter estimates and issuing very strong June-quarter guidance. With the qualifier that Qorvo is getting a slight top-line boost from its just-closed acquisition of power management chip supplier Active-Semi, the company forecasts June-quarter revenue of $780 million to $800 million, soundly above a $690.1 million consensus and implying 14% annual growth at the midpoint.
Qorvo's guidance easily looks better than that of rival Skyworks Solutions (SWKS) , which sold off post-earnings last week. The midpoint of Skyworks' June-quarter sales guidance range implies revenue will be down 8% annually.
Qorvo, which still only trades for 13 times its expected fiscal 2020 (ends in Sep. 2020) EPS, has gotten a lift in recent quarters from share gains against Broadcom (AVGO) in Apple's (AAPL) 2018 iPhone lineup relative to 2017 iPhones. And though Broadcom has insisted it will regain lost share this year, Qorvo struck an upbeat tone on its earnings call regarding its share gains in the smartphone market overall, and noted that it saw "a significant content expansion" with new Huawei and Samsung phones.
At the same time, with global smartphone sales clearly under pressure, Qorvo said that it's still "taking much more of a cautious outlook" regarding second-half demand. The company is banking on smartphone share gains, together with growing deployments of 5G base stations that require a lot more RF content than comparable 4G base stations, to drive growth in the near-term. As 5G phone sales ramp next year, the RF needs of 5G phones should act as another growth driver, even if (as increasingly looks likely) Qualcomm (QCOM) takes some RF share with 5G's arrival.
Overall, the market's very different reactions to Microchip and Qorvo's earnings drive home the value of being selective with chip stocks at a time when the group trades well above its December lows. Though Microchip and Qorvo are both (in their own ways) contending with soft end-market demand, share gains, 5G network launches and a low valuation are allowing Qorvo to keep trekking higher for now.
