UBS Securities lifts profit estimates of Microchip Technology

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By Balasubramanyam Seshan | August 2, 2010 11:05 PM EST

UBS Securities raised earnings estimates of semiconductor company Microchip Technology Inc. on Friday as it expects seasonal outlook on sustained demand. The brokerage reiterated its Buy rating on shares of Microchip, while increasing its price target to $33.50 from $32.50.

“For Microchip’s fiscal first quarter results, on slightly raised estimates given a better than expected demand environment, we now expect sales/non-GAAP EPS of $319.8 million/$0.54 above consensus of $319.2 million/$0.52. Note Microchip had record first two months’ bookings and backlog for fiscal second quarter,” said Uche Orji, an analyst at UBS Securities.

The analyst said supporting strong fiscal first quarter growth are 16-bit microcontrollers (MCUs), which likely grew as much as 20 percent quarter-over-quarter. For fiscal second quarter, the analyst expects sales/non-GAAP EPS of $329.6 million/$0.55, above consensus of $328.7 million/$0.53.

Microchip was very positive about near-term sales momentum at the UBS technology conference on June 9, expecting 16-bit MCU sales could double year-over-year in fiscal 2011, UBS Securities said in a report to its clients.

“We remain positive on Microchip on: near-term expectations for MCU share gains, its 4.4 percent dividend yield (more than 70 percent payout ratio), which we believe is sustainable, undemanding valuation assumption for mid-single-digit sales growth, which essentially translates to no future microcontroller market share gains, an outcome we view as very conservative given a solid product pipeline,” said Orji.

The brokerage increased its 2011 EPS estimate of Microchip to $2.00 from $1.94 and its 2012 estimate to $2.14 from $2.05.

Microchip shares closed Friday up 0.23 percent at $30.45 on the Nasdaq, while in after-hours the stock fell 0.63 percent at $30.26.

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