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Microchip (MCHP)
NASDAQ:MCHP
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Microchip
(NASDAQ:MCHP)68Neutral
Positive Factors
Cost Savings
Microchip Technology is set to realize $100M in annualized savings with a portion in June before the full amount in the September quarter.
Product Introduction
Microchip has added PIC64 and Ethernet 10BASE-T1S as Total System Solution anchor products, targeting large and growing markets.
Negative Factors
Competition
Risks of share loss from Texas Instruments' growing low-cost embedded/microcontroller unit capacity and China insourcing remain.
Microchip (MCHP) vs. S&P 500 (SPY)
Market Cap
$31.66B
Dividend Yield3.13%
Average Volume (3M)10.80M
Price to Earnings (P/E)103.8
Beta (1Y)1.52
Revenue Growth-44.31%
EPS Growth-86.74%
CountryUS
Employees22,300
SectorTechnology
Sector Strength48
IndustrySemiconductors and Equipment
Share Statistics
EPS (TTM)0.57
Shares Outstanding537,819,000
10 Day Avg. Volume13,199,351
30 Day Avg. Volume10,799,842
Financial Highlights & Ratios
PEG RatioN/A
Price to Book (P/B)N/A
Price to Sales (P/S)6.65
Price to Cash Flow (P/CF)29.20
P/FCF Ratio29.00
Enterprise Value/Market CapN/A
Enterprise Value/RevenueN/A
Enterprise Value/Gross ProfitN/A
Enterprise Value/EbitdaN/A
Forecast
1Y Price Target
$65.47Price Target Upside12.61% Upside
Rating ConsensusModerate Buy
Number of Analyst Covering18
Microchip Business Overview & Revenue Model
Company DescriptionMicrochip Technology Inc. (MCHP) is a leading provider of smart, connected, and secure embedded control solutions. The company operates in the semiconductor industry, designing and manufacturing microcontrollers, mixed-signal, analog, and Flash-IP solutions. Microchip serves a diverse range of markets, including automotive, industrial, consumer electronics, communications, and computing sectors, providing essential components that facilitate the development of innovative and efficient electronic products.
How the Company Makes MoneyMicrochip Technology generates revenue primarily through the sale of its semiconductor products, which include microcontrollers, analog and interface products, memory products, and other semiconductor solutions. The company sells these products to a wide range of industries, enabling the development of various electronic applications. Revenue is also derived from licensing its Flash-IP technology. Microchip maintains strategic partnerships with original equipment manufacturers (OEMs) and distributors to enhance its market reach and customer base. The company’s earnings are further supported by its focus on innovation, quality, and reliability, which drive customer demand and foster long-term business relationships.
Microchip Financial Statement Overview
Summary
Microchip showcases strong profitability and efficient cash flow management, positioning itself well in the semiconductors industry. The company maintains a stable financial structure with a balanced debt profile, although challenges in revenue growth and cash flow volatility present areas for strategic focus. Overall, Microchip is well-positioned for operational stability and long-term growth, albeit with some risks to monitor.Income Statement
Microchip demonstrates strong profitability with a gross profit margin of 55.4% and a net profit margin of 6.5% for TTM, indicating efficient cost management. However, the revenue growth rate shows a decline of 38%, suggesting potential challenges in sales growth. The EBIT and EBITDA margins remain healthy at 13.4% and 25.9% respectively, supporting the company's operational efficiency despite the revenue decline.78
Positive
Balance Sheet
The balance sheet reflects moderate leverage with a debt-to-equity ratio of 1.12, indicating a balanced approach to financing. The return on equity is robust at 5.1%, showcasing effective utilization of equity capital. The equity ratio stands at 38.6%, signifying a stable financial structure, although there is room for improvement in reducing debt levels to enhance financial stability.72
Positive
Cash Flow
Strong cash flow generation is evident with a free cash flow to net income ratio of 3.03 and an operating cash flow to net income ratio of 3.64, indicating excellent cash conversion efficiency. The free cash flow growth rate of -64% compared to the previous year highlights potential volatility in cash flow, yet the overall cash generation capability remains solid.85
Very Positive
| Breakdown | |||||
| TTM | Mar 2024 | Mar 2023 | Mar 2022 | Mar 2021 | Mar 2020 |
|---|---|---|---|---|---|
| Income Statement | Total Revenue | ||||
| 4.76B | 7.63B | 8.44B | 6.82B | 5.44B | 5.27B | Gross Profit |
| 2.63B | 5.00B | 5.70B | 4.45B | 3.38B | 3.24B | EBIT |
| 635.80M | 2.57B | 3.12B | 1.85B | 998.10M | 647.10M | EBITDA |
| 1.41B | 3.44B | 4.11B | 3.02B | 2.15B | 1.91B | Net Income Common Stockholders |
| 308.80M | 1.91B | 2.24B | 1.29B | 349.40M | 570.60M |
| Balance Sheet | Cash, Cash Equivalents and Short-Term Investments | ||||
| 319.70M | 319.70M | 234.00M | 319.40M | 282.00M | 403.00M | Total Assets |
| 15.87B | 15.87B | 16.37B | 16.20B | 16.48B | 17.43B | Total Debt |
| 6.03B | 6.03B | 6.44B | 7.69B | 8.90B | 9.48B | Net Debt |
| 5.71B | 5.71B | 6.21B | 7.37B | 8.62B | 9.08B | Total Liabilities |
| 9.22B | 9.22B | 9.86B | 10.30B | 11.14B | 11.84B | Stockholders Equity |
| 6.66B | 6.66B | 6.51B | 5.89B | 5.34B | 5.59B |
| Cash Flow | Free Cash Flow | ||||
| 934.30M | 2.61B | 3.13B | 2.47B | 1.82B | 1.48B | Operating Cash Flow |
| 1.12B | 2.89B | 3.62B | 2.84B | 1.92B | 1.54B | Investing Cash Flow |
| -303.00M | -392.10M | -599.50M | -477.70M | -173.30M | -133.20M | Financing Cash Flow |
| -514.20M | -2.41B | -3.10B | -2.33B | -1.86B | -1.44B |
Microchip Technical Analysis
Negative
58.14
Price Trends
56.53
Positive
62.81
Negative
73.53
Negative
Market Momentum
0.77
Negative
51.89
Neutral
20.83
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For MCHP, the sentiment is Negative. The current price of 58.14 is above the 20-day moving average (MA) of 56.69, above the 50-day MA of 56.53, and below the 200-day MA of 73.53, indicating a neutral trend. The MACD of 0.77 indicates Negative momentum. The RSI at 51.89 is Neutral, neither overbought nor oversold. The STOCH value of 20.83 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for MCHP.
Microchip Risk Analysis
Microchip disclosed 44 risk factors in its most recent earnings report. Microchip reported the most risks in the “Legal & Regulatory” category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Microchip Peers Comparison
Overall Rating
UnderperformOutperform
Sector (59)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
74 Outperform | $112.18B | 72.13 | 4.46% | 1.61% | -19.28% | -44.00% | |
70 Outperform | $177.37B | 37.50 | 28.39% | 2.74% | -10.72% | -26.60% | |
68 Neutral | $31.66B | 103.79 | 5.12% | 3.13% | -44.31% | -86.74% | |
67 Neutral | $878.27B | 151.86 | 8.71% | 1.16% | 43.99% | -62.55% | |
67 Neutral | $18.75B | 12.25 | 17.88% | ― | -14.19% | -27.42% | |
61 Neutral | $53.55B | 21.47 | 27.33% | 1.87% | -4.99% | -9.18% | |
59 Neutral | $22.39B | 11.53 | -18.05% | 2.31% | 5.00% | -25.89% |
* Technology Sector Average
Performance Comparison
MCHP
Microchip
58.14
-27.54
-32.14%
ADI
Analog Devices
226.18
37.61
19.94%
AVGO
Broadcom
187.48
54.28
40.75%
NXPI
NXP Semiconductors
211.16
-35.90
-14.53%
ON
ON Semiconductor
44.49
-33.13
-42.68%
TXN
Texas Instruments
194.84
27.65
16.54%
Microchip Earnings Call Summary
Earnings Call Date: Feb 6, 2025 | % Change Since: 10.30% | Next Earnings Date: May 12, 2025
Earnings Call Sentiment Neutral
The earnings call presented a mix of strategic advancements and financial challenges. While there were notable product introductions and effective debt management, significant revenue declines and inventory management issues posed substantial challenges. The sentiment reflects a cautious outlook with a focus on recovery and strategic adjustments.Highlights
Introduction of New 64-bit RISC-V Processors
Microchip Technology introduced a new generation of 64-bit RISC-V processors featuring advanced AI capabilities, integrated time-sensitive networking, and next-generation security, with strong initial customer response.
Expansion of Wi-Fi Portfolio
20 new products were added to the Wi-Fi portfolio, expanding microcontrollers and plug-and-play modules to simplify robust, secure wireless connectivity.
High Gross Margin Despite Low Utilization
Non-GAAP gross margin was reported at 55.4%, and even for the current quarter, the midpoint guidance was 53%, which is considered strong relative to competitors.
Debt Management and Refinancing
Microchip retired $665.5 million in convertible bonds and issued $2 billion in investment-grade bonds, effectively managing its debt maturity schedule.
Lowlights
Significant Revenue Decline
Net sales for the December quarter were $1.026 billion, down 11.8% sequentially and 41.9% from a year-ago quarter.
Increased Inventory Days
Inventory days increased to 266 from 247 days, with a target of 130 to 150 days, indicating a prolonged inventory correction process.
Operating Expenses and Net Loss
GAAP operating expenses were $530.5 million, and the company reported a GAAP net loss of $53.6 million, resulting in a loss per share of $0.10.
Low Visibility and Inventory Correction Challenges
The company faces low visibility in bookings and is undergoing a large inventory correction, with continued broad-based weakness in major geographies and product lines.
Company Guidance
In Microchip Technology Incorporated's Q3 Fiscal 2025 financial results call, Steve Sanghi, the CEO, announced several strategic measures to address the company's current challenges and set the stage for future growth. The company plans to close its Tempe fab, known as fab two, to resize its manufacturing footprint, with 70% of products already qualified at alternate facilities. Inventory reduction is a key focus, with plans to decrease inventory from 266 days at the end of December 2024 to a target of 130-150 days by fiscal year-end 2026, potentially freeing up $250 million in cash. Net sales for Q3 were $1.026 billion, with gross margins at 55.4% on a non-GAAP basis, including $42.7 million in capacity underutilization charges. Operating expenses were at 34.9% of net sales, while non-GAAP net income was $107.3 million. The company provided guidance for Q4 fiscal year 2025, projecting net sales between $920 million and $1 billion, non-GAAP gross margins between 54% and 55%, and non-GAAP diluted earnings per share between $0.05 and $0.15. The company is committed to maintaining its dividend, despite a short-term gap in free cash flow coverage, and expects improvements as inventory levels normalize and operational efficiencies are realized.Microchip Corporate Events
Executive/Board Changes
Microchip Appoints Victor Peng to Board
Positive
Feb 4, 2025
On February 4, 2025, Microchip appointed Victor Peng, former president of AMD, to its Board, effective February 10, 2025. This strategic appointment is poised to strengthen the company’s governance and leverage Peng’s extensive experience in the semiconductor industry, potentially enhancing its competitive positioning.
Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.