For fiscal year 2024, Microchip reported total revenue of $7.63 billion, down 9.5% from $8.44 billion in 2023, underscoring macroeconomic headwinds in the semiconductor sector. Net income for the year stood at $1.907 billion, a 14.78% year-over-year drop, highlighting margin compression driven by persistent fixed costs.
Gross profit for FY2024 was reported at $4.996 billion, a 12.32% decrease compared to the prior year, signaling reduced production efficiency. Net profit margin as of December 31, 2024, fell to 6.49%, weighed down by elevated operating expenses. Return on equity (ROE) for the trailing twelve months was just 4.86%, well below the threshold expected by deep-value investors.
From a valuation standpoint, Microchip’s average price-to-free cash flow (P/FCF) ratio for 2024 stood at 25.76×, translating to an approximate free cash flow yield of 3.9% — modest by industry standards. The company returned $1.89 billion to shareholders via dividends and buybacks during FY2024, a 15.4% year-over-year increase, aligning with its target of distributing 100% of adjusted free cash flow. The annual dividend reached $1.68 per share, up 33.2% year-over-year, reinforcing its consistent capital return policy.
However, the balance sheet reveals a debt-to-equity ratio of 1.119× as of December 31, 2024 — a potential red flag in a cyclical downturn. Total assets declined to $15.873 billion in 2024, down 3.04% year-over-year, further tightening the company’s financial flexibility. While liquidity remains adequate, its vulnerability to macroeconomic and interest rate shocks cannot be ignored.
Morningstar has assigned Microchip a "wide economic moat" rating, citing its proprietary chip designs and deeply entrenched customer base in the microcontroller and analog markets — structural advantages that make market entry for competitors costly. However, as of January 2025, the market price of $58.51 was considered a 251% premium over Morningstar’s fair value estimate of $43.00, leaving minimal margin of safety for value investors.
On the governance front, MSCI awarded Microchip a “BBB” ESG rating with a governance score of 62/100, indicating room for improvement in board transparency and oversight. Sustainalytics categorized the company’s ESG risk as medium, though governance concerns persist. Notably, CFO James Eric Bjornholt sold 175,551 shares at $81.50 in August 2024, worth approximately $14.3 million — a potential signal of internal caution regarding valuation. No significant insider purchases were recorded in the past year.
Additionally, Microchip faces ongoing litigation from HD Silicon Solutions LLC for alleged infringement of U.S. Patent 6,774,033, currently under appeal. In Europe, the EU’s Chips Act has failed to attract advanced chipmakers, posing supply risk. Meanwhile, a U.S. Section 301 investigation into legacy chip imports from China could create tariff and supply chain headwinds for Microchip’s global embedded systems portfolio.
Given the relatively high valuation — with a trailing P/E of approximately 26.05× and a P/FCF of 25.76× — combined with elevated leverage, we recommend holding existing positions and waiting for a correction to a more attractive entry point (P/E of 20–22× or P/FCF ≤20×) before initiating or expanding exposure. This strategy prioritizes capital preservation while positioning for favorable risk-adjusted returns.
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