Overview

As of January 18, 2025, MCHP is trading at $57.97 per share. This reflects a significant decrease from its 52-week high of $100.56, indicating a -42% over the past year.

In this report, we’ll cover how the whole story unfolded in 2024, and we’ve attached our report on the company from January 2024 before it all happened:

2024 Catalysts for Decline

Revenue Shortfall and Restructuring Plans: 

In December 2024, Microchip Technology revised its revenue guidance downward for the December quarter, anticipating approximately $1.025 billion, below analysts' expectations of $1.06 billion. This adjustment was attributed to slower-than-expected orders.

The company also announced plans to shut down its Tempe Fab 2 facility by September 2025, aiming for annual cash savings of $90 million, with restructuring costs estimated at $100 million.

According to Fitch Ratings, Microchip will cut production and foundry orders and slow shipments to channel partners to aggressively reduce inventory levels from record high levels both in dollar terms and days of inventory.

As of Sept. 30, 2024, inventory was roughly double pre-Covid 19 pandemic levels at $1.3 billion, while Fitch-estimated days of inventory (DIO) increased by more than 100 days to 223 from 120 days over the same time-frame. These metrics are outliers relative to those of peers and Microchip's pace of inventory reduction will determine if or the speed with which it returns profitability to industry leading levels.

Leadership Transition:

In November 2024, CEO Ganesh Moorthy retired, and Steve Sanghi was appointed as interim CEO. This leadership change occurred amidst declining sales and operational challenges, potentially impacting investor confidence.

Cybersecurity Incident:

In August 2024, the company experienced a cyber incident involving an unauthorized party, disrupting certain servers and business operations. This led to manufacturing facilities operating below normal capacity and impacted order fulfillment, further straining the company's performance.

Market Downgrades: 

In October 2024, Truist Securities analyst William Stein downgraded Microchip Technology from 'Buy' to 'Hold,' citing weakening demand in key sectors such as automotive, industrial, IoT, and communications. Elevated semiconductor inventories were expected to normalize only by mid-2025, suggesting prolonged financial pressures.

Product Development:

Despite these challenges, Microchip Technology continued its product development initiatives. In October 2024, the company expanded its 64-bit portfolio with high-performance, post-quantum security-enabled PIC64HX microprocessors, targeting the growing edge computing market.

Conclusion:

2024 was marked by a convergence of challenges: declining revenues, restructuring efforts, inventory imbalances, and unexpected disruptions like cybersecurity incidents. These factors, compounded by a slowing demand across key markets, drove the stock's decline.

While risks remain—particularly in navigating near-term debt maturities and ensuring leadership stability—analyst forecasts for revenue and earnings recovery suggest a cautiously optimistic future. The stock’s valuation at current levels reflects the perceived inferiority relative to it’s industry peers.

For investors, Microchip Technology’s journey highlights the importance of resilience and adaptability in dynamic industries.

DISCLAIMER

All analysis by Regal Capital is for informational purposes only and does not constitute financial advice. It is not a recommendation to buy, hold, or sell any securities. Investors should conduct their research, seek professional advice, and consider their financial goals and risk tolerance before making investment decisions. The author and associated parties assume no responsibility for the accuracy or completeness of the information provided and any losses that may be incurred from use of the information provided. Past performance is not indicative of future results, and investment risks apply. The author may hold positions in discussed securities, which may change without notice.