Microchip Technology Inc. (NASDAQ:MCHP)

Core and Developed Technology

The value of core and developed technology remained relatively stable from 2017 to 2018, with a slight increase from approximately 1.93 billion to 1.95 billion USD. However, a significant surge occurred in 2019, rising sharply to around 7.41 billion USD. Subsequently, the value marginally declined and stabilized near 7.39 billion USD through 2022.

Customer-Related Intangible Assets

Customer-related intangible assets were stable near 717 million USD in 2017 and 2018, then gradually increased to peak close to 917 million USD in 2019. A gradual decline followed, with a notable drop to 200 million USD in 2022, representing a significant reduction over the three years after the peak.

In-Process Research and Development

The in-process research and development assets exhibited a decreasing trend, beginning at approximately 38.5 million USD in 2017 and dropping consistently to 6.4 million USD by 2022, suggesting reduced capitalized research and development activities or amortization writedowns.

Software Licenses

Software licenses were not recorded until 2021, when the value appeared at 124.6 million USD, increasing further to 191.2 million USD in 2022. This indicates a growing recognition or acquisition of software-related intangible assets during the recent periods.

Distribution Rights and Other

Distribution rights and other intangible assets fluctuated over the period, starting modestly at 18.7 million USD in 2017, declining to 1.8 million in 2018, then rising sharply to 126 million USD in 2020. This was followed by a steep decline to near 0.4 million USD by 2022, indicating significant disposals or impairments after 2020.

Intangible Assets, Gross Amount

The gross amount of intangible assets mirrored the trends seen in its components, remaining stable near 2.7 billion USD through 2018, then spiking dramatically to 8.3 billion USD in 2019 and maintaining above 7.7 billion USD through 2022, though with a declining trajectory after 2020.

Accumulated Amortization

Accumulated amortization increased year-over-year substantially, starting from approximately 558 million USD in 2017 to reach around 3.7 billion USD by 2022. The rising amortization reflects ongoing expense recognition against intangible assets over time.

Intangible Assets, Net Amount

The net amount (gross less accumulated amortization) of intangible assets exhibited variability, initially decreasing from about 2.15 billion USD in 2017 to 1.66 billion USD in 2018, before increasing sharply to 6.69 billion USD in 2019. Afterwards, it declined continuously, reaching 4.04 billion USD in 2022, demonstrating amortization and possible impairments reducing net book value.

Goodwill

Goodwill remained nearly constant around 2.3 billion USD through 2018, then increased significantly to approximately 6.66 billion USD in 2019 and maintained this level through to 2022. This suggests large acquisitions were recognized around 2019 with no significant write-downs thereafter.

Intangible Assets and Goodwill Combined

The sum of intangible assets and goodwill showed a substantial increase from around 4.45 billion USD in 2017 to a peak above 13.3 billion USD in 2019. Following this peak, the combined value declined steadily, falling to approximately 10.7 billion USD by 2022, reflecting the trends in both amortization expenses impacting intangible assets net and the relatively stable goodwill.

The analysis of the financial data reveals several notable trends in both reported and goodwill adjusted metrics over the six-year period ending March 31, 2022.

Total Assets

The reported total assets exhibited an overall growth trend from approximately 7.69 billion USD in 2017 to a peak near 18.35 billion USD in 2019. Subsequently, a decline is observed, with assets reducing to about 16.20 billion USD by 2022. This pattern suggests significant asset growth prior to 2019 followed by a gradual contraction. In contrast, the adjusted total assets, which presumably exclude goodwill or intangible asset effects, follow a similar pattern but at consistently lower levels, increasing from approximately 5.39 billion USD in 2017 to around 11.69 billion USD in 2019 before declining each year to reach approximately 9.53 billion USD in 2022. The adjusted figures reflect a more conservative asset base and highlight the effect of adjustments that materially reduce asset values.

Stockholders' Equity

Reported stockholders' equity shows an upward trend from about 3.27 billion USD in 2017, increasing modestly to 5.59 billion USD by 2020, then experiencing slight fluctuations and ending at approximately 5.89 billion USD in 2022. This indicates generally increasing equity capital and retained earnings with some volatility in the latter years.

Conversely, adjusted stockholders’ equity presents a markedly different picture. Starting at approximately 972 million USD in 2017, it remains relatively stable until 2018, then turns negative from 2019 onwards, showing values of roughly -1.38 billion USD in 2019 and fluctuating near this negative range through 2022, with a slight improvement to about -779 million USD in 2022. This substantial divergence from reported equity underscores significant impairment or write-down of goodwill or intangible assets impacting the adjusted equity calculation, resulting in a negative book value after adjustments in recent years.

Insights

The differences between reported and adjusted figures emphasize the material effect of goodwill and other intangible assets on the company’s reported financial position. While reported metrics suggest growth and relatively stable equity, adjusted data convey a more cautious outlook characterized by diminished asset and equity bases, potentially reflecting risks or impairments related to intangible assets. The negative adjusted equity in recent years could signal balance sheet pressures when excluding goodwill, which may be relevant for risk assessment and valuation considerations.

The analysis of the financial data reveals several noteworthy trends in the company's performance over the reported periods.

Total Asset Turnover

The reported total asset turnover exhibits a fluctuating pattern, initially increasing from 0.44 in 2017 to 0.48 in 2018, then decreasing significantly to 0.29 in 2019, followed by a slight recovery to 0.42 by 2022. The adjusted total asset turnover figures, which account for goodwill adjustments, are consistently higher than the reported figures, indicating a more efficient use of assets when excluding goodwill. These adjusted ratios follow a similar trend but with less volatility, rising steadily from 0.63 in 2017 to 0.72 in 2022 after a dip in 2019.

Financial Leverage

Reported financial leverage increases from 2.35 in 2017 to a peak of 3.47 in 2019, then declines to 2.75 by 2022. This suggests a period of increased reliance on debt or liabilities up to 2019, followed by deleveraging. The adjusted financial leverage ratios, available only for 2017 and 2018, are significantly higher at 5.54 and 6.07 respectively, implying that when removing goodwill, the company exhibits a higher leverage, possibly due to the smaller asset base used in the calculation.

Return on Equity (ROE)

The reported ROE displays variability, beginning at 5.03% in 2017, peaking at 10.22% in 2020, dipping to 6.55% in 2021, and then rising sharply to 21.81% in 2022. The adjusted ROE is notably higher in the two years reported (16.94% in 2017 and 26.04% in 2018), which indicates that excluding goodwill, the company's equity returns are significantly enhanced. The large increase in reported ROE in 2022 may reflect improved profitability or financial leverage effects.

Return on Assets (ROA)

Reported ROA follows a similar fluctuating trend as ROE and asset turnover, with an initial rise from 2.14% in 2017 to 3.27% in 2020, a decline to 2.12% in 2021, and a considerable increase to 7.94% in 2022. Adjusted ROA values are consistently higher, rising from 3.06% in 2017 to 13.49% in 2022, suggesting the core asset profitability is understated when goodwill is included. The steady increase in adjusted ROA after 2019 reflects improving operational efficiency or profitability on the adjusted asset base.

Over the examined periods, total assets reported by the company experienced significant fluctuations. Between March 2017 and March 2018, reported total assets showed a moderate increase, growing from approximately 7.7 billion to 8.3 billion US dollars. A substantial jump is observed by March 2019, with reported assets surging to about 18.4 billion US dollars. This was followed by a gradual decline over the subsequent years, reaching approximately 16.2 billion US dollars by March 2022.

In contrast, adjusted total assets, which likely exclude goodwill, mirror a similar but less pronounced pattern. Starting at about 5.4 billion US dollars in 2017, they increased steadily to nearly 6 billion in 2018 and then experienced a notable rise to almost 11.7 billion in 2019. Subsequently, a downward trend is apparent, with adjusted assets decreasing to roughly 9.5 billion US dollars by 2022.

Turning to total asset turnover ratios, the reported figures indicate an initial improvement from 0.44 in 2017 to 0.48 in 2018. This is followed by a sharp decline to 0.29 in 2019 and a modest recovery with values rising to 0.42 by 2022. The trends suggest that despite fluctuations in asset size, the efficiency in generating revenue per unit of reported asset deteriorated markedly in 2019 before partially recovering.

The adjusted total asset turnover ratios show consistently higher values compared to the reported figures, indicating enhanced efficiency when goodwill is excluded. The ratio increases from 0.63 in 2017 to 0.67 in 2018, followed by a drop to 0.46 in 2019. From this low point, a steady improvement is noted, reaching 0.72 in 2022, the highest in the observed period. This improvement in adjusted asset turnover reflects a strengthening in operational efficiency over recent years.

Asset growth and changes

Reported assets demonstrate a steep increase leading up to 2019, then experience a decline, whereas adjusted assets follow a similar but milder pattern.

Efficiency trends

Both reported and adjusted asset turnover ratios show a dip in 2019, corresponding with the peakasset levels, followed by recovery. Adjusted turnover ratios consistently outperform reported figures, highlighting the impact of goodwill adjustments.

Overall insight

The data suggests that while asset base expanded significantly by 2019, efficiency in utilizing these assets to generate revenue declined during the same time, with subsequent improvement particularly evident when goodwill is excluded.

The financial data reveals distinct trends when comparing reported and goodwill adjusted figures over the period from 2017 to 2022.

Total Assets

Reported total assets show a significant increase from 7,686,881 thousand US$ in 2017 to a peak of 18,350,000 thousand US$ in 2019, followed by a gradual decline to 16,199,500 thousand US$ by 2022. In contrast, adjusted total assets, which exclude goodwill, follow a similar trend with an increase from 5,387,872 thousand US$ in 2017 to 11,686,100 thousand US$ in 2019, and then a decline down to 9,525,900 thousand US$ in 2022, indicating that goodwill constitutes a substantial portion of total assets.

Stockholders’ Equity

Reported stockholders’ equity increases steadily from 3,270,711 thousand US$ in 2017 to 5,895,800 thousand US$ in 2022, though there is a slight decrease in 2021. Conversely, adjusted stockholders’ equity, which removes goodwill effects, drops from positive 971,702 thousand US$ in 2017 to negative figures starting in 2019 (-1,376,400 thousand US$), persisting negative through 2022 (-778,800 thousand US$). This suggests significant goodwill impairments or write-downs affecting equity when adjusted.

Financial Leverage

Reported financial leverage increases from 2.35 in 2017 to a high of 3.47 in 2019, then declines progressively to 2.75 by 2022, which may reflect changes in capital structure or asset base adjustments. Adjusted financial leverage values are only available for 2017 and 2018 at 5.54 and 6.07 respectively, substantially higher than reported figures, implying that excluding goodwill results in a more leveraged capital structure. The absence of later adjusted leverage values hinders trend analysis beyond 2018.

Overall, the data indicates that goodwill has a significant impact on the balance sheet metrics. Without goodwill adjustments, the company’s equity position appears weaker, turning negative from 2019 onward, and its leverage ratios are notably higher, suggesting increased financial risk when intangible assets are excluded. Reported metrics show growth in assets and equity up to 2019, followed by some decline or stabilization, reflecting possible strategic or market influences during that period.

The financial data reveals several notable trends in stockholders' equity and return on equity (ROE) for the company over a six-year period ending March 31, 2022.

Reported Stockholders' Equity

This metric exhibits an overall increasing trend, starting at approximately $3.27 billion in 2017 and reaching around $5.89 billion by 2022. There is a significant increase observed between 2018 and 2019, with values rising from about $3.28 billion to $5.29 billion. Following a slight fluctuation between 2020 and 2021, the equity again rose substantially by 2022.

Adjusted Stockholders' Equity

In contrast to the reported figures, the adjusted stockholders’ equity, which presumably accounts for goodwill adjustments, shows a declining trend over the same period. It starts at approximately $972 million in 2017 and remains relatively stable in 2018. However, from 2019 onwards, it turns negative and continues to decline, reaching nearly negative $779 million in 2022. This indicates significant goodwill impairment or other adjustments impacting the net equity negatively.

Reported Return on Equity (ROE)

The reported ROE demonstrates variability but an overall upward trajectory, beginning at 5.03% in 2017, peaking at 21.81% in 2022. Notable increases occur in 2018 and 2020, with dips in 2019 and 2021. The sharp rise to 21.81% in 2022 indicates an improved profitability relative to reported equity.

Adjusted Return on Equity (ROE)

Adjusted ROE data is only available for 2017 and 2018, where it exceeds the reported ROE significantly—16.94% and 26.04%, respectively. The lack of data beyond 2018 limits the ability to analyze adjusted profitability trends, but the available figures suggest that adjusted measures historically depicted a stronger return compared to reported ROE.

In summary, while reported equity and reported ROE exhibit growth and improved profitability trends, the adjusted equity reveals underlying challenges due to negative goodwill adjustments, reflecting latent financial pressures not captured by the reported figures. The divergence between reported and adjusted data highlights the importance of examining both measures to gain a comprehensive understanding of financial health.

Total Assets

The reported total assets exhibited a marked increase from approximately 7.69 billion to 18.35 billion between 2017 and 2019, followed by a gradual decline to around 16.2 billion in 2022. In contrast, the adjusted total assets, which exclude goodwill, followed a similar but less pronounced pattern, rising from approximately 5.39 billion in 2017 to 11.69 billion in 2019, then declining steadily to about 9.53 billion by 2022. This suggests that a significant portion of the asset growth during the earlier period may have been attributable to goodwill or other intangibles that were excluded in the adjusted figures.

Return on Assets (ROA)

Reported ROA displayed variability throughout the period. It began at 2.14% in 2017, increased to 3.09% in 2018, declined sharply to 1.94% in 2019, then rose again to 3.27% in 2020, dropped to 2.12% in 2021, and surged to 7.94% in 2022. The adjusted ROA, which reflects profitability relative to assets excluding goodwill, showed a generally upward trajectory. Starting at 3.06% in 2017, it increased consistently to 4.29% in 2018, 5.3% in 2020, reaching a peak of 13.49% in 2022. The adjusted ROA was consistently higher than the reported ROA across all years, indicating stronger returns on the tangible asset base.

The sharp increase in adjusted ROA in 2022 suggests improved efficiency or profitability independent of goodwill, possibly reflecting better operational performance or cost management.