Microchip Technology Incorporated (MCHP) Earnings

Management highlights

- Nine - point recovery plan: Right - sized manufacturing footprint (completing most, remaining is selling Tempe fab), brought inventory down from 266 days to 185 days, aligned with megatrends (AI replacing 5G, network and connectivity replacing ADAS), realigned business units to five pillars, realigned distribution programs, improved customer relationships, unveiled new business model with long - term targets, planned operating expense reduction, on hold with CHIPS Act. - Business environment: Recovery in all end markets, strongest sales in aerospace and defense sector, FPGA products had strong performance, completed distribution inventory correction, seeing large orders from distribution and re - engagement of thousands of customers. - Data center solutions business: Significant momentum in storage controller, memory controller, and switch tech product families with new designs and wins.

Guidance

- June quarter: Expected net sales up 11% sequentially plus or minus 1%, non - GAAP gross margin between 62.25% and 63.25% of sales, non - GAAP operating expenses between 28.75% and 29.25% of sales, non - GAAP operating profit between 33% and 34.5% of sales, non - GAAP diluted earnings per share between $0.67 and $0.71 per share. - Book - to - bill ratio for March quarter well above 1, April was largest booking month in almost four years. - Expect June quarter to be excellent cash generation quarter with meaningful debt reduction and net debt to adjusted EBITDA dropping below 3.

Segment performance

Net sales in the March quarter were $1.311 billion, up 10.6% sequentially and 35.1% year - ago. Fiscal year 2026 net sales were $4.713 billion, up 7.1% from fiscal year 2025. End market mix in fiscal year 2026: Industrial was 31% of sales, data center and compute was 18%, automotive was 17%, aerospace and defense was 16%, Communication was 9% and consumer was 9%. March quarter gross margin on non - GAAP basis was 61.6%, operating expenses 31% of sales, operating income 30.6% of sales, non - GAAP net income $327.3 million, EPS $0.57. Fiscal year 2026 non - GAAP gross margins were 58.5%, operating expenses 32.2% of sales, operating income 26.3% of sales, non - GAAP net income $933.9 million, EPS $1.64 per diluted share. Cash flow from operating activities was $257 million, adjusted free cash flow $228 million in March quarter. Adjusted EBITDA in March quarter was $466.8 million, 35.6% of net sales, trailing 12 - month adjusted EBITDA $1.496 billion. Data center solutions business: Storage controller products seeing growth, memory controller family new devices in production, switch tech business secured six design wins for PCIe Gen 6 switch and entered PCIe retimer market with design win.

Risks & headwinds

- Supply chain challenges: Lead times increasing on many products due to challenges on substrates, subcontracting capacity, and foundry constraints on multiple nodes. - Inventory and margin related: Underutilization charges still a factor affecting gross margin, need for continued inventory reduction and margin improvement. - Market and competition related: Competitors' actions can impact market share and pricing, memory pricing dynamic affecting specific product areas.

Analyst Q&A

• Q: What's the pro forma growth rate for Microchip?

  A: Steve thinks it's challenging to put a longer - term growth rate in the current environment, growth rate in fiscal 27 starting April 1 would be substantially higher.

• Q: About inventory charges?

  A: Inventory reserve charges have normalized, not a headwind to gross margin now.

• Q: What's driving the upside in March and June?

  A: Distributors burning through inventory, customers re - engaging, end market strengthening.

• Q: Sizing data center market and PCIe Gen 6 wins?

  A: Don't readily comment on specific customers, six design wins prior to production ramp with expectation of revenue ramp.

• Q: Gross margin and utilization?

  A: Ramping fabs and back end operations, underutilization charges expected to decline.

• Q: Customers and distributors inventory?

  A: Broadly corrected, lots of customers coming back.

• Q: Pricing philosophy?

  A: Trying to stay on good side of customers, not doing broad - based price increase yet, will adjust if input costs go up.

• Q: Megatrends revenue contributions?

  A: Megatrends increased, but breakdown not released.

• Q: Capital equipment expansion?

  A: Expect CapEx $100 million, capacity increase in testing, FPGA, Ethernet T1S areas.

• Q: Aerospace and defense business growth?

  A: Steady growth, primes need to increase capacity, long cycle times.

• Q: Data center portfolio growth?

  A: Positioned to grow with market as AI - based data centers shift to inference and agentic AI workloads.

• Q: Competitors' pricing and market share?

  A: Watching competitors, repairing customer relationships helps gain share.

• Q: Memory pricing impact?

  A: Significant opportunity in serial E - squared business.

• Q: FPGA expansion?

  A: PolarFire 2 in fab, coming out later this year with strong demand.

• Q: Lead times?

  A: Broadly expanding, likely to continue.

• Q: Distribution restocking?

  A: Expecting some restocking, needed as distribution inventory low.

• Q: Substrates and OSAT tightness?

  A: Tightness everywhere, foundry nodes constrained, substrates also tight.

• Q: Business unit realignment margin targets?

  A: High - class problem if margin targets are too low, working on it with new areas' growth.

• Q: Data center growth and breakout?

  A: Data center is large piece, Brian's business unit has high growth, complicated breakout of data center contributions.

• Q: OpEx for fiscal year?

  A: Quarterly bonus programs and other compensation elements drive OpEx, expecting growth in current quarter with modulation.