Microchip Technology Incorporated Q1 FY2026 earnings call

• Employees worked through challenges like pay cuts and layoffs but delivered an outstanding quarter. • Net sales grew sequentially in all geographies, with microcontroller and analog sales up double digits. • Non-GAAP gross margin was 54.3%, with inventory write-offs and underutilization charges decreasing. • Product line updates included strength in aerospace/defense, AI applications, network connectivity, and advancements in microcontrollers with AI coding assistant. • Inventory reduction efforts continued, with target to reduce inventory by $350 million for the fiscal year.

Net sales for Q1 Fiscal 2026 were $1.075 billion, up 10.8% sequentially. Sales from microcontroller and analog businesses both saw double-digit sequential growth. The inventory balance at June 30, 2025, was $1.169 billion, down $124.4 million from March 31, 2025, with inventory days at 214 days, a significant decrease from prior quarters.

• Expect net sales for Q2 Fiscal 2026 to be $1.13 billion ± $20 million. • Non-GAAP gross margin expected to be between 55% and 57% of sales. • Non-GAAP operating expenses expected to be between 32.4% and 32.8% of sales. • Non-GAAP operating profit expected to be between 22.2% and 24.6% of sales. • Non-GAAP diluted earnings per share expected to be between $0.30 and $0.36 per share.

• Lead time challenges on certain products due to issues with lead frames, substrates, and subcontracting capacity. • Potential impact of tariffs, though analysis indicates minimal direct impact. • Inventory write-offs and underutilization charges still present risks to gross margin if not managed properly.

Q: Many equate better than seasonal sequential trends as a sign of recovery. How would you describe the September quarter outlook in terms of seasonal comparison?

A: Steve Sanghi stated the September quarter guidance of 5.1% sequential growth is well above seasonal, with seasonal increases usually in the 3% range. December quarter is typically the weakest, but expects to be above seasonal in December and March too.

Q: How far below end demand do you think you're shipping now?

A: Stephen Sanghi mentioned it's difficult to provide exact numbers, but the gap between sell-in and sell-out at distributors is shrinking, with sell-through $49.3 million higher than sell-in in Q1, compared to $103 million in the prior quarter. Direct customer inventory is also being drained but real-time data is hard to obtain.

Q: Can you comment on any end markets materially lagging in end demand?

A: Rich Simoncic noted automotive is still lagging more than other markets, while AI data centers, data centers, and some industrial customers are recovering.