Analyst Conference Summary

semiconductors

conference date: August 7, 2025 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2025 (Q1, first fiscal quarter 2026)

Forward-looking statements

Overview: Sequential increase may indicate downturn over, but still in the red. Revenue above high end of guidance for the quarter.

Basic data (GAAP):

Revenue was $1.08 billion, up 11% sequentially from $0.97 billion, and down 13% from $1.24 billion in the year-earlier quarter.

Net income was negative $46 million, up sequentially from negative $157 million, and down from $129 million in the year-earlier quarter.

EPS (diluted earnings per share) were negative $0.09, up sequentially from negative $0.29, and down from $0.24 year-earlier.

Guidance:

For Q2 fiscal 2026 (September quarter) expects revenue of $1.22 to $1.15 billion. GAAP EPS negative $0.04 to $0.01. Non-GAAP EPS $0.30 to $0.36. For fiscal 2026 cap ex to be at or below $100 million.

Conference Highlights:

CEO Steve Sanghi said "Fiscal 2026 is off to a strong start as revenue grew 10.8% sequentially to approximately $1.0755 billion, well ahead of our revised guidance. As we execute our strategic imperatives under our nine-point recovery plan, we are seeing improvements across key financial metrics and emerging from the prolonged industry downturn with enhanced operational capabilities and a strengthened financial position. The momentum from the March quarter has accelerated into fiscal 2026, validating our strategic plan and positioning us well to capitalize on the recovery." Microchip employees have been working over a year despite a pay cut and lack of bonuses. Defense sales improving on general increased spend by U.S. and NATO. Plans to start increasing wafer starts in the December quarter.

Declared a 45.5 cent dividend for shareholders of record on August 22, payable September 5, 2025. Going forward expects for cash flow to exceed the dividend, and excess will be used to pay off debt.

Gross margin long-term target is achievable as inventory write offs decrease. Higher factory usage will also help with margins.

Revenue was 49.5% from mixed signal MCUs; 29.4% analog; 21.1% other. By end market 30% industrial, 19% data center, 18% defense, 16% automotive, 9% consumer appliance, 8% communications.

Microchip closed Fab 2 in mid-May. It is on rotating schedules at Fabs 4 and 5. CHIPS Act activity has been paused. Reduced workforce by 10%, but revenue to expense ratio still high.

214 days of inventory at end of quarter, down sequentially from 251 days. Targetting 130 to 150 days. Inventory at distributors is also declining. Lead times are very short. Inventories at Microchip ended the quarter at $1.17 billion. Believes substantial inventory reduction has also taken place at end customers.

As usual, many new products were added in the quarter, including 64-bit controllers and high speed peripherals. Also expanding in AI, military and aerospace. Microchip conserving capital but supporting new, fast-growing products.

Non-GAAP numbers: Net income was $155 million, up sequentially from $61 million and down 47% from $290 million year-earlier. EPS was $0.27, up sequentially from $0.11 and down 49% from $0.53 year-earlier.

Cash and investments ended at $567 million, down sequentially from $772 million. Cash flow from operations was $276 million. $18 million capital spend in quarter. $258 million free cash flow. Long term debt was about $5.46 billion; $246 million used for dividends. $0 million used for stock repurchases.

GAAP cost of goods sold was $499 million, leaving gross profit of $577 million. Operating expenses of $545 million consisted of: research and development $256 million; selling, general and administrative $159 million; amortization $108 million; and special charges $22 million. Leaving operating income of $32 million. Other expense $50 million. Income tax $3 million.

Q&A selective summary:

September guidance, is it seasonal or above? 5.1% up sequentially would be well above the usual 3% range. In fact, September quarters are typically seasonally down.

Macro environment outlook? We dropped more than most competitors because of inventory. Our correction was harder than them. We believe our dynamics are more driven by changes in inventories than competitors. Only a small number of our customers reported a negative tariff effect. In China we have much of our clients in free trade zones that are not affected by tariffs.

We cannot wait to resume growing the fabs until the inventory is normal, because then we would have to grow the fabs too quickly.

July bookings were the highest in three years. But bookings by quarter fluctuate a lot. The turns requirement in this quarter should be about the same as it was in the June quarter.

Of our markets, automotive is lagging the most.

Do your U.S. manufacturing investments qualify you for tariff exemptions? We make some products overseas. As a company we should qualify. If we do we will be in better shape than some of our competitors, like the Japanese.

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