Analyst Conference Summary

semiconductors

conference date: November 6, 2025 @ 2:00 PM Pacific Time
for quarter ending: September 30, 2025 (Q2, second fiscal quarter 2026)

Forward-looking statements

Overview: Sales slightly above prior guidance.

Basic data (GAAP):

Revenue was $1.14 billion, up 6% sequentially from $1.08 billion, and down 2% from $1.16 billion in the year-earlier quarter.

Net income was $13.9 million, up sequentially from negative $46 million, and down 82% from $78 million in the year-earlier quarter.

EPS (diluted earnings per share) were $0.03, up sequentially from negative $0.09, and down 79% from $0.14 year-earlier.

Guidance:

For Q3 fiscal 2026 net sales are expected between $1.11 and $1.15 billion. GAAP net income $14.6 to $37.3 million, non-GAAP $193 to $227 million. GAAP EPS -$0.02 to +$0.02; non-GAAP $0.34 to $0.40. December quarter is typically the seasonally weakest for Microchip.

Conference Highlights:

CEO Steve Sanghi said "Our second quarter results demonstrate continued momentum in our recovery, with net sales of $1.140 billion growing 6% sequentially and above the midpoint of our guidance. The operational improvements we have implemented are translating into meaningful financial progress despite the broader market recovery developing more gradually than anticipated. We believe our operational capabilities position us to outperform as conditions improve. Our Total System Solutions strategy continues to drive strong customer engagement across key growth markets, with design activity spanning across our diversified portfolio. We are seeing robust momentum in data center applications where customers are re-engaging following inventory corrections, and in aerospace and defense markets where accelerating global spending is driving demand for our integrated solutions." Microcontrollers and analog chip sales were up sequentially, led by 32-bit microcontrollers. Selling Fab 2 in Arizona. It was closed in May, but the production tech was moved to other Microsoft fabs. Seeing some recovery in key end markets. October and November bookings are strong.

Declared a 45.5 cent dividend for shareholders of record on November 24, payable December 9, 2025. Going forward expects for cash flow to exceed the dividend, and excess will be used to pay off debt.

Gross margin improved sequentially. We do need to bring down inventory write downs. Scale out of data centers is driving demand for related chips, they all require PCIE chips, which we have new Gen 6 built on 3 nm process, sampling now, ramp would be in 2H 2026.. Competitors are at 5 nm.

Revenue was 51.3% from mixed signal MCUs; 28.2% analog; 20.5% 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.

199 days of inventory at end of quarter, down sequentially from 214 days. Targetting 130 to 150 days. Inventory at distributors is also declining at 27 days. Lead times are very short. Inventories at Microchip ended the quarter at $1.1 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 $199 million, up 28% sequentially from $155 million and down 20% from $250 million year-earlier. EPS was $0.35, up 30% sequentially from $0.27 and down 24% from $0.46 year-earlier.

Cash and investments ended at $237 million, down sequentially from $567 million. Cash flow from operations was $88 million. $37 million capital spend in quarter. $52 million free cash flow. Long term debt was about $5.4 billion. $246 million used for dividends. $0 million used for stock repurchases.

GAAP cost of goods sold was $503 million, leaving gross profit of $638 million. Operating expenses of $549 million consisted of: research and development $262 million; selling, general and administrative $172 million; amortization $108 million; and special charges $6 million. Leaving operating income of $89 million. Other expense $57 million. Income tax benefit $10 million.

Q&A selective summary:

Seeing now v. 90 days ago? Total business environment is slightly softer. Our December quarter guidance is better than seasonal, but earlier I would have expected even better. Mainly the effect of tariffs. Customers are scheduling bookings for March quarter, decreasing their own inventories. So we believe after hunkering down for December quarter we should have several strong quarters.

Inventory write downs going forward? We generally don't know, we see this looking backwards. We expect just a few days reduction in inventory this quarter. Then we will ramp factories, which will improve margins.

Since most lead times are short, customers are taking the risk of moving order deliveries to the March quarter. That dresses up their balance sheets for the end of the quarter.

We will continue to ramp our fabs, we make those decisions monthly. We expect utilization to increase.

3 nm ramp, wafer availability? We see a healthy, long-term relationship with our supplier, TSMC.

Once we get through the December quarter we expect the inventory charges to come down rapidly.

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