Analyst Conference Summary

semiconductors

conference date: February 5, 2026 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2025 (Q3, third fiscal quarter 2026)

Forward-looking statements

Overview: recovering from inventory glut

Basic data (GAAP):

Revenue was $1.19 billion, up 4% sequentially from $1.14 billion, and up 16% from $1.03 billion in the year-earlier quarter.

Net income was $62.7 million, up sequentially from negative $13.9 million, and down % from $ million in the year-earlier quarter.

EPS (diluted earnings per share) were $0.06, up sequentially from negative $0.03, and up from negative $0.10 year-earlier.

Guidance:

For fiscal Q4 2026 revenue between $1.24 and $1.28 billion. Net income $72.4 to $95.5 million. GAAP EPS diluted $0.08 to $0.12; non-GAAP $0.48 to $0.52.

Conference Highlights:

CEO Steve Sanghi said "Our fiscal third quarter results exceeded our expectations, with net sales of $1.186 billion growing 4% sequentially, and 15.6% year-over-year, well above our original guidance. We believe the broad-based recovery across our end markets, combined with significant margin expansion, demonstrates the tangible impact of our nine-point recovery plan execution. Our non-GAAP operating profit grew sequentially more than our net sales did in the December quarter, highlighting the operational momentum we have in our business. We have made substantial progress on inventory reduction, which is positioning us to improve operational efficiency as we ramp manufacturing capacity in the March quarter. Our non-GAAP gross margins have expanded significantly from 52% in the March 2025 quarter to 60.5% this quarter, reflecting the cumulative impact of our operational improvements. As we continue to normalize inventory and improve factory utilization, we expect our gross margins to expand further toward our long-term target of 65%." Debt was reduced by $26 million in the quarter. Had 3 design-in wins with the new 3nm Gen 6 switch. But revenue will be in calendar year 2027.

Declared a 45.5 cent dividend for shareholders of record on February 23, payable March 10, 2026. The Microchip Board also declared a quarterly cash dividend on Microchip's 7.50% Series A Mandatory Convertible Preferred Stock of $18.750 per share (which represents $0.9375 per depositary share) which is payable on March 16, 2026 to stockholders of record on March 1, 2026. Going forward expects for cash flow to exceed the dividend, and excess will be used to pay off debt.

Detailed opportunities for growth in automotive sector and industrial ethernet.

2025 Revenue was not stated % from mixed signal MCUs; % analog; % other. By end market 30% industrial, 19% data center, 18% defense, 16% automotive, 9% consumer appliance, 8% communications. All end markets improved in December quarter.

Microchip closed Fab 2 in mid-May. It is on rotating schedules at Fabs 4 and 5. CHIPS Act activity has been paused.

201 days of inventory at end of quarter, down sequentially from 199 days. Targetting 130 to 150 days. Inventory at distributors is at 28 days, which is normal. Lead times are very short. Inventories at Microchip ended the quarter at $1.05 billion, down slightly. 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 $253 million, up 27% sequentially from $199 million and up 136% from $107 million year-earlier. EPS was $0.44, up 26% sequentially from $0.35 and up 120% from $0.20 year-earlier.

Cash and investments ended at $250 million, up sequentially from $237 million. Cash flow from operations was $341 million. $23 million capital spend in quarter. $305 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 $479 million, leaving gross profit of $707 million. Operating expenses of $555 million consisted of: research and development $274 million; selling, general and administrative $169 million; amortization $108 million; and special charges $5 million. Leaving operating income of $152 million. Other expense $58 million. Income tax $31 million. Net income $63 million. Dividends on Series A Preferred stock $28 million. Leaving $35 million net income attributable to common stockholders.

Q&A selective summary:

Above seasonal guidance for March, growth? Results from a variety of factors. Inventory has mostly corrected. We have strong backlog and bookings. But lead times are still short, so visibility is not great. June and September quarters are usually our seasonally strongest.

We see inventory reserves as normalizing. But underutilization charges will continue as we resume ramping of factories. Biggest margin driver, except for product mix, is connectivity business revenue growth.

December microcontroller and analog seqments flattish? Higher revenue on licensing had been in our guidance model. FPGA, microntroller, analog were modeled down but came in flat.

March? Usually March quarter is up 2% to 3%, even after large December increase we guiding to 6% sequential growth.

Inventor charge should about normalize in the March quarter. Underutilization charges are improving but will take longer to normalize.

Signs of customer restocking of own inventory? No. But we have thousands of customers, not all in the same place on inventory. But in general customers have been taking inventory down, so some customers are increasing expedited orders. Some customers still have excess inventory. Some capacity points are getting tight.

June quarter backlog looks relatively strong.

High bandwidth memory is very constrained. Creates some opportunity for our memory business, where we still have capacity and even some inventory.

We do not expect the license revenue in Dec. quarter to be repeated this quarter.

Debt target? No hard number. We were spooked by the last down cycle. We want a sustainable debt level, with a high credit rating. It will be a gradual reduction, it will take quite some time. We will keep the dividend flat and not do stock buy backs.

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