Analyst Conference Summary

semiconductors

conference date: November 5, 2026 @ 2:00 PM Pacific Time
for quarter ending: September 30, 2026 (Q2, second fiscal quarter 2027)

Forward-looking statements

Overview: Great quarter, strong sales ramp

Basic data (GAAP):

Revenue was $1.62 billion, up 9% sequentially from $1.48 billion, and up 42% from $1.14 billion in the year-earlier quarter.

Net income was $374 million, up 85% sequentially from $202 million, and way up from $14 million in the year-earlier quarter.

EPS (diluted earnings per share) were $0.68, up 84% sequentially from $0.37, and up from $0.03 year-earlier.

Guidance:

For fiscal Q3 2027, ending December 31, expects net sales of $1.57 to $1.64 billion. Diluted EPS $0.47 to $0.50 GAAP; $0.87 to $0.95 non-GAAP. Cap ex $35 millin.

Conference Highlights:

CEO Steve Sanghi said "Our September quarter net sales were above the high end of our guidance, increasing 42.2% year over year and 9.2% sequentially to $1.622 billion. The momentum from the start of fiscal 2027 continued in the September quarter, with broad-based growth across our end markets, driven by industrial and data center applications. Our growth is increasingly supported by new design wins and product innovations, which we believe positions us well for the opportunities ahead. Bookings remained robust, with book-to-bill well above one, consistent with recent quarters. We are winning new designs across our end markets, including data center, where our PCIe Gen6 switch and retimer design wins have grown to 24 to date, up from 12 at the end of the June quarter. We also broadened our portfolio, with a steady cadence of product and technology introductions across data center, aerospace and defense, automotive and industrial applications, which expands the foundation for future design wins." Data center solution unit drove growth. September quarter matched or exceeded guidance. Expects December quarter to show seasonality, from down sequentially about 3% to up 1%.

Declared a 45.5 cent dividend for shareholders of record on November 23, payable December 8, 2026. Going forward expects for cash flow to exceed the dividend, and excess will be used to pay off debt.

New strategic growth pillars are connectivity, compute, and AI/ML (machine learning). Microchip's total Data Center Portfolio is expected to grow 69.3% Y/Y to $1 Billion in CY2026. Single pair ethernet is now a growth pillar, with billions of legacy nodes needing replacement.

Revenue was 47.8% from mixed signal MCUs; 29.3% analog; 23.9% other. By end market 34.6% industrial, 16.7%, data center and compute, 16.1% defense, 14.2% automotive, 2.9% consumer appliance, 8.2% communications.

Inventory balance at distributors ended at $1.17 billion. Customers completed inventory digestion, leading to shortages and longer lead times. Inventory at distributors was at 25 days. 184 days at Microchip at end of quarter. Inventory is now low overall, but was up somewhat in the quarter due to receipt of some high value wafers. Book to bill was well above 1. Lead times are now increasing on many products. Requests for expedited shipping are increasing. Made price adjustments which started the second half of August.

As usual, many new products were added in the quarter. Microchip conserving capital but supporting new, fast-growing products.

Non-GAAP numbers: Net income was $559 million, up 27% sequentially from $439 million and up 181% from $199 million year-earlier. EPS was $0.97, up 28% sequentially from $0.76 and up 177% from $0.35 year-earlier.

Cash and investments ended at $457 million, up sequentially from $272 million. Cash flow from operations was $419 million. $23 million capital spend in quarter. $396 million free cash flow. Long term debt was about $5.52 billion. $248 million used for dividends. $0 million used for stock repurchases.

GAAP cost of goods sold was $554 million, leaving gross profit of $1.07 billion. Operating expenses of $604 million consisted of: research and development $319 million; selling, general and administrative $187 million; amortization $90 million; and special charges $8 million. Leaving operating income of $465 million. Other expense $47 million. Income tax $16 million. Net income $401 million. Dividends on Series A Preferred stock $28 million. Leaving $374 million net income attributable to common stockholders.

Q&A selective summary:

December down despite stronger bookings? We had special income items in the September quarter. Lead times have now stretched out, so some sales are sliding to the next quarter. March quarter backlog is better than December quarter.

Design wins, value of? We can't estimate, but they were small in this quarter, will ramp as we go forward, all 24 designs (retimers and PCIe) should be in production in 2028.

Orders in December quarter? Bookings were strong in October.

Constraints going forward? We have some incremental capacity we can use each quarter. Demand is higher than capacity available. Whether datacenters will all be built, or when, if there is less than expected it will be easier for us to fill orders.

We lost the Gen5 business, but are regaining with Gen6 in data centers. Many of our products have a relatively small percentage that to into datacenters, the rest into other segments.

Pricing impacts? Pricing change was done middle of last quarter, but some large dollar items can not be filled this quarter, offsetting the price increase.

Our long term margin target is 65%.

In the industry as a whole, are we at peak demand? There is datacenter and non-datacenter. Non is fine, automotive, industrial, defense is all doing well. We don't know if earlier projected demand for datacenter was realistic. Perhapse circular financing, or lack of monetization, or some other reason will mean datacenter demand can't rap fast forever.

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