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    MCHP
    Earnings call· Mar 2026(Q4 FY26)

    MICROCHIP TECHNOLOGY Q4 FY26 earnings call MCHP

    May 7, 2026 Source

    Executive summary

    Microchip Technology Q4 FY26 — Strong Growth Across End Markets and Improved Margins

    Microchip Technology delivered strong Q4 FY26 results, surpassing revenue and EPS guidance, driven by broad-based recovery across all end markets and effective inventory reduction. The company is seeing significant momentum in its Data Center Solutions business and expects continued robust growth in the June quarter. Management remains focused on its nine-point recovery plan, aiming for further margin expansion and inventory optimization while navigating supply chain tightness.

    Highlights

    5

    • Net sales of $1.311 billion in Q4 FY26, up 10.6% sequentially and 35.1% YoY, exceeding guidance.

    • Non-GAAP EPS of $0.57, $0.07 above the midpoint of guidance.

    • Inventory reduced by $22.3 million sequentially to $1.035 billion, with days of inventory down 16 days to 185.

    • Net debt to adjusted EBITDA improved to 3.54 at March 31, 2026, from 4.18.

    • June quarter net sales guided up 11% sequentially, with non-GAAP EPS between $0.67 and $0.71.

    Concerns

    3

    • Capacity underutilization charges of $46.6 million in Q4 FY26 impacted gross margins.

    • Lead times are increasing on many products due to challenges in substrates, subcontracting capacity, and foundry constraints.

    • 70-80% of process technology nodes are constrained, requiring active management to secure supply.

    Guidance & targets

    8
    CategoryTargetConfidence
    Net sales
    up 11% sequentially plus or minus 1%
    high materiality
    High
    Non-GAAP gross margin
    between 62.25% and 63.25% of sales
    high materiality
    High
    Non-GAAP operating expenses
    between 28.75% and 29.25% of sales
    high materiality
    High
    Non-GAAP operating profit
    between 33% and 34.5% of sales
    high materiality
    High
    Non-GAAP diluted earnings per share
    between $0.67 and $0.71 per share
    high materiality
    High
    Non-GAAP tax rate
    about 10%
    medium materiality
    Medium
    Capital expenditures
    approximately $100 million
    medium materiality
    Medium
    Net debt to adjusted EBITDA
    drop below 3
    high materiality
    High

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Industrial
    End market mix for fiscal year 2026.
    Sales Mix: 31%
    		————
    Data Center and Compute
    End market mix for fiscal year 2026. This segment saw significant growth since the June quarter of last year.
    Sales Mix: 18%
    		————
    Automotive
    End market mix for fiscal year 2026. Automotive is coming back with many designs going into production.
    Sales Mix: 17%
    		————
    Aerospace & Defense
    End market mix for fiscal year 2026. This sector had the strongest sales performance in Q4 FY26 and is seeing very steady growth.
    Sales Mix: 16%
    		————
    Communication
    End market mix for fiscal year 2026.
    Sales Mix: 9%
    		————
    Consumer
    End market mix for fiscal year 2026.
    Sales Mix: 9%
    		————

    Operational metrics

    49
    Net sales
    $1.311 billionup 10.6% sequentially, up 35.1% YoY
    Q4 FY26

    Above the high end of guidance.

    Non-GAAP gross margins
    61.6%
    Q4 FY26

    Includes capacity underutilization charges.

    Non-GAAP operating expenses
    31%
    Q4 FY26

    Improved from 38% at the bottom of the cycle.

    Non-GAAP operating income
    30.6%
    Q4 FY26

    More than doubled from 14% at the bottom of the cycle.

    Non-GAAP net income
    $327.3 million
    Q4 FY26

    Attributable to common shareholders.

    Non-GAAP earnings per diluted share
    $0.57$0.07 above midpoint of guidance
    Q4 FY26

    Attributable to common shareholders.

    GAAP gross margins
    61%
    Q4 FY26

    For the March quarter.

    GAAP total operating expenses
    $582.2 million
    Q4 FY26

    For the March quarter.

    Acquisition intangible amortization
    $107.8 million
    Q4 FY26

    Included in GAAP total operating expenses.

    Special charges
    $6.4 million
    Q4 FY26

    Included in GAAP total operating expenses.

    Share-based compensation
    $59.9 million
    Q4 FY26

    Included in GAAP total operating expenses.

    Other expenses
    $1 million
    Q4 FY26

    Included in GAAP total operating expenses.

    GAAP net income attributable to common shareholders
    $116.4 million
    Q4 FY26

    For the March quarter.

    GAAP earnings per share
    $0.21
    Q4 FY26

    For the March quarter.

    Non-GAAP cash tax rate
    5.8%
    Q4 FY26

    Lower than originally forecasted due to lower cash taxes remitted and stronger pretax profit.

    Inventory balance
    $1.035 billiondown $22.3 million QoQ
    March 31, 2026

    Inventory balance at quarter end.

    Days of inventory
    185 daysdown 16 days QoQ
    March 31, 2026

    Driven by inventory reduction actions and increased revenue.

    Long life cycle, high-margin products in inventory
    15 days
    March 31, 2026

    Manufacturing capacity end-of-life by supply chain partners.

    Distributor inventory
    26 daysdown 2 days QoQ
    Q4 FY26

    At the lower end of historical experience. Expect restocking in the near term.

    Distribution sell-through
    11.4%
    Q4 FY26

    Increased during the quarter.

    Consolidated cash and total investment position
    $240.3 million
    March 31, 2026

    As of March 31, 2026.

    Total debt increase
    $143 million
    Q4 FY26

    Impacted by refinancing activities.

    Convertible bond capped call cost
    $68 million
    Q4 FY26

    Paid for 100% capped call on 0% 4-year convertible bond.

    Adjusted EBITDA
    $466.8 millionup 132.9% YoY
    Q4 FY26

    For the March quarter.

    Net debt to adjusted EBITDA
    3.54down from 4.18 at December 31, 2025
    March 31, 2026

    As of March 31, 2026.

    Capital expenditures
    $14.2 million
    Q4 FY26

    For the March quarter.

    Depreciation expense
    $38.7 million
    Q4 FY26

    For the March quarter.

    Net sales
    $4.713 billionup 7.1% YoY
    FY26

    For fiscal year 2026.

    Non-GAAP gross margins
    58.5%
    FY26

    For fiscal year 2026.

    Non-GAAP operating expenses
    32.2%
    FY26

    For fiscal year 2026.

    Non-GAAP operating income
    26.3%
    FY26

    For fiscal year 2026.

    Non-GAAP net income
    $933.9 million
    FY26

    For fiscal year 2026.

    Non-GAAP EPS
    $1.64
    FY26

    Per diluted share for fiscal year 2026.

    GAAP gross margins
    57.7%
    FY26

    For fiscal year 2026.

    GAAP operating expenses
    47.3%
    FY26

    For fiscal year 2026.

    GAAP operating income
    10.4%
    FY26

    For fiscal year 2026.

    GAAP net income attributable to common shareholders
    $118.8 million
    FY26

    For fiscal year 2026.

    Non-GAAP cash tax rate
    8.6%
    FY26

    For fiscal year 2026.

    Capital expenditures
    $91.1 million
    FY26

    For fiscal year 2026.

    Trailing 12-month adjusted EBITDA
    $1.496 billion
    March 31, 2026

    As of March 31, 2026.

    Peak inventory
    $1,356 million
    December 2024

    Peak inventory level.

    Inventory reduction from peak
    $319 million
    December 2024 to March 2026

    Reduction from peak inventory of $1,356 million to March 2026 ending inventory of $1,037 million.

    Target inventory days
    130 to 150 days
    long-term

    Goal for inventory management.

    Long-term non-GAAP gross margin target
    65%
    long-term

    Part of the new business model.

    Long-term non-GAAP operating expense target
    25%
    long-term

    Part of the new business model.

    Long-term non-GAAP operating margin target
    40%
    long-term

    Part of the new business model.

    In-house volume (back-end)
    70%
    current

    Percentage of volume done in-house for back-end operations.

    In-house volume (wafer foundry/fabs)
    35%
    current

    Percentage of volume done internally for wafer foundry or fabs.

    Foundry process technology nodes constrained
    70-80%
    current

    Percentage of major foundry process technology nodes that are constrained or very tight.

    Industry KPIs

    11
    MetricValueDetails
    Lead timesincreasingnarrative
    Backlog order bookmuch highernarrative
    Book to bill ratiowell above 1ratio
    Ai data center revenuesignificant momentumnarrative
    Market share commentarygaining sharenarrative
    Fab capacity utilizationramping all of our large factoriesnarrative
    Bookings net order intakesignificantly highernarrative
    Design wins socket pipeline6 significant design winscount
    Inventory channel inventory$1.035 billionUSD
    Node platform ramp schedulePolarFire 2product
    End market segment revenue mixIndustrial: 31%, Data Center and Compute: 18%, Automotive: 17%, Aerospace & Defense: 16%, Communication: 9%, Consumer: 9%%

    Product announcements

    3
    ProductTypeDetails
    PCIe Gen 5 dual port memory controllerlaunch
    PCIe Retimerlaunch
    PolarFire 2milestone

    Risks & headwinds

    6
    Capacity underutilization chargesQ4 FY26, expected to reduce in Q1 FY27 but take multiple quarters to go away

    $46.6 million in Q4 FY26

    Mitigation: Ramping all large factories, expecting charges to come down nicely.

    Increasing lead timesNext 2 quarters

    Broadly expanding, potentially nothing available in 4-6 weeks in another quarter or so.

    Mitigation: Managing manufacturing and foundry resources, working to secure more allocation.

    Supply chain constraintsCurrent and ongoing

    Challenges in substrates, subcontracting capacity, and foundry constraints on multiple nodes. 70-80% of process technology nodes are constrained.

    Mitigation: Qualifying additional substrate suppliers, working with existing suppliers for more allocation, escalating requests to foundries.

    Substrate shelf lifeOngoing

    12 months shelf life

    Mitigation: Requires timely purchasing, prevents large inventory builds during down cycles.

    Delinquencies due to supply constraintsCurrent

    Non-supported dollar volume has gone up significantly.

    Mitigation: Working through issues, not yet at a crisis level.

    Bleeding edge capacity shortageOngoing

    3-nanometer node capacity is less than half of what the world requires.

    Mitigation: Not directly addressed for Microchip, but noted as an industry-wide challenge.

    Q&A highlights

    7

    Analyst asks for an update on the company's pro forma growth rate, noting that prior business exits might mask true growth.

    Steve Sanghi stated that given the current phenomenal growth, it's challenging to provide a longer-term pro forma growth rate, and any number would be substantially lower than the expected growth in FY27.

    “Any number I give you, the growth rate in fiscal '27 which started on April 1 here would be substantially higher than that growth rate. So I think we'll push that out further.”

    asked by Timothy Arcuri · answered by Steve Sanghi

    2 min read6 chapters

    Detailed Narrative

    01

    Nine-Point Recovery Plan Update

    Microchip provided a comprehensive update on its nine-point recovery plan, noting the completion of manufacturing footprint rightsizing (excluding Tempe fab sale), inventory reduction from 266 days to 185 days, megatrend and business unit realignments, distribution program adjustments, and customer relationship improvements. The company has made significant progress towards its long-term non-GAAP targets of 65% gross margin, 25% operating expense, and 40% operating margin, with current figures at 61.6%, 31%, and 30.6% respectively.

    02

    Market Recovery and Demand

    The company is observing recovery across all end markets, including automotive, industrial, communication, data center, aerospace and defense, and consumer. The strongest sales performance in Q4 FY26 was in aerospace and defense, and FPGA products. Management believes the distribution inventory correction is complete, with overall distribution inventory now below normal levels, leading to large restocking orders and re-engagement from thousands of customers.

    03

    Data Center Solutions Momentum

    Microchip's Data Center Solutions business unit is experiencing significant momentum across its storage controller, memory controller, and Switchtec product families. New CXL and PCIe-based memory controllers are ramping, and the latest PCIe Gen 6 switch has secured 6 significant design wins, with production starting this quarter. The company also announced entry into the PCIe retimer market, securing a major OEM design win by offering a companion die for its Gen 6 switches.

    04

    Supply Chain Dynamics

    Lead times for many products are increasing due to challenges in substrates, subcontracting capacity, and foundry constraints across multiple nodes. While not at a crisis level, the tightness is spreading more broadly, and customer requests for expedited shipments have risen significantly, indicating low customer inventories. The company is working to secure more allocation and qualify additional suppliers.

    05

    Pricing Strategy

    Microchip is currently refraining from broad-based price increases, aiming to rebuild and maintain strong customer relationships that were strained during the COVID cycle. While monitoring input costs and competitor actions, the company is focusing on gaining market share by not indiscriminately raising prices, especially for strong partner customers. Adjustments may occur on a customer-by-customer basis if input costs become too aggressive.

    06

    Capital Allocation and Capacity

    The company expects modest capital expenditures of approximately $100 million for fiscal year 2027, primarily for maintenance and targeted capacity increases in areas like testing for data center products and FPGA. Microchip believes it has sufficient in-house capacity, having invested in prior cycles, and is now growing back into that capacity to meet demand.

    AI-generated summary of the company’s earnings call. Not investment advice.