Microchip Technology (MCHP) Q4 FY26 earnings call: guidance and Q&A

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

Asks what is driving the above-seasonal upside in March and June, whether it's specific end markets or distribution, and if direct customers have completed inventory burn. Also asks about September quarter visibility.

Steve Sanghi attributed the upside to three factors: completed distribution inventory correction leading to restocking, thousands of customers re-engaging after burning through their inventory, and meaningful improvement across all end markets (A&D, data center, industrial, automotive). Eric Bjornholt added that September quarter backlog is higher than June's at the same point, indicating good visibility.

“Combination of all those have been really well above seasonal growth for June quarter, which we hope will continue for some time.”

asked by Vivek Arya · answered by Steve Sanghi

Asks for sizing of the data center market and exposure across product families, and for more details on the 6 new PCIe Gen 6 design wins.

Brian McCarson stated they don't comment on specific customers but are disrupting competitors and seeing design wins displace incumbents. He noted that 6 design wins were secured before production volume release, and they expect a steady increase in design wins and revenue ramp in the next fiscal year.

“Typically, in the product life cycle, it's uncommon to see a lot of design wins prior to production ramp. Yet our 6 design wins that we've already secured are prior to us doing our production volume release at the end of this quarter.”

asked by Matthew Prisco · answered by Brian McCarson

Asks if the company believes customers and distributors have fully completed inventory reduction and if shipments are now in line with end demand.

Steve Sanghi clarified that while nothing is absolute, distribution, distribution customers, and OEM customers' inventories are "broadly corrected." The strength is due to thousands of customers returning and distributors restocking, though some SKU-specific corrections may still occur.

“But both distribution, distribution customers and our OEM customers' inventory is broadly corrected and lots and lots of customers coming back and buying the product based on their run rate because they no longer can reduce the inventory further.”

asked by Christopher Caso · answered by Steve Sanghi

Asks about confidence in sufficient foundry capacity given growing tightness, especially after the decision not to invest in a 300mm fab.

Steve Sanghi explained that the 300mm fab plan was contingent on a license from a partner, which is no longer true. He noted that while capacity is tight across 70-80% of process nodes, partners are adding capacity, and Microchip expects sufficient supply in coming years, especially for trailing/medium edge nodes. He contrasted this with the "bleeding edge" (e.g., 3nm) where capacity is less than half of demand.

“Is it tight? Yes, but it's really not horribly bad... Now when you come to the most advanced capacity like 3-nanometer node, that's totally different equation. There the capacity is less than half of what the world requires.”

asked by Joshua Buchalter · answered by Steve Sanghi

Asks about tightness in OSATs, substrates, particularly for the data center business.

Steve Sanghi confirmed that substrates are constrained and impacting data center, connectivity, networking, and automotive businesses. He noted that substrates have a shelf life, making it difficult to build inventory. While there are delinquencies, it's not at a "crisis level" like post-COVID, and they are working through it by qualifying additional suppliers and seeking more allocation.

“Are substrate constrained? Yes. Is it impacting our data center business? Yes. Is it impacting our connectivity and networking and automotive business? Yes. And we have delinquency, our nonsupported dollar volume has gone up significantly, but it's not at a crisis level.”

asked by Quinn Bolton · answered by Steve Sanghi

Asks about the nature of conversations with customers to rebuild relationships and how this informs future pricing strategies, especially regarding LTA enforcement and price increases.

Steve Sanghi stated that conversations have been positive, acknowledging past mistakes. He noted that competitors are now hurting customers with large price increases, allowing Microchip to gain share by not raising prices indiscriminately. He differentiated between "partners" and "tactical" customers, suggesting flexibility for the latter if input costs rise.

“And now what's happening is we are seeing our competitors hurt them with large price increases and all that. So they're even coming more to us. And since we haven't increased the prices, we're gaining share. So I think all that is kind of working well. Our competitors are actually helping us right now.”

asked by Joe Moore · answered by Steve Sanghi