Company Overview - Microchip Technology Incorporated is a leading provider of smart, connected, and secure embedded control solutions [3] - The company serves approximately 112,000 customers across various markets including industrial, automotive, consumer, aerospace and defense, communications, and computing [3] - Microchip is headquartered in Chandler, Arizona, and offers comprehensive product portfolios and development tools to reduce risk and lower total system costs [3] Upcoming Event - The company will present at the J.P. Morgan 53rd Annual Global Technology, Media, and Communications Conference on May 14, 2025, at 3:00 p.m. Eastern Time [1] - Mr. Eric Bjornholt, Senior Vice President and Chief Financial Officer, will represent the company during the presentation [1] - A live webcast of the presentation will be available on the Microchip website [1]

Core Viewpoint - Microchip Technology is positioned for a rebound, having reached the bottom of its business cycle with improved demand and an inflection point expected at the end of fiscal 2024 [1][2]. Group 1: Market Position and Demand - Microchip Technology holds a critical position in the semiconductor manufacturing supply chain, producing various semiconductor products for multiple industries [3]. - The company has a strong presence in key markets such as industrial, automotive, data center, appliance, and IoT, with U.S.-based fabs in Oregon and Colorado, limiting exposure to Asia and excluding China [4]. Group 2: Financial Performance - In the fourth fiscal quarter, revenue declined by 27% year-over-year, but the decline was less severe than anticipated, indicating signs of a market rebound [5]. - The company reported its first positive book-to-bill ratio in years, signaling a market bottom, with guidance for Q1 FY2025 expected to exceed consensus estimates [6]. Group 3: Balance Sheet Strength - Microchip Technology has a robust balance sheet, highlighted by a $356.2 million reduction in debt and favorable terms for its revolving credit facility [8]. - The company has seen a 630 basis point increase in equity due to debt reduction, with further equity gains anticipated in 2025 as the business rebounds [9]. Group 4: Dividend and Income Potential - The company offers a dividend yield of 3.29% with a strong track record of 23 years of dividend payments and a three-year annualized growth rate of 28.58% [10][11]. - Despite a payout ratio exceeding 100% in 2024 and 2025, the healthy balance sheet and cash flow support the sustainability of the dividend [11][12]. Group 5: Analyst Sentiment - Analysts' sentiment for Microchip Technology has improved, with significant price target increases following recent results, indicating a potential 35% upside from pre-release close [13]. - The stock is on track to regain support at a critical uptrend line, with the potential for triple-digit gains as it approaches previous highs near $100 [14].

Core Insights - Microchip Technology (MCHP) reported a significant decline in earnings and sales for the fourth quarter of fiscal 2025, with non-GAAP earnings of 11 cents per share, beating estimates by 28.57% but down 81.5% year over year [1] - Net sales were $970.5 million, a decrease of 26.8% year over year, but slightly above the consensus estimate [1][2] - The company provided positive guidance for the first quarter of fiscal 2026, expecting net sales between $1.02 billion and $1.07 billion [9] Financial Performance - Non-GAAP gross margin contracted by 830 basis points year over year to 52% [5] - Non-GAAP operating margin declined to 14% from 32.9% in the previous year [6] - Cash flow from operating activities was $205.9 million, significantly up from $43.6 million in the previous quarter [8] Segment and Geographic Performance - Sales from Mixed-signal Microcontroller, Analog, and Other segments accounted for 49.2%, 27%, and 23.8% of net sales, respectively [3] - Direct sales made up 55% of total sales, while distribution accounted for 45% [4] - Geographically, revenues from the Americas, Europe, and Asia contributed 29.3%, 21.6%, and 49.2% to net sales, respectively [4] Balance Sheet and Cash Flow - As of March 31, 2025, cash and short-term investments totaled $771.7 million, up from $586 million at the end of December 2024 [7] - Total debt decreased to $5.63 billion from $6.75 billion over the same period [7] - Free cash flow for the quarter was $191.7 million, compared to $22.8 million in the previous quarter [8] Future Outlook - For the first quarter of fiscal 2026, non-GAAP earnings are anticipated to be between 18 cents and 26 cents per share, with gross margin expected between 52.2% and 54.2% [9] - The company plans capital expenditures of approximately $100 million for fiscal 2026 [10]

Core Insights - Microchip Technology reported revenue of $970.5 million for the quarter ended March 2025, a decrease of 26.8% year-over-year, with EPS at $0.11 compared to $0.57 in the same quarter last year [1] - The revenue exceeded the Zacks Consensus Estimate of $961.07 million by 0.98%, while the EPS also surpassed the consensus estimate of $0.10 by 10% [1] Financial Performance - The company's mixed-signal microcontrollers net sales were $477.20 million, below the estimated $500.65 million, reflecting a year-over-year decline of 31.4% [4] - Net sales for other categories reached $231.70 million, exceeding the average estimate of $210.26 million, but still representing a 23.1% decrease year-over-year [4] - Analog net sales were reported at $261.60 million, slightly above the average estimate of $250.64 million, with a year-over-year decline of 20.5% [4] Stock Performance - Over the past month, shares of Microchip Technology have returned +26.6%, outperforming the Zacks S&P 500 composite's +13.7% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the broader market in the near term [3]

Microchip Technology (MCHP) came out with quarterly earnings of $0.11 per share, beating the Zacks Consensus Estimate of $0.10 per share. This compares to earnings of $0.57 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 10%. A quarter ago, it was expected that this chipmaker would post earnings of $0.28 per share when it actually produced earnings of $0.20, delivering a surprise of -28.57%.Over the last four quarters, the com ...

Financial Data and Key Metrics Changes - Net sales for March were $970.5 million, down 5.4% sequentially and down 26.8% year-over-year, indicating a significant inventory correction following a post-COVID super cycle [14][25] - Non-GAAP gross margins were 52%, while GAAP gross margins were 51.6% [14][15] - Non-GAAP net income was $61.4 million, with non-GAAP earnings per diluted share at $0.11, exceeding the midpoint of guidance by $0.01 [14][15] - For fiscal year 2025, net sales were $4.402 billion, down 42.3% from fiscal year 2024 [15][16] - Total debt decreased by $1.125 billion in March, and net debt decreased by $1.31 billion [18] Business Line Data and Key Metrics Changes - Revenue from microcontroller and analog business units was down sequentially, while FPGA remained flat, and other businesses, mainly driven by technology licensing, were up sequentially [25] - The company aims to reduce inventory by over $350 million during fiscal year 2026, targeting an inventory level of 130 to 150 days [6][8] Market Data and Key Metrics Changes - Geographically, business was seasonally down in the Americas and Asia, while Europe saw a seasonal increase [25] - The company reported a book-to-bill ratio of 1.07 in March, indicating a healthy demand environment [26] Company Strategy and Development Direction - The company is executing a nine-point recovery plan, which includes resizing manufacturing, reducing inventory, and strengthening customer relationships [5][10] - The focus has shifted from 5G to artificial intelligence and from ADAS to network and connectivity, reflecting changes in megatrends [8] - The company is committed to returning 100% of adjusted free cash flow to investors in the form of dividends, while also planning to reduce borrowings as cash flow improves [31][32] Management's Comments on Operating Environment and Future Outlook - Management believes substantial inventory destocking has occurred, and customers are starting to increase purchases, marking the last quarter as a revenue bottom [25][26] - The company expects net sales for June to be approximately $1.045 billion, with non-GAAP gross margins between 52% and 54.2% [27] - Management expressed optimism about the September quarter, with higher backlog compared to previous quarters [82] Other Important Information - The company completed a $1.485 billion mandatory convertible preferred stock offering to reduce debt and preserve its investment-grade rating [18] - The company has seen a notable shift in end markets, with aerospace and defense now representing a larger portion of the business due to increased defense spending [39][40] Q&A Session Summary Question: Demand signals and potential pull-ins from tariffs - Management noted that demand signals began improving in early January, with bookings significantly higher than December, and no tariff-related activity impacting demand [35][36] Question: Recovery relative to key end markets - Aerospace and defense have become a significant market, increasing from 11% to 17% of the business, driven by high defense budgets and geopolitical factors [39][40] Question: Macro impact of tariffs - Management indicated that direct impacts of tariffs on their products are minimal, as less than 4% of parts are made in China, and they have moved production to other countries [49][50] Question: Margin leverage and headwinds - Current headwinds include underutilization charges and inventory reserve charges, but these are expected to decrease as revenue increases [54][56] Question: Visibility on order patterns - Management highlighted improved visibility due to increased distribution sales and higher bookings, indicating a positive trend in demand [102] Question: China strategy - The company is revising its China strategy due to changes in regulations, focusing on production in Taiwan and other regions to avoid tariffs [73][75]

Financial Data and Key Metrics Changes - Net sales for March were $970.5 million, down 5.4% sequentially and down 26.8% year-over-year, indicating a significant inventory correction following a post-COVID super cycle [14][24] - For fiscal year 2025, net sales totaled $4.402 billion, a decrease of 42.3% from fiscal year 2024 [15] - Non-GAAP gross margins were 52%, while GAAP gross margins were 51.6% [14][15] - Non-GAAP net income was $61.4 million, with diluted earnings per share at $0.11, exceeding the midpoint of guidance by $0.01 [14] - Total debt decreased by $1.125 billion, and net debt decreased by $1.31 billion [19] Business Line Data and Key Metrics Changes - Revenue from microcontroller and analog business units was down sequentially, while FPGA remained flat, and other businesses, mainly driven by technology licensing, were up sequentially [24] - Non-GAAP operating income was 14% of sales, while GAAP operating income was 6.7% of sales [14][15] Market Data and Key Metrics Changes - Geographically, business was seasonally down in the Americas and Asia, but seasonally up in Europe [24] - The aerospace and defense segment grew from 11% to 17-18% of total business, becoming the second largest market after industrial [39] Company Strategy and Development Direction - The company is focused on a nine-point recovery plan, including resizing manufacturing footprint, reducing inventory, and strengthening customer relationships [4][5][9] - The company aims to reduce inventory by over $350 million during fiscal year 2026, targeting an inventory level of 130 to 150 days [6][17] - Strategic initiatives include investments in next-generation technologies and enhancing product lines to drive top-line growth and improve profitability [21][22] Management's Comments on Operating Environment and Future Outlook - Management believes substantial inventory destocking has occurred, with a healthy book-to-bill ratio of 1.07 in March, indicating a positive outlook for revenue growth [25] - The company expects net sales for June to be approximately $1.045 billion, with non-GAAP gross margins projected between 52% and 54.2% [26] - Management expressed optimism about the September quarter, with higher backlog compared to previous quarters [80] Other Important Information - The company is returning nearly 100% of adjusted free cash flow to investors in the form of dividends, with plans to improve cash flow as inventory is liberated [31] - A mandatory convertible preferred stock offering of $1.485 billion was completed to reduce debt and preserve investment-grade rating [19] Q&A Session Summary Question: Demand signals and potential tariff impacts - Management noted that demand signals began improving in early January, with no significant tariff-related activity observed [35][36] Question: Recovery in key end markets - Aerospace and defense have shown strong growth, while other segments are experiencing a broad-based recovery driven by inventory depletion and new designs [39][42] Question: Macro impact of tariffs - Management indicated minimal direct impact from tariffs due to strategic production shifts away from China [48][49] Question: Margin leverage and headwinds - Current headwinds include underutilization and inventory reserve charges, but margins are expected to improve as revenue increases [54][55] Question: Visibility on future revenue - Management highlighted improved visibility due to increased distribution sales and higher bookings in recent months [98][102] Question: Changes in China strategy - The company is revising its China strategy due to changes in trade rules, focusing on local assembly and production outside of China [70][72]

Financial Performance & Strategy - The company reported FY25 net sales of $4.4 billion[7] - The company's strategic shift to Megatrend business increased from 33% to 47% of total revenue[20] - The company's GAAP revenue for Fiscal Fourth Quarter 2025 was $970.5 million, a 5.4% QoQ decline and a 26.8% YoY decline[23] - The company's GAAP revenue for Fiscal Year 2025 was $4.402 billion[26] - The company's Adj Free Cash Flow for Fiscal Fourth Quarter 2025 was $182.6 million, representing 18.8% of net sales[23] - The company's Adj Free Cash Flow for Fiscal Year 2025 was $742.5 million, representing 16.9% of revenue[26] Capital Allocation - The company's total cash return in FY2025 was $1.07 billion[46] - The company's dividends paid was ~$4.2 billion[46] - The company's shares repurchased was ~$2.4 billion[46] Future Outlook - The company is targeting inventory reduction of >$350 million by March 31, 2026[32] - The company's Q1 FY26 GAAP Revenue guidance is $1,045.0 million at the mid-point[27]

Financial Performance - Net sales for the fourth quarter of fiscal 2025 were $970.5 million, a decline of 26.8% from $1.326 billion in the prior year's fourth quarter[8] - On a GAAP basis, the net loss attributable to common stockholders for the fourth quarter was $156.8 million, or $0.29 per diluted share, compared to a net income of $154.7 million, or $0.28 per diluted share, in the prior year[9] - Non-GAAP net income for the fourth quarter was $61.4 million, or $0.11 per diluted share, down from $310.3 million, or $0.57 per diluted share, in the prior year's fourth quarter[10] - For the fiscal year ended March 31, 2025, net sales were $4.402 billion, a decrease of 42.3% from $7.634 billion in the prior fiscal year[11] - Non-GAAP net income for the fiscal year was $708.8 million, a decrease of 73.7% from $2.698 billion in the prior fiscal year[13] Dividends and Shareholder Returns - The company returned approximately $244.8 million to stockholders in the March quarter through dividends[5] - The company plans to pay a quarterly dividend of 45.5 cents per share on June 5, 2025[14] - The company is committed to maintaining its dividend while returning to growth[1] Future Expectations - The company expects net sales for the June 2025 quarter to be between $1.02 billion and $1.07 billion[7] - Microchip expects net sales for the June 2025 quarter to be between $1.020 billion and $1.070 billion[1] - The company expects diluted common shares outstanding to average between 538.2 million and 544.8 million in the June 2025 quarter[24] Operational Performance - The company achieved its first positive book-to-bill ratio in nearly three years during the March 2025 quarter[7] - Cash and short-term investments increased to $771.7 million as of March 31, 2025, up from $319.7 million a year earlier[29] - Total assets decreased to $15,374.6 million as of March 31, 2025, down from $15,873.2 million in the previous year[29] - Long-term debt increased to $5,630.4 million as of March 31, 2025, compared to $5,000.4 million in the previous year[29] Cost Management and Expenses - Gross profit for Q4 2025 was $501.1 million, down 36.6% from $789.9 million in Q4 2024, resulting in a GAAP gross profit percentage of 51.6%[30] - Research and development expenses for Q4 2025 were $255.2 million, an increase of 6.5% from $240.3 million in Q4 2024, representing 26.3% of net sales[31] - Operating loss for Q4 2025 was $100.3 million, compared to an operating income of $253.5 million in Q4 2024[27] - Total operating expenses as a percentage of net sales for Q1 2025 were 62.0%, up from 40.5% in Q1 2024, indicating increased cost pressures[34] - Reported operating expenses for Q1 2025 were $601.4 million, up from $536.4 million in Q1 2024, while total operating expenses for the twelve months ended March 31, 2025, were $2,171.6 million, down from $2,424.7 million in the previous year[34] Strategic Initiatives - The company plans to continue focusing on new product development and market expansion strategies to drive future growth[43] - The company is focused on enhancing operational capabilities through efficient manufacturing and improved inventory management[1] - Microchip is well-positioned to capitalize on growth opportunities in automotive, industrial, and e-mobility markets[1] - The company plans to selectively expand production capacity and add research and development equipment[1] - Microchip's strategic initiatives continue to deliver value across markets[1] - The company emphasizes the importance of its long-term supply assurance program[1] - Microchip is monitoring the impact of the CHIPS Act on increasing manufacturing capacity in the industry[1] Conference and Communication - A conference call was held on May 8, 2025, to discuss the financial results, with a replay available until June 6, 2025[44] - Strategic financial moves and disciplined cost management are aimed at navigating current market challenges[1] - Microchip serves approximately 109,000 customers across various markets including industrial, automotive, and consumer[1]

Core Insights - Microchip Technology reported a revenue of $970.5 million for the quarter ended March 31, 2025, which is a decline of 5.4% sequentially and 26.8% year-over-year, but exceeded the midpoint of their guidance [3][4][6] - The company has implemented a nine-point plan to enhance operational capabilities, improve inventory management, and focus strategically on growth opportunities as market conditions evolve [3][4] - The fiscal year 2025 net sales totaled $4.402 billion, representing a decrease of 42.3% from the previous fiscal year [4][9] Financial Performance - On a GAAP basis, the gross profit margin was 51.6% for the quarter, with a net loss attributable to common stockholders of $156.8 million, equating to a loss of $0.29 per diluted share [4][7] - Non-GAAP results showed a gross profit margin of 52.0%, with net income of $61.4 million, or $0.11 per diluted share [4][8] - For the fiscal year, GAAP net loss was $2.7 million, while non-GAAP net income was $708.8 million, a decrease of 73.7% from the prior year [9][11] Strategic Initiatives - The company has successfully reduced inventory by $62.8 million, with distribution inventory days decreasing by 4 days to 33 days [3][4] - Microchip's strategic initiatives include the introduction of new products such as Switchtec PCIe switches and advanced touchscreen controllers, aimed at addressing emerging opportunities in automotive and industrial markets [3][4] Future Outlook - The company anticipates net sales for the June 2025 quarter to be between $1.02 billion and $1.07 billion, indicating a potential recovery from the current down cycle [5][14] - Capital expenditures for the quarter ending June 30, 2025, are expected to be between $20 million and $25 million, with a focus on selective expansion and research and development [16]