Company Overview - Microchip Technology Incorporated is a leading provider of smart, connected, and secure embedded control solutions [3] - The company serves approximately 105,000 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 Events - The company will present at the Mizuho 2025 Technology Conference on August 12, 2025, at 11:30 a.m. Mountain 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]

While delving into MCHP's performance for the past quarter, we observed some fascinating trends in the revenue from its foreign segments that are commonly modeled and observed by analysts on Wall Street. The recent quarter saw the company's total revenue reaching $1.08 billion, marking a decline of 13.4% from the prior-year quarter. Next, we'll examine the breakdown of MCHP's revenue from abroad to comprehend the significance of its international presence. Unveiling Trends in MCHP's International Revenues E ...

Core Insights - Microchip Technology (MCHP) reported first-quarter fiscal 2026 non-GAAP earnings of 27 cents per share, exceeding the Zacks Consensus Estimate by 12.5% but down 49.1% year over year [1] - Net sales reached $1.08 billion, a decrease of 13.4% year over year, but surpassed the Zacks Consensus Estimate by 2.06%. Sequentially, revenues increased by 10.8% [1][8] Financial Performance - Non-GAAP gross margin contracted by 560 basis points year over year to 54.3%, but expanded by 240 basis points sequentially [5] - Non-GAAP operating margin declined to 20.7% compared to 31.5% in the year-ago quarter, although it expanded by 670 basis points sequentially [6] - Cash flow from operating activities was $275.6 million, up from $205.9 million in the previous quarter, while free cash flow was $257.7 million compared to $191.7 million [9][8] Segment and Geographic Breakdown - Sales from Mixed-signal Microcontroller, Analog, and Other segments accounted for 49.5%, 29.4%, and 21.1% of net sales, respectively [3] - Direct sales constituted 53% of total sales, while distribution accounted for 47%. Geographically, revenues from the Americas, Europe, and Asia contributed 28.6%, 21%, and 50.4% to net sales, respectively [4] Guidance and Outlook - For the second quarter of fiscal 2026, Microchip expects net sales to be approximately $1.13 billion (+/- $20 million), reflecting a sequential growth of about 5.1% [10] - Non-GAAP earnings are anticipated to be between 30 cents and 36 cents per share, with gross margins expected to be between 55% and 57% [11][10] Shareholder Returns - Microchip returned approximately $245 million to shareholders through dividends in the fiscal first quarter, announcing a quarterly dividend of 45.5 cents per share [9]

Group 1 - Microchip Technology reported first-quarter earnings of 27 cents per share, exceeding the analyst consensus estimate of 23 cents per share [1] - The company achieved quarterly sales of $1.075 billion, surpassing the analyst consensus estimate of $1.054 billion [1] - For the second quarter, Microchip expects adjusted EPS between 34 cents to 37 cents per share, compared to market estimates of 30 cents per share [2] Group 2 - Microchip projects sales for the second quarter to be between $1.110 billion and $1.150 billion, slightly below expectations of $1.115 billion [2] - CEO Steve Sanghi highlighted a 10.8% sequential revenue growth to approximately $1.0755 billion, indicating a strong start to fiscal 2026 [3] - The company is executing a nine-point recovery plan, leading to improvements in key financial metrics and a strengthened financial position [3] Group 3 - Analysts have adjusted their price targets for Microchip Technology, with Needham maintaining a Buy rating and raising the target from $66 to $77 [6] - Piper Sandler also maintained an Overweight rating, increasing the price target from $65 to $80 [6]

Core Viewpoint - Microchip reported a strong start to fiscal year 2026 with a sequential revenue increase of 10.8%, reaching approximately $1.0755 billion, although it experienced a year-over-year decline of 13.4% [3][7]. Financial Performance - For Q1 FY26, net sales were $1.0755 billion, with a non-GAAP net profit of $154.7 million, translating to diluted earnings per share of $0.27, down from $289.9 million and $0.53 in the same quarter last year [3][4]. - The gross profit margin was 54.3%, while the operating income margin was 20.7% [9]. Strategic Initiatives - The CEO highlighted a significant inventory reduction of $124.4 million, with distribution inventory days decreasing by 4 days to 29 days, and total inventory days down to 214 days, enhancing operational efficiency [8]. - The CFO noted that the company’s business model demonstrated leverage, achieving a non-GAAP gross margin of 76% and an operating margin of 82% for new revenue [8]. Future Guidance - For Q2 FY26, the company expects net sales to be approximately $1.13 billion, representing a sequential growth of about 5.1% [8][11]. - The company plans to maintain a cautious approach due to the changing macro environment while believing in its ability to achieve sustained growth and enhance shareholder value throughout FY26 [8]. Capital Expenditure - Projected capital expenditures for Q2 FY26 are estimated between $35 million and $40 million, with total capital expenditures for FY26 expected to be $100 million or less [11].

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Core Viewpoint - Microchip Technology reported quarterly earnings of $0.27 per share, exceeding the Zacks Consensus Estimate of $0.24 per share, but down from $0.53 per share a year ago, indicating a +12.50% earnings surprise [1][2] Financial Performance - The company achieved revenues of $1.08 billion for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 2.06%, although this is a decrease from $1.24 billion in the same quarter last year [2] - Over the last four quarters, Microchip Technology has exceeded consensus EPS estimates three times and topped revenue estimates three times as well [2] Stock Performance - Microchip Technology shares have increased approximately 15.4% since the beginning of the year, outperforming the S&P 500's gain of 7.9% [3] - The stock currently holds a Zacks Rank 2 (Buy), indicating expectations for it to outperform the market in the near future [6] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $0.31 on revenues of $1.11 billion, and for the current fiscal year, it is $1.38 on revenues of $4.55 billion [7] - The semiconductor industry, particularly the Analog and Mixed segment, is ranked in the top 24% of Zacks industries, suggesting a favorable outlook for stocks within this sector [8]

Financial Data and Key Metrics Changes - The company reported a sequential sales growth of 10.8%, with net sales reaching $1,075 million, exceeding guidance by $5.5 million [7][13] - Non-GAAP gross margin was 54.3%, impacted by inventory write-offs and underutilization charges, while the product gross margin was calculated at 66.3% [11][13] - Non-GAAP net income was $154.7 million, translating to earnings per diluted share of $0.27, which was $0.01 above the high end of guidance [13][14] - Inventory decreased by $124 million sequentially, with inventory days dropping from 266 to 214 days [9][15] Business Line Data and Key Metrics Changes - Sales from microcontroller and analog businesses both experienced double-digit percentage growth sequentially [7][8] - The company noted a significant reduction in inventory write-offs from $90.6 million in March to $77.1 million in June [25] Market Data and Key Metrics Changes - The company observed a sequential increase in distribution sales, indicating a correction in distributor customer inventory levels [22] - The backlog for September was reported to be higher than for June, with July bookings being the highest in three years [27][28] Company Strategy and Development Direction - The company is focusing on increasing wafer starts in December to meet growing demand while managing inventory levels [26][31] - There is a strong emphasis on expanding product offerings in aerospace, defense, and AI applications, with significant advancements in FPGA solutions and AI coding assistance [18][19][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a structural demand recovery, indicating that the company is still below normalized end market demand levels [22][24] - The company expects continued improvement in gross margins as inventory write-offs decrease and factory utilization increases [25][31] Other Important Information - The company plans to maintain a capital return program for shareholders, expecting adjusted free cash flow to exceed dividend payments [32] - Management highlighted the importance of managing customer backlogs to avoid short-term shipment pressures due to low inventory levels [30] Q&A Session Summary Question: Is the September outlook seasonal or above seasonal? - Management indicated that a 5.1% sequential increase in September would be considered well above seasonal, as typical seasonal increases are around 3% [35] Question: What is the macro environment outlook beyond September? - Management believes the recovery is strong, driven by inventory corrections at distributors and direct customers, rather than tariff-related pull-ins [39][40] Question: How do automotive and industrial markets compare in September? - Management noted strong growth across all product lines and end markets, with recovery seen in both automotive and industrial sectors [45] Question: What is the status of inventory levels and sell-through? - Management confirmed that sell-through is higher than sell-in, with a gap of $49.3 million, indicating that inventory levels are being corrected [49][50] Question: What is the outlook for lead times and customer orders? - Management reported that lead times are extending for certain products, and customers are encouraged to manage their backlogs to ensure adequate supply [65][66] Question: Are there any end markets lagging in demand? - Management identified automotive as the lagging market, while data centers and industrial sectors are recovering well [72] Question: How does the company view tariff exemptions related to U.S. manufacturing? - Management believes that their existing U.S. manufacturing investments qualify for tariff exemptions, potentially putting them in a better position than some competitors [76]

Financial Data and Key Metrics Changes - Net sales for the quarter were $1,075 million, reflecting a sequential growth of 10.8% and exceeding guidance by $5.5 million [11][5] - Non-GAAP gross margin was 54.3%, impacted by inventory underutilization charges of $51.5 million and inventory reserve charges of $77.1 million [12][11] - Non-GAAP operating margin increased by 670 basis points sequentially, with operating income at 20.7% of sales [12][11] - Inventory decreased by $124.4 million sequentially, with inventory days dropping from 266 to 214 days [13][7] Business Line Data and Key Metrics Changes - Sales from microcontroller and analog businesses both experienced double-digit percentage growth sequentially [5][6] - Distribution sell-through was $49.3 million higher than sell-in, indicating a positive trend in inventory correction [11][47] Market Data and Key Metrics Changes - The company observed recovery across key end markets including automotive, industrial, communication, data center, aerospace, and defense [24][20] - Asia saw a sequential sales increase of approximately 14%, outperforming Europe and North America, which grew by about 8% [88][87] Company Strategy and Development Direction - The company plans to increase wafer starts in December to meet growing demand while managing inventory levels [22][29] - Focus on expanding product offerings in aerospace, defense, and AI applications, with significant advancements in FPGA solutions and AI coding assistance [15][18] Management's Comments on Operating Environment and Future Outlook - Management noted a structural demand recovery, with inventory levels still below normalized end market demand [21][24] - The company expects net sales for September to be around $1,130 million, with non-GAAP gross margin projected between 55% and 57% [29][28] Other Important Information - The company anticipates that adjusted free cash flow will exceed dividend payments, allowing for debt reduction in future quarters [30][29] - Management emphasized the importance of maintaining healthy backlog visibility to manage lead times effectively [63][84] Q&A Session Summary Question: Is the September outlook seasonal or above seasonal? - Management indicated that a sequential increase of 5.1% in September would be considered well above seasonal, as typical increases are around 3% [33][34] Question: How does the macro environment look beyond September? - Management believes the recovery is strong, driven by inventory corrections and not significantly impacted by tariffs [36][38] Question: What is the growth outlook between automotive and industrial markets? - Management noted strong growth across all product lines, with recovery seen in both automotive and industrial markets [43][44] Question: How far below end demand is the company currently shipping? - Management stated that inventory correction will continue, and sales will grow towards normalized levels, but exact figures are difficult to quantify [58][59] Question: What is driving the relative strength in Asia? - The strength in Asia is largely attributed to US and European customers manufacturing products in Asia, rather than a standalone regional demand [88][90] Question: What is the guidance for gross margin and associated charges? - Management expects lower underutilization charges and inventory write-offs, but exact figures are difficult to forecast [97][98] Question: What signals will indicate it's time to raise utilization rates? - Management indicated that production output is currently far below shipment rates, necessitating an increase in utilization to avoid future capacity issues [108][109]

Investor Presentation Fiscal First Quarter 2026 A Leading Provider of Smart, Connected and Secure Embedded Solutions SAFE HARBOR Forward Looking Statement Safe Harbor: During the course of this presentation, we will make projections or other forward-looking statements regarding the future financial performance of the company (including our guidance) or future events, including our strategy, growth drivers, industry trends, end markets, our long-term model, market size, PIC64 opportunity, 10Base-T1S opportun ...