Financial Performance - Microchip Technology announced expected net sales for Q3 fiscal year 2026, ending December 31, 2025[6] - The complete business update for Q3 fiscal 2026 is provided in Exhibit 99.1[7] Regulatory Compliance - The report is filed under the Securities Exchange Act of 1934, ensuring compliance with regulatory requirements[9]

Financial Performance - Net sales for the three months ended September 30, 2025, were $1,140.4 million, a decrease of 2.0% compared to $1,163.8 million in the same period of 2024[111]. - For the six months ended September 30, 2025, net sales were $2,215.9 million, down 7.9% from $2,405.1 million in the same period of 2024[111]. - Mixed-signal microcontrollers accounted for 51.3% of net sales in Q3 2025, down from 51.1% in Q3 2024, with a decrease in sales of 1.7% year-over-year[116][117]. - Analog product line sales increased by 10.1% in Q3 2025, accounting for 28.2% of net sales, compared to 25.1% in Q3 2024[119][121]. - Other product line sales decreased by 15.4% in Q3 2025, representing 20.5% of net sales, down from 23.8% in Q3 2024[123][124]. - Total revenue for the six months ended September 30, 2025, was $789.9 million, with a gross profit of $261.5 million[182]. - The company reported a total net loss of $132.0 million for the six months ended September 30, 2025[182]. Profitability Metrics - Gross profit margin for the three months ended September 30, 2025, was 55.9%, down from 57.4% in the same period of 2024[109]. - Operating income for the three months ended September 30, 2025, was 7.8%, a decline from 12.6% in the same period of 2024[109]. - Gross profit for Q3 2025 was $637.9 million, or 55.9% of net sales, compared to $668.5 million, or 57.4% of net sales in Q3 2024, indicating a decline in gross margin[130]. - The company anticipates fluctuations in gross margins driven by capacity utilization, product mix, and economic conditions[137]. Research and Development - Research and development expenses as a percentage of net sales increased to 23.0% for the three months ended September 30, 2025, compared to 20.7% in the same period of 2024[109]. - R&D expenses for Q3 2025 were $262.3 million, or 23.0% of net sales, up from $240.7 million, or 20.7% in Q3 2024[138]. - R&D expenses for the first half of 2025 increased to $517.8 million, or 23.4% of net sales, compared to $482.4 million, or 20.1% in the same period of 2024[138]. - The company plans to continue investments in new and enhanced products, focusing on mixed-signal microcontrollers, digital signal controllers, and FPGAs[105]. Operational Changes - The closure of the Tempe, Arizona wafer fabrication facility (Fab 2) was completed in May 2025, with production being transferred to Oregon and Colorado locations[102]. - The company aims to maintain a high level of manufacturing control by owning wafer fabrication facilities, which contributes to being one of the lowest cost producers in the embedded control industry[102]. - The company plans to continue investing in internal assembly and test capabilities to enhance cost savings and control over manufacturing processes[135]. Cash Flow and Financing - Net cash provided by operating activities for the first half of 2025 was $363.7 million, down from $420.7 million in the same period of 2024[165]. - Net cash used in investing activities was $98.9 million in the first half of 2025, compared to $189.7 million in the same period of 2024[166]. - Cash and cash equivalents at September 30, 2025 were $236.8 million, a decrease of $534.9 million from March 31, 2025[163]. - Net cash used in financing activities was $799.7 million for the six months ended September 30, 2025, compared to $264.6 million in the same period of 2024[168]. - Cash dividends paid to common stockholders in the first six months of fiscal 2026 totaled $491.3 million, compared to $486.3 million in the same period of fiscal 2025[169]. - The company established a Commercial Paper program with a maximum principal amount of $2.75 billion, with $1.12 billion outstanding as of September 30, 2025[172]. Debt and Assets - As of September 30, 2025, total assets were $9,250.7 million, while total liabilities were $14,586.0 million[182]. - As of September 30, 2025, the company's total current and long-term debt amounted to $5.41 billion, all of which is fixed rate[183]. - The company plans to finance the repayment of fixed rate debt maturing within the next 12 months using available borrowings under its Revolving Credit Facility or Commercial Paper program[183]. - Changes in interest rates will significantly impact the company's interest expense if it refinances fixed rate debt with variable rate debt[183]. - The company has approximately $1.56 billion remaining for stock repurchases under its authorized program as of September 30, 2025[174]. Market and Economic Conditions - Foreign customers represented approximately 75% of total net sales in Q3 2025, up from 74% in Q3 2024[129]. - Distributors accounted for approximately 45% of net sales in Q3 2025, with Arrow Electronics being the largest distributor, contributing 11% of net sales[125]. - Inflation has not materially affected the company's operating results in recent periods[184]. - The company may struggle to offset higher costs due to inflation through price increases, which could adversely impact operating results[184].

Financial Performance - Net sales for the second quarter of fiscal 2026 were $1.140 billion, representing a 6.0% sequential increase but a 2.0% decline year-over-year[4]. - GAAP gross profit was 55.9%, with operating income of $88.9 million (7.8% of net sales) and net income attributable to common stockholders of $13.9 million, or $0.03 per diluted share[4][7]. - Non-GAAP gross profit was 56.7%, with operating income of $277.2 million (24.3% of net sales) and net income of $199.1 million, or $0.35 per diluted share[4][8]. - Reported net income attributable to common stockholders for Q2 2026 was $13.9 million, compared to $78.4 million in Q2 2025, reflecting a decrease of 82.3%[32]. - Non-GAAP net income for Q2 2026 was $199.1 million, down from $250.2 million in Q2 2025, representing a decline of 20.4%[32]. - Diluted net income per common share, as reported, was $0.03 for Q2 2026, down from $0.14 in Q2 2025[32]. Dividends and Shareholder Returns - Approximately $245.8 million was returned to common stockholders through dividends in the September quarter, with a declared quarterly dividend of 45.5 cents per share for the December quarter[4][9]. Future Projections - For the third quarter of fiscal 2026, net sales are expected to be between $1.109 billion and $1.149 billion, with GAAP gross profit projected between 56.2% and 58.1%[11]. - The company anticipates a net income attributable to common stockholders ranging from $(13.2) million to $9.5 million for the third quarter[11]. - The company expects net sales for Q3 2026 to be approximately $1.129 billion, with a variance of plus or minus $20 million[37]. Operational Efficiency and Cost Management - The company is focused on operational efficiency and disciplined cost management to improve cash flow and reduce debt levels in the coming quarters[5]. Research and Development - Research and development expenses increased to $262.3 million in Q3 2025, up 8.5% from $240.7 million in Q3 2024, representing 23.0% of net sales[25]. Technological Advancements - The company introduced the industry's first 3nm PCIe Gen 6 switch, enhancing its technological leadership in AI and enterprise data center applications[4][5]. - The company launched the industry's first 3nm PCIe Gen 6 switch, marking a significant technological milestone[37]. Financial Metrics - Total assets as of September 30, 2025, were $14,469.7 million, down from $15,374.6 million as of March 31, 2025[23]. - Long-term debt decreased to $5,375.9 million from $5,630.4 million since March 31, 2025[23]. - Cash and short-term investments were $236.8 million as of September 30, 2025, a significant decrease from $771.7 million[23]. - GAAP cash flow from operations for Q2 2026 was $88.1 million, an increase of 102.9% from $43.6 million in Q2 2025[34]. - Free cash flow for Q2 2026 was $51.6 million, compared to $22.8 million in Q2 2025, marking a growth of 126.3%[34]. Company Overview - Microchip Technology reported financial results for the second quarter of fiscal 2026[42]. - The company is a broadline supplier of semiconductors, focusing on innovative design solutions across various markets[42]. - Microchip's comprehensive product portfolio supports customers from concept to completion in the design process[42]. - The company provides technical support and solutions in industrial, automotive, consumer, aerospace and defense, communications, and computing markets[42].

FORM 10-Q Filing Information [Registrant Information](index=1&type=section&id=Registrant%20Information) This section provides Microchip Technology Incorporated's basic identification details for its Form 10-Q, including registered securities - Registrant: **MICROCHIP TECHNOLOGY INCORPORATED**[2](index=2&type=chunk) - Filing Type: **Quarterly Report (10-Q)** for the period ended June 30, 2025[2](index=2&type=chunk) Securities Registered | Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock, $0.001 par value per share | MCHP | NASDAQ Stock Market LLC (Nasdaq Global Select Market) | | Depositary Shares, each representing a 1/20th interest in a share of 7.50% Series A Mandatory Convertible Preferred Stock | MCHPP | NASDAQ Stock Market LLC (Nasdaq Global Select Market) | [Filer Status and Shares Outstanding](index=1&type=section&id=Filer%20Status%20and%20Shares%20Outstanding) The company is a **Large accelerated filer**, not a shell company, with **539.7 million common shares outstanding** as of July 28, 2025 - The registrant is a **Large accelerated filer**[4](index=4&type=chunk) - The registrant is **not a shell company**[4](index=4&type=chunk) - Common Stock outstanding as of July 28, 2025: **539,679,667 shares**[4](index=4&type=chunk) Index to Form 10-Q [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section outlines the company's unaudited financial statements, management's discussion, market risk disclosures, and controls [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This sub-section lists the primary unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows - Includes **Condensed Consolidated Balance Sheets, Statements of Operations, Comprehensive (Loss) Income, Cash Flows, and Changes in Equity**[6](index=6&type=chunk) - Detailed notes to the condensed consolidated financial statements are provided[6](index=6&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=3&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This sub-section covers management's discussion and analysis of financial condition and results of operations - Provides management's discussion and analysis of financial condition and results of operations[6](index=6&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=3&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This sub-section addresses the company's exposure to market risks, such as interest rate risk and inflation risk - Covers quantitative and qualitative disclosures about market risk[6](index=6&type=chunk) [Item 4. Controls and Procedures](index=3&type=section&id=Item%204.%20Controls%20and%20Procedures) This sub-section details the evaluation of the company's disclosure controls and procedures and any changes in internal control over financial reporting - Details controls and procedures, including disclosure controls and internal control over financial reporting[6](index=6&type=chunk) [PART II. OTHER INFORMATION](index=3&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section includes information on legal proceedings, risk factors, equity security sales, defaults on senior securities, and exhibits [Item 1. Legal Proceedings](index=3&type=section&id=Item%201.%20Legal%20Proceedings) This sub-section refers to the legal proceedings detailed in the notes to the financial statements - Refers to **Note 10** for information regarding legal proceedings[6](index=6&type=chunk) [Item 1A. Risk Factors](index=3&type=section&id=Item%201A.%20Risk%20Factors) This sub-section highlights various risks that could materially affect the company's business, operations, financial condition, and results - Outlines key risk factors for the company's business[6](index=6&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=3&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This sub-section reports on any unregistered sales of equity securities and the use of proceeds from such sales - Reports on unregistered sales of equity securities and use of proceeds[6](index=6&type=chunk) [Item 3. Defaults Upon Senior Securities](index=3&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This sub-section indicates whether there have been any defaults upon senior securities - Addresses defaults upon senior securities[6](index=6&type=chunk) [Item 4. Mine Safety Disclosures](index=3&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This sub-section indicates whether there are any mine safety disclosures - Indicates mine safety disclosures[6](index=6&type=chunk) [Item 5. Other Information](index=3&type=section&id=Item%205.%20Other%20Information) This sub-section includes other material information not covered elsewhere - Covers other information not explicitly categorized[6](index=6&type=chunk) [Item 6. Exhibits](index=3&type=section&id=Item%206.%20Exhibits) This sub-section lists all exhibits filed with the Form 10-Q, including certifications and XBRL documents - Lists all exhibits accompanying the report[6](index=6&type=chunk) Defined Terms [Glossary of Key Terms](index=4&type=section&id=Glossary%20of%20Key%20Terms) This section provides definitions for various terms used throughout the Form 10-Q, ensuring clarity and consistent understanding - Provides definitions for financial instruments such as '**4.250% 2025 Notes**', '**Commercial Paper**', and '**Convertible Debt**'[8](index=8&type=chunk) - Defines accounting and regulatory terms like '**ASU**', '**FASB**', '**SEC**', and '**U.S. GAAP**'[8](index=8&type=chunk) - Explains operational and product-related terms such as '**CEMs**', '**ESEs**', '**FPGA**', and '**LTSAs**'[8](index=8&type=chunk) PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Microchip Technology Incorporated, along with detailed notes [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and stockholders' equity decreased from March 31, 2025, to June 30, 2025, mainly due to reduced cash and retained earnings Condensed Consolidated Balance Sheet Highlights (in millions) | Metric | June 30, 2025 | March 31, 2025 | Change | | :-------------------------- | :------------ | :------------- | :----- | | Cash and cash equivalents | $566.5 | $771.7 | $(205.2) | | Total current assets | $2,753.8 | $2,991.3 | $(237.5) | | Total assets | $14,979.5 | $15,374.6 | $(395.1) | | Total current liabilities | $1,190.4 | $1,155.1 | $35.3 | | Long-term debt | $5,458.1 | $5,630.4 | $(172.3) | | Total stockholders' equity | $6,857.1 | $7,078.3 | $(221.2) | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported a **net loss of $18.6 million** for Q1 FY26, a significant decline from **net income of $129.3 million** last year Condensed Consolidated Statements of Operations Highlights (in millions, except per share) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------- | | Net sales | $1,075.5 | $1,241.3 | $(165.8) | | Gross profit | $576.7 | $736.9 | $(160.2) | | Operating income | $32.1 | $219.1 | $(187.0) | | Net (loss) income | $(18.6) | $129.3 | $(147.9) | | Net (loss) income attributable to common stockholders | $(46.4) | $129.3 | $(175.7) | | Basic net (loss) income per common share | $(0.09) | $0.24 | $(0.33) | | Diluted net (loss) income per common share | $(0.09) | $0.24 | $(0.33) | | Dividends declared per common share | $0.455 | $0.452 | $0.003 | [Condensed Consolidated Statements of Comprehensive (Loss) Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income) The company reported a **comprehensive loss of $23.3 million** for Q1 FY26, compared to **comprehensive income of $129.1 million** in the prior year Condensed Consolidated Statements of Comprehensive (Loss) Income (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------- | | Net (loss) income | $(18.6) | $129.3 | $(147.9) | | Actuarial losses related to defined benefit pension plans, net of tax effect | $(4.7) | $(0.2) | $(4.5) | | Comprehensive (loss) income | $(23.3) | $129.1 | $(152.4) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities decreased to **$275.6 million** in Q1 FY26, leading to a **net decrease in cash of $205.2 million** Condensed Consolidated Statements of Cash Flows Highlights (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------- | | Net cash provided by operating activities | $275.6 | $377.1 | $(101.5) | | Net cash used in investing activities | $(36.9) | $(125.5) | $88.6 | | Net cash used in financing activities | $(443.9) | $(256.2) | $(187.7) | | Net decrease in cash and cash equivalents | $(205.2) | $(4.6) | $(200.6) | | Cash and cash equivalents, at end of period | $566.5 | $315.1 | $251.4 | - Operating cash flow decreased due to net loss, partially offset by non-cash adjustments and changes in operating assets/liabilities[17](index=17&type=chunk) - Financing cash outflow increased significantly, driven by **Commercial Paper repayments ($174.1 million)** and **common stock dividends ($245.5 million)**[17](index=17&type=chunk) [Condensed Consolidated Statements of Changes in Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) Total stockholders' equity decreased by **$221.2 million** to **$6,857.1 million** at June 30, 2025, primarily due to net loss and dividends Condensed Consolidated Statements of Changes in Equity Highlights (in millions) | Metric | March 31, 2025 | June 30, 2025 | Change | | :-------------------------- | :------------- | :------------ | :----- | | Total Equity | $7,078.3 | $6,857.1 | $(221.2) | | Retained Earnings | $5,781.1 | $5,489.2 | $(291.9) | | Additional Paid-in Capital | $3,909.9 | $3,974.0 | $64.1 | | Common Stock Held in Treasury | $(2,611.6) | $(2,600.3) | $11.3 | | Net (Loss) Income | — | $(18.6) | $(18.6) | | Dividends on Series A Preferred Stock | — | $(27.8) | $(27.8) | | Dividends on Common Stock | — | $(245.5) | $(245.5) | - Net loss of **$18.6 million** and significant dividend payments (**$27.8 million** for Series A Preferred, **$245.5 million** for common stock) were key drivers of equity reduction[19](index=19&type=chunk) - Additional paid-in capital increased by **$64.1 million**, partly due to common stock issued for an acquisition and employee equity incentive plans[19](index=19&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide essential context and detailed breakdowns for the condensed consolidated financial statements, crucial for comprehensive understanding [Note 1. Basis of Presentation](index=10&type=section&id=Note%201.%20Basis%20of%20Presentation) Financial statements are unaudited, prepared in accordance with U.S. GAAP and SEC rules, reflecting normal recurring adjustments - Financial statements are unaudited, prepared in accordance with **U.S. GAAP** and **SEC rules**, reflecting normal recurring adjustments[21](index=21&type=chunk) - All dollar amounts are in **millions of U.S. dollars**, except per share amounts[20](index=20&type=chunk) - Interim results are not necessarily indicative of future fiscal year results[21](index=21&type=chunk) [Note 2. Recently Issued Accounting Pronouncements and Other Developments](index=10&type=section&id=Note%202.%20Recently%20Issued%20Accounting%20Pronouncements%20and%20Other%20Developments) New accounting standards, ASU 2023-09 and ASU 2024-03, will enhance income tax and expense disclosures in future fiscal periods - **ASU 2023-09 (Income Taxes)** effective for fiscal period ending March 31, 2026, will enhance income tax disclosures[22](index=22&type=chunk) - **ASU 2024-03 (Income Statement Expenses)** effective for annual periods beginning after December 15, 2026, requires disaggregated expense disclosures[23](index=23&type=chunk) - The Company is currently evaluating the applicable disclosures for **ASU 2024-03**[23](index=23&type=chunk) [Note 3. Geographic and Segment Information](index=10&type=section&id=Note%203.%20Geographic%20and%20Segment%20Information) The company operates in two segments, semiconductor products and technology licensing, with performance evaluated based on gross profit - The Company operates in **two segments**: semiconductor products and technology licensing[24](index=24&type=chunk) - The Chief Operating Decision Maker (CODM) evaluates segment performance based on **gross profit**[29](index=29&type=chunk) Segment Net Sales and Gross Profit (in millions) | Segment | Three Months Ended June 30, 2025 (Net Sales) | Three Months Ended June 30, 2025 (Gross Profit) | Three Months Ended June 30, 2024 (Net Sales) | Three Months Ended June 30, 2024 (Gross Profit) | | :-------------------- | :----------------------------------- | :------------------------------------ | :----------------------------------- | :------------------------------------ | | Semiconductor products | $1,042.5 | $543.7 | $1,219.1 | $714.7 | | Technology licensing | $33.0 | $33.0 | $22.2 | $22.2 | | Total | $1,075.5 | $576.7 | $1,241.3 | $736.9 | [Note 4. Net Sales](index=12&type=section&id=Note%204.%20Net%20Sales) Net sales for Q1 FY26 totaled **$1,075.5 million**, with **Mixed-signal Microcontrollers** as the largest product line and **distributors** as a key customer type Net Sales by Product Line (in millions) | Product Line | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | | Mixed-signal Microcontrollers | $532.6 | $644.7 | | Analog | $316.2 | $330.6 | | Other | $226.7 | $266.0 | | Total net sales | $1,075.5 | $1,241.3 | Net Sales by Customer Type (in millions) | Customer Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :-------------- | :------------------------------- | :------------------------------- | | Distributors | $507.0 | $584.4 | | Direct customers | $535.5 | $634.7 | | Licensees | $33.0 | $22.2 | | Total net sales | $1,075.5 | $1,241.3 | - Deferred revenue as of June 30, 2025, was **$418.5 million**, with **$334.3 million** from Long-Term Supply Agreements (LTSAs)[35](index=35&type=chunk)[36](index=36&type=chunk) [Note 5. Net (Loss) Income Per Common Share](index=14&type=section&id=Note%205.%20Net%20(Loss)%20Income%20Per%20Common%20Share) The company reported a **basic and diluted net loss of $0.09 per common share** for Q1 FY26, a decrease from **$0.24 income** in the prior year Net (Loss) Income Per Common Share (in millions, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net (loss) income attributable to common stockholders | $(46.4) | $129.3 | | Basic weighted average common shares outstanding | 539.2 | 536.7 | | Diluted weighted average common shares outstanding | 539.2 | 542.8 | | Basic net (loss) income per common share | $(0.09) | $0.24 | | Diluted net (loss) income per common share | $(0.09) | $0.24 | - Dilutive effects of RSUs, 2015 Senior Convertible Debt, 2017 Senior Convertible Debt, and Series A Preferred Stock were excluded from diluted EPS calculation for Q1 FY26 due to net loss, making them **anti-dilutive**[40](index=40&type=chunk) [Note 6. Debt](index=16&type=section&id=Note%206.%20Debt) Total gross long-term debt, including current maturities, was **$5,488.0 million** at June 30, 2025, with **$1.2 billion** in 2025 Notes maturing soon Debt Obligations (in millions) | Debt Type | June 30, 2025 | March 31, 2025 | | :------------------------------------ | :------------ | :------------- | | Total Senior Indebtedness | $4,200.0 | $4,375.0 | | Total Convertible Debt | $1,288.0 | $1,288.0 | | Gross long-term debt including current maturities | $5,488.0 | $5,663.0 | | Net long-term debt including current maturities | $5,458.1 | $5,630.4 | - The **4.250% 2025 Notes ($1.2 billion)** maturing on September 1, 2025, are excluded from current maturities due to intent and ability to refinance using the Revolving Credit Facility[43](index=43&type=chunk) - The **2017 Senior Convertible Debt** is convertible between July 1, 2025, and September 30, 2025, due to common stock price exceeding conversion price[46](index=46&type=chunk) Interest Expense (in millions) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Total interest expense on Senior Indebtedness | $53.1 | $58.8 | | Total interest expense on Convertible Debt | $3.2 | $2.2 | | Other interest expense | $1.1 | $0.8 | | Total interest expense | $57.4 | $61.8 | - Commercial Paper program maximum principal amount updated to **$2.25 billion** in March 2025; **no Commercial Paper outstanding** as of June 30, 2025[49](index=49&type=chunk) [Note 7. Fair Value of Financial Instruments](index=21&type=section&id=Note%207.%20Fair%20Value%20of%20Financial%20Instruments) Fair value measurements are categorized into a three-tier hierarchy, with most short-term instruments approximating fair value - Fair value measurements are categorized into a **three-tier hierarchy (Level 1, 2, 3)**[50](index=50&type=chunk)[53](index=53&type=chunk) - Cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to **short-term maturity (Level 2)**[50](index=50&type=chunk) Carrying Amounts and Fair Values of Debt Obligations (in millions) | Debt Type | June 30, 2025 (Carrying Amount) | June 30, 2025 (Fair Value) | March 31, 2025 (Carrying Amount) | March 31, 2025 (Fair Value) | | :-------------------------- | :------------------------------ | :------------------------- | :------------------------------- | :-------------------------- | | Commercial Paper | $0 | $0 | $174.9 | $175.0 | | 4.250% 2025 Notes | $1,199.4 | $1,199.0 | $1,198.5 | $1,196.9 | | 4.900% 2028 Notes | $995.5 | $1,012.0 | $995.0 | $1,002.5 | | 5.050% 2029 Notes | $994.3 | $1,015.9 | $993.9 | $1,005.8 | | 5.050% 2030 Notes | $994.4 | $1,014.7 | $994.2 | $996.9 | | 2017 Senior Convertible Debt | $37.9 | $76.2 | $37.9 | $57.7 | | 2024 Senior Convertible Debt | $1,236.6 | $1,229.6 | $1,236.0 | $1,173.4 | | Total | $5,458.1 | $5,547.4 | $5,630.4 | $5,608.2 | [Note 8. Intangible Assets and Goodwill](index=22&type=section&id=Note%208.%20Intangible%20Assets%20and%20Goodwill) Net intangible assets decreased to **$2,292.2 million** at June 30, 2025, while goodwill increased to **$6,695.4 million** due to an acquisition Net Intangible Assets (in millions) | Category | June 30, 2025 (Net Amount) | March 31, 2025 (Net Amount) | | :-------------------------- | :------------------------- | :-------------------------- | | Core and developed technology | $2,079.0 | $2,168.3 | | Customer-related | $46.6 | $46.7 | | In-process research and development | $50.8 | $50.8 | | Software licenses | $115.8 | $123.2 | | Total | $2,292.2 | $2,389.0 | - Total amortization expense for intangible assets was **$131.6 million** for Q1 FY26, down from **$145.7 million** in Q1 FY25[54](index=54&type=chunk) - Goodwill increased by **$10.6 million** due to an acquisition in the semiconductor products segment, totaling **$6,695.4 million** at June 30, 2025[11](index=11&type=chunk)[55](index=55&type=chunk) - No goodwill impairment charges have been recorded through June 30, 2025[55](index=55&type=chunk) [Note 9. Other Financial Statement Details](index=24&type=section&id=Note%209.%20Other%20Financial%20Statement%20Details) This note provides detailed breakdowns of accounts receivable, inventories, property, plant and equipment, and accrued liabilities Accounts Receivable, Net (in millions) | Metric | June 30, 2025 | March 31, 2025 | | :-------------------------- | :------------ | :------------- | | Total accounts receivable, net | $765.5 | $689.7 | Inventories (in millions) | Category | June 30, 2025 | March 31, 2025 | | :-------------------------- | :------------ | :------------- | | Raw materials | $165.8 | $174.8 | | Work in process | $793.2 | $857.6 | | Finished goods | $210.1 | $261.1 | | Total inventories | $1,169.1 | $1,293.5 | Property, Plant and Equipment, Net (in millions) | Metric | June 30, 2025 | March 31, 2025 | | :-------------------------- | :------------ | :------------- | | Total property, plant and equipment, net | $1,153.9 | $1,183.7 | - Depreciation expense for property, plant and equipment was **$39.5 million** for Q1 FY26, down from **$43.0 million** in Q1 FY25[59](index=59&type=chunk) Accrued Liabilities (in millions) | Category | June 30, 2025 | March 31, 2025 | | :-------------------------- | :------------ | :------------- | | Accrued compensation and benefits | $129.2 | $108.1 | | Income taxes payable | $86.2 | $99.1 | | Deferred revenue | $160.1 | $213.4 | | Sales related reserves | $365.4 | $329.7 | | Current portion of lease liabilities | $36.4 | $35.7 | | Accrued expenses and other liabilities | $251.2 | $208.5 | | Total accrued liabilities | $1,028.5 | $994.5 | [Note 10. Commitments and Contingencies](index=25&type=section&id=Note%2010.%20Commitments%20and%20Contingencies) Total purchase commitments amount to **$678.4 million**, with potential legal liabilities estimated at **$25.0 million** in excess of accrued amounts Total Purchase Commitments (in millions) | Fiscal Year Ending March 31, | Amount | | :--------------------------- | :----- | | 2026 | $225.9 | | 2027 | $130.9 | | 2028 | $112.5 | | 2029 | $66.3 | | 2030 | $70.7 | | Thereafter | $72.1 | | Total | $678.4 | - Indemnification contingencies for technology license agreements could amount to approximately **$197.0 million** for agreements with specified limits[64](index=64&type=chunk) - The company believes future payments for indemnification obligations, warranty costs, and product liabilities will **not have a material adverse effect**[64](index=64&type=chunk)[65](index=65&type=chunk) - Estimate of aggregate potential liability for legal matters that is possible but not probable is approximately **$25.0 million** in excess of amounts accrued[67](index=67&type=chunk) [Note 11. Income Taxes](index=26&type=section&id=Note%2011.%20Income%20Taxes) The effective tax rate for Q1 FY26 was **(17.02)%**, influenced by jurisdictional mix and ongoing tax disputes with the IRS, Malaysian IRB, and German Tax Authorities - Effective tax rate for Q1 FY26 was **(17.02)%**, not comparable to prior year due to changes in pre-tax income, jurisdictional mix, and discrete items[68](index=68&type=chunk) - Foreign income taxed at lower rates in Thailand, Malta, and Ireland contributes to the tax rate differential[69](index=69&type=chunk) - The company is challenging **IRS notices of deficiency** for fiscal years 2007-2016 related to transfer pricing matters[71](index=71&type=chunk) - Malaysian IRB proposed income adjustment for fiscal 2020 could result in up to **$410.0 million** in income taxes and penalties if upheld[72](index=72&type=chunk)[73](index=73&type=chunk) - German Tax Authorities (GTA) assessments for extraterritorial taxation could result in up to **$92.0 million** in income taxes and penalties[74](index=74&type=chunk) - The company believes these assessments are without merit and intends to vigorously defend its positions[75](index=75&type=chunk) [Note 12. Share-Based Compensation](index=28&type=section&id=Note%2012.%20Share-Based%20Compensation) Share-based compensation expense increased by **$8.9 million** year-over-year to **$52.9 million** pre-tax for Q1 FY26 Share-Based Compensation Expense (in millions) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Cost of sales | $7.7 | $6.6 | | Research and development | $29.1 | $23.3 | | Selling, general and administrative | $16.1 | $14.1 | | Pre-tax effect of share-based compensation | $52.9 | $44.0 | | Income tax benefit | $10.9 | $9.2 | | Net income effect of share-based compensation | $42.0 | $34.8 | - Share-based compensation expense increased by **$8.9 million** year-over-year[76](index=76&type=chunk) [Note 13. Stockholders' Equity](index=28&type=section&id=Note%2013.%20Stockholders'%20Equity) Stockholders' equity decreased due to net loss and dividends, with **$1.56 billion** remaining for repurchases under the stock repurchase program Changes in Share Balances (in millions) | Category | Series A Preferred Stock | Common Stock | Treasury Stock | | :------------------------------------ | :----------------------- | :----------- | :------------- | | Balance at March 31, 2025 | 1.5 | 578.0 | 39.3 | | Common stock issued for acquisition | — | 0.4 | — | | Common stock issued under employee equity incentive plans | — | 0.7 | — | | Common stock withheld for tax withholdings on employee equity awards | — | (0.1) | — | | Treasury stock used for new issuances | — | (0.6) | (0.6) | | Balance at June 30, 2025 | 1.5 | 578.4 | 38.7 | - Approximately **$1.56 billion** remained available for repurchases under the **$4.00 billion** stock repurchase program as of June 30, 2025; no repurchases occurred in Q1 FY26[80](index=80&type=chunk) - Issued **1.5 million shares of Series A Mandatory Convertible Preferred Stock** in March 2025, generating **$1.45 billion net cash proceeds**[81](index=81&type=chunk) - Series A Preferred Stock pays cumulative dividends at an annual rate of **7.50%** and automatically converts to common stock on March 15, 2028[82](index=82&type=chunk)[83](index=83&type=chunk) - Paid a quarterly cash dividend of **$0.455 per common share ($245.5 million)** on June 5, 2025[87](index=87&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and operational results for Q1 FY26 [Note Regarding Forward-looking Statements](index=33&type=section&id=Note%20Regarding%20Forward-looking%20Statements) This section cautions readers that the report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially - Forward-looking statements involve **risks and uncertainties**, and actual results may differ materially[89](index=89&type=chunk)[90](index=90&type=chunk) - Key forward-looking statements include expectations on operating results, economic conditions, competitive pressures, demand, trade restrictions, litigation, and capital expenditures[89](index=89&type=chunk)[91](index=91&type=chunk) [Introduction](index=36&type=section&id=Introduction) This introduction outlines the structure of the Management's Discussion and Analysis, covering business, strategy, accounting policies, results, and liquidity - Discussion covers business and macroeconomic developments, overall business strategy, critical accounting policies, results of operations, and liquidity and capital resources[93](index=93&type=chunk) [Business and Macroeconomic Environment](index=36&type=section&id=Business%20and%20Macroeconomic%20Environment) The company experienced significant business improvement in Q1 FY26, with increased net sales and reduced inventory, while factory expansion remains paused - Significant improvement in overall business in **Q1 FY26** compared to **Q4 FY25**[94](index=94&type=chunk) - Net sales in mixed-signal microcontroller and analog product lines increased from March 2025 quarter[94](index=94&type=chunk) - Inventory and days of inventory reduced in June 2025 quarter; factory expansion paused[94](index=94&type=chunk) [Strategy](index=36&type=section&id=Strategy) Microchip's strategy focuses on smart, connected, and secure embedded control solutions, leveraging a broad product portfolio and internal manufacturing for efficiency - Strategic focus on **8-bit, 16-bit, and 32-bit mixed-signal microcontrollers, microprocessors, analog, FPGA, and memory products**[95](index=95&type=chunk) - **Total System Solution (TSS)** approach combines hardware, software, and services for customer benefits[95](index=95&type=chunk) - Supports disruptive growth trends: **AI/ML, data centers, edge computing, IoT, E-mobility, networking, and sustainability**[95](index=95&type=chunk) - Ownership of manufacturing resources (wafer fabrication, assembly, test) is key for **cost control and high production yields**[96](index=96&type=chunk) - Committed to investing in new products, development systems, and design/manufacturing process technologies to maintain competitive position[98](index=98&type=chunk)[99](index=99&type=chunk) - Worldwide sales primarily through direct sales personnel and distributors, with strong technical service presence[100](index=100&type=chunk) [Critical Accounting Policies and Estimates](index=38&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) There were no changes to the company's critical accounting policies and estimates during the first three months of the fiscal year ending March 31, 2026 - No changes to critical accounting policies and estimates in **Q1 FY26** compared to the prior fiscal year's **10-K**[102](index=102&type=chunk) [Results of Operations](index=38&type=section&id=Results%20of%20Operations) The company's operating results for Q1 FY26 show a significant decline in net sales and profitability, leading to a net loss, primarily due to customer inventory corrections Operational Data as a Percentage of Net Sales | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net sales | 100.0 % | 100.0 % | | Cost of sales | 46.4 % | 40.6 % | | Gross profit | 53.6 % | 59.4 % | | Research and development | 23.8 % | 19.5 % | | Selling, general and administrative | 14.8 % | 12.1 % | | Amortization of acquired intangible assets | 9.9 % | 9.9 % | | Special charges and other, net | 2.1 % | 0.2 % | | Operating income | 3.0 % | 17.7 % | [Net Sales](index=38&type=section&id=Net%20Sales_Results) Net sales decreased by **13.4%** year-over-year to **$1,075.5 million** in Q1 FY26, primarily due to high customer inventory and adverse economic conditions Net Sales Overview (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | | :------- | :------------------------------- | :------------------------------- | :----- | | Net sales | $1,075.5 | $1,241.3 | (13.4)% | - Decrease in net sales primarily due to **high customer inventory levels**, delayed/reduced orders, and adverse economic conditions (slow activity, inflation, high interest rates)[105](index=105&type=chunk)[111](index=111&type=chunk)[114](index=114&type=chunk)[118](index=118&type=chunk) [Mixed-signal Microcontrollers](index=40&type=section&id=Mixed-signal%20Microcontrollers_Results) Net sales for Mixed-signal Microcontrollers decreased by **17.4%** year-over-year to **$532.6 million** in Q1 FY26, representing **49.5%** of total sales Mixed-signal Microcontrollers Net Sales (in millions) | Metric | Three Months Ended June 30, 2025 | % of Total Sales | Three Months Ended June 30, 2024 | % of Total Sales | | :-------------------------- | :------------------------------- | :--------------- | :------------------------------- | :--------------- | | Net sales | $532.6 | 49.5% | $644.7 | 51.9% | - Net sales decreased by **17.4% YoY**, mainly due to customer inventory corrections and adverse economic conditions[111](index=111&type=chunk) - Average selling prices remained relatively stable due to the proprietary nature of products and introduction of new products with more features[112](index=112&type=chunk) [Analog](index=40&type=section&id=Analog_Results) Analog product line net sales decreased by **4.4%** year-over-year to **$316.2 million** in Q1 FY26, accounting for **29.4%** of total sales Analog Product Line Net Sales (in millions) | Metric | Three Months Ended June 30, 2025 | % of Total Sales | Three Months Ended June 30, 2024 | % of Total Sales | | :------- | :------------------------------- | :--------------- | :------------------------------- | :--------------- | | Net sales | $316.2 | 29.4% | $330.6 | 26.6% | - Net sales decreased by **4.4% YoY**, primarily due to high customer inventory and adverse economic conditions[114](index=114&type=chunk) - Majority of analog products are proprietary with relatively stable prices, while non-proprietary products experience price fluctuations based on supply and demand[115](index=115&type=chunk)[116](index=116&type=chunk) [Other](index=42&type=section&id=Other_Results) Net sales for the "Other" product line decreased by **14.8%** year-over-year to **$226.7 million** in Q1 FY26, representing **21.1%** of total sales Other Product Line Net Sales (in millions) | Metric | Three Months Ended June 30, 2025 | % of Total Sales | Three Months Ended June 30, 2024 | % of Total Sales | | :------- | :------------------------------- | :--------------- | :------------------------------- | :--------------- | | Net sales | $226.7 | 21.1% | $266.0 | 21.5% | - Net sales decreased by **14.8% YoY**, mainly due to customer inventory and adverse economic conditions[118](index=118&type=chunk) - This category includes **FPGA products, SuperFlash royalties, intellectual property sales, engineering services, memory products, timing systems, and manufacturing services**[117](index=117&type=chunk) [Distribution](index=42&type=section&id=Distribution_Results) Distributors accounted for approximately **47%** of net sales in Q1 FY26, with Arrow Electronics being the largest, and distributor inventory days decreased to **29** - Distributors accounted for approximately **47% of net sales** in both Q1 FY26 and Q1 FY25[119](index=119&type=chunk) - **Arrow Electronics** was the largest distributor, accounting for **11% of net sales** in both periods[119](index=119&type=chunk) - Distributor inventory decreased from **33 days** at March 31, 2025, to **29 days** at June 30, 2025[121](index=121&type=chunk) [Sales by Geography](index=42&type=section&id=Sales%20by%20Geography_Results) All geographies experienced decreased net sales year-over-year, primarily due to customer inventory and adverse economic conditions, with foreign sales accounting for **77%** of total net sales Net Sales by Geography (in millions) | Geography | Three Months Ended June 30, 2025 | % of Total Sales | Three Months Ended June 30, 2024 | % of Total Sales | | :---------- | :------------------------------- | :--------------- | :------------------------------- | :--------------- | | Americas | $307.6 | 28.6% | $374.2 | 30.2% | | Europe | $225.4 | 21.0% | $271.9 | 21.9% | | Asia | $542.5 | 50.4% | $595.2 | 47.9% | | Total net sales | $1,075.5 | 100.0% | $1,241.3 | 100.0% | - All geographies experienced decreased net sales YoY, primarily due to customer inventory and adverse economic conditions[122](index=122&type=chunk) - Foreign sales accounted for approximately **77% of total net sales** in Q1 FY26, up from **76%** in Q1 FY25[122](index=122&type=chunk) [Gross Profit](index=44&type=section&id=Gross%20Profit_Results) Gross profit decreased by **$160.2 million** to **$576.7 million** in Q1 FY26, with gross margin declining to **53.6%** due to sales volume, product mix, and unabsorbed capacity charges Gross Profit (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | | :--------- | :------------------------------- | :------------------------------- | :----------- | | Gross profit | $576.7 | $736.9 | $(160.2) | | Gross margin | 53.6% | 59.4% | (5.8)% | | Unabsorbed capacity charges | $(15.6) | — | $(15.6) | | Inventory reserve charges (favorable impact) | $1.0 | — | $1.0 | | Licensing revenue impact (favorable) | $10.9 | — | $10.9 | - Decrease in gross profit primarily due to unfavorable net impact of sales volume, product mix, and geographic mix[125](index=125&type=chunk) - Overall inventory levels decreased to **$1.17 billion (214 days)** at June 30, 2025, from **$1.29 billion (251 days)** at March 31, 2025[126](index=126&type=chunk) - Approximately **69% of assembly** and **68% of test requirements** were performed internally in Q1 FY26, up from **68%** and **66%** respectively in Q1 FY25[127](index=127&type=chunk) - Approximately **64% of net sales** came from products produced at outside wafer foundries in Q1 FY26, up from **63%** in Q1 FY25[128](index=128&type=chunk) [Research and Development](index=44&type=section&id=Research%20and%20Development_Results) Research and development expenses increased by **$13.8 million (5.7%)** year-over-year to **$255.5 million** in Q1 FY26, representing **23.8%** of net sales Research and Development Expenses (in millions) | Metric | Three Months Ended June 30, 2025 | % of Net Sales | Three Months Ended June 30, 2024 | % of Net Sales | | :------- | :------------------------------- | :--------------- | :------------------------------- | :--------------- | | R&D expenses | $255.5 | 23.8% | $241.7 | 19.5% | - R&D expenses increased by **$13.8 million (5.7%) YoY**, primarily due to higher employee compensation costs, including share-based compensation, partially offset by restructuring efforts[131](index=131&type=chunk) - The company remains committed to investing in new and enhanced products and design/manufacturing process technologies[130](index=130&type=chunk) [Selling, General and Administrative](index=46&type=section&id=Selling,%20General%20and%20Administrative_Results) Selling, general and administrative expenses increased by **$8.8 million (5.8%)** year-over-year to **$159.3 million** in Q1 FY26, representing **14.8%** of net sales Selling, General and Administrative Expenses (in millions) | Metric | Three Months Ended June 30, 2025 | % of Net Sales | Three Months Ended June 30, 2024 | % of Net Sales | | :------- | :------------------------------- | :--------------- | :------------------------------- | :--------------- | | SG&A expenses | $159.3 | 14.8% | $150.5 | 12.1% | - SG&A expenses increased by **$8.8 million (5.8%) YoY**, mainly due to higher acquisition-related and employee compensation costs, partially offset by restructuring efforts[134](index=134&type=chunk) - The company aims for greater efficiency in SG&A expenses[133](index=133&type=chunk) [Amortization of Acquired Intangible Assets](index=46&type=section&id=Amortization%20of%20Acquired%20Intangible%20Assets_Results) Amortization expense for acquired intangible assets decreased by **$15.4 million** to **$107.6 million** in Q1 FY26, primarily due to accelerated amortization methods Amortization of Acquired Intangible Assets (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------- | | Amortization expense | $107.6 | $123.0 | $(15.4) | - Decrease in amortization primarily due to the use of accelerated amortization methods for assets placed in service in previous fiscal years[136](index=136&type=chunk) [Special Charges and Other, Net](index=46&type=section&id=Special%20Charges%20and%20Other,%20Net_Results) Special charges and other, net, increased significantly by **$19.6 million** to **$22.2 million** in Q1 FY26, mainly due to restructuring expenses Special Charges and Other, Net (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------- | | Special charges and other, net | $22.2 | $2.6 | $19.6 | - Increased charges primarily related to restructuring expenses, including contract exit costs, closure of the Tempe, Arizona wafer fabrication facility, and employee separation costs[137](index=137&type=chunk) [Other Income (Expense)](index=46&type=section&id=Other%20Income%20(Expense)_Results) Interest expense decreased by **$4.4 million** to **$57.4 million** in Q1 FY26, while other income, net, increased by **$2.9 million** due to foreign currency fluctuations Other Income (Expense) (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------- | | Interest income | $4.9 | $2.8 | $2.1 | | Interest expense | $(57.4) | $(61.8) | $4.4 | | Other income, net | $4.6 | $1.7 | $2.9 | - Interest expense decreased due to lower debt balances, partially offset by higher interest rates[139](index=139&type=chunk) - Other income, net, increased primarily due to foreign currency exchange rate fluctuations[140](index=140&type=chunk) [Provision for Income Taxes](index=46&type=section&id=Provision%20for%20Income%20Taxes_Results) The effective tax rate for Q1 FY26 was **(17.02)%**, influenced by foreign tax differentials and ongoing tax disputes with the IRS, Malaysian IRB, and German Tax Authorities - Effective tax rate for Q1 FY26 was **(17.02)%**, not meaningfully comparable to Q1 FY25 due to changes in pre-tax income, jurisdictional mix, and discrete items[141](index=141&type=chunk) - Foreign tax rate differential benefit from operations in Malta (**5.0% statutory rate**) and Ireland (**12.5% statutory rate**), and tax holidays in Thailand[144](index=144&type=chunk) - Ongoing tax disputes with **IRS (fiscal 2007-2016)**, **Malaysian IRB (fiscal 2020, potential $410.0 million liability)**, and **German Tax Authorities (ORIP/ETT, potential $92.0 million liability)**[145](index=145&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk) - The **Inflation Reduction Act** and **Global Minimum Tax (GMT)** did not have a material impact on tax expense or effective tax rate for Q1 FY26[150](index=150&type=chunk)[152](index=152&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents decreased by **$205.2 million** in Q1 FY26, driven by increased financing cash usage despite positive operating cash flows - Cash and cash equivalents decreased by **$205.2 million** to **$566.5 million** at June 30, 2025[154](index=154&type=chunk) - Existing liquidity, cash from operations, Revolving Credit Facility, and Commercial Paper are expected to meet anticipated cash requirements for at least the next 12 months[167](index=167&type=chunk) [Operating Activities](index=50&type=section&id=Operating%20Activities_Liquidity) Net cash provided by operating activities decreased by **$101.5 million** to **$275.6 million** in Q1 FY26, primarily due to net loss Net Cash Provided by Operating Activities (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------- | | Net cash provided by operating activities | $275.6 | $377.1 | $(101.5) | - Decrease in operating cash flow primarily due to net loss, partially offset by non-cash charges and net cash inflows from changes in operating assets and liabilities (e.g., decrease in inventories, increase in accrued liabilities)[155](index=155&type=chunk) [Investing Activities](index=50&type=section&id=Investing%20Activities_Liquidity) Net cash used in investing activities decreased by **$88.6 million** to **$36.9 million** in Q1 FY26, driven by significantly reduced capital expenditures Net Cash Used in Investing Activities (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------- | | Net cash used in investing activities | $(36.9) | $(125.5) | $88.6 | | Capital expenditures | $(17.9) | $(72.9) | $55.0 | - Capital expenditures significantly reduced to **$17.9 million** in Q1 FY26, with most factory expansion paused and planned investments at or below **$100 million** for the next 12 months[157](index=157&type=chunk) - Preliminary Memorandum of Terms for **$162 million** in **CHIPS Act grants** for two U.S. wafer fabrication facilities, but negotiations are not concluded[157](index=157&type=chunk) [Financing Activities](index=52&type=section&id=Financing%20Activities_Liquidity) Net cash used in financing activities increased by **$187.7 million** to **$443.9 million** in Q1 FY26, primarily due to Commercial Paper repayments and dividend payments Net Cash Used in Financing Activities (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------- | | Net cash used in financing activities | $(443.9) | $(256.2) | $(187.7) | | Repayments of Commercial Paper | $(174.1) | $(4,637.5) | $4,463.4 | | Payment of cash dividends on Series A Preferred Stock | $(25.1) | — | $(25.1) | | Payment of cash dividends on common stock | $(245.5) | $(242.6) | $(2.9) | - Second Amended and Restated Credit Agreement provides an unsecured revolving loan facility of up to **$2.25 billion**[159](index=159&type=chunk) - No outstanding Commercial Paper at June 30, 2025, compared to **$175.0 million** at March 31, 2025[160](index=160&type=chunk) - Issued **29.7 million Depositary Shares (1.5 million Series A Preferred Stock)** in March 2025, generating **$1.45 billion net cash proceeds**[161](index=161&type=chunk) [Dividends and Share Repurchases](index=52&type=section&id=Dividends%20and%20Share%20Repurchases_Liquidity) No common stock repurchases occurred in Q1 FY26, but the company paid **$245.5 million** in common stock dividends and **$25.1 million** in Series A Preferred Stock dividends - No common stock repurchases in Q1 FY26; **$1.56 billion** remained available under the **$4.00 billion** repurchase program[162](index=162&type=chunk) - Quarterly cash dividend of **$0.455 per common share** paid on June 5, 2025 (**$245.5 million**)[163](index=163&type=chunk)[164](index=164&type=chunk) - Quarterly cash dividend of **$16.875 per Series A Preferred Stock share** paid on June 16, 2025 (**$25.1 million**)[164](index=164&type=chunk)[166](index=166&type=chunk) [Summarized Financial Information](index=54&type=section&id=Summarized%20Financial%20Information) This section provides summarized financial information for Microchip Technology Incorporated and its Subsidiary Obligors, eliminating intercompany transactions - Summarized financial information is presented for Microchip Technology Incorporated and its Subsidiary Obligors, excluding intercompany transactions and investments in subsidiaries[168](index=168&type=chunk)[169](index=169&type=chunk) Summarized Balance Sheet Information (in millions) | Metric | As of June 30, 2025 | As of March 31, 2025 | | :------------------------------------ | :------------------ | :------------------- | | Current assets, excluding intercompany | $454.2 | $671.8 | | Intercompany receivables from Non-Guarantors | $3,403.9 | $3,527.3 | | Total assets | $9,795.1 | $10,181.1 | | Current liabilities, excluding intercompany | $392.3 | $314.9 | | Intercompany payables due to Non-Guarantors | $6,058.0 | $6,095.1 | | Total liabilities | $14,958.4 | $15,116.2 | Summarized Income Statement Information (in millions) | Metric | Three Months Ended June 30, 2025 | For the Year Ended March 31, 2025 | | :------------------------------------ | :------------------------------- | :-------------------------------- | | Revenue, excluding intercompany | $315.4 | $1,365.3 | | Revenue from Non-Guarantors | $117.7 | $400.2 | | Total revenue | $433.1 | $1,765.5 | | Total gross profit | $146.8 | $592.1 | | Total operating income | $1.7 | $104.1 | | Total net income (loss) | $(68.4) | $(192.0) | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=55&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, specifically interest rate risk and inflation risk [Interest Rate Risk](index=55&type=section&id=Interest%20Rate%20Risk) All of the company's **$5.49 billion** total debt is fixed rate, but refinancing maturing debt with variable rates could increase interest expense - Total debt of **$5.49 billion** at June 30, 2025, is all fixed rate, not subject to interest rate exposure[172](index=172&type=chunk) - Refinancing fixed-rate debt maturing within 12 months with variable-rate debt could significantly impact interest expense due to increased interest rates[172](index=172&type=chunk) [Inflation Risk](index=55&type=section&id=Inflation%20Risk) Inflation has not materially impacted operating results recently, but sustained pressures could adversely affect profitability - Inflation has **not had a material adverse impact** on operating results in recent periods[173](index=173&type=chunk) - Sustained inflationary pressures could adversely impact operating results if higher costs cannot be offset by price increases[173](index=173&type=chunk) [Item 4. Controls and Procedures](index=55&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=55&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025 - CEO and CFO concluded that disclosure controls and procedures were **effective** as of June 30, 2025[176](index=176&type=chunk) - Disclosure controls are designed to provide reasonable assurance that required information is recorded, processed, summarized, and reported timely[176](index=176&type=chunk) [Changes in Internal Control over Financial Reporting](index=57&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes in internal control over financial reporting were identified during the three months ended June 30, 2025 - No material changes in internal control over financial reporting identified during the three months ended June 30, 2025[177](index=177&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=58&type=section&id=Item%201.%20Legal%20Proceedings_Other) This section refers to Note 10, 'Commitments and Contingencies,' in the condensed consolidated financial statements for detailed information regarding legal proceedings - Legal proceedings information is detailed in **Note 10, 'Commitments and Contingencies,'** of the financial statements[179](index=179&type=chunk) [Item 1A. Risk Factors](index=58&type=section&id=Item%201A.%20Risk%20Factors) This section outlines a comprehensive set of risk factors that could materially affect Microchip Technology Incorporated's business, financial condition, and operating results [Risk Factor Summary](index=58&type=section&id=Risk%20Factor%20Summary) Risks are summarized into categories: Business, Operations, and Industry; Cybersecurity, Products, Privacy, Intellectual Property, and Litigation; Taxation, Laws and Regulations; and Capitalization and Financial Markets - Risks are summarized into categories: **Business, Operations, and Industry; Cybersecurity, Products, Privacy, Intellectual Property, and Litigation; Taxation, Laws and Regulations; and Capitalization and Financial Markets**[181](index=181&type=chunk)[182](index=182&type=chunk)[184](index=184&type=chunk)[185](index=185&type=chunk) [Risks Related to Our Business, Operations, and Industry](index=59&type=section&id=Risks%20Related%20to%20Our%20Business,%20Operations,%20and%20Industry) This section details risks stemming from global economic conditions, supply chain dependencies, intense competition, manufacturing inefficiencies, and reliance on distributors - Operating results are impacted by **global economic conditions, trade restrictions, and fluctuations in supply and demand**[187](index=187&type=chunk)[188](index=188&type=chunk) - Dependence on wafer foundries and other contractors (**64% of net sales from outside foundries in Q1 FY26**) exposes the company to supply disruptions and increased costs[199](index=199&type=chunk) - High dependence on foreign sales (**77% in Q1 FY26**) and operations exposes the company to foreign political and economic risks, including trade tensions with China[206](index=206&type=chunk)[207](index=207&type=chunk)[211](index=211&type=chunk) - Intense competition in the semiconductor industry leads to **pricing pressures** and the need for timely new product introductions[217](index=217&type=chunk)[224](index=224&type=chunk) - Ineffective utilization of manufacturing capacity or failure to maintain yields can adversely affect operating results, as seen with **$51.5 million in unabsorbed capacity charges** in Q1 FY26[226](index=226&type=chunk) - Reliance on distributors (**47% of net sales**) and short lead times for 'turns orders' create revenue visibility challenges[212](index=212&type=chunk)[231](index=231&type=chunk) - Business interruptions (e.g., cyber-attacks, natural disasters, public health concerns) at company facilities or those of key vendors/customers could harm operations[233](index=233&type=chunk)[236](index=236&type=chunk) - Challenges in attracting and retaining qualified personnel, especially with AI expertise, intensified by workforce reductions[255](index=255&type=chunk)[256](index=256&type=chunk)[257](index=257&type=chunk) [Risks Related to Cybersecurity, Products, Privacy, Intellectual Property, and Litigation](index=82&type=section&id=Risks%20Related%20to%20Cybersecurity,%20Products,%20Privacy,%20Intellectual%20Property,%20and%20Litigation) This section addresses risks related to cybersecurity threats, product vulnerabilities, responsible AI use, privacy compliance, and potential legal proceedings - The company is a target of IT system attacks; a cyber incident in August 2024 disrupted servers and business operations, though without material adverse effect[263](index=263&type=chunk)[264](index=264&type=chunk)[266](index=266&type=chunk) - Products may have security vulnerabilities, and the use of AI by attackers or in product development introduces new threats[274](index=274&type=chunk)[267](index=267&type=chunk) - Risks associated with employee use of third-party AI tools include data exposure and intellectual property misuse[276](index=276&type=chunk) - Compliance with evolving global privacy and data protection laws (**GDPR, CCPA, CPRA**) is complex and costly, with potential for significant fines and legal challenges[280](index=280&type=chunk)[281](index=281&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk) - Exposure to legal proceedings, investigations, and claims related to intellectual property, product defects, and contractual obligations, with potential for substantial costs and liabilities[288](index=288&type=chunk)[289](index=289&type=chunk)[295](index=295&type=chunk) - Failure to adequately protect intellectual property rights, including those related to AI-created works, could result in competitive harm and lost revenue[296](index=296&type=chunk)[298](index=298&type=chunk) [Risks Related to Taxation, Laws and Regulations](index=94&type=section&id=Risks%20Related%20to%20Taxation,%20Laws%20and%20Regulations) This section addresses risks related to new accounting pronouncements, export controls, trade sanctions, tariffs, and the outcomes of tax examinations and disputes - New accounting pronouncements or changes in existing standards can adversely affect reported financial results[299](index=299&type=chunk) - New export controls, trade sanctions, and tariffs (e.g., U.S. restrictions on China, Section 232 investigation on semiconductors) can restrict product transfers, increase costs, and reduce demand[300](index=300&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk)[305](index=305&type=chunk) - Ongoing tax disputes with the **IRS**, **Malaysian IRB (potential $410.0 million)**, and **German Tax Authorities (potential $92.0 million)** could materially impact financial position[306](index=306&type=chunk)[307](index=307&type=chunk)[308](index=308&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk)[311](index=311&type=chunk) - Global policy changes, including those related to AI and cyber resiliency, can increase costs, compliance risks, and potential liabilities[314](index=314&type=chunk)[315](index=315&type=chunk)[316](index=316&type=chunk) - Stringent environmental, climate change, and conflict-free minerals regulations may force significant expenses, operational changes, and impact supply chain[317](index=317&type=chunk)[318](index=318&type=chunk)[319](index=319&type=chunk)[320](index=320&type=chunk)[321](index=321&type=chunk)[322](index=322&type=chunk)[323](index=323&type=chunk) - Failure to meet evolving **ESG expectations**, standards, or disclosure requirements could adversely affect business, reputation, and stock price[324](index=324&type=chunk)[325](index=325&type=chunk)[326](index=326&type=chunk)[328](index=328&type=chunk)[329](index=329&type=chunk) [Risks Related to Capitalization and Financial Markets](index=103&type=section&id=Risks%20Related%20to%20Capitalization%20and%20Financial%20Markets) This section addresses risks related to stock price volatility, share repurchases, debt management, potential dilution from convertible securities, and foreign currency exchange rates - The future trading price of common stock is subject to wide fluctuations due to economic uncertainty, market conditions, and company-specific factors[330](index=330&type=chunk)[331](index=331&type=chunk)[333](index=333&type=chunk) - The amount and timing of share repurchases may fluctuate, and the current authorization does not guarantee full consummation or enhanced stockholder value[335](index=335&type=chunk) - Inability to effectively manage or refinance **$5.49 billion** in debt could adversely impact financial condition, especially with **$1.20 billion** in 2025 Notes maturing soon[336](index=336&type=chunk)[337](index=337&type=chunk) - Servicing debt requires significant cash flow; adverse changes in credit ratings could increase borrowing costs and limit market access[338](index=338&type=chunk) - Conversion of Convertible Debt, Series A Preferred Stock, or Depositary Shares will dilute existing stockholders' ownership interest[339](index=339&type=chunk)[341](index=341&type=chunk) - Common stock ranks junior to Series A Preferred Stock regarding dividends and liquidation payments[343](index=343&type=chunk) - Fluctuations in foreign currency exchange rates could adversely impact operating results, particularly for non-U.S. dollar transactions[344](index=344&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=107&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds_Other) On April 29, 2025, Microchip acquired TF Semiconductor Solutions, Inc. (TFSS), issuing **474,388 shares of its common stock** as part of the consideration - Acquired **TF Semiconductor Solutions, Inc. (TFSS)** on April 29, 2025[345](index=345&type=chunk) - Issued **474,388 shares of common stock** as part of the acquisition consideration, with **426,954 shares** issued at closing and **47,434** held back[345](index=345&type=chunk) - Shares were issued pursuant to **Section 4(a)(2) exemption** and subsequently registered for resale on **Form S-3ASR**[345](index=345&type=chunk) [Item 3. Defaults Upon Senior Securities](index=107&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities_Other) This section states that there are no applicable defaults upon senior securities to report - Not applicable; **no defaults upon senior securities** to report[346](index=346&type=chunk) [Item 4. Mine Safety Disclosures](index=109&type=section&id=Item%204.%20Mine%20Safety%20Disclosures_Other) This section states that there are no applicable mine safety disclosures to report - Not applicable; **no mine safety disclosures** to report[348](index=348&type=chunk) [Item 5. Other Information](index=109&type=section&id=Item%205.%20Other%20Information_Other) This section details **Rule 10b5-1 trading arrangements** adopted by Senior Vice President and CFO J. Eric Bjornholt and CEO and President Steve Sanghi in May and June 2025 - J. Eric Bjornholt, SVP and CFO, adopted a **Rule 10b5-1 trading arrangement** on May 23, 2025, for the sale of up to **25,910 shares** from Restricted Stock Awards and **4,303 owned shares**[349](index=349&type=chunk) - Steve Sanghi, CEO and President, adopted a **Rule 10b5-1 trading arrangement** on June 6, 2025, for the sale of up to **738,744 shares** from Restricted Stock Awards and exercised Options[350](index=350&type=chunk) - No other officers or directors adopted or terminated trading arrangements during the last fiscal quarter[351](index=351&type=chunk) [Item 6. Exhibits](index=110&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, subsidiary guarantors, certifications, and Inline XBRL documents - Includes **Amended and Restated Certificate of Incorporation and Bylaws**[353](index=353&type=chunk) - Contains certifications from the **Chief Executive Officer and Chief Financial Officer (Rule 13a-14(a))** and pursuant to **18 U.S.C. Section 1350**[353](index=353&type=chunk) - Includes various **Inline XBRL Taxonomy Extension Documents** for financial data tagging[353](index=353&type=chunk) Signatures [Authorized Signatory](index=111&type=section&id=Authorized%20Signatory) The report is signed on behalf of Microchip Technology Incorporated by J. Eric Bjornholt, Senior Vice President and Chief Financial Officer - Signed by **J. Eric Bjornholt, Senior Vice President and Chief Financial Officer**[357](index=357&type=chunk) - Date of signature: **August 7, 2025**[357](index=357&type=chunk)

Financial Performance - Net sales for the first quarter of fiscal 2026 were $1.0755 billion, representing a sequential growth of 10.8% but a decline of 13.4% year-over-year[3][7] - GAAP gross profit was 53.6%, with an operating income of $32.1 million, equating to 3.0% of net sales, and a net loss attributable to common stockholders of $46.4 million, or $0.09 per diluted share[3][8] - Non-GAAP gross profit was 54.3%, with an operating income of $222.3 million, or 20.7% of net sales, and net income of $154.7 million, translating to an EPS of $0.27 per diluted share[3][9] - Net sales for the three months ended June 30, 2025, were $1,075.5 million, a decrease of 13.4% compared to $1,241.3 million in the same period of 2024[22] - Gross profit decreased to $576.7 million, representing a gross profit margin of 53.6%, down from 59.4% in the prior year[25] - Operating income significantly declined to $32.1 million, with a corresponding operating income margin of 3.0%, down from 17.7% in the previous year[29] - The company reported a net loss attributable to common stockholders of $46.4 million, compared to a net income of $129.3 million in the same quarter of 2024[32] - Free cash flow for the quarter was $257.7 million, representing 24.0% of net sales, compared to 24.5% in the same period last year[34] Guidance and Expectations - The company expects September quarter net sales to be approximately $1.130 billion, plus or minus $20 million, indicating a sequential growth of about 5.1% at the midpoint[4] - For the second quarter of fiscal 2026, net sales guidance is set between $1.110 billion and $1.150 billion, with gross profit margins expected to be between 54.3% and 56.2%[12] - September quarter net sales are expected to be $1.130 billion, representing approximately 5.1% sequential growth at the midpoint[37] Shareholder Returns - Approximately $245.5 million was returned to common stockholders through dividends in the June quarter, with a declared quarterly dividend of 45.5 cents per share for the September quarter[3][10] Inventory Management - Inventory was reduced by $124.4 million, with distribution inventory days decreasing to 29 days and overall inventory days on the balance sheet declining to 214 days[4] - Continued progress on inventory optimization demonstrates the effectiveness of manufacturing improvements[37] Market Position and Strategy - The company continues to secure design wins with tier-one cloud providers for AI infrastructure and defense applications, positioning itself in two significant growth trends[4] - The Total System Solutions strategy is securing design wins with tier-one cloud providers for AI infrastructure and defense applications[37] - Customer engagement levels are strengthening across diversified end markets[37] - The company is well-positioned to deliver sustained growth and enhanced shareholder value throughout fiscal 2026[37] Capital Expenditures - Capital expenditures for the quarter ending September 30, 2025, are anticipated to be between $35 million and $40 million, with total capital expenditures for fiscal 2026 expected to be at or below $100 million[12] Debt and Assets - Total assets decreased to $14,979.5 million from $15,374.6 million as of March 31, 2025[24] - Long-term debt was reported at $5,458.1 million, a decrease from $5,630.4 million in the previous quarter[24] Research and Development - Research and development expenses increased to $255.5 million, accounting for 23.8% of net sales, compared to 19.5% in the same period last year[26] - The company plans to selectively expand production capacity and add research and development equipment[37] Conference Call - The company will host a conference call on August 7, 2025, to discuss these results[35] Customer Base - The company serves approximately 105,000 customers across various markets, including industrial, automotive, and defense[41] Non-GAAP Measures - The company emphasizes the importance of non-GAAP measures for investors[37]

Market Expansion and Product Development - In July 2024, the company entered the 64-bit mixed-signal microprocessor market, expanding beyond the 32-bit architecture[25] - The company targets the 8-bit, 16-bit, and 32-bit mixed-signal microcontroller and 32-bit embedded mixed-signal microprocessor markets[27] - The company plans to invest $880 million over the next several years to expand silicon carbide (SiC) and silicon production capacity at Fab 5[45] Financial Performance and Sales - Approximately 36% of sales in fiscal 2025 came from products produced at the company's own wafer fabrication facilities located in the U.S.[50] - In fiscal 2025, 45% of net sales were derived through distributors, down from 47% in fiscal 2024, while direct sales accounted for 55% in fiscal 2025 compared to 53% in fiscal 2024[59] - Arrow Electronics, the largest distributor, contributed 10% of net sales in fiscal 2025 and 12% in fiscal 2024, with no other distributor or direct customer exceeding 10% of net sales[59] Operational Efficiency and Cost Management - The closure of Fab 2 is expected to generate annual cash savings of approximately $90 million, with process technologies transferred to Fab 4 and Fab 5[43] - The company has paused its multi-year $800 million expansion plan at Fab 4 through fiscal 2026, planning to resume as the business outlook improves[44] - The company has reduced planned capital investments through fiscal 2026 due to the macroeconomic environment[46] Supply Chain and Production Risks - The company faces risks related to supply chain disruptions, including geopolitical tensions and trade restrictions, which may impact the availability of raw materials and components[100] - The company is dependent on external wafer foundries and contractors, which may limit its control over production and increase operational risks[103] - The company has experienced supply shortages in the past and may face challenges in securing necessary materials due to increased global semiconductor demand[95] Regulatory and Compliance Challenges - The company must navigate compliance with various regulations, including those related to environmental standards and data protection, which could impact its operations[90] - The company is subject to numerous privacy and data protection laws, including the EU's GDPR, which can impose fines up to 4% of worldwide revenue or €20 million, whichever is greater[170] - Compliance with government regulations, such as the Cybersecurity Maturity Model Certification, may increase operational costs and affect the ability to secure new contracts[137] Employee and Workforce Management - The company maintains a global workforce of approximately 19,400 employees, emphasizing that employees are its greatest strength[68] - The company invests in employee development through training programs, mentorship, and tuition reimbursement, fostering a culture of continuous improvement[72][73] - Competition for qualified personnel has intensified, particularly for roles in management, technical, and AI-related fields, which could delay product development[148] Cybersecurity and Data Protection - The company has experienced cyber-attacks, including a significant incident in August 2024 that temporarily impacted manufacturing operations[156] - Continuous improvements to cybersecurity measures have been implemented, but there is no assurance that future attacks can be fully prevented[158] - The company does not have specific insurance coverage for cybersecurity matters, which may leave it vulnerable to liabilities from breaches[162] Environmental and Climate Risks - The company has publicly announced environmental goals, including net zero carbon emissions, which may expose it to scrutiny and operational risks[213] - New climate-related laws and regulations could impose additional costs and risks, affecting the company's ESG goals and compliance efforts[214] - Compliance with conflict minerals regulations may lead to additional expenses and potential loss of customers if sourcing cannot be certified as responsible[209] Financial Liabilities and Tax Issues - The company incurred approximately $8.10 billion of additional debt to fund the acquisition of Microsemi, indicating significant financial leverage[140] - The company is currently involved in tax disputes that could result in liabilities up to $410 million if the Malaysian tax authority's adjustments are upheld[195] - The company received assessments from German tax authorities that could lead to income taxes and penalties up to $92 million if upheld[196] Market Competition and Pricing Pressures - The semiconductor industry is characterized by intense competition, with significant price erosion and rapid technological changes impacting market dynamics[61] - The company has experienced modest pricing declines in proprietary product lines due to competitive conditions, with cost increases passed on to customers in fiscal 2023 and fiscal 2022[115] - The introduction of long-term supply agreements (LTSAs) has resulted in some customers holding excess inventory, adversely affecting gross margins[112]

Financial Performance - Net sales for the fourth quarter of fiscal 2025 were $970.5 million, a decrease 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[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]. - Net sales for Q4 2025 were $970.5 million, a decrease of 26.8% compared to $1,325.8 million in Q4 2024[27]. - 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 margin of 51.6%[30]. - Operating loss for Q4 2025 was $100.3 million, compared to an operating income of $253.5 million in Q4 2024[27]. - Non-GAAP gross profit for Q4 2025 was $504.6 million, with a non-GAAP gross profit margin of 52.0%[30]. - GAAP operating loss for Q1 2025 was $(100.3) million, compared to a profit of $253.5 million in Q1 2024, indicating a significant decline[36]. - Non-GAAP operating income for Q1 2025 was $136.0 million, down from $436.0 million in Q1 2024, a decrease of 68.8%[36]. - Net loss attributable to common stockholders for Q1 2025 was $(156.8) million, compared to a profit of $154.7 million in Q1 2024[40]. - Non-GAAP net income for Q1 2025 was $61.4 million, down from $310.3 million in Q1 2024, a decline of 80.2%[40]. - GAAP cash flow from operations for Q1 2025 was $205.9 million, down from $430.0 million in Q1 2024, a decrease of 52.1%[42]. - Free cash flow for Q1 2025 was $191.7 million, compared to $389.9 million in Q1 2024, a decline of 50.8%[42]. - GAAP net loss income as a percentage of net sales for Q1 2025 was (16.2)%, compared to 11.7% in Q1 2024[40]. - Non-GAAP diluted net income per common share for Q1 2025 was $0.11, down from $0.57 in Q1 2024[40]. 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 cash dividend of 45.5 cents per share on June 5, 2025[14]. Future Outlook - 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]. Operational Strategy - The company is focused on enhancing operational capabilities through efficient manufacturing and improved inventory management[1]. - Strategic financial moves and disciplined cost management are aimed at navigating current market challenges[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 manufacturing capacity in the industry[1]. Customer Base - Microchip serves approximately 109,000 customers across various markets including industrial, automotive, and consumer[1]. Debt Management - The company reduced total net debt by roughly $1.30 billion through a mandatory convertible preferred offering[7].

Financial Performance - For the three months ended December 31, 2024, the company's gross profit margin decreased to 54.7% from 63.4% in the same period of 2023, while operating income fell to 3.0% from 30.0%[108]. - Net sales for the three months ended December 31, 2024, were $1,026.0 million, a decrease of 41.9% compared to $1,765.7 million in the same period of 2023[110]. - For the nine months ended December 31, 2024, net sales were $3,431.1 million, down 45.6% from $6,308.6 million in 2023[110]. - Total revenue for the nine months ended December 31, 2024, was $1.28 billion, compared to $2.80 billion for the year ended March 31, 2024, showing a decline of approximately 54.3%[172]. - The company reported a total net loss of $122.2 million for the nine months ended December 31, 2024, compared to a net income of $465.2 million for the year ended March 31, 2024[172]. Expenses and Cost Management - Research and development expenses increased to 24.0% of net sales for the three months ended December 31, 2024, compared to 15.1% in the same period of 2023[108]. - The company reported a significant increase in selling, general, and administrative expenses to 15.4% of net sales for the three months ended December 31, 2024, compared to 9.8% in the same period of 2023[108]. - Selling, general and administrative expenses for the three months ended December 31, 2024, were $158.2 million, or 15.4% of net sales, compared to $172.2 million, or 9.8% of net sales, for the same period last year[139]. - Selling, general and administrative expenses decreased by $14.0 million, or 8.1%, for the three months ended December 31, 2024, and by $106.7 million, or 18.6%, for the nine months ended December 31, 2024, mainly due to lower employee compensation costs[140]. - R&D expenses for the three months ended December 31, 2024, were $246.2 million, or 24.0% of net sales, a decrease from $266.0 million, or 15.1% of net sales, in the same period last year[136]. - R&D expenses decreased by $19.8 million, or 7.4%, for the three months ended December 31, 2024, and by $128.5 million, or 15.0%, for the nine months ended December 31, 2024, primarily due to lower employee compensation costs[137]. Capital Expenditures and Investments - The company is currently executing a multi-year $800 million capacity expansion plan at Fab 4 in Oregon and an $880 million plan to expand SiC and silicon production capacity[101]. - The anticipated level of capital expenditures is expected to provide sufficient manufacturing capacity to support the growth of new products and technologies over the next 12 months[99]. - Capital expenditures in the nine months ended December 31, 2024, were $111.8 million, a decrease from $245.0 million in the same period last year, primarily for selective expansion of production capacity[161]. - The company plans to invest between $100 million and $150 million in equipment and facilities over the next 12 months to support growth in production capabilities[161]. - The company plans to continue investing in assembly and test equipment to increase internal capacity capabilities[133]. Inventory and Sales Distribution - The overall inventory level was $1.36 billion at December 31, 2024, with 266 days of inventory compared to 224 days at March 31, 2024[130]. - Distributors accounted for approximately 43% of net sales in Q4 2024, down from 44% in Q4 2023[122]. - Sales in the Americas for Q4 2024 were $297.4 million, representing 29.0% of total net sales, while Asia accounted for 53.1% with sales of $544.7 million[126][127]. Strategic Initiatives - The company plans to continue transitioning certain outsourced assembly and test capacity to internal facilities to enhance operational efficiency[99]. - The company expects to moderate future average selling price declines and is focused on maintaining manufacturing yields and competitive position through investments in new products[99]. - The company believes that its strong technical service presence is essential for the continued development of the embedded control market, leveraging the expertise of its sales force[105]. Shareholder Returns and Financing - In the first nine months of fiscal 2025, the company paid cash dividends of $730.9 million, compared to $669.0 million in fiscal 2024, reflecting a year-over-year increase of approximately 9.5%[163]. - The company repurchased approximately 1.0 million shares for $90.0 million in the first nine months of fiscal 2025, a decrease from 7.4 million shares for $594.7 million in the same period of fiscal 2024[166]. - A quarterly dividend of $0.455 per share was declared for March 2025, with an expected total cash dividend of approximately $244.9 million[167]. - The company plans to refinance certain existing notes as they mature and may seek additional financing depending on market conditions and operational needs[168]. - As of December 31, 2024, the company had $586.0 million in cash and cash equivalents, an increase of $266.3 million from the previous balance[157]. - Net cash provided by operating activities was $692.2 million in the nine months ended December 31, 2024, compared to $2.46 billion in the same period last year[158]. - Net cash used in financing activities was $194.1 million for the nine months ended December 31, 2024, a significant decrease from $2.09 billion for the same period in 2023[162]. - As of December 31, 2024, the principal amount of outstanding indebtedness was $6.79 billion, with no borrowings under the Revolving Credit Facility[165]. - The company has approximately $1.56 billion remaining for stock repurchases under the Board's authorization as of December 31, 2024[166]. Facility Closures - In fiscal 2024, the company announced the closure of its Tempe, Arizona wafer fabrication facility (Fab 2), expected to generate annual cash savings of approximately $90 million starting from the June 2026 quarter[99].

Financial Performance - Net sales for the third quarter of fiscal 2025 were $1.026 billion, down 41.9% from $1.766 billion in the prior year's third quarter[4]. - GAAP net loss was $53.6 million, or $0.10 per diluted share, compared to a net income of $419.2 million, or $0.77 per diluted share, in the prior year[5]. - Non-GAAP net income was $107.3 million, or $0.20 per diluted share, down from $592.7 million, or $1.08 per diluted share, in the prior year[6]. - Net sales for the three months ended December 31, 2024, were $1,026.0 million, a decrease from $1,765.7 million in the same period of 2023, representing a decline of 42%[23]. - Operating income for the three months ended December 31, 2024, was $30.9 million, significantly lower than $529.4 million in the same period of 2023, reflecting a decrease in operating income margin from 30.0% to 3.0%[31]. - Reported net loss for Q3 2025 was $53.6 million compared to a net income of $419.2 million in Q3 2024[35]. - Non-GAAP net income for Q3 2025 was $107.3 million, down from $592.7 million in Q3 2024[35]. Dividends and Shareholder Returns - The company returned approximately $244.6 million to stockholders through dividends in the December quarter[3]. - A quarterly dividend of 45.5 cents per share was declared, representing a 1.1% increase from the year ago quarter[7]. Inventory and Operational Adjustments - Inventory levels reached 266 days, prompting decisive steps to realign the business[8]. - Company emphasizes focus on inventory management and shareholder returns amidst market uncertainties[39]. Future Guidance - The company expects net sales guidance for the March quarter to be between $920.0 million and $1.000 billion[11]. - Net sales guidance for Q4 2025 is projected between $920.0 million and $1.000 billion[39]. - Gross profit margin for the March quarter is expected to be between 51.2% and 53.1%[11]. - Operating income for the March quarter is projected to be between $(128.5) million and $(79.4) million on a GAAP basis[11]. Research and Development - Research and development expenses for the three months ended December 31, 2024, were $246.2 million, which is 24.0% of net sales, compared to $266.0 million or 15.1% of net sales in 2023[27]. - Non-GAAP research and development expenses for the three months ended December 31, 2024, were $217.4 million, representing 21.2% of net sales, compared to $241.5 million or 13.7% of net sales in 2023[27]. - Company plans to selectively expand production capacity and invest in research and development equipment[39]. Cash Flow and Debt - GAAP cash flow from operations for Q3 2025 was $271.5 million, a decrease from $853.3 million in Q3 2024[36]. - Free cash flow for Q3 2025 was $253.4 million, compared to $793.8 million in Q3 2024[36]. - Long-term debt increased to $6,749.5 million as of December 31, 2024, compared to $5,000.4 million as of March 31, 2024[25].

Financial Performance - In the three months ended September 30, 2024, net sales were 100% of total sales, with a gross profit margin of 57.4%, down from 67.8% in the same period of 2023[96]. - Net sales for the three months ended September 30, 2024, were $1,163.8 million, a decrease of 48.4% compared to $2,254.3 million in the same period of 2023[98]. - Net sales for the six months ended September 30, 2024, were $2,405.1 million, down 47.1% from $4,542.9 million in the same period of 2023[98]. - Gross profit for Q3 2024 was $668.5 million, or 57.4% of net sales, compared to $1.53 billion, or 67.8% of net sales in Q3 2023[116]. - The company reported a total net loss of $22.1 million for the six months ended September 30, 2024, compared to a net income of $465.2 million for the year ended March 31, 2024[161]. - Total revenue for the six months ended September 30, 2024, was $899.0 million, compared to $2.8031 billion for the year ended March 31, 2024[161]. Cost and Expenses - Cost of sales increased to 42.6% of net sales in Q3 2024, compared to 32.2% in Q3 2023, indicating rising production costs[96]. - Research and development expenses rose to 20.7% of net sales in Q3 2024, up from 13.0% in Q3 2023, reflecting increased investment in new product development[96]. - Operating income for the three months ended September 30, 2024, was 12.6%, significantly lower than 39.3% in the same quarter of 2023[96]. - Selling, general and administrative expenses for Q3 2024 were $157.0 million, or 13.5% of net sales, down $39.6 million, or 20.1%, from Q3 2023[126][127]. - R&D expenses for Q3 2024 were $240.7 million, or 20.7% of net sales, a decrease of $51.9 million, or 17.7%, compared to Q3 2023[123][124]. - Amortization of acquired intangible assets for Q3 2024 was $122.7 million, a decrease from $151.4 million in Q3 2023[130]. Inventory and Sales Distribution - Overall inventory levels were $1.34 billion at September 30, 2024, with 247 days of inventory compared to 224 days at March 31, 2024[118]. - Distributors accounted for approximately 44% of net sales in Q3 2024, down from 50% in Q3 2023, with Arrow Electronics being the largest distributor[110]. - Foreign customers represented approximately 74% of total net sales in Q3 2024, slightly down from 75% in Q3 2023[115]. - Mixed-signal microcontrollers accounted for 51.1% of net sales in Q3 2024, down from 56.8% in Q3 2023, with a decrease in sales of 53.6%[101][102]. - Analog product line represented 25.1% of net sales in Q3 2024, down from 27.6% in Q3 2023, with a decrease in sales of 53.1%[105][106]. - Other product line sales accounted for 23.8% of net sales in Q3 2024, up from 15.6% in Q3 2023, despite a decrease in sales of 21.1%[108][109]. Capital Expenditures and Investments - The company is executing a multi-year $800 million capacity expansion plan at Fab 4 in Oregon and an $880 million plan for SiC and silicon production capacity[88]. - The anticipated level of capital expenditures is expected to support growth in production capabilities for new products and technologies[96]. - Capital expenditures in the six months ended September 30, 2024 were $93.7 million, down from $185.5 million in the same period in 2023[149][151]. - The company plans to invest between $125 million and $150 million in equipment and facilities over the next 12 months[151]. - The company reached a Preliminary Memorandum of Terms with the U.S. Department of Commerce for $162 million in CHIPS Act grants for two U.S. wafer fabrication facilities[151]. Financing and Debt - Net cash provided by operating activities was $420.7 million in the six months ended September 30, 2024, compared to $1.61 billion in the same period in 2023[147]. - Net cash used in financing activities was $264.6 million for the six months ended September 30, 2024, a significant decrease from $1.35 billion for the same period in 2023[152]. - The company borrowed $750.0 million under the new 2025 Term Loan Facility with interest rates ranging from 1.125% to 1.5%[152]. - As of September 30, 2024, the principal amount of outstanding indebtedness was $6.45 billion, with no borrowings under the Revolving Credit Facility[152]. - A 50-basis point increase in interest rates would increase expected annual interest expense by approximately $3.8 million[162]. - The company plans to refinance certain existing notes as they mature and may seek additional financing depending on market conditions and operational needs[158]. Strategic Focus and Future Plans - The macroeconomic environment remains weak, with customers continuing to reduce inventory levels due to business uncertainty and ample supply[86]. - The company has paused most factory expansion activities and reduced planned capital investments through fiscal 2026[86]. - The strategic focus includes developing smart, connected, and secure embedded control solutions for key markets such as automotive and data centers[87]. - The company plans to continue transitioning certain outsourced assembly and test capacity to internal facilities to enhance manufacturing control[88]. - The company plans to continue investing in internal assembly and test capabilities to enhance cost savings and control over manufacturing processes[120]. - Approximately 66% of net sales in Q3 2024 came from products produced at outside wafer foundries, consistent with 65% in Q3 2023[121]. Tax and Assets - The effective tax rate for the six months ended September 30, 2024 was approximately 22% for domestic operations[135]. - As of September 30, 2024, total assets were $9.8814 billion, an increase from $8.8577 billion as of March 31, 2024[161].