UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 0-21184 MICROCHIP TECHNOLOGY INCORPORATED $0.001 par value per share (Exact Name of Registrant as Specifi ...

EXHIBIT 99.1 INVESTOR RELATIONS CONTACT: Sajid Daudi -- Head of Investor Relations..... (480) 792-7385 MICROCHIP TECHNOLOGY ANNOUNCES FINANCIAL RESULTS FOR SECOND QUARTER OF FISCAL YEAR 2026 CHANDLER, Arizona - November 6, 2025 - (NASDAQ: MCHP) - Microchip Technology Incorporated, a leading provider of smart, connected, and secure embedded control solutions, today reported results for the three months ended September 30, 2025. Steve Sanghi, Microchip's CEO and President commented that "Our second quarter re ...

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].

Financial Performance - Net sales for the second quarter of fiscal 2025 were $1.164 billion, down 6.2% sequentially and down 48.4% from $2.254 billion in the prior year's second fiscal quarter[3][4]. - GAAP net income was $78.4 million, or $0.14 per diluted share, down from $666.6 million, or $1.21 per diluted share, in the prior year's second fiscal quarter[5]. - Non-GAAP net income was $250.2 million, or $0.46 per diluted share, down from $889.3 million, or $1.62 per diluted share, in the prior year's second fiscal quarter[6]. - Operating income for the three months ended September 30, 2024, was $146.6 million, significantly lower than $885.0 million in the same period of 2023[23][31]. - Reported net income for Q2 2025 was $78.4 million, down from $666.6 million in Q2 2024[35]. - Non-GAAP net income for Q2 2025 was $250.2 million, compared to $889.3 million in Q2 2024[35]. - GAAP cash flow from operations for Q2 2025 was $43.6 million, significantly lower than $616.2 million in Q2 2024[36]. - Free cash flow for Q2 2025 was $22.8 million, down from $541.8 million in Q2 2024[36]. Shareholder Returns - The company returned approximately $261.0 million to stockholders through dividends of $243.7 million and share repurchases of $17.3 million during the September quarter[3]. - A record quarterly dividend of 45.5 cents per share was declared, representing a 3.6% increase from the year ago quarter[7]. - The company has cumulatively repurchased $2.444 billion, or 31.4 million shares, over the last twelve quarters under its stock buyback program[3]. Sales and Revenue Outlook - For the December quarter, the company expects net sales between $1.025 billion and $1.095 billion, reflecting ongoing inventory destocking and macro uncertainties[9][11]. - The company expects net sales for the December quarter to be between $1.025 billion and $1.095 billion[39]. Profit Margins - The gross profit margin on a GAAP basis was 57.4%, while the non-GAAP gross profit margin was 59.5%[4]. - Gross profit for the three months ended September 30, 2024, was $668.5 million, resulting in a gross profit margin of 57.4%, compared to 67.8% in 2023[23][26]. - Non-GAAP gross profit for the three months ended September 30, 2024, was $692.9 million, with a non-GAAP gross profit margin of 59.5%[26]. Expenses and Costs - Research and development expenses for the three months ended September 30, 2024, were $240.7 million, representing 20.7% of net sales, up from 13.0% in 2023[27]. - GAAP income tax provision for Q2 2025 was $13.1 million, compared to $167.0 million in Q2 2024[34]. - Non-GAAP income tax provision for Q2 2025 was $37.3 million, down from $147.1 million in Q2 2024[34]. - GAAP other expense, net for Q2 2025 was $(55.1) million, compared to $(51.4) million in Q2 2024[32]. Debt and Assets - Total current assets as of September 30, 2024, were $2,905.5 million, a decrease from $3,013.0 million as of March 31, 2024[25]. - Long-term debt as of September 30, 2024, was $4,476.6 million, down from $5,000.4 million as of March 31, 2024[25]. Strategic Focus - The company is focusing on its Total System Solutions approach, which is driving adoption in AI-accelerated servers in data center markets[9]. - The company is maintaining strong cost discipline and operational readiness for anticipated market recovery[39]. Cybersecurity Incident - The company reported a cybersecurity incident expense of $20.1 million for the three months ended September 30, 2024[26][31].