Microchip Technology Incorporated(MCHPP) - 2026 Q1 - Quarterly Report

FORM 10-Q Filing Information Registrant Information This section provides Microchip Technology Incorporated's basic identification details for its Form 10-Q, including registered securities - Registrant: MICROCHIP TECHNOLOGY INCORPORATED[2] - Filing Type: Quarterly Report (10-Q) for the period ended June 30, 2025[2] 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 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] - The registrant is not a shell company[4] - Common Stock outstanding as of July 28, 2025: 539,679,667 shares[4] Index to Form 10-Q PART I. FINANCIAL INFORMATION This section outlines the company's unaudited financial statements, management's discussion, market risk disclosures, and controls Item 1. Financial Statements (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] - Detailed notes to the condensed consolidated financial statements are provided[6] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] PART II. OTHER INFORMATION This section includes information on legal proceedings, risk factors, equity security sales, defaults on senior securities, and exhibits Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 3. Defaults Upon Senior Securities This sub-section indicates whether there have been any defaults upon senior securities - Addresses defaults upon senior securities[6] Item 4. Mine Safety Disclosures This sub-section indicates whether there are any mine safety disclosures - Indicates mine safety disclosures[6] Item 5. Other Information This sub-section includes other material information not covered elsewhere - Covers other information not explicitly categorized[6] Item 6. Exhibits This sub-section lists all exhibits filed with the Form 10-Q, including certifications and XBRL documents - Lists all exhibits accompanying the report[6] Defined Terms Glossary of Key Terms 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] - Defines accounting and regulatory terms like 'ASU', 'FASB', 'SEC', and 'U.S. GAAP'[8] - Explains operational and product-related terms such as 'CEMs', 'ESEs', 'FPGA', and 'LTSAs'[8] PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Microchip Technology Incorporated, along with detailed notes Condensed Consolidated Balance Sheets 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 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 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 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] - Financing cash outflow increased significantly, driven by Commercial Paper repayments ($174.1 million) and common stock dividends ($245.5 million)[17] Condensed Consolidated Statements of Changes in Equity 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] - Additional paid-in capital increased by $64.1 million, partly due to common stock issued for an acquisition and employee equity incentive plans[19] Notes to Condensed Consolidated Financial Statements These notes provide essential context and detailed breakdowns for the condensed consolidated financial statements, crucial for comprehensive understanding Note 1. Basis of Presentation 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] - All dollar amounts are in millions of U.S. dollars, except per share amounts[20] - Interim results are not necessarily indicative of future fiscal year results[21] Note 2. Recently Issued Accounting Pronouncements and Other Developments 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] - ASU 2024-03 (Income Statement Expenses) effective for annual periods beginning after December 15, 2026, requires disaggregated expense disclosures[23] - The Company is currently evaluating the applicable disclosures for ASU 2024-03[23] Note 3. Geographic and Segment Information 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] - The Chief Operating Decision Maker (CODM) evaluates segment performance based on gross profit[29] 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 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][36] Note 5. Net (Loss) Income Per Common Share 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] Note 6. Debt 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] - The 2017 Senior Convertible Debt is convertible between July 1, 2025, and September 30, 2025, due to common stock price exceeding conversion price[46] 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] Note 7. Fair Value of Financial Instruments 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][53] - Cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to short-term maturity (Level 2)[50] 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 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] - 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][55] - No goodwill impairment charges have been recorded through June 30, 2025[55] Note 9. Other Financial Statement Details 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] 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 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] - The company believes future payments for indemnification obligations, warranty costs, and product liabilities will not have a material adverse effect[64][65] - 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] Note 11. Income Taxes 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] - Foreign income taxed at lower rates in Thailand, Malta, and Ireland contributes to the tax rate differential[69] - The company is challenging IRS notices of deficiency for fiscal years 2007-2016 related to transfer pricing matters[71] - Malaysian IRB proposed income adjustment for fiscal 2020 could result in up to $410.0 million in income taxes and penalties if upheld[72][73] - German Tax Authorities (GTA) assessments for extraterritorial taxation could result in up to $92.0 million in income taxes and penalties[74] - The company believes these assessments are without merit and intends to vigorously defend its positions[75] Note 12. Share-Based Compensation 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] Note 13. Stockholders' Equity 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] - Issued 1.5 million shares of Series A Mandatory Convertible Preferred Stock in March 2025, generating $1.45 billion net cash proceeds[81] - 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][83] - Paid a quarterly cash dividend of $0.455 per common share ($245.5 million) on June 5, 2025[87] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and operational results for Q1 FY26 Note Regarding Forward-looking Statements 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][90] - Key forward-looking statements include expectations on operating results, economic conditions, competitive pressures, demand, trade restrictions, litigation, and capital expenditures[89][91] 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] Business and Macroeconomic Environment 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] - Net sales in mixed-signal microcontroller and analog product lines increased from March 2025 quarter[94] - Inventory and days of inventory reduced in June 2025 quarter; factory expansion paused[94] 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] - Total System Solution (TSS) approach combines hardware, software, and services for customer benefits[95] - Supports disruptive growth trends: AI/ML, data centers, edge computing, IoT, E-mobility, networking, and sustainability[95] - Ownership of manufacturing resources (wafer fabrication, assembly, test) is key for cost control and high production yields[96] - Committed to investing in new products, development systems, and design/manufacturing process technologies to maintain competitive position[98][99] - Worldwide sales primarily through direct sales personnel and distributors, with strong technical service presence[100] Critical Accounting Policies and Estimates 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] Results of Operations 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 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][111][114][118] Mixed-signal Microcontrollers 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] - Average selling prices remained relatively stable due to the proprietary nature of products and introduction of new products with more features[112] Analog 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] - Majority of analog products are proprietary with relatively stable prices, while non-proprietary products experience price fluctuations based on supply and demand[115][116] Other 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] - This category includes FPGA products, SuperFlash royalties, intellectual property sales, engineering services, memory products, timing systems, and manufacturing services[117] Distribution 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] - Arrow Electronics was the largest distributor, accounting for 11% of net sales in both periods[119] - Distributor inventory decreased from 33 days at March 31, 2025, to 29 days at June 30, 2025[121] Sales by Geography 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] - Foreign sales accounted for approximately 77% of total net sales in Q1 FY26, up from 76% in Q1 FY25[122] Gross Profit 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] - 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] - 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] - Approximately 64% of net sales came from products produced at outside wafer foundries in Q1 FY26, up from 63% in Q1 FY25[128] Research and Development 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] - The company remains committed to investing in new and enhanced products and design/manufacturing process technologies[130] Selling, General and Administrative 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] - The company aims for greater efficiency in SG&A expenses[133] Amortization of Acquired Intangible Assets 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] Special Charges and Other, Net 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] Other Income (Expense) 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] - Other income, net, increased primarily due to foreign currency exchange rate fluctuations[140] Provision for Income Taxes 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] - 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] - 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][146][147] - 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][152] Liquidity and Capital Resources 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] - 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] Operating Activities 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] Investing Activities 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] - Preliminary Memorandum of Terms for $162 million in CHIPS Act grants for two U.S. wafer fabrication facilities, but negotiations are not concluded[157] Financing Activities 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] - No outstanding Commercial Paper at June 30, 2025, compared to $175.0 million at March 31, 2025[160] - Issued 29.7 million Depositary Shares (1.5 million Series A Preferred Stock) in March 2025, generating $1.45 billion net cash proceeds[161] Dividends and Share Repurchases 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] - Quarterly cash dividend of $0.455 per common share paid on June 5, 2025 ($245.5 million)[163][164] - Quarterly cash dividend of $16.875 per Series A Preferred Stock share paid on June 16, 2025 ($25.1 million)[164][166] Summarized Financial Information 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][169] 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 This section discusses the company's exposure to market risks, specifically interest rate risk and inflation risk Interest Rate Risk 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] - Refinancing fixed-rate debt maturing within 12 months with variable-rate debt could significantly impact interest expense due to increased interest rates[172] Inflation Risk 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] - Sustained inflationary pressures could adversely impact operating results if higher costs cannot be offset by price increases[173] Item 4. Controls and Procedures 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 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] - Disclosure controls are designed to provide reasonable assurance that required information is recorded, processed, summarized, and reported timely[176] Changes in Internal Control over Financial Reporting 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] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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 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][182][184][185] Risks Related to Our Business, Operations, and Industry 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][188] - 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] - 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][207][211] - Intense competition in the semiconductor industry leads to pricing pressures and the need for timely new product introductions[217][224] - 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] - Reliance on distributors (47% of net sales) and short lead times for 'turns orders' create revenue visibility challenges[212][231] - Business interruptions (e.g., cyber-attacks, natural disasters, public health concerns) at company facilities or those of key vendors/customers could harm operations[233][236] - Challenges in attracting and retaining qualified personnel, especially with AI expertise, intensified by workforce reductions[255][256][257] Risks Related to Cybersecurity, Products, Privacy, Intellectual Property, and Litigation 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][264][266] - Products may have security vulnerabilities, and the use of AI by attackers or in product development introduces new threats[274][267] - Risks associated with employee use of third-party AI tools include data exposure and intellectual property misuse[276] - 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][281][282][283] - Exposure to legal proceedings, investigations, and claims related to intellectual property, product defects, and contractual obligations, with potential for substantial costs and liabilities[288][289][295] - Failure to adequately protect intellectual property rights, including those related to AI-created works, could result in competitive harm and lost revenue[296][298] Risks Related to Taxation, Laws and Regulations 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] - 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][303][304][305] - 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][307][308][309][310][311] - Global policy changes, including those related to AI and cyber resiliency, can increase costs, compliance risks, and potential liabilities[314][315][316] - Stringent environmental, climate change, and conflict-free minerals regulations may force significant expenses, operational changes, and impact supply chain[317][318][319][320][321][322][323] - Failure to meet evolving ESG expectations, standards, or disclosure requirements could adversely affect business, reputation, and stock price[324][325][326][328][329] Risks Related to Capitalization and Financial Markets 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][331][333] - The amount and timing of share repurchases may fluctuate, and the current authorization does not guarantee full consummation or enhanced stockholder value[335] - 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][337] - Servicing debt requires significant cash flow; adverse changes in credit ratings could increase borrowing costs and limit market access[338] - Conversion of Convertible Debt, Series A Preferred Stock, or Depositary Shares will dilute existing stockholders' ownership interest[339][341] - Common stock ranks junior to Series A Preferred Stock regarding dividends and liquidation payments[343] - Fluctuations in foreign currency exchange rates could adversely impact operating results, particularly for non-U.S. dollar transactions[344] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - 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] - Shares were issued pursuant to Section 4(a)(2) exemption and subsequently registered for resale on Form S-3ASR[345] Item 3. Defaults Upon Senior Securities This section states that there are no applicable defaults upon senior securities to report - Not applicable; no defaults upon senior securities to report[346] Item 4. Mine Safety Disclosures This section states that there are no applicable mine safety disclosures to report - Not applicable; no mine safety disclosures to report[348] Item 5. Other Information 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] - 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] - No other officers or directors adopted or terminated trading arrangements during the last fiscal quarter[351] Item 6. Exhibits 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] - 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] - Includes various Inline XBRL Taxonomy Extension Documents for financial data tagging[353] Signatures Authorized Signatory 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] - Date of signature: August 7, 2025[357]