Microchip Technology(US:MCHP)2025-11-06 21:27Financial Performance - Net sales for the three months ended September 30, 2025, were $1,140.4 million, a decrease of 2.0% compared to $1,163.8 million in the same period of 2024[111]. - For the six months ended September 30, 2025, net sales were $2,215.9 million, down 7.9% from $2,405.1 million in the same period of 2024[111]. - Gross profit margin for the three months ended September 30, 2025, was 55.9%, down from 57.4% in 2024, while for the six months it was 54.8%, down from 58.4% in 2024[109]. - Operating income for the three months ended September 30, 2025, was 7.8%, a decline from 12.6% in 2024, and for the six months, it was 5.5%, down from 15.2% in 2024[109]. - Gross profit for Q3 2025 was $637.9 million, or 55.9% of net sales, compared to $668.5 million, or 57.4% in Q3 2024[130]. - The company reported a total net loss of $132.0 million for the six months ended September 30, 2025[182]. Cost and Expenses - Cost of sales as a percentage of net sales increased to 44.1% for the three months ended September 30, 2025, compared to 42.6% in 2024[109]. - Research and development expenses as a percentage of net sales rose to 23.0% for the three months ended September 30, 2025, from 20.7% in 2024[109]. - R&D expenses for Q3 2025 were $262.3 million, or 23.0% of net sales, up from $240.7 million, or 20.7% in Q3 2024[138]. - R&D expenses for the first half of 2025 increased by $35.4 million, or 7.3%, totaling $517.8 million, or 23.4% of net sales[139]. - Selling, general and administrative expenses for Q3 2025 were $172.3 million, or 15.1% of net sales, compared to $157.0 million, or 13.5% in Q3 2024[141]. - Selling, general and administrative expenses for the first half of 2025 increased by $24.1 million, or 7.8%, totaling $331.6 million, or 15.0% of net sales[142]. - Special charges for Q3 2025 were $6.3 million, compared to $1.5 million in Q3 2024, primarily related to restructuring expenses[146]. Inventory and Sales Channels - Overall inventory levels decreased to $1.10 billion at September 30, 2025, from $1.29 billion at March 31, 2025, with inventory days dropping from 251 to 199[132]. - Distributors accounted for approximately 45% of net sales in Q3 2025, with Arrow Electronics being the largest distributor at 11% of net sales[125]. - Sales to foreign customers represented approximately 75% of total net sales in Q3 2025, up from 74% in Q3 2024[129]. Capital and Cash Flow - Net cash provided by operating activities for the first half of 2025 was $363.7 million, down from $420.7 million in the same period of 2024[165]. - Net cash used in investing activities was $98.9 million in the first half of 2025, compared to $189.7 million in the same period of 2024[166]. - Cash and cash equivalents decreased to $236.8 million as of September 30, 2025, down by $534.9 million from March 31, 2025[163]. - Net cash used in financing activities was $799.7 million for the six months ended September 30, 2025, compared to $264.6 million in the same period of 2024[168]. - The company paid cash dividends of $491.3 million to common stockholders in the first six months of fiscal 2026, compared to $486.3 million in the same period of fiscal 2025[169]. Debt and Financing - As of September 30, 2025, the principal amount of outstanding Commercial Paper was $1.12 billion, an increase from $175.0 million at March 31, 2025[172]. - As of September 30, 2025, the company's total current and long-term debt amounted to $5.41 billion, all of which is fixed rate[183]. - The company plans to refinance certain existing notes as they mature and may seek additional financing depending on market conditions and operational needs[178]. - The company plans to finance the repayment of its fixed rate debt maturing within the next 12 months using available borrowings under its Revolving Credit Facility or Commercial Paper program[183]. - Changes in interest rates will significantly impact the company's interest expense if it refinances fixed rate debt with variable rate debt[183]. Strategic Initiatives - The company plans to continue investments in new and enhanced products, focusing on mixed-signal microcontrollers, digital signal controllers, and other technologies[105]. - The company is executing a recovery plan initiated in March 2025, which includes reducing inventory levels and pausing factory expansion activities[100]. - The closure of the Tempe, Arizona wafer fabrication facility (Fab 2) was completed in May 2025, with production being transferred to Oregon and Colorado facilities[102]. - The company anticipates fluctuations in gross margins driven by capacity utilization levels and product mix[137]. - Approximately 66% of net sales in Q3 2025 came from products produced at outside wafer foundries, consistent with the previous year[136]. - The company expects to receive $162 million in CHIPS Act grants for two U.S. wafer fabrication facilities, pending final approval[167]. Market Conditions - Inflation has not materially affected the company's operating results in recent periods[184]. - The company may struggle to offset higher costs due to inflation through price increases, which could adversely impact operating results[184]. - Interest income for Q3 2025 was $3.6 million, up from $2.0 million in Q3 2024[147]. - Capital expenditures for the six months ended September 30, 2025, were $54.4 million, down from $93.7 million in the same period of 2024, with plans to keep investments at or below $100.0 million over the next 12 months[167].