Microchip Technology(US:MCHP)2026-02-05 21:19Financial Performance - Net sales for the three months ended December 31, 2025, were $1,186.0 million, representing a 15.6% increase compared to $1,026.0 million in the same period of 2024[110]. - Gross profit for the three months ended December 31, 2025, was $706.9 million, representing 59.6% of net sales, compared to $561.4 million or 54.7% in 2024[130]. - Operating income for the three months ended December 31, 2025, was 12.8%, significantly up from 3.0% in the same period of 2024[108]. - Total revenue for the nine months ended December 31, 2025, was $1.2238 billion, compared to $1.7655 billion for the year ended March 31, 2025[180]. - Total net loss for the nine months ended December 31, 2025, was $128.6 million, compared to a net loss of $192.0 million for the year ended March 31, 2025[180]. Sales and Product Lines - Mixed-signal microcontrollers accounted for 49.5% of net sales in the three months ended December 31, 2025, down from 52.0% in 2024[115]. - Analog product line net sales increased by 18.4% in the three months ended December 31, 2025, reaching $322.9 million compared to $272.7 million in 2024[121]. - Net sales from the other product line increased by 25.7% in the three months ended December 31, 2025, primarily due to sales of intellectual property rights[124]. - The company experienced a sequential increase in net sales in the mixed-signal microcontroller and analog product lines during the December 2025 quarter compared to the September 2025 quarter[99]. Research and Development - Research and development expenses as a percentage of net sales were 23.1% for the three months ended December 31, 2025, compared to 24.0% in the same period of 2024[108]. - R&D expenses for Q3 2025 were $274.3 million, representing 23.1% of net sales, an increase from $246.2 million or 24.0% of net sales in Q3 2024[138]. - R&D expenses increased by $28.1 million, or 11.4%, for the three months ended December 31, 2025, compared to the same period last year[139]. - The company plans to continue investments in new and enhanced products, focusing on mixed-signal microcontrollers, digital signal controllers, and FPGAs[104]. Manufacturing and Operations - The closure of the Tempe, Arizona wafer fabrication facility (Fab 2) was completed in May 2025, with production being transferred to Oregon and Colorado locations[101]. - The company aims to maintain a high level of manufacturing control by owning wafer fabrication facilities, which contributes to being one of the lowest cost producers in the embedded control industry[101]. - Overall inventory levels decreased to $1.06 billion at December 31, 2025, from $1.29 billion at March 31, 2025[132]. - The company maintained 201 days of inventory at December 31, 2025, compared to 251 days at March 31, 2025[132]. - Approximately 65% of net sales came from products produced at outside wafer foundries during the three months ended December 31, 2025[136]. Expenses and Cash Flow - Selling, general and administrative expenses for Q3 2025 were $168.5 million, or 14.2% of net sales, down from 15.4% in Q3 2024[141]. - Selling, general and administrative expenses increased by $10.3 million, or 6.5%, for the three months ended December 31, 2025, primarily due to higher employee compensation costs[142]. - Amortization of acquired intangible assets for Q3 2025 was $107.6 million, down from $122.6 million in Q3 2024[145]. - Net cash provided by operating activities was $705.1 million for the nine months ended December 31, 2025, driven by net income of $85.8 million[165]. - Net cash used in investing activities was $143.4 million for the nine months ended December 31, 2025, compared to $231.8 million in the same period of 2024[166]. - Net cash used in financing activities was $1.08 billion for the nine months ended December 31, 2025, compared to $194.1 million in the same period of 2024, primarily due to $1.20 billion used to pay down 4.25% 2025 Notes[168]. Debt and Dividends - As of December 31, 2025, the principal amount of outstanding indebtedness was $5.39 billion, with no borrowings under the Revolving Credit Facility[171]. - A quarterly cash dividend of $0.455 per share was declared on February 5, 2026, expected to total approximately $246.5 million for the March 2026 quarter[174]. - Cumulative dividend payments on common stock have totaled approximately $8.37 billion to date[174]. - The company plans to finance the repayment of its fixed rate debt maturing within the next 12 months by issuing new fixed rate debt or using available borrowings[183]. Economic and Market Conditions - The company anticipates continued fluctuations in operating results and gross margins due to global economic conditions and competitive pricing pressures[96]. - The company is committed to enhancing its cybersecurity risk management processes in response to ongoing threats[96]. - Inflation has not materially impacted the company's operating results recently, but significant inflationary pressures could adversely affect them[184]. - Sales in Asia accounted for 48.3% of total net sales in the three months ended December 31, 2025, down from 53.1% in 2024[128]. - Distributors accounted for approximately 47% of net sales in the three months ended December 31, 2025, compared to 43% in 2024[125]. Financial Covenants and Grants - The maximum total leverage ratio financial covenant was amended to 5.50 to 1.00 for periods ending March 31, 2025, and June 30, 2025, reducing to 3.50 to 1.00 for periods after the Covenant Relief Period[170]. - The company expects to receive $162 million in CHIPS Act grants for two U.S. wafer fabrication facilities, pending final approval from the U.S. Department of Commerce[167]. - Capital expenditures for the nine months ended December 31, 2025, were $76.9 million, down from $111.8 million in the same period of 2024, with expectations to remain at or below $100.0 million over the next 12 months[167].