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MICROCHIP TECHNOLOGY INC (MCHP)·Q1 2026 Earnings Summary

Executive Summary

  • Q1 FY26 delivered a clean beat: revenue $1.0755B (+10.8% q/q, -13.4% y/y) vs S&P Global consensus $1.056B*, and non-GAAP EPS $0.27 vs $0.239*; non-GAAP gross margin expanded to 54.3% and operating margin to 20.7% .
  • Guidance implies above-seasonal recovery continues: Q2 FY26 net sales $1.110–$1.150B (+5.1% q/q at midpoint), non-GAAP EPS $0.30–$0.36, non-GAAP gross margin 55–57%, and OpEx 32.4–32.8% of sales .
  • Inventory normalization is a major lever: inventory days fell to 214 (from 251 in March and 266 in December), distributor sell-through exceeded sell-in by $49.3M (gap narrowed from $103M), inventory write-offs declined to $77.1M, and underutilization charges fell to $51.5M .
  • Management signaled improving bookings (July strongest month in three years) and modest lead-time extension (select pockets moving to 6–10 and 8–12 weeks), consistent with demand normalization rather than pull-forward .
  • Catalysts: above-seasonal Q2 outlook, margin trajectory from lower write-offs/underutilization, AI/defense design wins, and dividend continuity ($0.455 per share) .

What Went Well and What Went Wrong

What Went Well

  • Broad-based sequential recovery: microcontroller and analog sales both up double digits; net sales up 10.8% q/q and above the high end of updated guidance .
  • Margin leverage: incremental non-GAAP gross margin 76% and operating margin 82%, with product gross margin at 66.3% after adding back $77.1M write-offs and $51.5M underutilization .
  • Bookings/backlog momentum: “July bookings were the largest for any month in the last three years,” and Q2 backlog started higher than Q1, supporting above-seasonal guidance .

What Went Wrong

  • Still below normalized end-demand and automotive lagging: management emphasized ongoing inventory digestion and identified automotive as the most lagging end market .
  • GAAP profitability remains pressured: GAAP gross margin 53.6%, GAAP net loss attributable to common shareholders $(46.4)M or $(0.09) per share, reflecting amortization and special charges .
  • Lead-time and backend constraints in pockets: emerging bottlenecks in lead frames/substrates and subcontractor capacity causing select lead-time extensions to 6–10 and 8–12 weeks .

Financial Results

Trend vs prior quarters

MetricQ3 FY25 (Dec qtr)Q4 FY25 (Mar qtr)Q1 FY26 (Jun qtr)
Revenue ($USD)$1.026B $970.5M $1.0755B
Non-GAAP EPS ($)$0.20 $0.11 $0.27
Non-GAAP Gross Margin %55.4% 52.0% 54.3%
Non-GAAP Operating Margin %20.5% 14.0% 20.7%

Q1 FY26 vs S&P Global consensus

MetricConsensusActualSurprise
Revenue ($USD)$1,055.7M*$1,075.5M +$19.8M; Beat
EPS ($)$0.239*$0.27 +$0.031; Beat

Values marked with * retrieved from S&P Global.

KPIs and operational metrics

KPIQ3 FY25Q4 FY25Q1 FY26
Inventory Days266 251 214
Distributor Sell-through minus Sell-in ($)N/A$103.0M $49.3M
Inventory Write-offs ($)N/A$90.6M $77.1M
Underutilization Charges ($)N/A$54.2M $51.5M
Cash from Operations ($)$271.5M $205.9M $275.6M
Free Cash Flow ($)$253.4M $191.7M $257.7M
Capex ($)$18.1M $14.2M $17.9M

Segment/geography highlights (directional)

AreaQ1 FY26 Commentary
MicrocontrollersDouble-digit sequential growth
AnalogDouble-digit sequential growth
Other/licensingLumpy; down slightly sequentially
Asia~+14% q/q (ex tariff pull-ins still ~12–13%)
Europe/North America~+8% q/q

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($)Q1 FY26$1.020–$1.070B (May 8) $1.045–$1.070B (May 29) Raised lower bound
GAAP EPS ($)Q1 FY26$(0.15)–$(0.07) (May 8) $(0.11)–$(0.07) (May 29) Narrowed loss range
Non-GAAP EPS ($)Q1 FY26$0.18–$0.26 (May 8) $0.22–$0.26 (May 29) Raised lower bound
Net Sales ($)Q2 FY26N/A$1.110–$1.150B New
Non-GAAP Gross Margin %Q2 FY26N/A55.0–57.0% New
Non-GAAP OpEx % of SalesQ2 FY26N/A32.4–32.8% New
Non-GAAP Operating Margin %Q2 FY26N/A22.2–24.6% New
Other Expense ($)Q2 FY26N/A$54.5–$55.5M New
Non-GAAP Tax Provision ($)Q2 FY26N/A$18.1–$21.7M; tax rate ~9.5% (call) New
Dividend per Share ($)Q2 FY26$0.455 (Q1 declaration) $0.455 declared for Sept 5 Maintained

Earnings Call Themes & Trends

TopicQ3 FY25 (Dec)Q4 FY25 (Mar)Q1 FY26 (Jun)Trend
Demand/seasonalityDowncycle; cautious outlook Inflection; book-to-bill >1; guide $1.02–$1.07B Above-seasonal; guide +5.1% q/q; expect above seasonal in Dec/March Improving
Inventory normalization266 days; starting actions 251 days; plan deeper reduction 214 days; target 195–200 by Sept Improving
Tariffs/macroTariff risk noted Cautious stance Tariff impact mid–high single-digit $M; bulk demand normalization Manageable
Lead times/supplyShort LT; ops restructuring Factory optimization; fab closures Pockets extending to 6–10, 8–12 weeks (backend/materials) Tightening selectively
AI/Data centerPlatform/solutions momentum New Switchtec/storage; wins Tier-1 design wins; AI coding assistant productivity +40% Strengthening
AutomotiveWeakness developing Still digesting Lagging relative to other markets Lagging
Capital returns/leverageDividend continuity Deleveraging via preferred; IG rating focus Dividend maintained; plan to stop borrowing for dividend after Sept; excess FCF to debt paydown Improving cash cover

Management Commentary

  • “Net sales were up sequentially in all geographies. Sales from our microcontroller and analog businesses were both up in double digit percentages sequentially.” — Steve Sanghi .
  • “Non GAAP gross margin was 54.3%... inventory write off $77.1M and underutilization $51.5M... indicates product gross margin 66.3%.” — Steve Sanghi .
  • “Adjusted free cash flow was $244.4M in the June.” — Eric Bjornholt ; “Free cash flow $257.7M” (press release) .
  • “July bookings were the largest bookings for any month in the last three years... backlog for September started higher than June.” — Steve Sanghi .
  • “We expect our non GAAP diluted earnings per share [September] to be between $0.30 and $0.36.” — Steve Sanghi ; Guidance table confirms .

Q&A Highlights

  • Above-seasonal trajectory: Management characterized +5.1% q/q September guide as “well above seasonal” and expects above seasonal in December/March .
  • Tariff impact limited: Detailed distributor forensics suggest tariff-related pull-ins mid–high single-digit $M; no direct customers cited tariffs; significant China exposure via free-trade zones .
  • Inventory/sell-in dynamics: Distributor sell-through exceeded sell-in by $49.3M, gap halved vs prior quarter ($103M); direct customers also draining inventory .
  • Lead times rising in pockets: Backend/material constraints pushing select products to 6–10 and 8–12 weeks; message to customers is to extend backlog visibility, not expedite shipments .
  • Utilization/write-down cadence: Write-downs to decline over multiple quarters; underutilization to decrease modestly in September and step down in December as wafer starts increase .

Estimates Context

  • Q1 FY26 actuals vs consensus: Revenue $1.0755B vs $1.056B*, EPS $0.27 vs $0.239*; both beats, supporting narrative of demand normalization .
  • Q2 FY26 guidance vs consensus: Guidance midpoint revenue $1.130B vs $1.133B*, non-GAAP EPS range $0.30–$0.36 vs $0.334*; at midpoint, revenue roughly in line and EPS range brackets consensus .

Values marked with * retrieved from S&P Global.

S&P Global Consensus Detail

MetricQ1 FY26 ConsensusQ1 FY26 ActualQ2 FY26 ConsensusQ2 FY26 Guidance (Mid)
Revenue ($USD)$1,055.7M*$1,075.5M $1,132.7M*$1,130.0M
EPS ($)$0.2386*$0.27 $0.3336*$0.33 (mid of $0.30–$0.36)

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Recovery is real and above-seasonal: Two consecutive quarters of above-seasonal growth with Q2 guide at +5% q/q; backlog and bookings support continued normalization .
  • Margin trajectory improving: Lower inventory write-offs and underutilization charges plus selective lead-time expansion indicate tightening supply; expect further non-GAAP margin expansion toward long-term 65% gross margin model over time .
  • Demand normalization vs pull-forward: Tariff-related pull-ins appear modest; management emphasizes structural recovery from inventory deficits across channels/customers .
  • Cash generation supports dividend and deleveraging: Post-September, adjusted FCF expected to cover dividend; excess FCF to reduce debt; near-term buybacks unlikely given 4.2x net debt/EBITDA .
  • AI/defense exposure is a secular tailwind: Tier-1 AI infrastructure/design wins and defense qualifications expand high-margin mix; AI coding assistant drives customer adoption/productivity .
  • Watch pockets of backend tightness: Lead frames/substrates/subcon capacity can constrain shipments; customers should extend backlog visibility (12–16 weeks) to avoid shortages .
  • Tactical trading setup: Positive estimate-revision potential on margins/FCF; stock likely sensitive to confirmation of Q2 above-seasonal print, lead-time evolution, and ongoing inventory drawdown metrics .