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MICROCHIP TECHNOLOGY INC (MCHP)·Q2 2026 Earnings Summary

Executive Summary

  • Q2 FY26: Revenue $1.140B (+6.0% q/q; -2.0% y/y) and non-GAAP EPS $0.35; both beat S&P Global consensus (Revenue: $1.133B*, EPS: $0.334*) as mix improved (MCU +9.7% q/q; data center snapped back), while gross margin expanded sequentially despite sizable inventory/underutilization charges . Versus consensus, revenue beat by ~0.6% and EPS by ~$0.02*.
  • Margins and cash: Non-GAAP gross margin 56.7% (+240 bps q/q), non-GAAP operating margin 24.3% (+360 bps q/q); product gross margin was 67.4% before $71.8M inventory reserves and $51M underutilization, underscoring embedded gross margin recovery as charges normalize .
  • Q3 FY26 outlook: Net sales $1.109–$1.149B (midpoint $1.129B), non-GAAP EPS $0.34–$0.40; seasonally down ~1% at midpoint but broadly in line with consensus (Revenue $1.132B*, EPS $0.373*). Bookings rose 10% q/q with a 1.06 book-to-bill, but many orders were dated for March, pushing near-term seasonality .
  • Catalysts: (1) Sequential gross margin expansion as inventory write-offs and underutilization charges ebb; (2) AI/data center recovery and first-to-market 3nm PCIe Gen6 switch sampling; (3) Operating discipline with opex control and dividend continuity ($0.455 declared) .

What Went Well and What Went Wrong

  • What Went Well
    • Data center and AI traction: “Our Gen 4 and Gen 5 data center products are seeing strong sales growth…customers seem to have finished their inventory correction,” with bookings up 10% q/q and book-to-bill 1.06 .
    • Margin progress: Non-GAAP gross margin rose to 56.7% (from 54.3%) and non-GAAP operating margin to 24.3% (from 20.7%); product gross margin was a robust 67.4% before charges .
    • MCU-led recovery and innovation cadence: MCU grew 9.7% q/q; company introduced the industry’s first 3nm PCIe Gen6 switch to enable next-gen AI infrastructure .
  • What Went Wrong
    • Year-over-year pressure persists: Revenue -2% y/y; non-GAAP EPS $0.35 vs $0.46 prior-year; non-GAAP operating margin 24.3% vs 29.3% a year ago .
    • Elevated non-GAAP charges continue: Inventory reserves ($71.8M) and underutilization ($51M) weighed ~10.8 percentage points on gross margin; mgmt expects gradual normalization rather than an immediate drop-off .
    • Near-term seasonality and supply constraints: December guide implies ~-1% q/q; pockets of substrate/back-end capacity tightness and tariff-related uncertainty modestly affecting customer behavior .

Financial Results

Sequential trend (oldest → newest)

MetricQ4 FY25Q1 FY26Q2 FY26
Revenue ($B)$0.971 $1.0755 $1.1404
GAAP EPS ($)$(0.29) $(0.09) $0.03
Non-GAAP EPS ($)$0.11 $0.27 $0.35
GAAP Gross Margin %51.6% 53.6% 55.9%
Non-GAAP Gross Margin %52.0% 54.3% 56.7%
Non-GAAP Op Margin %14.0% 20.7% 24.3%

Year-over-year comparison (same quarter)

MetricQ2 FY25Q2 FY26
Revenue ($B)$1.1638 $1.1404
GAAP EPS ($)$0.14 $0.03
Non-GAAP EPS ($)$0.46 $0.35
GAAP Gross Margin %57.4% 55.9%
Non-GAAP Gross Margin %59.5% 56.7%
Non-GAAP Op Margin %29.3% 24.3%

Actual vs S&P Global consensus and next-quarter setup

MetricQ2 FY26 Consensus*Q2 FY26 ActualQ3 FY26 Consensus*Q3 FY26 Guidance (Mid)
Revenue ($B)1.1331.1404 1.1321.129
Primary EPS ($)0.3340.35 0.3730.37 (mid of $0.34–$0.40)

Values with an asterisk (*) are retrieved from S&P Global.

KPIs and operating drivers

KPIQ1 FY26Q2 FY26
MCU sequential growth—+9.7%
Analog sequential growth—+1.7%
Bookings (q/q)—+10%
Book-to-bill—1.06
Distributor sell-through minus sell-in ($M)49.3 52.9
Distributor inventory days29 27
Company inventory days214 199
Underutilization charge ($M)51.5 51.0
New inventory reserve ($M)77.1 71.8
Product gross margin % (before charges)66.3% 67.4%
Cash from ops ($M)275.6 88.1
Free cash flow ($M)257.7 51.6
Dividend per common share ($)0.455 (declared for Sep) 0.455 (declared for Dec)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($B)Q2 FY26$1.110–$1.150 ——
Non-GAAP Gross Margin %Q2 FY2655.0%–57.0% ——
Non-GAAP OpEx % of SalesQ2 FY2632.4%–32.8% ——
Non-GAAP Op Margin %Q2 FY2622.2%–24.6% ——
Non-GAAP EPS ($)Q2 FY26$0.30–$0.36 ——
Net Sales ($B)Q3 FY26—$1.109–$1.149 New
Non-GAAP Gross Margin %Q3 FY26—57.2%–59.2% New
Non-GAAP OpEx % of SalesQ3 FY26—32.3%–32.7% New
Non-GAAP Op Margin %Q3 FY26—24.5%–26.9% New
Other Expense, net ($M)Q3 FY26—$55.7–$56.7 New
Non-GAAP Tax Provision ($M)Q3 FY26—$22–$26 New
Non-GAAP EPS ($)Q3 FY26—$0.34–$0.40 New
Diluted Shares (Non-GAAP, M)Q3 FY26—~568.3–569.3 New
Capex ($M)Q3 FY26—$15–$25; FY26 ≤$100 New/maintain
Dividend per share ($)Dec quarter—$0.455 declared Maintain

Earnings Call Themes & Trends

TopicQ4 FY25 (Mar)Q1 FY26 (Jun)Q2 FY26 (Sep)Trend
AI/data centerHighlighted PCIe switches/timing; bottoming narrative Design wins with tier-one cloud; AI coding assistant; strong Asia sequential lift Gen4/5 DC products rebounding; first 3nm PCIe Gen6 switch sampling; TAM >$2B Improving momentum
Supply chain/lead timesManufacturing optimization; fab restructuring underway Lead times starting to “bounce off the bottom” to 6–10/8–12 weeks in spots (substrates/back-end) Pockets of substrate/back-end tightness persist; ramp wafer starts in Dec to reduce underutilization Tight in pockets; easing via planned ramps
Tariffs/macroCautious on tariffs/geopolitics Tariff pull-ins mid–high single-digit $M; many China builds in FTZs not impacted Tariffs and macro caution temper near-term confidence; some customer hesitancy Still a headwind
Inventory/chargesTargeted inventory reduction; bottom called Write-off $77.1M; underutilization $51.5M; product GM 66.3%; expect declines over coming quarters Write-off $71.8M; underutilization $51M; product GM 67.4%; mgmt sees “8th/9th inning” on normalization Charges declining gradually
Capital allocationDividend maintained; debt actions to preserve IG Expect FCF > dividend after Sep; deleveraging priority before buybacks Dividend maintained; FCF near dividend; reduce borrowings with excess FCF Dividend steady; deleveraging
Fab restructuringFab 2 closure, savings outlined Planning wafer starts ramp later in year PSA to sell Fab 2; close expected Dec 2025; long-term opex savings Executing to exit cost

Management Commentary

  • “Our second quarter results demonstrate continued momentum in our recovery…net sales of $1.140 billion growing 6% sequentially and above the midpoint of our guidance.” – Steve Sanghi, CEO .
  • “Product gross margin in the September quarter was 67.4%… inventory write-off and underutilization charges knocked down the non-GAAP gross margin to 56.7%.” – Steve Sanghi .
  • “Our second quarter results demonstrate the strength of our operational model and the disciplined cost management embedded in our business.” – Eric Bjornholt, CFO .
  • “We are seeing encouraging business momentum…bookings growing 10% sequentially and a book-to-bill ratio of 1.06.” – Steve Sanghi .
  • “Industry’s first 3nm PCIe Gen 6 switch…power efficiency, security and performance for AI and enterprise data center connectivity applications.” – Rich Simoncic, COO .

Q&A Highlights

  • December guide dynamics: Despite stronger bookings, many customers scheduled deliveries into March (balance sheet discipline/seasonality), leaving December at ~-1% q/q at midpoint; management expects above-seasonal March/June/September quarters .
  • Margin normalization path: Inventory reserves and underutilization to decline over multiple quarters (write-offs faster, underutilization slower); wafer starts to ramp in December; each $ of charge reduction flows through to gross margin expansion .
  • Supply constraints: Isolated substrate/back-end capacity tightness; not broad front-end issues; planning mitigations while keeping cancellation flexibility (no return to PSP) .
  • Tariffs: Limited impact quantified (mid–high single-digit $M) with FTZ manufacturing mitigating exposure; macro/tariffs created some hesitancy in capital decisions .
  • Strategic shift: Explicit pivot to leading-edge data center (3nm PCIe Gen6) and AI business unit; goal to pull corporate growth higher via higher-margin portfolios (FPGAs, Ethernet, timing) .

Estimates Context

  • Q2 FY26 beats: Revenue $1.140B vs $1.133B*; EPS $0.35 vs $0.334* (small but clean beat). EBITDA comparisons vary by definition; management cited adjusted EBITDA of $341.8M, so use caution comparing to third-party EBITDA estimates .
  • Q3 FY26 setup: Revenue guide midpoint $1.129B vs $1.132B*; EPS guide midpoint ~$0.37 vs $0.373*, essentially in line; seasonally weak quarter but margin expansion continues at midpoint .
  • S&P Global disclaimer: Values with asterisks (*) are retrieved from S&P Global.

Key Takeaways for Investors

  • Micro-beat and improving quality: Revenue/EPS ahead of consensus with sequential gross margin expansion despite still-elevated charges; trajectory favors continued margin recovery as write-offs/underutilization decline .
  • Near-term seasonal air pocket, but order book is healthy: December down ~1% q/q at midpoint due to timing; bookings up 10% q/q, book-to-bill 1.06, and many orders dated for March suggest above-seasonal March/June/September potential .
  • Mix tailwinds: MCU strength (+9.7% q/q) and data center rebound (Gen4/5) plus first-to-market 3nm PCIe Gen6 switch sampling position MCHP to benefit from AI infrastructure buildouts into CY26–27 .
  • Gross margin upside math intact: Product GM (67.4%) underlines path to LT model (65%) as charges fade; each $ of reserves/underutilization reduction adds back to margin .
  • Balance sheet/returns: Dividend maintained ($0.455); as FCF covers dividend, excess cash is earmarked to reduce borrowings; do not expect near-term buybacks until leverage moderates .
  • Watch list: Substrate/back-end tightness pockets, tariff policy evolution, and pace of inventory normalization at distributors/direct customers (sell-in/sell-through gap still ~$53M) .
  • Trading implications: Near-term—range-bound on seasonal December guide; Medium-term—margin expansion and AI/data center catalysts argue for estimate revisions higher as charges recede and top-line normalizes into CY26 .
Sources: 
- Q2 FY26 8-K and press release (financials, guidance, dividends, reconciliations): **[827054_0000827054-25-000182_exhibit991q2fy26.htm:0]** **[827054_0000827054-25-000182_exhibit991q2fy26.htm:2]** **[827054_0000827054-25-000182_exhibit991q2fy26.htm:3]** **[827054_0000827054-25-000182_exhibit991q2fy26.htm:5]** **[827054_0000827054-25-000182_exhibit991q2fy26.htm:6]** **[827054_0000827054-25-000182_exhibit991q2fy26.htm:7]** **[827054_0000827054-25-000182_exhibit991q2fy26.htm:8]** **[827054_0000827054-25-000182_exhibit991q2fy26.htm:9]** **[827054_d7a276c941ac4dfb83715a3ead6ff615_0]** **[827054_d7a276c941ac4dfb83715a3ead6ff615_2]** **[827054_d7a276c941ac4dfb83715a3ead6ff615_3]** **[827054_d7a276c941ac4dfb83715a3ead6ff615_6]** **[827054_d7a276c941ac4dfb83715a3ead6ff615_11]**
- Q2 FY26 earnings call (mix, charges, bookings/book-to-bill, product GM, fab sale, strategy): **[0000827054_2246549_1]** **[0000827054_2246549_2]** **[0000827054_2246549_4]** **[0000827054_2246549_5]** **[0000827054_2246549_6]** **[0000827054_2246549_7]** **[0000827054_2246549_9]** **[0000827054_2246549_10]** **[0000827054_2246549_11]** **[0000827054_2246549_14]** **[0000827054_2246549_15]** **[0000827054_2246549_16]** **[0000827054_2246549_17]** **[0000827054_2246549_18]** **[0000827054_2246549_19]** **[0000827054_2246549_20]**
- Q1 FY26 press release & call (prior-quarter trend and guidance comps): **[827054_32a28746f23d406d973de9aa27869b8c_0]** **[827054_32a28746f23d406d973de9aa27869b8c_2]** **[827054_32a28746f23d406d973de9aa27869b8c_3]** **[827054_32a28746f23d406d973de9aa27869b8c_9]** **[827054_2065493_1]** **[827054_2065493_3]** **[827054_2065493_6]**
- Q4 FY25 press release (baseline, bottoming narrative): **[827054_176bb8fecfa748a89717a68dd4a9c71d_0]** **[827054_176bb8fecfa748a89717a68dd4a9c71d_1]** **[827054_176bb8fecfa748a89717a68dd4a9c71d_2]**
- Product PR (3nm PCIe Gen6 switch): **[827054_4bf54beaf27648d684a445488f72fe9d_0]**
- Dividend PR (Dec quarter): **[827054_b4eeb421e05147f6a3df8e9f21a6fd96_0]**
- S&P Global consensus (EPS/Revenue): GetEstimates output (values marked with *).