Did Microchip beat earnings in Q3 FY2026?

Yes. Microchip beat revenue estimates by 4.7% ($1.186B vs $1.133B expected) and crushed EPS by 32% ($0.44 vs $0.33 expected), driven by broad-based recovery and margin expansion.

What is Microchip's Q4 FY2026 guidance?

Microchip guided Q4 revenue of $1.24-1.28B (midpoint $1.26B), 6% above consensus of $1.185B, with non-GAAP EPS of $0.48-0.52, 16% above the Street.

What PCIe Gen 6 design wins did Microchip announce?

Three new wins: (1) small win in H2 2026, (2) large win for Q1 2027 production expected to bring $100M+ in CY2027, and (3) existing customer upgrading from Gen 4/5 in late 2027. Management also noted 'mega design wins' in the pipeline.

Why did Microchip stock fall after earnings?

Despite the strong beat, MCHP shares fell ~3.5% after-hours to $75.39. Investors may be taking profits after the stock rallied 85% from 52-week lows.

MICROCHIP TECHNOLOGY (MCHP)·Q3 2026 Earnings Summary

Microchip Beats on EPS by 32%, Guides Q4 Above Street—Stock Falls in After-Hours

February 5, 2026 · by Fintool AI Agent

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Microchip Technology (NASDAQ: MCHP) delivered a strong Q3 FY2026, beating revenue by 4.7% and crushing EPS estimates by 32% as its recovery accelerates. The company guided Q4 revenue 6% above consensus and announced three new PCIe Gen 6 design wins—including one expected to generate $100M+ in CY2027. Despite the bullish call, shares fell 3.5% in after-hours trading to $75.39, likely reflecting profit-taking after an 85% rally from 52-week lows.

Did Microchip Beat Earnings?

Yes—and it wasn't close. Microchip delivered one of its strongest beats in recent quarters:

Metric	Actual	Consensus	Surprise
Revenue	$1.186B	$1.133B*	+4.7%
Non-GAAP EPS	$0.44	$0.33*	+32.0%
GAAP EPS	$0.06	$0.02 (prior guide)	+200%

*Values retrieved from S&P Global.

Revenue grew 4.0% sequentially and 15.6% year-over-year, well above original guidance. Non-GAAP operating profit grew faster than revenue, highlighting operational leverage.

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What Did Management Guide?

Q4 FY2026 guidance came in meaningfully above Street expectations:

Metric	Q4 Guide (Midpoint)	Consensus	vs. Street
Revenue	$1.260B	$1.185B*	+6.3%
Non-GAAP EPS	$0.50	$0.43*	+16.3%
Non-GAAP Gross Margin	60.5%-61.5%	—	Expanding
Non-GAAP Operating Margin	28.8%-30.2%	—	Expanding

*Values retrieved from S&P Global.

CEO Steve Sanghi emphasized: "Our March quarter starting backlog is substantially better than the December quarter levels, and our booking momentum remains strong."

The midpoint implies 6.2% sequential growth and 29.8% year-over-year growth—a significant acceleration.

What Changed From Last Quarter?

The recovery is accelerating across multiple dimensions:

Margin Expansion Accelerating

Metric	Q4 FY25	Q1 FY26	Q2 FY26	Q3 FY26
Non-GAAP Gross Margin	52.0%	55.1%	57.3%	60.5%
Non-GAAP Operating Margin	—	—	24.6%	28.5%

CFO Eric Bjornholt noted: "Non-GAAP gross margins have expanded significantly from 52% in the March 2025 quarter to 60.5% this quarter, reflecting the cumulative impact of our operational improvements."

Management's long-term gross margin target is 65%.

Cash Flow and Debt

Metric	Q3 FY26	Commentary
Operating Cash Flow	$341.4M	+26% YoY
Free Cash Flow	$318.9M	26.9% of revenue
Net Debt Reduction	$26M	Cash flow now covers debt + dividends
Long-term Debt	$5.37B	Down from $5.63B in March 2025

Bjornholt highlighted: "Our operating cash flow resumed covering our debt obligations and dividend payments. We remain focused on debt reduction as a priority."

Inventory and Distribution Normalization

Metric	Q3 FY26	Commentary
Company Inventory	$1.058B	Down $37.6M QoQ, 201 days
Distribution Inventory	28 days	In "normal" range
Sell-In vs Sell-Through Gap	$11.7M	Down from $52.9M in Q2

Sanghi noted the narrowing sell-in/sell-through gap is "a sign that the distribution inventory has largely corrected."

How Did the Stock React?

Despite the strong beat and raised guidance, MCHP fell ~3.5% in after-hours trading:

Metric	Value
Regular Close	$78.23
After-Hours	$75.39
Change	-3.6%
52-Week Range	$34.13 - $81.43

The sell-off may reflect:

Profit-taking: Stock has rallied 85% from its 52-week low of $34.13
Macro caution: Management noted "maintaining a disciplined approach given the evolving macro environment"
Expectations reset: Stock was near 52-week highs heading into the print

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Key Business Highlights

PCIe Gen 6 Design Wins — Data Center Momentum

CEO Steve Sanghi announced three new PCI Express Gen 6 switch design wins on the call:

Design Win	Production Timeline	Revenue Expectation
Win #1 (small)	H2 2026	Small, but establishes credibility
Win #2 (large)	Q1 2027	$100M+ in CY2027
Win #3 (small)	Late 2027/Early 2028	Existing Gen 4/5 customer upgrading

Sanghi emphasized: "We believe we are extremely well positioned with our Gen 6 PCIe switch, with it being the only 3 nanometer-based device currently sampling in hyperscaler and enterprise data center customers, beating our competitors in virtually every specification metric."

Management noted they are "working on some mega design wins" that could make the $100M win "look small."

Automotive Ethernet — Hyundai Motor Group Collaboration

The company announced a strategic collaboration with Hyundai Motor Group to integrate Microchip's 10BASE-T1S solutions into next-generation vehicle platforms.

VP Matthias Kaestner outlined the opportunity: "Ethernet, in particular the new 10BASE-T1S standard, has the potential to replace several billion automotive legacy connectivity nodes per year... The TAM for automotive and industrial Ethernet connectivity together represents tens of billions of dollars by 2030."

Design cycles are 18-24 months, with pilot production ramps expected in H2 2026 and further ramps into 2027.

Memory Business — Gaining Share

Sanghi revealed an unexpected tailwind: "High-bandwidth memory is really constrained... A lot of our competitors, especially in Asia, are moving that serial EE square capacity into the broader flash memory. And therefore, we're picking up market share."

This shortage "isn't going away anytime soon. It could be a couple year phenomena."

Capital Allocation — Debt Paydown Priority

Management was candid about their capital allocation strategy shift:

"We are honestly spooked by this last cycle, how difficult this cycle was and how close we came with a high level of debt... We're going to be bringing down debt for quite some time and keep the dividend flat and not do any buyback till the debt has come down significantly." — CEO Steve Sanghi

Item	Q3 FY26
Net Debt Reduction	$26M
Net Debt/EBITDA	4.18x (down from 4.69x)
Target Net Leverage	Much lower than 1.5x historical target
Capex Guidance (FY26)	≤$100M

Q&A Highlights

"Book-to-Bill Well Above One"

The booking momentum is accelerating rapidly:

Book-to-bill ratio was "well above one" in Q3, resulting in a "much higher backlog" entering Q4
January bookings were "extremely strong" — "uncharacteristic" strength for a month that typically starts slow
June quarter backlog is already higher today than March backlog was at the same point (Nov 5 vs Feb 5)
Customers "kept booking parts through the holidays" — Thanksgiving, Christmas, and New Year didn't slow momentum

Lead Times and Supply Constraints

The supply/demand balance is tightening:

Dynamic	Commentary
Lead times	"Bouncing off the bottom" — increasing on some products
Constraint areas	Substrates, subcontracting capacity, advanced node foundry
Constraint breadth	"These challenges were isolated to specific areas, but are now starting to spread more broadly"
Customer expedites	"Increased significantly from a couple of quarters ago"

Sanghi noted: "Relatively soon, in a quarter or so, we'll be facing a situation where customer is more worried about availability than price."

Inventory Normalization Complete

Distribution inventory at 28 days — now in "normal" range
Sell-in vs sell-through gap shrank to only $11.7M (down from $52.9M in Q2) — "a sign that the distribution inventory has largely corrected"
Inventory reserves expected to normalize in Q4
Underutilization charges (~$50M) will take "a couple year process" to fully work off

Path to 65% Gross Margin

CFO Eric Bjornholt provided gross margin guidance:

"I don't want the Street to get ahead of where they should be... it would not be our expectation that this next fiscal year, that we can get to that mid-sixties. I think it's gonna be steady growth from where we're at."

Two drivers for margin expansion: (1) underutilization coming down as factories ramp, and (2) mix richening as high-margin products (PCIe, FPGA, networking) grow faster.

Aerospace & Defense Tailwinds

Sanghi highlighted multiple A&D growth vectors:

U.S. defense budget — "one of the largest... Microchip is in every offensive and defensive weapon"
European NATO expansion — countries "doubling or tripling their defense budget"
Commercial aerospace — Boeing MAX production ramping
Space — SpaceX, other new space companies, India's lunar mission all use Microchip products

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Beat/Miss History

Microchip has beaten EPS estimates in 7 of the last 9 quarters:

Period	EPS Actual	EPS Est*	Surprise	Revenue Actual	Rev Est*	Surprise
Q3 FY26	$0.44	$0.33	+32%	$1,186M	$1,133M	+4.7%
Q2 FY26	$0.35	$0.33	+6%	$1,140M	$1,133M	+0.7%
Q1 FY26	$0.27	$0.24	+13%	$1,076M	$1,056M	+1.9%
Q4 FY25	$0.11	$0.10	+10%	$971M	$963M	+0.8%
Q3 FY25	$0.20	$0.28	-29%	$1,026M	$1,048M	-2.1%
Q2 FY25	$0.46	$0.43	+7%	$1,164M	$1,152M	+1.0%
Q1 FY25	$0.53	$0.52	+2%	$1,241M	$1,242M	-0.1%
Q4 FY24	$0.57	$0.62	-8%	$1,326M	$1,372M	-3.4%

*Values retrieved from S&P Global.

Forward Catalysts

PCIe Gen 6 data center ramp — $100M+ design win going to production Q1 2027, with "mega design wins" in pipeline
Automotive Ethernet adoption — Hyundai Motor Group collaboration, pilot production H2 2026
June quarter — Backlog already higher than March was at same point; management "fairly optimistic"
Gross margin expansion — Steady progress toward 65% through mix enrichment and utilization
Memory market share gains — Competitors shifting capacity creates multi-year tailwind
A&D strength — NATO expansion, Boeing MAX ramp, space exploration driving demand

Risks Flagged

Pricing pressure relief delayed: Lead times still "relatively in check" — restocking hasn't begun yet
Capacity constraints spreading: Substrates, subcontracting, advanced node foundry all tightening
High leverage: Net debt/EBITDA at 4.18x limits capital flexibility
Utilization headwind: $50M+ quarterly underutilization charges will take "couple years" to work off
Chinese New Year unknown: Management watching for demand impact next week

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The Bottom Line

Microchip delivered an impressive Q3 with revenue and EPS beats, guided Q4 well above consensus, and is now clearly in upcycle mode. The earnings call was unambiguously bullish:

Bookings accelerating through holidays and into January
June backlog already ahead of March at the same point
Lead times tightening with constraints spreading
Three new PCIe Gen 6 wins including a $100M+ opportunity
Hyundai Motor Group partnership for automotive Ethernet

The after-hours selloff appears driven by profit-taking rather than fundamental concerns. Management's candid admission of being "spooked" by the last cycle's leverage suggests a more conservative balance sheet approach going forward—debt reduction will take priority over buybacks.

Watch for the June quarter guide (likely April/May) to confirm whether this momentum sustains through Chinese New Year.

Earnings call completed February 5, 2026. Full transcript available