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MICROCHIP TECHNOLOGY INC (MCHP)·Q4 2025 Earnings Summary

Executive Summary

  • Q4 FY25 revenue was $970.5M, down 5.4% q/q and 26.8% y/y, modestly above the February guidance midpoint; non-GAAP EPS was $0.11, while GAAP EPS was a loss of $(0.29) as restructuring and preferred dividends weighed on GAAP results .
  • Management called the quarter a revenue bottom and reported book-to-bill of 1.07 with April bookings the highest month of the quarter; distribution inventory fell to 33 days and total inventory days declined to 251, with further reductions expected in June .
  • Q1 FY26 guidance was raised on May 29: net sales $1.045–$1.070B (from $1.020–$1.070B) and non-GAAP EPS $0.22–$0.26 (from $0.18–$0.26), citing accelerating bookings and recovery confidence .
  • Balance sheet actions (mandatory convertible preferred, revolver amendment) reduced net debt by ~$1.30B and helped maintain investment-grade status; dividend was maintained at $0.455/share with $244.8M returned in March quarter .

What Went Well and What Went Wrong

What Went Well

  • “Our March quarter revenue of $970.5 million exceeded the midpoint of our guidance, and we believe marks the bottom of this prolonged industry down cycle” — CEO Steve Sanghi, highlighting inflection and nine-point plan progress .
  • Book-to-bill reached 1.07 after nearly three years below 1.0; bookings rose significantly through March and further in April, supporting improved Q1 FY26 outlook .
  • Operational KPIs improved: distribution inventory days fell 4 to 33; total inventory days declined by 15 days q/q to 251, with accelerated reductions targeted in June .

What Went Wrong

  • Non-GAAP gross margin fell to 52.0% and operating margin to 14.0%, pressured by ~$54M underutilization charges and elevated inventory reserve charges as production was throttled to drain inventory .
  • GAAP results swung to loss due to restructuring charges announced March 3, amortization of acquired intangibles, and preferred stock dividends; GAAP diluted EPS was $(0.29) .
  • Sequential declines across microcontroller and analog units, with recovery still uneven and visibility constrained; pricing assumed mid-single-digit decreases near term .

Financial Results

Non-GAAP Performance vs Prior Periods and Estimates

MetricQ2 FY25Q3 FY25Q4 FY25Notes
Revenue ($USD Millions)$1,164.0 $1,026.0 $970.5 Q4 modest beat vs guidance midpoint
Revenue Consensus ($USD Millions)$1,152.3*$1,048.1*$962.7*S&P Global consensus*
Revenue Surprise ($USD Millions)+$11.7*−$22.1*+$7.8*Actual − Consensus*
Non-GAAP EPS ($)$0.46 $0.20 $0.11
EPS Consensus ($)$0.434*$0.279*$0.104*S&P Global consensus*
EPS Surprise ($)+$0.026*−$0.079*+$0.006*Actual − Consensus*
Non-GAAP Gross Margin (%)59.5 55.4 52.0 Q4 includes underutilization impact
Non-GAAP Operating Margin (%)29.3 20.5 14.0
GAAP EPS ($)$0.14 $(0.10) $(0.29)
GAAP Gross Margin (%)57.4 54.7 51.6

Values marked with * are retrieved from S&P Global.

Year-over-Year (Q4 FY25 vs Q4 FY24)

MetricQ4 FY24Q4 FY25YoY Change
Revenue ($USD Millions)$1,325.8 $970.5 −26.8%
Non-GAAP EPS ($)$0.57 $0.11 −$0.46
GAAP EPS ($)$0.28 $(0.29) −$0.57
Non-GAAP Gross Margin (%)60.3 52.0 −830 bps

KPIs and Cash Flow

KPIQ2 FY25Q3 FY25Q4 FY25
Inventory Days247 266 251
Distribution Inventory Days40 37 33
Book-to-Bill RatioN/A<1.0 (low bookings) 1.07
Cash from Operations ($USD Millions)$43.6 $271.5 $205.9
Free Cash Flow ($USD Millions)$14.0 $244.6 $191.7
Dividend (Common, $/share)$0.455 $0.455 $0.455

Guidance Changes

MetricPeriodPrevious Guidance (May 8)Current Guidance (May 29)Change
Net Sales ($USD Billions)Q1 FY26$1.020–$1.070 $1.045–$1.070 Raised (midpoint)
Non-GAAP EPS ($)Q1 FY26$0.18–$0.26 $0.22–$0.26 Raised (low end)
GAAP Loss/Share ($)Q1 FY26$(0.15)–$(0.07) $(0.11)–$(0.07) Raised (less negative)
Non-GAAP Gross Margin (%)Q1 FY2652.2–54.2 Unchanged Maintained
Non-GAAP OpEx (% of Sales)Q1 FY2633.4–34.8 Unchanged Maintained
Non-GAAP Operating Margin (%)Q1 FY2617.4–20.8 Unchanged Maintained
Capital Expenditure ($USD Millions)Q1 FY26$20–$25 Unchanged Maintained

Earnings Call Themes & Trends

TopicQ2 FY25 (Nov 2024)Q3 FY25 (Feb 2025)Q4 FY25 (May 2025)Trend
AI/data centerStrength in AI subset; PCIe/CXL portfolio progress Continued AI demand commentary AI-related revenue ~6% (up from ~4%); AIML product group formed Improving
Supply chain/inventoryFactories underutilized; inventory days 247; distribution 40 days Inventory days 266; plan to reduce; distribution 37 days Inventory days 251; distribution 33 days; more reductions in June Improving
Tariffs/macroMacro uncertainty; Europe weak Visibility low; customers destocking; pricing pressure Minimal direct tariff impact; stress tests show resilience Stabilizing
Product performanceBroad q/q declines; legal settlement boosted GM All major BUs down sequentially MCUs/analog down; FPGA flat; licensing up Mixed
Regional trendsEurope notably weak; Greater China relatively stable Seasonal weakness; low backlog Seasonal down in Americas/Asia; up in Europe Mixed
Regulatory/legalCHIPS Act negotiations ongoing; cybersecurity costs March 3 nine-point plan preview Restructuring charges; preferred dividend adjustments Executing
R&D execution/toolsReference designs expansion Low-end 32-bit MCU portfolio gap identified MPLAB AI assistant; third-party tool alignment; faster design-ins Improving
Capital returns100% FCF target; dividend maintained Dividend commitment reiterated Dividend $0.455; returns $244.8M; debt reduced Maintained

Management Commentary

  • “We have clearly reached an inflection point…book-to-bill ratio in the March quarter was a very healthy 1.07” — Steve Sanghi on bottoming and demand momentum .
  • “Gross margins were 52%, including capacity underutilization charges of $54.2 million…inventory reserve number…will start dropping pretty dramatically as revenue increases” — CFO Eric Bjornholt on margin headwinds and trajectory .
  • “We are essentially returning 100% of our adjusted free cash flow to investors in the form of dividends right now…we’re not considering any cut to the dividend” — Steve Sanghi on capital returns .
  • “Our strategic initiatives…Switchtec PCIe switches…AI Coding software assistant…positioned to address emerging opportunities” — COO Rich Simoncic on product innovation .

Q&A Highlights

  • Tariffs: Management sees negligible direct impact on semis and has flexibility to allocate production outside the U.S./China; stress-testing suggests no additional actions needed under adverse scenarios .
  • Margin leverage: Underutilization (~$54M) and inventory reserves are near-term headwinds but expected to decline as revenue recovers; significant gross margin leverage expected through FY26 .
  • Distribution dynamics: Q4 saw sell-through exceeding sell-in by ~$103M; gap expected to narrow as distributors replenish, aiding sequential growth .
  • China-for-China: Strategy being reworked due to “made-in” definition changes; intent to meet local branding needs without compromising technology positioning .
  • Visibility: September backlog higher than June at comparable points; bookings strength and crawl-chart slope support optimism for 2H calendar 2025 .

Estimates Context

  • Q4 FY25: Revenue $970.5M vs consensus $962.7M*, EPS $0.11 vs $0.104*, both slight beats; gross margin at low end due to underutilization/reserves .
  • Q3 FY25: Revenue $1.026B vs $1.048B*, EPS $0.20 vs $0.279*, misses driven by inventory correction, low utilization, and higher reserves .
  • Q2 FY25: Revenue $1.164B vs $1.152B*, EPS $0.46 vs $0.434*, beats aided by a legal settlement (GM uplift) .
  • Q1 FY26: Guidance raised to non-GAAP EPS $0.22–$0.26 vs consensus ~$0.239*, and net sales $1.045–$1.070B vs ~$1.056B*, signaling estimate revisions upward if bookings momentum persists .

Values marked with * are retrieved from S&P Global.

Key Takeaways for Investors

  • Inflection signals credible: book-to-bill >1.0, improved bookings, and rising backlog support a sequential revenue upturn into Q1 FY26 and potentially Q2 FY26 .
  • Operating leverage ahead: As underutilization and reserve charges fade with inventory drain, non-GAAP gross/operating margins should expand materially; management highlights ~85% flow-through on incremental revenue near term .
  • Inventory normalization is the core catalyst: With distribution sell-through > sell-in and direct customer inventories correcting, sell-in should catch up—positioning for beats on top line if execution holds .
  • Capital structure de-risked: ~$1.30B net debt reduction via preferred offering and revolver extension underpin investment-grade status; dividend sustained at $0.455/share .
  • Product engine intact: AI-adjacent franchises (PCIe/CXL, controllers), MPLAB AI assistant, and MCU portfolio realignment should support share gains as design-ins convert to production through FY26 .
  • Watch pricing and tariffs: Management assumes mid-single-digit price declines; direct tariff impact minimal, but macro effects could modulate the recovery slope .
  • Near-term trading setup: Raised Q1 guidance and improving KPIs are positive catalysts; upside depends on pace of inventory drain and distribution restocking, with margin recapture as the key earnings driver .