Microchip Technology NASDAQ: MCHP reported March-quarter results that exceeded its prior guidance and pointed to continued momentum heading into the June quarter, as management said demand is improving across end markets and distributor inventory appears to have normalized.
Quarterly and full-year results
Chief Financial Officer Eric Bjornholt said net sales in the March quarter were $1.311 billion, up 10.6% sequentially and up 35.1% from the year-ago period. Bjornholt said revenue came in above the high end of the company’s guidance range issued on Feb. 5, 2026.
On a non-GAAP basis, Microchip posted gross margin of 61.6%, which included $46.6 million of capacity underutilization charges. Non-GAAP operating expenses were 31% of sales and non-GAAP operating income was 30.6% of sales. Non-GAAP net income was $327.3 million and non-GAAP diluted EPS was $0.57, which Bjornholt said was $0.07 above the midpoint of guidance.
On a GAAP basis for the March quarter, gross margin was 61%. Total operating expenses were $582.2 million and included $107.8 million of acquisition and intangible amortization, $6.4 million of special charges “primarily driven by costs associated with the closure of Fab 2,” $59.9 million of share-based compensation, and $1 million of other expenses. GAAP net income attributable to common shareholders was $116.4 million, or $0.21 per share.
For fiscal 2026, Bjornholt said net sales were $4.713 billion, up 7.1% from fiscal 2025. Non-GAAP gross margin was 58.5% and non-GAAP EPS was $1.64. On a GAAP basis for the year, gross margin was 57.7% and GAAP net income attributable to common shareholders was $118.8 million.
End-market mix and recovery signals
Bjornholt outlined fiscal 2026 end-market exposure, noting the company’s “best estimates” given that nearly half of its business is serviced through distribution. Industrial represented 31% of sales, data center and compute 18%, automotive 17%, aerospace and defense 16%, communications 9%, and consumer 9%. He said the mix “did not change materially” versus fiscal 2025.
CEO Steve Sanghi said Microchip is seeing recovery “in all of our end markets,” adding that automotive, industrial, communications, data center, aerospace and defense, and consumer “are all looking better.” He said the strongest sales performance last quarter was in aerospace and defense, and “from a business unit perspective, the strongest performance was in FPGA products.”
Management also described signs that the channel is turning. Bjornholt said distributor inventory ended the March quarter at 26 days, down two days sequentially and “at the lower end” of historical levels. Distribution sell-through increased 11.4% during the quarter, while sell-in was “just modestly lower” than sell-through. Bjornholt said the company expects distribution restocking “to occur in the near term” as distributors likely build inventory “above current levels to support growth.”
On the call, Sanghi said the company believes it has completed the distribution inventory correction, with overall distribution inventory “somewhat lower than normal.” He said Microchip is “starting to see large orders from distribution,” and that after customers used up excess inventory, the company is seeing “thousands of customers reengage” and its customer count “has started to go up.”
Inventory, margins, and capital structure
Microchip ended the quarter with inventory of $1.035 billion, down $22.3 million from the prior quarter, and 185 days of inventory, down 16 days sequentially. Sanghi said inventory has been reduced from 266 days at the end of December 2024 to 185 days at the end of March 2026, while the dollar value has decreased by $319 million from a December 2024 peak of $1.356 billion to $1.037 billion at March 2026. He said the company expects inventory to “come down naturally” toward its goal of 130 to 150 days as revenue grows and resources are managed.
On gross margin, Bjornholt said inventory reserve charges have “normalized” in the March quarter. He added that underutilization charges were the primary factor keeping Microchip from its long-term 65% non-GAAP gross margin target, and said that if the underutilization impact were added back, the company is “essentially at the 65% target.”
Bjornholt said cash flow from operations was $257 million and adjusted free cash flow was $228 million in the quarter. As of March 31, consolidated cash and investments were $240.3 million. Total debt increased by $143 million, which Bjornholt said was impacted by refinancing activities that included issuing a 0% four-year convertible bond and paying $68 million for a “100% cap call” intended to provide some protection from future equity dilution.
Adjusted EBITDA in the March quarter was $466.8 million, or 35.6% of sales, up 132.9% from the year-ago quarter. Net debt to adjusted EBITDA was 3.54 at quarter-end, down from 4.18 at the end of December 2025. Bjornholt said the company expects the June quarter to be “an excellent cash generation quarter,” with meaningful debt reduction and net leverage dropping below three.
Data center product momentum
Brian McCarson, corporate vice president and general manager of Microchip’s Data Center Solutions Business Unit, said the company is seeing “significant momentum” across three major product families, translating into “higher content per system and a longer runway of production ramps.”
- Storage controllers: McCarson said demand is growing as AI inference and agentic AI workloads increase the need for persistent data access. He highlighted Microchip’s Adaptec SmartRAID NVMe storage accelerator receiving a Nimbus Innovation Award, with benchmark results showing “up to a 3x improvement” in read and write performance versus a competitor offering.
- Memory controllers: He said three new CXL and PCIe-based devices entered production in calendar 2025, with a next-generation Gen 5 dual-port device scheduled to enter production “this quarter.” McCarson said the company has secured “meaningful design wins” that have begun ramping and are expected to grow through fiscal 2028.
- Switchtec PCIe switching and retimers: McCarson said Microchip has secured six “significant design wins” since announcing its PCIe Gen 6 switch two quarters earlier, with a production ramp scheduled to begin at the end of the current quarter. He also said Microchip entered the PCIe retimer market this quarter and has already secured a major OEM design win on an upcoming Gen 6 platform, displacing a competitor.
In the Q&A, McCarson said it is “uncommon to see a lot of design wins prior to production ramp,” but Microchip’s six Gen 6 switch wins were secured before the production volume release expected at the end of the quarter. He said the company expects to “hit our stride from a volume perspective” in the next fiscal year.
June-quarter outlook and supply conditions
Sanghi said Microchip expects strong June-quarter growth across data center, aerospace and defense, industrial, and automotive, and said “nearly all business units” are expected to participate in the recovery. He added that March-quarter bookings were significantly higher than in the December quarter and said the March-quarter book-to-bill ratio was “well above one,” driving a higher backlog entering June. He also said April was the largest booking month “in almost four years.”
For the June quarter, Microchip guided:
- Net sales: up 11% sequentially, ±1%
- Non-GAAP gross margin: 62.25% to 63.25%
- Non-GAAP operating expenses: 28.75% to 29.25% of sales
- Non-GAAP operating profit: 33% to 34.5% of sales
- Non-GAAP EPS: $0.67 to $0.71
Management also addressed lead times and supply constraints. Sanghi said lead times, which have been four to eight weeks “for some time,” are increasing on many products due to constraints in substrates, subcontracting capacity, and foundry capacity on multiple nodes, and that challenges are “starting to spread more broadly.” He said expedited shipment requests have increased, suggesting some customers’ inventories are running low.
In response to questions about pricing, Sanghi said Microchip’s philosophy is to provide design-time pricing customers can count on, and that the company is trying to avoid “indiscriminate broad-based” price increases as it rebuilds customer relationships. “As we speak right now, we have not increased our prices,” he said, while adding that any adjustments would be evaluated “customer by customer,” particularly where input costs have risen and prior pricing was “very aggressive.”
About Microchip Technology NASDAQ: MCHP
Microchip Technology Inc is a semiconductor company headquartered in Chandler, Arizona, that designs, develops and supplies a broad portfolio of embedded control and analog semiconductors. Its product lineup centers on microcontrollers (including the well-known PIC family), digital signal controllers and associated development tools and software, along with a range of mixed-signal and analog devices, nonvolatile memory, power management, timing, interface, wireless and security products. The company also provides integrated hardware and software solutions intended to simplify embedded design and accelerate time to market for OEMs and contract manufacturers.
Microchip's products are used across a wide range of end markets, including automotive, industrial automation, consumer electronics, communications, aerospace and defense, and Internet of Things (IoT) applications.
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