Microchip Technology — Second Quarter Fiscal 2027 Earnings Summary

Financial Performance:

• Net sales reached $1.622 billion, representing a 42.2% year-over-year increase and a 9.2% sequential increase; results exceeded the high end of the prior guidance midpoint of $1.604 billion.
• GAAP gross profit was $1.068 billion (65.9% of net sales), compared to $637.9 million (55.9%) in the prior year quarter.
• GAAP operating income was $464.5 million (28.6% of net sales), up from $88.9 million (7.8%) in the prior year quarter.
• GAAP net income attributable to common stockholders was $373.6 million ($0.68 per diluted share), compared to $13.9 million ($0.03 per diluted share) in the prior year quarter.
• Non-GAAP gross profit was $1.078 billion (66.5% of net sales), compared to $646.2 million (56.7%) in the prior year quarter.
• Non-GAAP operating income was $639.9 million (39.5% of net sales), compared to $277.2 million (24.3%) in the prior year quarter.
• Non-GAAP net income was $559.2 million ($0.97 per diluted share), compared to $199.1 million ($0.35 per diluted share) in the prior year quarter.
• GAAP cash flow from operations was $419.2 million, resulting in free cash flow of $396.1 million.
• Total assets were $14.660 billion as of September 30, 2026, with long-term debt of $5.517 billion.

Guidance and Future Outlook:

• Guidance for the December quarter (Q3 FY27) net sales is $1.573 billion to $1.638 billion, representing a sequential decline of 3% to 1% with a midpoint of 1% down, and approximately 35.4% year-over-year growth.
• The December quarter midpoint guidance is projected to be 5% to 7% better than normal seasonality, accounting for $53 million in non-recurring revenue items from the September quarter.
• Non-GAAP gross margin is expected to be between 64% and 65%, while GAAP gross margin is expected to be between 62.9% and 63.9%.
• Capital expenditures for the December quarter are expected to be approximately $35 million, with full fiscal 2027 capital expenditures expected to be approximately $100 million.
• Management notes that lead times are lengthening across the supply chain and the company is working to expand capacity and secure additional wafer allocation.
• Long-term growth is expected to be driven by secular trends in data center, aerospace and defense, industrials, robotics, automotive, and the intelligent edge.

Business Segments and Product Lines:

• Growth was broad-based across end markets, specifically driven by industrial and data center applications.
• Design wins in the data center sector grew to 24 for PCIe Gen6 switch and retimer products, up from 12 at the end of the June quarter.
• Bookings remained robust with a book-to-bill ratio well above one.
• The company expanded its portfolio with a steady cadence of product and technology introductions across data center, aerospace and defense, automotive, and industrial applications.

Market and Competitive Landscape:

• The company is addressing critical challenges at the intersection of emerging technologies and durable end markets including industrial, automotive, consumer, aerospace and defense, communications, and computing.
• Management identifies data center, aerospace and defense, industrials, robotics, automotive, and the intelligent edge as key secular trends driving long-term growth.

Risks and Challenges:

• Supply chain lead times are lengthening, requiring efforts to expand capacity and secure wafer allocation.
• Forward-looking statements involve risks including macroeconomic uncertainty, geopolitical tensions, trade issues, tariffs, inflation, and fluctuations in demand or customer order patterns.
• Risks include the ability to manage inventory levels, manufacturing capacity utilization, and the successful integration of acquisitions.
• Potential impacts from litigation related to acquisitions, tax audits, and changes in tax laws (including the CHIPS Act) are noted.
• Disruptions due to natural disasters, armed conflict, or public health concerns could impact the business.

Management Commentary and Tone:

• CEO Steve Sanghi stated that momentum from the start of fiscal 2027 continued with broad-based growth, driven by new design wins and product innovations.
• CFO Eric Bjornholt highlighted ongoing operational improvements, noting that non-GAAP operating expenses grew well below net sales, supporting higher profitability.
• Management expressed confidence in the existing manufacturing footprint enabling growth with modest incremental capital investment while strengthening the balance sheet.
• The tone reflects confidence in the product roadmap and the foundation for future design wins.

Other Key Points:

• Completed the acquisition of Hailo (accelerated edge AI processors) on September 17, 2026.
• Completed the acquisition of Vorago Technologies (radiation-hardened microcontrollers and microprocessors) on October 8, 2026.
• Returned approximately $247.6 million to common stockholders in the September quarter through dividends.
• Declared a quarterly cash dividend of 45.5 cents per share for the December quarter, payable December 8, 2026.
• Declared a quarterly cash dividend of $18.750 per share on 7.50% Series A Mandatory Convertible Preferred Stock, payable December 15, 2026.
• Victor Peng stepped down from the Board of Directors on November 3, 2026, due to time commitments including his role as CEO of PsiQuantum.
• GAAP results for the current and prior year quarters were adversely impacted by amortization of acquired intangible assets associated with previous acquisitions.