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; the midpoint of prior guidance was $1.604 billion.
• GAAP gross profit was $1.068 billion (65.9% of net sales); Non-GAAP gross profit was $1.078 billion (66.5% of net sales).
• GAAP operating income was $464.5 million (28.6% of net sales); Non-GAAP operating income was $639.9 million (39.5% of net sales).
• 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 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; Free cash flow was $396.1 million.
• Total assets were $14.66 billion as of September 30, 2026, up from $14.37 billion as of March 31, 2026.
• Long-term debt was $5.517 billion as of September 30, 2026, up from $5.496 billion as of March 31, 2026.
• Inventories increased to $1.117 billion as of September 30, 2026, from $1.035 billion as of March 31, 2026.

Guidance and Future Outlook

• Third quarter (December quarter) net sales are guided between $1.573 billion and $1.638 billion, representing a midpoint decrease of 1% sequentially and approximately 35.4% growth year-over-year.
• The December quarter guidance excludes $53 million of infrequent revenue items present in the September quarter; the midpoint guidance is 5% to 7% better than normal seasonality.
• Expected non-GAAP gross margin for the December quarter is 64% to 65%; GAAP gross margin is expected to be 62.9% to 63.9%.
• Capital expenditures for the December quarter are expected to be approximately $35 million; full fiscal 2027 capital expenditures are expected to be approximately $100 million.
• Management notes lead times are lengthening across the supply chain and is working to expand capacity and secure additional wafer allocation.
• Normal seasonality typically results in a 3% to 5% sequential revenue decline in the December quarter.

Business Segments and Product Lines

• Growth was broad-based across end markets, specifically driven by industrial and data center applications.
• Data center design wins for PCIe Gen6 switch and retimer products grew to 24, up from 12 at the end of the June quarter.
• Bookings remained robust with a book-to-bill ratio well above one.
• Portfolio expansion occurred across data center, aerospace and defense, automotive, and industrial applications.
• Acquired Hailo, a provider of accelerated edge AI processors, on September 17, 2026.
• Acquired Vorago Technologies, a provider of radiation-hardened microcontrollers and microprocessors, on October 8, 2026.

Market and Competitive Landscape

• Secular trends driving long-term growth include data center, aerospace and defense, industrials, robotics, automotive, and the intelligent edge.
• Management indicated a focus on winning new designs across end markets to expand the foundation for future design wins.
• The company is selectively expanding production capacity and adding research and development equipment while pausing most factory expansion actions due to the macroeconomic environment.

Risks and Challenges

• Supply chain lead times are lengthening, requiring capacity expansion and wafer allocation security.
• Forward-looking statements involve risks including economic uncertainty, inflation, geopolitical conflicts, trade issues, and tariffs.
• Risks include potential changes in demand, inventory mix management, and the ability to realize synergies from acquisitions.
• Litigation costs and outcomes related to acquisitions, including the Microsemi acquisition, remain a factor.
• Fluctuations in stock price may impact share repurchase program timing and volume.

Management Commentary and Tone

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

Other Key Points

• 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 quarter were adversely impacted by amortization of acquired intangible assets associated with previous acquisitions.