Microchip Technology Incorporated

Q3/FY26 (Dec quarter) results: solid upside vs guidance on strong product demand - Net sales $1.186B, +4% sequentially and +15.6% YoY, above the high end of original guidance. - Non-GAAP gross margin 60.5% (includes $51.7M capacity underutilization + $58.4M inventory reserves). Non-GAAP EPS $0.44 (about $0.04 above the high end of guidance). - Non-GAAP operating margin 28.5%; strong operating leverage despite reserve/underutilization charges. - Cash generation strong: operating cash flow $341.4M, adjusted free cash flow $305.6M; distributor sell-in vs sell-through gap narrowed sharply (details below).

Inventory/distribution dynamics: big “surprising-positive” improvement in sell-in vs sell-through - Distribution inventory correction progressing: sell-in vs sell-through gap only $11.7M in December, down from $52.9M in September. - Management interprets this as distribution inventory “largely corrected”; however, some customers/distributors still working through inventory, which supports bookings near-term. - Inventory at end of Dec: $1.058B; 201 days of inventory (and 17 days of long-life-cycle product capacity that is end-of-life at partners).

March (next quarter) outlook: growth continues, but gross margin is pressured by mix of non-recurring effects + still-high underutilization - Net sales forecast (March): $1.26B ± $20M → ~+6.2% sequential growth at midpoint and +29.8% YoY. - Non-GAAP gross margin: 60.5%–61.5% (midpoint guided to ~61%), implying only modest improvement; management said inventory reserve charges normalize, but underutilization remains a drag. - Non-GAAP EPS: $0.48–$0.52. - Important nuance: management explicitly said the licensing-related gross margin benefit from December won’t repeat in March, yet they still guide up sequentially.