Microchip Technology Incorporated Q2 FY26 Earnings Analysis

- Significant growth expected in Data Center Solutions, particularly driven by AI-related workloads, including inference and Agentic AI, which require more PCIe-based components (Page 16). - Data Center business has seen strong recovery since bottoming out in June last year with multiple business units contributing to growth (Pages 7, 16). - Six new PCIe Gen 6 design wins secured, indicating strong adoption and expected ramp-up in revenue in the next fiscal year (Page 13). - Overall company growth is described as phenomenal, with fiscal ’27 growth rates expected to be substantially higher than historical rates (Page 5). - Growth is broad-based across end markets: automotive, industrial, communication, aerospace and defense, with nearly all business units participating (Page 5). - Distribution inventory correction appears complete; restocking is occurring, supporting increased sales (Page 4-5). - Capacity expansions focused on testing and select areas like Gen 6 switches and Ethernet, supporting growth without large capital increase (Page 9).

- Microchip expects fiscal ’27 growth rate to be substantially higher than historical rates, indicating strong future growth (Page 5). - Non-GAAP operating profit improved significantly from 14% at downturn to 30.6% in March quarter, with ongoing progress toward long-term goals (Page 4). - Upcoming quarters anticipate continued strong growth, especially in data center, aerospace & defense, industrial, and automotive markets (Page 5, 16). - Non-GAAP diluted EPS guidance for June quarter is between $0.67 and $0.71, up sequentially (Page 5). - Operating expenses expected to rise about 11% due to employee bonus programs but are managed quarterly to match business performance (Page 16). - There is caution on margin targets; gross margin target is 65%, currently close after underutilization adjustments (Page 15). - Company aims for continued margin, operating expense, and profit improvements as part of nine-point plan (Page 4).

- CapEx for the year is expected to be about $100 million, mainly for maintenance. - No significant capacity increase planned, as the company currently has sufficient in-house capacity. - Potential modest capacity additions in: - Testing capacity for data center products (e.g., Gen 6 switch, retimers). - FPGA products due to significant growth. - Ethernet T1S product area. - Focus on growing back into prior capacity put in place during the last up cycle. - Investments are targeted and selective rather than broad fab expansions. - CHIPS Act-related investments are currently on hold as the company is still growing into existing capacity.

- In the March quarter, the company increased total debt by $143 million, impacted by refinancing activities. - Issued a 0% 4-year convertible bond during the quarter. - Paid $68 million for a 100% capped call to protect against future equity dilution from stock price appreciation. - No explicit mention of planned future fundraising through debt or equity in the provided pages. - The company expects strong cash generation in the June 2026 quarter leading to meaningful debt reduction. - Net debt to adjusted EBITDA ratio is expected to drop below 3 after the June quarter, indicating deleveraging rather than new debt raising.

- Bookings for the March quarter were significantly higher than the December quarter. - The book-to-bill ratio for the March quarter was well above 1, leading to a much higher backlog entering the June quarter. - April was the largest booking month in almost 4 years. - Thousands of customers are reengaging and starting to buy products again. - Large orders from distributors indicate some restocking is happening in the distribution channel. - The backlog entering the June quarter is stronger compared to previous quarters. - There is confidence in meeting demand with sufficient capacity and growing allocations from foundries.