| | | Microchip technology targets $1.045B Q1 2026 revenue with strong bookings and inventory reductions
May 08, 2025 9:04 PM ET
AI-Generated Earnings Calls Insights
Earnings Call Insights: Microchip Technology (MCHP) Q4 2025
Management View- CEO Steve Sanghi detailed the company's progress on its nine-point recovery plan, emphasizing the closure of Tempe Fab 2 and capacity adjustments in other facilities, which position the company to rapidly scale production when needed. Inventory reductions were also highlighted, with inventory days decreasing to 251 by March 31, 2025, and further reductions targeted for the June quarter.
- The company replaced 5G with artificial intelligence (AI) and ADAS with Network and Connectivity in its megatrend focus areas, reflecting a strategic realignment.
- CFO Eric Bjornholt reported Q4 2025 net sales of $970.5 million, with non-GAAP gross margins at 52% and non-GAAP operating expenses at 38% of sales. Non-GAAP net income was $61.4 million, translating to earnings per diluted share of $0.11.
- COO Richard Simoncic highlighted advancements in technologies such as Switchtec PCIe switches for automotive and embedded computing applications, MPLAB AI coding assistant for design productivity, and PIC64 microcontrollers for industrial and automotive applications.
Outlook- The company projects Q1 2026 net sales of $1.045 billion, plus or minus $25 million, marking a sequential increase. Non-GAAP gross margins are expected to be between 52.2% and 54.2%, and non-GAAP diluted EPS is anticipated to fall between $0.18 and $0.26.
- Management noted that bookings in April 2025 exceeded any month in the March quarter, reflecting improving demand signals. The book-to-bill ratio for the March quarter was 1.07.
Financial Results- Q4 2025 revenues of $970.5 million decreased by 5.4% sequentially. Non-GAAP gross margins were impacted by $54.2 million in capacity underutilization charges.
- GAAP results showed a net loss of $156.8 million or $0.29 per share, driven by acquisition-related amortization and special charges.
- Full-year fiscal 2025 net sales were $4.402 billion, down 42.3% year-over-year, with non-GAAP EPS at $1.31 per diluted share. Non-GAAP free cash flow for Q4 was $182.6 million, with total cash and investments at $771.7 million.
Q&A- Harsh Kumar, Piper Sandler: Questioned the sustainability of demand signals. CEO Sanghi clarified that demand improvements were driven by inventory normalization across customers and distributors, with no evidence of tariff-related pull-ins.
- Chris Caso, Wolfe Research: Inquired about margin leverage and underutilization charges. CFO Bjornholt confirmed that gross margin improvements are expected as inventory reserves and underutilization charges decrease in the latter half of fiscal 2026.
- Vivek Arya, Bank of America Securities: Asked about guidance visibility. Sanghi stated that the September quarter backlog is stronger than the June quarter, indicating sequential growth potential.
Sentiment Analysis- Analysts expressed cautious optimism about improving bookings and inventory normalization. Concerns centered on macroeconomic factors and tariff impacts.
- Management conveyed confidence in the recovery trajectory, with clear strategies for operational leverage and revenue growth. CEO Sanghi emphasized the company's ability to sustain margin improvements as the recovery progresses.
- Compared to the previous quarter, both analysts and management appeared more positive on the near-term outlook, supported by stronger bookings and a clear bottoming of revenues.
Quarter-over-Quarter Comparison- Q4 2025 guidance included a sequential uptick in expected revenues and EPS, contrasting with Q3 2025's more conservative outlook.
- Inventory days decreased from 266 to 251, marking a significant improvement in inventory management.
- Management's tone was more confident, reflecting stronger bookings and clearer visibility into demand recovery.
Risks and Concerns- Management highlighted macroeconomic uncertainties, including potential indirect impacts from global tariffs.
- Analysts questioned the sustainability of demand improvements and the pace of inventory normalization.
- The company is addressing customer relationship challenges and remains focused on mitigating risks tied to inventory adjustments and production capacity.
Final Takeaway
Microchip Technology's Q4 2025 earnings call highlighted significant progress in its recovery plan, with a focus on inventory reductions, strategic realignment, and operational efficiency. The company projects sequential revenue growth for Q1 2026, supported by robust bookings and improving demand signals. Management’s confidence in margin recovery and sustained growth momentum underscores a positive outlook amid ongoing market challenges.
Read the full Earnings Call Transcript |
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