Microchip Technology’s fourth-quarter results reflected the impact of architectural modernization in its end markets, particularly automotive and industrial, as well as sustained improvement in inventory correction across distribution channels. Management pointed to robust growth from networking, data center, and FPGA product lines as the primary drivers of the outperformance, with CEO Steve Sanghi noting, “Microcontrollers and analog businesses were both about flat sequentially, which was well above the typical seasonal level for December.” The quarter benefited from increased demand in aerospace and defense, while the distribution inventory correction reached a more normalized level, supporting stable operating margins and cash flow.
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Microchip Technology (MCHP) Q4 CY2025 Highlights:
- Revenue: $1.19 billion vs analyst estimates of $1.18 billion (15.6% year-on-year growth, 0.6% beat)
- Adjusted EPS: $0.44 vs analyst estimates of $0.43 (2.7% beat)
- Adjusted EBITDA: $402 million vs analyst estimates of $401.6 million (33.9% margin, in line)
- Revenue Guidance for Q1 CY2026 is $1.26 billion at the midpoint, above analyst estimates of $1.23 billion
- Adjusted EPS guidance for Q1 CY2026 is $0.50 at the midpoint, above analyst estimates of $0.49
- Operating Margin: 12.8%, up from 3% in the same quarter last year
- Inventory Days Outstanding: 201, up from 198 in the previous quarter
- Market Capitalization: $43.7 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Microchip Technology’s Q4 Earnings Call
- Matthew Prisco (Cantor Fitzgerald) asked about the sustainability of above-seasonal growth and the drivers behind backlog strength. CFO Eric Bjornholt explained that distribution inventory is largely corrected, with strong backlog and bookings for the next quarter, but noted visibility beyond the current quarter remains limited due to short lead times.
- Vivek Arya (Bank of America Securities) questioned the timeline for reaching the company’s long-term gross margin target. CEO Steve Sanghi and CFO Bjornholt said margin improvement will be gradual, with normalization of inventory reserves and underutilization charges, but did not commit to a specific timeframe.
- Jim Snyder (Goldman Sachs) inquired about customer inventory behavior and the potential for restocking. Sanghi indicated restocking has not started broadly, but increased expedite requests suggest customer inventories are nearing consumption rates, especially as supply tightens.
- Blayne Curtis (Jefferies) asked about the sustainability of licensing and other segment revenue, and the impact on gross margin. Management clarified the licensing benefit will not repeat, but other product lines—including memory and FPGA—are expected to remain strong, supporting gross margin.
- Chris Caso (Wolfe Research) pressed on the prioritization of debt reduction over share buybacks. Sanghi and Bjornholt emphasized a conservative approach, with no plans for repurchases until leverage is significantly reduced, following lessons from the recent downcycle.
Catalysts in Upcoming Quarters
In coming quarters, the StockStory team will be monitoring (1) the pace of adoption and revenue contribution from automotive Ethernet and industrial connectivity design wins, (2) normalization of customer and channel inventories and its effect on order patterns and lead times, and (3) progress toward improving gross margin through a richer product mix and higher factory utilization. Developments in data center and aerospace/defense segments will also be key to tracking growth.
Microchip Technology currently trades at $80.73, up from $78.04 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).
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