[Management View]
Microchip Technology reported net sales of $1.075 billion for the fiscal first quarter ended June 30, 2025, representing a 10.8% sequential growth. The company achieved double-digit growth across all geographies and major product lines, including microcontroller and analog. Non-GAAP gross margin was 54.3%, and non-GAAP operating margin was 20.7% of sales. The company continues to focus on inventory normalization, margin recovery, and operating leverage.

[Outlook]
For the fiscal second quarter ending September 30, 2025, Microchip Technology expects net sales of $1.13 billion ± $20 million, non-GAAP gross margin between 55%-57%, non-GAAP operating profit between 22.2%-24.6% of sales, and non-GAAP EPS between $0.30 and $0.36. The company plans to increase wafer starts in December 2025 to support inventory normalization.

[Financial Performance]
- Net sales: $1.075 billion, up 10.8% sequentially
- Non-GAAP gross margin: 54.3%
- Non-GAAP operating margin: 20.7%
- Non-GAAP EPS: $0.27
- GAAP net loss: $(46.4) million
- Inventory reduction: $124.4 million sequentially

[Q&A Highlights]
Question 1: Did you call the September outlook seasonal or above seasonal? How does it inform December?
Answer: The 5.1% sequential increase for September is well above the typical 3% seasonality. December is usually the weakest quarter, but we expect to be above seasonal in both December and March.

Question 2: How do you contrast your recovery with peers' cautious tone regarding tariffs?
Answer: Our sales decline was more significant due to excessive inventory from the PSP program. The current recovery is driven by inventory normalization rather than tariff-related pull-ins, which had a minimal impact.

Question 3: Can you discuss the growth between auto and pure industrial markets for September?
Answer: Growth was broad-based across all product lines and geographies. Automotive remains the weakest, while industrial and other markets are recovering.

Question 4: Is sell-through higher than sell-in at distributors? How far are you from optimal inventory levels?
Answer: Distribution sell-through exceeded sell-in by $49.3 million, down from $103 million. We expect to close the gap over the next few quarters. Inventory days are expected to be between 195 and 200 by September.

Question 5: How far below end demand are you shipping now?
Answer: It's difficult to quantify precisely, but we believe inventory correction will continue, and sales will grow towards normalized levels.

Question 6: Are lead times extending now or expected to extend?
Answer: Lead times are mostly four to eight weeks, with some products extending to six to twelve weeks due to bottlenecks. We advise customers to manage their backlog to avoid shortages.

Question 7: Any end markets materially lagging in demand?
Answer: Automotive is lagging the most, while data centers and industrial markets are recovering.

Question 8: How does the recent decline in the US dollar affect you?
Answer: Foreign currency fluctuations have a minimal impact as 99% of our revenue and assets are US dollar-based.

[Sentiment Analysis]
The tone of the management was optimistic, emphasizing strong sequential growth and strategic inventory management. Analysts' questions focused on understanding the sustainability of the recovery and the impact of external factors like tariffs and currency fluctuations.

[Quarterly Comparison]
| Metric | Q1 2026 | Q4 2025 | Q1 2025 |
|----------------------------|---------------|---------------|---------------|
| Net Sales | $1.075B | $970M | $1.02B |
| Non-GAAP Gross Margin | 54.3% | 52.0% | 53.5% |
| Non-GAAP Operating Margin | 20.7% | 14.0% | 18.5% |
| Non-GAAP EPS | $0.27 | $0.20 | $0.25 |
| Inventory Days | 214 | 251 | 266 |

[Risks and Concerns]
- Potential impact of tariffs and geopolitical tensions on supply chain and demand.
- Lead time extensions due to bottlenecks in substrates, lead frames, and packaging capacity.
- Continued inventory normalization and its effect on gross margins.

[Final Takeaway]
Microchip Technology demonstrated strong sequential growth in Q1 2026, driven by broad-based end-market improvement and strategic inventory management. The company provided an optimistic outlook for the next quarter, expecting above-seasonal performance. While automotive remains a weak spot, other markets are recovering. Management's focus on inventory normalization and margin recovery positions the company well for continued growth, despite potential external risks such as tariffs and supply chain constraints.