Microchip Technology (MCHP) Posts Q1 FY2026 Earnings Decline

by MarketNewsData

Microchip Technology (NASDAQ: MCHP) shares fell 6.57% on Friday to close at $61.87, then dropped another 3.88% after hours to $63.65 on August 7, 2025, after posting Q1 FY2026 results that topped revised guidance but showed a 13.4% year-over-year revenue decline and continued GAAP losses.

Key Financials

  • Revenue: $1.08B
    – Beat midpoint of revised guidance ($1.06B)
    – +10.8% QoQ, –13.4% YoY
  • Non-GAAP EPS: $0.27
    – Topped guidance range ($0.22–$0.26)
    – Down from $0.53 YoY
  • GAAP EPS: –$0.09
    – Narrower loss than expected (–$0.11 to –$0.07)
  • Dividend: $0.455/share for September quarter (unchanged)

Operational Highlights

  • Margins:
    – Non-GAAP gross margin: 54.3%
    – Non-GAAP operating margin: 20.7%
  • Inventory Optimization:
    – Inventory reduced by $124M
    – Distribution inventory days dropped to 29
    – On-balance sheet inventory days down to 214
  • Free Cash Flow: $258M
    – Capex cut to $18M from $73M YoY

Forward Guidance (Q2 FY2026)

  • Revenue: $1.11B–$1.15B
    – Implies ~5.1% QoQ growth at midpoint
  • Non-GAAP EPS: $0.30–$0.36
    – Slightly improved from Q1

Management Commentary

  • CEO Steve Sanghi said demand recovery is underway, with July bookings at the highest level since July 2022.
  • CFO noted strong operating leverage (82% incremental margins) from reduced inventory write-offs and better fab utilization.
  • COO highlighted wins with tier-one cloud providers and defense sector, positioning Microchip in AI infrastructure and military applications.

Stock Reaction and Implications

The stock dropped after hours despite a top- and bottom-line beat. This suggests the market may be concerned about:

  • The 13.4% YoY revenue decline
  • Continued GAAP losses
  • Ongoing inventory destocking pressures

While fundamentals are stabilizing, and bookings are rising, investors likely want more clarity on sustained demand and margin recovery before re-rating the stock.

Peers to Watch: $TXN, $ON, $NXPI – for relative strength in analog and embedded markets.

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