Aug 6, 2026 earnings call — Data center growth and strong margins
Microchip guided September-quarter sales up 8% sequentially, plus or minus 1%, and expects non-GAAP gross margin of 66%–67%.
Revenue $1.5B (est $1.5B) · EPS $0.76 (est $0.70)
Key quotes
"This makes the total net sales expected in calendar year 2026 from all of Microchip products, Data Center Solutions business unit as well as all the other catalog products going into data centers as about $1 billion."
"We believe that we have completed the distribution inventory correction. Our overall distribution inventory is now low and some replenishment needs to take place in the coming quarters."
"The price adjustments we discussed in early June have now been successfully implemented in the marketplace."
Analyst Q&A 14
How long can the upturn last
Q (Timothy Arcuri · UBS): Analyst asked how long the above-seasonal upturn can continue and whether inventory rebuild is the main driver.
A: Management said several factors could extend this recovery beyond past cycles. They highlighted strong growth in data center demand, a multiyear aerospace and defense buildup, and later recoveries in industrial and automotive markets.
"So there are at least three or four factors going on that may make this last a bit longer than usual." — Steve Sanghi (CEO)
Data center growth and gross margin drivers
Q (Vivek Arya · BofA): Analyst asked how to model data center growth and whether Microchip is gaining share. He also asked why gross margin might not rise above 66.5%.
A: Management said data center exposure is very broad across many product types, making precise TAM and share projections difficult, and they could not confidently project share gains though they hope to gain share. On gross margin, they said this quarter includes non-repeatable benefits like larger licensing revenue and a one-time inventory/distribution effect, while price increases and cost pressures will balance each other, so they do not expect margins to go higher than guided.
"there is a couple of things that are not really repeatable that are happening this quarter" — J. Bjornholt (CFO)
Design wins and supply constraints
Q (Joseph Quatrochi · Wells Fargo): Analyst asked about the potential for accelerating data center growth from design wins and whether supply constraints are easing.
A: Management said design wins are numerous across catalog products but they will report specific wins only for the Data Center Solutions unit, which had 14 total design wins (12 Gen6 switch, 2 Gen6 retimer). They said internal fab capacity is not fully utilized and more tools can be installed, but constraints mainly exist when foundries or external OSATs are involved due to AI crowding out capacity.
"And as of today, we have 14 design wins, 12 on the Gen6 switch and two on the Gen6 retimer." — Steve Sanghi (CEO)
300-mm fab and AI focus
Q (Christopher Rolland · Susquehanna): Analyst asked if Microchip would consider building a 300-millimeter fab and whether AI-related products would prompt larger M&A or investment.
A: Management said a 300-millimeter fab is not in their plans and building one internally is impractical because it would not match foundry technologies and would require redesigning many parts. They said they are not seeking large acquisitions; they recently bought a small company, Hailo, which accelerates their AI-on-edge roadmap by several years but is small in revenue.
"And so there is no plan to have our own 300-millimeter fab." — Steve Sanghi (CEO)
December quarter seasonality and cash use
Q (Christopher Caso · Wolfe): Analyst asked how December quarter seasonality might change with the new business mix and how Microchip plans to use improving cash flow.
A: Management said December typically is down 3% to 5%, but they expect the upcoming December quarter to be better than seasonal; they would not commit to a new long-term seasonality yet. They said they will use excess cash to pay down debt rather than buy back stock or raise the dividend; net debt is about $5.2 billion.
"Yes. So net debt is about $5.2 billion." — Steve Sanghi (CEO)
Sustainability of gross margin level
Q (Vijay Rakesh · Mizuho): Analyst asked whether the 66.5% gross margin midpoint is sustainable and what one-offs are affecting it.
A: Management said 66.5% is a very strong gross margin above their long-term model but includes favorable one-offs this quarter and ongoing cost pressures. They expect to stay around this range for at least the next few quarters as improvements and headwinds balance out.
"It's a really strong gross margin that's above the long-term model." — J. Bjornholt (CFO)
Aerospace & defense outlook
Q (Harlan Sur · JPMorgan): Analyst asked if A&D will continue to outperform given strong recent growth and long program lives.
A: Management said qualitatively they expect continued strength in data center and A&D, but cautioned that recent high percentage growth rates reflect recovery from very depressed levels. They noted industrial and automotive are still catching up and that four segments (industrial, data center, A&D, automotive) make up most of the business.
"But qualitatively, yes, we are very positive on growth on data center." — Steve Sanghi (CEO)
Detail on end-market breakouts and communications recovery
Q (Blayne Curtis · Jefferies): Analyst asked whether the company will continue providing regular end-market breakouts and what drove the communications recovery.
A: Management said they intend to provide the end-market breakout quarterly going forward. They said communications is recovering—helped by 5G and customers in Europe—but it is a smaller segment (about 8% of revenue) and year-over-year gains partly reflect a weak prior year.
"It is our intention on a go-forward basis to break it out quarterly." — J. Bjornholt (CFO)
Input cost pressure and pricing policy
Q (Thomas O'Malley · Barclays): Analyst asked where input cost pressure is greatest and whether Microchip can keep raising prices if costs rise further.
A: Management said the recent price increase was a one-time action intended to capture costs absorbed over the prior six months, not a recurring periodic increase, and they would consider another only if major foundry or OSAT cost increases occur. They also said ramping their factories improves utilization and helps offset cost increases.
"We did this price increase with the intention of a onetime price increase in which we captured some of the costs we have been absorbing in the prior 6 months." — Steve Sanghi (CEO)
Internal capacity and external constraints
Q (James Schneider · Goldman Sachs): Analyst asked how much more internal capacity could be re-extended without extraordinary measures and where real constraints remain.
A: Management said they have substantial unutilized internal capacity and equipment (about $450 million of equipment not yet installed) that can raise capacity meaningfully. They said constraints are mainly at foundries and external OSATs for advanced packages and substrates, where AI demand is crowding out capacity, though suppliers are adding factories.
"And then there is $450 million of equipment that's still sitting back, some of that not even installed, and that can take the capacity a lot higher." — Steve Sanghi (CEO)
Underutilization charges and margin impact
Q (Quinn Bolton · Needham & Company): Analyst asked how underutilization charges should roll off and whether that will sustain margins in the 66%–67% range.
A: Management said underutilization charges are declining and should help keep gross margin around the guided range, but warned that this quarter also had one-time benefits (distribution inventory reserve and lumpy licensing revenue) that will roll off. They noted last quarter underutilization charges fell by about $8 million sequentially and expect a similar reduction this quarter.
"And just on the underutilization charges, last quarter, I think they reduced by about $8 million sequentially." — J. Bjornholt (CFO)
M&A appetite and capital allocation
Q (Joseph Moore · Morgan Stanley): Analyst asked whether Microchip is considering M&A now that activity is improving and how they think about inorganic growth.
A: Management said they are not pursuing large acquisitions and focus is on small, strategic technology buys like Hailo, which accelerates their AI-on-edge roadmap but is small in dollars. They reiterated they will use cash to reduce debt and are not comfortable with current debt levels around $5.5 billion.
"We are not thinking of any large inorganic growth." — Steve Sanghi (CEO)
Defense rebuild timing and data center backlog
Q (William Stein · Truist): Analyst asked whether the defense rebuild orders are already in the supply chain or are still to come, and about the stability/duration of the AI data center backlog.
A: Management said the defense rebuild is mostly still on the way; they are seeing front-end orders for missiles and similar products but expect much more growth ahead as primes figure out capacity and place larger orders. On data center, they said catalog products are broad-based with many design wins ramping, while the Data Center Solutions unit is early in Gen6 production with low current volumes and growth ahead; customers shipping in volume can speak better to backlog duration.
"That sector was up 45.6% in the June quarter over June last year." — Steve Sanghi (CEO)
Pricing scope and product/customer reach
Q (Joshua Buchalter · TD Cowen): Analyst asked whether the recent pricing increase applied mainly to channel partners or broadly across customers and products, and whether Microchip can rank data center buckets.
A: Management said the price increase was largely across the board but varied by product and customer because different customers buy different mixes and cost increases differ by whether production is internal or external. They declined to rank data-center buckets today but said they would consider the request.
"It was largely across the board, but there was not an equal increase on every product, and there was not an equal increase on every customer because every customer buys a different mix of various different products." — Steve Sanghi (CEO)