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- **Revenue Resilience**: Sequential growth of 6% despite macro challenges, driven by data center and AI product demand.
- **Innovation Lead**: Industry-first 3nm Gen 6 PCIe switch offers 64 GT/s bandwidth, positioning for hyperscale AI infrastructure wins.
- **Gross Margin Recovery**: Aiming to reduce inventory write-offs and underutilization charges, targeting 65% non-GAAP gross margin in future quarters.
- **Strategic Shifts**: Expansion into AI and FPGA markets with state-of-the-art products to drive long-term growth.
- **Cash Management**: Strong free cash flow ($38.3M) and plans to reduce debt, supporting financial flexibility.

**【CEO Summary Section】**
- **Revenue Growth**: Sequential growth of 6% in Q2 2026, driven by strong bookings in Gen 4 and Gen 5 data center products. MCU and analog businesses showed sequential growth of 9.7% and 1.7%, respectively.
- **AI and Data Center Strategy**: Launched industry-first 3nm Gen 6 PCIe switch with 64 GT/s bandwidth, targeting hyperscale and enterprise AI infrastructure. Expected to capture share in multi-gigawatt data center builds.
- **Gross Margin Dynamics**: Product gross margin at 67.4%, but non-GAAP gross margin of 56.7% due to $122.8 million in inventory write-offs and underutilization charges. Aiming to reduce these charges in future quarters.
- **Inventory Management**: Inventory days reduced to 199 days (down 15 days sequentially), with a focus on correcting distributor and customer inventory levels.

**【CFO Financial Commentary】**
- **Financial Performance**: Non-GAAP net income of $199.1 million, EPS of $0.35 (midpoint of guidance). Operating margin of 24.3%, with strong cash flow and free cash flow of $38.3 million.
- **Cost Control**: Operating expenses at 32.4% of sales, with a focus on reducing underutilization charges through factory ramping.
- **Liquidity**: Cash position of $236.8 million, with plans to use excess free cash flow to reduce debt.

**【Q&A Highlights】**
- **Demand Visibility**: Bookings for March 2026 quarter are strong, with customers scheduling purchases to meet year-end inventory targets. Expect sequential growth in March, June, and September quarters.
- **Supply Chain Challenges**: Constraints on substrates and advanced nodes (e.g., 3nm) are temporary but manageable. Long-term focus on state-of-the-art products to drive margin expansion.
- **Strategic Shifts**: Formation of AI business unit and FPGA product development to target high-growth markets. Closure of Fab 2 to reduce costs and improve efficiency.
- **Gross Margin Outlook**: Targeting 65% non-GAAP gross margin as inventory corrections and underutilization charges normalize. Product gross margin remains healthy at 67.4%.


Microchip Technology Incorporated (MCHP) Q2 2026 Earnings Call Transcript

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MCHPP

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