Microchip Technology's CFO Discusses Financial Outlook and Strategic Initiatives at JPMorgan's 53rd Annual Technology, Media, and Communications Conference
Key Takeaways
TL;DR: Microchip (NASDAQ: MCHP) anticipates a cyclical recovery with +7.7% QoQ rev. growth in CQ1 (Mar-Q), driven by inventory normalization and improved orders across distribution & direct channels. Strategic actions (fab closure, pricing, 9-point plan) aim to restore margins to 65% GM / 40% OM LT targets, supported by a $350M inventory reduction in FY26 and reduced tariff risks. RISC-V-based 64-bit MPUs and Aerospace/Defense (18% of sales) are key growth drivers, while pricing aggression on new designs targets share gains.
1. Cyclical Recovery & Demand Trends
- Bottom called in Mar-Q: Book-to-bill >1 for the first time in 3 years; order strength sustained into Jun-Q.
- Inventory down: Days inventory declined to 251 (from 266 in Dec-Q), targeting <200 days by Sep-Q and 130-150 days LT.
- No tariff pull-ins: Strength attributed to end of customer inventory correction, not tariffs. Distributor sell-out exceeded sell-in by $103M last Q ($525M total over 5Qs).
2. Margins & Cost Initiatives
- Fab 2 closure (Tempe, AZ) to save $90M/year; utilization to rise by Dec-Q as inventory normalizes.
- GM headwinds easing: $82M/Q inventory reserves and $43M/Q underutilization charges expected to decline; key to achieving 65% GM (vs. current ~60%).
- Pricing strategy: Mid-SD ASP decline driven by aggressive new-design pricing to gain share; stable base pricing.
3. Product & Market Strategy
- Total Solution Strategy (TSS): Avg. 4-5 attach rate per anchor product (MCUs/MPUs/FPGAs); focus on edge compute, AI/ML ($1B TAM), and industrial/auto.
- 64-bit MPUs: Launched RISC-V-based PIC64 for edge compute; ARM-based 64-bit MCUs in roadmap.
- Aerospace/Defense: Rev. grew to 18% of sales (vs. 11% prior) via rad-hard FPGAs and cross-sell into MCUs.
4. Competition & Manufacturing
- China 8-bit MCUs: Share pressure in consumer, but industrial/auto strength (platform flexibility vs. China peers).
- Fab footprint: 37% internal wafer capacity; Fab 5 (6-inch) conversion to 8-inch planned for future output gains.