Microchip Q2 Earnings Beat Estimates, Sales Down Y/Y, Shares Drop

Microchip Technology MCHP reported second-quarter fiscal 2026 non-GAAP earnings of 35 cents per share, which beat the Zacks Consensus Estimate by 6.06% but fell 24% year over year.Net sales of $1.14 billion decreased 2% year over year and beat the Zacks Consensus Estimate by 0.75%. Sequentially, revenues increased 6%.Following the fiscal second-quarter results, Microchip shares were down more than 9% at the time of writing this article. MCHP shares have inched up 3.5%, outperforming the broader Zacks Computer and Technology sector’s appreciation of 27.1% year to date.Microchip’s Segmental DetailsSales from Mixed-signal Microcontroller, Analog and Other accounted for 51.3%, 28.2% and 20.6% of net sales, respectively. Microcontroller grew 9.7% sequentially with strong contribution from 32-bit MCU, while analog business sales increased 1.7% sequentially.In terms of channel, direct sales accounted for 55%, while 45% came from distribution. Microchip Technology Incorporated Price, Consensus and EPS Surprise Microchip Technology Incorporated price-consensus-eps-surprise-chart | Microchip Technology Incorporated Quote Geographically, revenues from the Americas, Europe and Asia contributed 29.7%, 19.7% and 50.6% to net sales, respectively. Net sales grew in the Americas and Asia, while it was flat in Europe.MCHP’s Operating ResultsNon-GAAP gross margin contracted 290 basis points (bps) on a year-over-year basis to 56.7% but expanded 236 bps sequentially. Product gross margin was 67.4% driven by a rich product mix of data center products. Underutilization in MCHP’s factories in the reported quarter was $51 million.Non-GAAP research & development expenses, as a percentage of net sales, increased 170 bps year over year to 20.1%. Non-GAAP selling, general & administrative expenses, as a percentage of net sales, climbed 40 bps year over year to 12.3%.Non-GAAP operating expenses, as a percentage of net sales, were 32.4% compared with 30.3% reported in the year-ago quarter.Consequently, the non-GAAP operating margin declined to 24.3% compared with 29.3% reported in the year-ago quarter. Sequentially, operating margin expanded 364 bps.Microchip’s Balance Sheet & Cash FlowAs of Sept. 30, 2025, cash and short-term investments totaled $236.8 million compared with $566.5 million as of June 30. As of Sept. 30, 2025, total debt (long-term plus current portion) was $5.38 billion compared with $5.46 billion as of June.Inventory at the end of September 2025 was 199 days, down from 214 days at the end of June 2025. Distribution inventory days were reduced by a couple of days to 27 days.For the fiscal second quarter, cash flow from operating activities was $88.1 million compared with $275.6 million in the previous quarter. Free cash flow was $38.3 million compared with $257.7 million in the previous quarter.Microchip returned roughly $245.8 million to shareholders through dividends in the fiscal second quarter. The company announced a quarterly dividend of 45.5 cents per share.MCHP Offers Positive Q3 GuidanceMicrochip expects net sales to be $1.129 billion (+/-$20 million) at mid-point for the third quarter of fiscal 2026, which reflects roughly 1% sequential decline.The company expects inventory at the end of the September quarter to be between 195 and 200 days.Non-GAAP earnings are anticipated between 34 cents per share and 40 cents per share. Non-GAAP gross margin is anticipated between 57.2% and 59.2%. Non-GAAP operating expenses are projected to be 32.3-32.7%. Non-GAAP operating margin is anticipated to be 24.5-26.9%.Zacks Rank & Upcoming Earnings to ConsiderMicrochip currently carries a Zacks Rank #3 (Hold).Analog Devices ADI, CoreWeave CRWV and Exodus Movement EXOD are some better-ranked stocks worth considering in the broader Zacks Computer and Technology sector. While Exodus Movement currently sports a Zacks Rank #1, CoreWeave and Analog Devices carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.Exodus Movement shares are down 27.8% year to date. Exodus Movement is set to report its third-quarter 2025 results on Nov. 10.Analog Devices shares have appreciated 9.6% year to date. Analog Devices is set to report its fourth-quarter fiscal 2025 results on Nov. 25.CoreWeave shares have jumped 167.3% year to date. CoreWeave is set to report its third-quarter 2025 results on Nov. 10.Zacks' Research Chief Picks Stock Most Likely to "At Least Double"Our experts have revealed their Top 5 recommendations with money-doubling potential – and Director of Research Sheraz Mian believes one is superior to the others. Of course, all our picks aren’t winners but this one could far surpass earlier recommendations like Hims & Hers Health, which shot up +209%.See Our Top Stock to Double (Plus 4 Runners Up) >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Analog Devices, Inc. (ADI): Free Stock Analysis Report Microchip Technology Incorporated (MCHP): Free Stock Analysis Report Exodus Movement, Inc. (EXOD): Free Stock Analysis Report CoreWeave Inc. (CRWV): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks