Microchip Technology’s third quarter saw a negative market response, as the company’s revenue matched Wall Street expectations but declined year-on-year, and forward guidance disappointed. Management attributed the quarter’s performance to ongoing inventory correction across distribution channels and direct customers, which pressured sales despite sequential growth in core microcontroller and analog segments. CEO Steve Sanghi acknowledged these challenges, noting, “The overall softer tone in the business environment and some impact of tariffs on customer psyche led to this guidance we have given.” Additionally, operational changes, including underutilization charges and inventory write-offs, weighed on margins, though product gross margins remained healthy due to a favorable product mix.
Is now the time to buy MCHP? Find out in our full research report (it’s free for active Edge members).
Microchip Technology (MCHP) Q3 CY2025 Highlights:
- Revenue: $1.14 billion vs analyst estimates of $1.14 billion (2% year-on-year decline, in line)
- Adjusted EPS: $0.35 vs analyst estimates of $0.33 (4.9% beat)
- Adjusted EBITDA: $341.8 million vs analyst estimates of $314.7 million (30% margin, 8.6% beat)
- Revenue Guidance for Q4 CY2025 is $1.13 billion at the midpoint, below analyst estimates of $1.18 billion
- Adjusted EPS guidance for Q4 CY2025 is $0.37 at the midpoint, below analyst estimates of $0.39
- Operating Margin: 7.8%, down from 12.6% in the same quarter last year
- Inventory Days Outstanding: 198, down from 213 in the previous quarter
- Market Capitalization: $30.07 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Microchip Technology’s Q3 Earnings Call
- Christopher Caso (Wolfe Research) asked how management’s view on business conditions evolved over the quarter. CEO Steve Sanghi cited a softer business environment and inventory reduction priorities as key reasons for the weaker-than-expected sequential outlook.
- Timothy Arcuri (UBS) questioned the slow pace of long-term supply agreement (LTSA) inventory reductions. CFO Eric Bjornholt explained that flexibility for customers to push out obligations slowed reductions but maintained strong engagement.
- Vivek Arya (Bank of America) pressed on the confidence behind guidance for above-seasonal quarters ahead. Sanghi pointed to strong backlog visibility and the expectation that inventory normalization would drive stronger sequential performance.
- Harsh Kumar (Piper Sandler) inquired about the strategic significance of the 3-nanometer Gen 6 PCIe switch. Sanghi and VP Brian McCarson described this as a strategic shift toward advanced data center products, with more high-performance launches planned.
- Blayne Curtis (Jefferies) sought clarity on the timeline for inventory and underutilization charges to subside. Sanghi and Bjornholt said charges should decline as sales recover but noted the pace remains uncertain.
Catalysts in Upcoming Quarters
In the coming quarters, our team will closely monitor (1) the pace at which distributor and direct customer inventories reach normalized levels, (2) initial adoption and design win momentum for the new Gen 6 PCIe switch in AI data center markets, and (3) execution of cost-saving initiatives tied to the Fab 2 restructuring. The resolution of margin headwinds and visibility into demand recovery will also be central to assessing Microchip Technology’s progress.
Microchip Technology currently trades at $55.45, down from $59.38 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free for active Edge members).
High-Quality Stocks for All Market Conditions
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.