Earnings Recap — Q1 FY2027
CY Q3 2026 · Reported August 6, 2026 · Beat 6 of last 7 quarters
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Microchip's data center exposure is expanding rapidly, with total data center sales expected to nearly double to ~$1B in CY2026, driven by PCIe Gen6 switches, retimers, and a broad portfolio of catalog products. This signals continued strength in AI infrastructure buildout, particularly in scale-up/scale-out networking and power management. The company's supply constraints from foundries and OSATs, partly due to AI crowding out capacity, highlight the broader industry-wide tightness in advanced packaging and substrate capacity.
Microchip reported strong June quarter results, beating guidance on revenue and all non-GAAP metrics. Revenue grew 13.2% sequentially to $1.485B, with data center sales up 97.8% YoY and aerospace & defense up 45.6% YoY. The company provided a new end-market breakdown, showing data center at 17.1% of sales. Inventory days fell to 175, down 10 days sequentially, and distributor inventory at 25 days is at the low end of historical range. Bookings were the strongest in about four years, with book-to-bill well above 1. The company implemented price increases effective mid-August to early September, which will have a small impact on September quarter. They also announced 14 design wins for PCIe Gen6 switch and retimer products.
Management guided September quarter net sales up 8% sequentially (±1%), implying ~40.6% YoY growth at the midpoint. Non-GAAP gross margin is guided to 66-67%, above the long-term target of 65%, driven by product mix, a strong licensing quarter, price increases, lower inventory write-offs, and reduced underutilization charges. Management cautioned not to expect gross margin to rise above this level, citing one-time benefits from distribution inventory pricing and lumpy licensing revenue. The company plans to continue paying down debt, with net debt-to-EBITDA expected to drop below 2.5 this quarter. They reiterated no large M&A, but highlighted the pending small acquisition of Hailo to advance AI-on-the-edge roadmap. They also noted supply constraints from foundries and OSATs are broadening, and they are advising customers to provide longer-term backlog.
“So there are at least three or four factors going on that may make this last a bit longer than usual. The first is the data center. Data center exposure is going through significant growth. We just talked about growing almost 69% this year. So I think that's one that could last longer. The second one is aerospace and defense. The aerospace and defense buildup is just beginning.”
on Upturn duration
“We are not thinking of any large inorganic growth. The only things on our plate are some small companies, technology where you could help here and there, like Hailo is a very small acquisition that moves our road map substantially on AI on the edge products.”
on M&A strategy
“So you should not, by any reason, interpret a word constraint to be that the revenue is capped here, not at all.”
on Supply constraints
How long can this upturn last?
Steve cited multiple factors that could extend the cycle: strong data center growth, aerospace & defense buildup just beginning, and industrial and automotive markets recovering later and having more room to run.
What is the right way to model data center growth for the next 2-3 years?
Steve said the exposure is very broad across many product lines, making it difficult to project TAM and share. He noted they are gaining share but couldn't quantify. He highlighted 14 design wins on Gen6 switch/retimer, with many more in the pipeline.
What are your thoughts on December quarter seasonality?
Steve said December is typically down 3-5% but expects this December to be better than seasonal. He declined to comment on long-term seasonality changes as data center and A&D become more mature.