Microchip
MCHP · NasdaqA 38.0% sales rise lifted operating income 949%
Cost of sales rose 9.4% and operating expenses 10.6%, so most added revenue reached operating income: a 22.7% margin against 3.0%.
Q1 FY2027, the quarter to Jun 30, 2026 (Microchip's fiscal 2027 ends in March 2027) · 10-Q filed Aug 6, 2026
- Operating margin
- 22.7%
- Net income
- $229.8M
- Free cash flow, quarter
- $497.6M
Largest source of revenue: Mixed-signal Microcontrollers, 49.8% of the total.
Where Microchip's money goes
- 01
A 38.0% sales rise lifted operating income 949%
Cost of sales rose 9.4% and operating expenses 10.6%, so most added revenue reached operating income: a 22.7% margin against 3.0%.
Why it matters
Net sales rose 38.0% to $1,484.7 million from $1,075.5 million a year earlier. Cost of sales rose 9.4%, to $545.8 million, and operating expenses 10.6%, to $602.1 million. Operating expenses fell to 40.6% of net sales from 50.6%. Operating income went to $336.8 million from $32.1 million, a margin of 22.7% against 3.0%.1
The filing attributes the gross profit rise to product mix, lower unabsorbed capacity charges, lower inventory reserves and higher licensing revenue, and says it cannot quantify each one separately. Gross margin reached 63.2% against 53.6%. The filing also says the plants still ran below normal capacity this quarter, so part of the fixed factory cost was still expensed as incurred.1
Set against the whole of FY2026, the quarter stands out. Its operating income of $336.8 million equals 68.7% of FY2026's $490.1 million, and its net income of $229.8 million equals 99.9% of FY2026's $230.0 million.1
AnalysisAnalysis: the lever works both ways. Between FY2023 and FY2025, annual sales fell to 52.2% of their peak while operating income fell to 9.5% of its peak. A cost base that barely moves with volume turned this quarter's sales rise into a far larger profit rise, and it is the same cost base that made the downturn so steep.
- 02
Operating cash flow was more than double net income
Operating cash flow of $511.5 million was more than double net income of $229.8 million, and capital spending of $13.9 million left free cash flow of $497.6 million.
Why it matters
Operating cash flow was $511.5 million against net income of $229.8 million. A year earlier it was $275.6 million while the company reported a net loss of $18.6 million. The filing attributes the gap to non-cash and non-operating charges added back to net income, plus net inflows from changes in operating assets and liabilities.1
Amortization of acquired intangible assets, a non-cash charge left by past acquisitions, was $90.0 million: equal to 26.7% of operating income and 39.2% of net income. It fell 16.4% from $107.6 million a year earlier.1
Capital spending was $13.9 million, 0.9% of net sales and 2.7% of operating cash flow, against $17.9 million a year earlier. Free cash flow was $497.6 million, 33.5% of net sales and more than double net income. Inventory fell to 175 days on the balance sheet from 185 a quarter earlier, and the filing says the dollar level stayed roughly flat.1
AnalysisAnalysis: two supports of this cash are tied to the moment. Capital spending this low draws on capacity built before the downturn, and falling inventory days at a flat dollar level mean stock already on hand is serving higher sales. If growth continues, both could start to absorb more cash than they do now.
- 03
Interest fell from 178.8% of operating income to 14.5%
A year ago interest of $57.4 million exceeded operating income; now $48.8 million equals 14.5% of it, and net income reached $229.8 million.
Why it matters
A year earlier interest expense of $57.4 million was 178.8% of operating income of $32.1 million, and income before taxes was a loss of $15.8 million. This quarter interest expense fell 15.0% to $48.8 million, which the filing puts down to lower debt and rates, and equals 14.5% of operating income. Income before income taxes was $289.9 million.1
The income tax provision was $60.1 million, 20.7% of income before taxes, against $2.8 million a year earlier on a pretax loss. Net income was $229.8 million, 15.5% of net sales, against a loss of $18.6 million.1
Series A preferred dividends of $27.8 million, unchanged from a year earlier, rank ahead of common holders and took 12.1% of net income. Common holders earned $202.0 million, $0.37 per diluted share, while the company declared $0.455 per common share, 123% of diluted earnings per share.1
The filing says each preferred share converts automatically into common stock on a set date unless converted earlier, and that capped call options are expected to reduce the dilution.1
AnalysisAnalysis: conversion would end the preferred dividend but spread earnings over more common shares. Whether the common dividend comes to sit below earnings per share depends on how far earnings grow, and debt falls, before then. This quarter cash flow, helped by low capital spending, covers both.
Sources
- 1.Microchip 10-Q for the period to 2026-06-30 (the filing), Aug 6, 2026, read Nov 2, 2026
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Growth, profit and margin
Revenue went from $1.0B in FY2008 to $4.7B in FY2026, the operating margin from 29.1% to 10.4%, over 18 years.
- Revenue$4.7B
- Operating income$490.1M
- Operating margin10.4%
- Period
- Q1 FY2027
- Revenue
- $1.5B
- Operating income
- $336.8M
- Operating margin
- 22.7%
- Net income
- $229.8M
- Free cash flow
- $497.6M
Does the profit turn into cash?
Q1 FY2027: free cash flow of $497.6M against net income of $229.8M in the quarter.
- Operating cash flow$962.1M
- Capital expenditure$91.1M
- Free cash flow$871.0M
- Net income$230.0M
Capital expenditure is drawn below the axis as cash out. Cash conversion is operating cash flow over net income, shown in the tooltip for years with a profit.
Financial data and sources
How the revenue mix has shifted
Each breakdown the filing reports, as shares of revenue, for every period it restates.
Net Sales (Details). The filing restates this breakdown for 1 period.
Click a member to isolate it across the years shown.
The figures
Margins, cash and growth for the period, each with what it was computed from.
Where revenue comes from
Every breakdown the filing reports for the period, with each item's share.
Revenue streams
| Mixed-signal Microcontrollers | $739.1M | 49.8% |
| Analog | $410.9M | 27.7% |
| Other | $334.7M | 22.5% |
Segments
| Semiconductor products | $1.4B | 97.1% |
| Technology licensing | $42.6M | 2.9% |
ContractWithCustomerSalesChannel
| Distributors | $772.8M | 52.1% |
| Direct customers | $669.3M | 45.1% |
| Licensees | $42.6M | 2.9% |
What it costs
The cost lines beneath operating income, each as a share of revenue, then the operating result.
Costs are reported by function: what it cost to make what was sold, then the expenses of selling, developing and administering.
| Cost line | Q1 FY2027 | Of revenue | Source |
|---|---|---|---|
| Cost of sales | $545.8M | 36.8% | Source10-Q, us-gaap:CostOfRevenue, as reported in the 10-Q filed 2026-08-06 |
| Operating income | $336.8M | 22.7% | Source10-Q, us-gaap:OperatingIncomeLoss, as reported in the 10-Q filed 2026-08-06 |
Operating figures the company states
From the text of the filing rather than its statements, each with the sentence that states it.
View source
Approximately 68% of our assembly requirements were performed in our internal assembly facilities during the three months ended June 30, 2026, compared to 69% during the three months ended June 30, 2025.
View source
At June 30, 2026, our distributors maintained 25 days of inventory of our products compared to 26 days at March 31, 2026.
View source
We maintained 175 days of inventory on our balance sheet at June 30, 2026 compared to 185 days of inventory at March 31, 2026.
View source
Approximately 67% of our net sales came from products that were produced at outside wafer foundries during the three months ended June 30, 2026, compared to 64% during the three months ended June 30, 2025.
View source
With the exception of Arrow Electronics, our largest distributor, which accounted for 12% and 11% of our net sales in the three months ended June 30, 2026 and in the three months ended June 30, 2025, no other distributor or direct customer accounted for more than 10% of our net sales during these periods.
View source
Distributors accounted for approximately 52% of our net sales in the three months ended June 30, 2026 and approximately 47% of our net sales in the three months ended June 30, 2025.
View source
During the three months ended June 30, 2026, approximately 71% of our test requirements were performed in our internal facilities compared to 68% during the three months ended June 30, 2025.
The statements, as filed
The income statement, cash flow statement and balance sheet in the company's own order and words. Every line links to the filing.
Income statement22 lines, as presented in the 10-Q
Cash flow statement30 lines, as presented in the 10-Q
Year to date, as a quarterly filing reports it.
Balance sheet26 lines, as presented in the 10-Q
About this data
- Source
- Microchip 10-Q, accession 0000827054-26-000038, filed Aug 6, 2026, read on Nov 2, 2026.
- History
- From the SEC's XBRL company facts, the value from the latest filing that stated each period.
- Reading
- Paragraphs marked Analysis are CXProWealth's reading; everything else is the filing's own numbers and words, or a cited source.
- Version
- methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02
What holds Microchip's model up, and what could bend it
Competitive edge
Owned plants make Microchip a low-cost producer
Its own facilities handled 68% of assembly and 71% of test, which the filing credits with significant savings over outside contractors.
The detail
The filing calls owning a substantial portion of its manufacturing "an important component of our business strategy" and says it makes Microchip "one of the lowest cost producers in the embedded control industry". Internal test rose to 71% from 68% a year earlier; internal assembly was 68% against 69%.1
Process technologies from a fab being closed are moving to its other fabs, which the filing says have "ample clean room space for expansion". Gross margin was 63.2% this quarter against 53.6% a year earlier.1
AnalysisAnalysis: the advantage holds because plants, process know-how and yields take years to build, and spare room in existing fabs lets volume grow without matching capital spending. The price is paid in a downturn, when idle capacity is charged straight to the income statement.
Proprietary microcontrollers hold their selling prices
Microcontrollers, 49.8% of net sales, grew 38.8%, and the filing says their prices stayed relatively stable because the parts are proprietary.
The detail
The filing says average selling prices of its mixed-signal microcontrollers "have remained relatively stable in recent periods due to the proprietary nature of these products", and that it has moderated price declines by introducing new products with more features and higher prices. It names new design wins entering production among the causes of this quarter's rise.1
Analog, at $410.9 million, grew 29.9% and slipped to 27.7% of net sales. The filing separates a proprietary analog majority from a non-proprietary portion whose prices move with supply and demand.1
AnalysisAnalysis: once a customer writes firmware for an architecture and qualifies the part in a car or factory controller, switching means redesign and requalification. The design win, not the single unit sale, is the lasting asset.
Licensing adds revenue with no cost of sales
Technology licensing brought in $42.6 million, 2.9% of net sales, equal to 4.5% of gross profit and 12.6% of operating income.
The detail
Microchip licenses its SuperFlash embedded flash technology and other intellectual property to foundries and chip makers. The filing says licensing revenue "has no associated cost of sales" and lists higher licensing revenue among the reasons gross profit rose.1
AnalysisAnalysis: the comparison with operating income shows scale, not the segment's own profit. Licensing still draws on research and selling costs that the filing does not break out by segment. Each new licensee adds revenue without adding factories.
What to watch
Restocking drove the rise, and the cycle can turn
The filing ties the 38.0% rise to customers restocking, after FY2025 sales fell to 52.2% of FY2023 and operating income to 9.5%.
The detail
The filing attributes the rise first to "increased demand after customers reduced excess inventory levels". In the last cycle, long-term supply agreements and orders outside them left customers holding excess inventory, and the cancelled and deferred orders that followed led to inventory write-downs that hurt gross margins.1
Visibility is short: much of each quarter's sales come from turns orders, booked and shipped in the same quarter. Distributors carried 52% of net sales against 47% a year earlier, have no long-term agreements, and held 25 days of inventory against 26 a quarter earlier. Arrow Electronics alone was 12% of net sales.1
AnalysisAnalysis: distributor days holding steady while the distributor share of sales rose reads as sell-through keeping pace for now. Rising distributor days during growth would suggest part of the rise is channel fill.
67% of sales rely on outside wafer foundries
Products made at outside wafer foundries were 67% of net sales, up from 64%, and those partners may stop supporting older processes.
The detail
The filing warns that outside foundries and contractors may stop investing in the trailing-edge processes many of its products use. A U.S. defense law provision will bar government agencies from buying chips made at SMIC, where some Microchip products are made, unless the company can source them elsewhere or stop using them.1
Running below normal capacity is costly: unabsorbed capacity charges are expensed as incurred, and the filing says results suffer if yields slip. It also names Middle East disruption to helium and bromine, both used in wafer fabrication, and to fuel.1
China, trade controls and a Malaysian tax claim
Most net sales go to foreign customers, and the filing names Chinese competition, trade measures and a disputed Malaysian tax assessment as pressures.
The detail
The filing calls a strong position in China a key part of its growth strategy, against intense competition there. China suspended an antidumping investigation of U.S. analog chips that could resume, and a new Chinese rule could expose the company to liability for complying with foreign trade controls. Tariffs and rare earth export limits are also named.1
Subsidiaries of Arrow Electronics, the largest distributor at 12% of net sales, were briefly placed on a U.S. export list, which stopped shipments to them; the filing reports no material impact. Separately, the company disputes an assessment from the Malaysian Inland Revenue Board that it says could, if upheld, have a material adverse impact on its financial position.1
Sources
- 1.Microchip 10-Q for the period to 2026-06-30 (the filing), Aug 6, 2026, read Nov 2, 2026
Microchip, further in
Member research, then your own questions on ChatGPT.
What could change the outlook
What Microchip's numbers depend on from here, read from the filing: the conditions behind this period's margins and growth, and where a change would show first.
- What the margin recovery depends on from here
Which levers carried gross margin back toward its peak, which of them can repeat, and which channel and capacity figures would show first if they stop working.
- Cash flow, the dividend and the preferred stock
How cash flow covers a common dividend above earnings per share, what lower debt has done for profit, and how the preferred conversion changes the per-share picture.
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Have a question about Microchip?
Explore its profit drivers, competitive edge, risks, or your own investment and business questions with CXProWealth on ChatGPT.
- How much of Microchip's 38% sales rise came from customers restocking rather than from end demand?
- What would lower factory utilization do to Microchip's gross margin and operating income?
- How would conversion of Microchip's Series A preferred stock affect earnings per common share and the dividend?
Business Lens describes Microchip from its own filings with the SEC. It is not a view on its shares, a target, or advice to buy, sell or hold anything; figures are as filed and may be restated by the company later. The filing, the dates and the version are under the financial data above.