Microchip's June-quarter sales jumped 38% to $1.48B and GAAP EPS swung to $0.37 as customers finished clearing excess chip inventory, with gross margin up 9.6 points to 63.2% and guidance for another 7-9% sequential rise.
Revenue
$1.5B
+38.0% YoY
Net income
$230M
Diluted EPS
$0.37
Operating margin
22.7%
Revenue up 38% as customers finish burning off excess chips, and the factories fill back up
Microchip Technology's fiscal first quarter of 2027 (the three months ended June 30, 2026; Microchip's fiscal year ends in March) brought in net sales of $1,484.7 million, up 38.0% from $1,075.5 million a year earlier and up 13.2% from the March quarter. That beat the $1.456 billion midpoint of the guidance management gave on May 7, 2026. Microchip swung from a GAAP net loss of $18.6 million to GAAP net income of $229.8 million, and GAAP diluted EPS went from a $0.09 loss to $0.37, above the $0.28–$0.29 the company had guided.
The 10-Q gives the same reason for every product line and every region: "increased demand after customers reduced excess inventory levels as well as new customer design win activity entering production." In plain terms, many of Microchip's customers over-ordered chips during the 2021–2022 shortage and then spent most of fiscal 2025 and 2026 using up that stockpile instead of placing new orders. That stockpile is now largely gone, so orders are coming back in line with what customers actually use. Management says it "is not able to quantify" how much of the growth comes from each factor. Most of this rebound is the semiconductor cycle turning, not market-share gains.
Key figures
Metric
Q1 FY2027 (Jun 2026)
Q1 FY2026 (Jun 2025)
YoY Change
Net sales
$1,484.7M
$1,075.5M
+38.0%
Gross margin (GAAP)
63.2%
53.6%
+9.6 pts
Gross margin (non-GAAP)
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Net income attributable to common stockholders (GAAP)
$202.0M
–$46.4M
n/m
Diluted EPS (GAAP)
$0.37
–$0.09
n/m
Diluted EPS (non-GAAP)
$0.76
$0.27
+181%
Free cash flow
$497.6M
$257.7M
+93.1%
Inventory on balance sheet (days)
175 (vs. 185 at Mar 31, 2026)
—
–10 days QoQ
Distributor inventory (days)
25 (vs. 26 at Mar 31, 2026)
—
–1 day QoQ
"n/m" = not meaningful: a percentage change from a loss to a profit doesn't tell you anything useful.
Where the growth came from
Product line
Jun 2026 qtr
Jun 2025 qtr
YoY
Share of sales
Mixed-signal microcontrollers
$739.1M
$532.6M
+38.8%
49.8%
Analog
$410.9M
$316.2M
+29.9%
27.7%
Other (FPGAs, licensing, memory, timing, foundry services, aerospace)
$334.7M
$226.7M
+47.6%
22.5%
Microcontrollers are small, cheap processors embedded in everything from car seats to thermostats to factory equipment. They make up about half of sales and grew in line with the company overall. The 10-Q notes that average selling prices here "have remained relatively stable in recent periods due to the proprietary nature of these products." Customers design a specific Microchip part into their product and can't easily swap it out, so the growth looks like volume rather than price increases.
Analog (chips that handle real-world signals such as power, voltage and sensor readings) grew more slowly at 29.9%, and its share of sales fell from 29.4% to 27.7%. The 10-Q describes the driver as "a portion of our customer base" having cleared inventory, which suggests the recovery in this line is less complete.
"Other" grew fastest at 47.6%. This is a mixed bucket, including FPGAs (programmable chips), technology licensing and contract manufacturing services. Licensing revenue has almost no cost attached, and the filing credits it with a $9.6 million gross-profit tailwind. In the earnings release, the CEO also pointed to PCIe Gen6 connectivity design wins (chips that link processors in data-center servers) doubling from 6 to 12 programs in the quarter. That is a small base, but it is Microchip's clearest exposure to AI data-center spending.
By region, Asia made up 51.8% of sales ($769.5M, +41.8%), the Americas 29.0% ($430.8M, +40.1%) and Europe 19.2% ($284.4M, +26.2%). Europe was the slowest-growing region. The filing does not say why. Growth rates are computed from the 10-Q's regional table. Substantially all foreign sales are in U.S. dollars, so currency swings aren't distorting these figures.
Channel mix shifted toward distributors: they took 52% of sales versus 47% a year ago, with Arrow Electronics alone at 12%. More sales through distributors raises a natural question: are distributors stocking up ahead of real demand? The evidence says no. Distributor inventory fell to 25 days from 26 at the end of March, near the low end of the 17–43 day range of the past decade. The CEO also said distribution "sell-through" (what distributors actually resell to end customers) "increased meaningfully." Distributors are selling what they buy rather than piling it up.
Why margins jumped so much more than revenue
Sales rose $409.2M, but GAAP operating income rose $304.7M. Roughly three-quarters of every extra sales dollar reached operating profit. Two cyclical reversals explain a large part of that:
Lower inventory reserve charges: +$68.6M to gross profit. When chips in the warehouse risk going unsold, a company writes down their value (an "inventory reserve"). Microchip took heavy reserves during the downturn. With demand back, it needs far fewer.
Lower unabsorbed capacity charges: +$13.0M. When a factory runs below normal output, the cost of the idle capacity is expensed immediately instead of being spread across the chips produced. Higher utilization plus the May 2025 closure of the Fab 2 plant in Tempe, Arizona reduced this charge.
Together these items account for about $81.6M, or roughly 23%, of the $362.2M gross-profit increase. The rest came from volume, product mix and licensing. This matters because the reserve and underutilization benefits are one-time recoveries, not a permanent margin lift. Once reserves are back to normal, that part of the tailwind goes away.
Operating costs grew more slowly than sales. R&D rose 20.9% to $308.9M and SG&A (selling, general and administrative costs) rose 15.7% to $184.3M, both "primarily due to higher employee compensation costs including higher share-based compensation." Stock-based pay rose to $75.0M from $52.9M. Amortization of acquired intangibles (a non-cash accounting charge left over from past acquisitions such as Microsemi) fell to $90.0M from $107.6M as older assets roll off the accelerated schedule. Special charges of $18.9M were mostly a $16.0M legal contingency plus $2.9M of Fab 2 closure costs.
GAAP vs. non-GAAP: a wide gap, and why
Non-GAAP EPS ($0.76) is double GAAP EPS ($0.37). The gap comes from:
Share-based compensation of $75.0M
Intangible amortization of $90.0M
Special charges of $18.9M
A $24.5M tax adjustment (non-GAAP tax is set at projected cash taxes, a 7.5% rate versus 20.7% GAAP)
Removal of the $27.8M preferred dividend, with non-GAAP instead counting the 23.8 million shares the mandatory convertible preferred will convert into
Stock-based pay is a real cost to shareholders, so we treat the GAAP figure as the stricter measure. Both figures improved sharply, and both beat guidance.
Cash and debt
Operating cash flow nearly doubled to $511.5M, and free cash flow (cash from operations minus capital spending) was $497.6M, or 33.5% of sales. Capital spending was just $13.9M, because Microchip has "paused most of our factory expansion actions" through fiscal 2027 and expects about $100M of capex for the full year.
That cash covered $246.9M of common dividends and $27.8M of preferred dividends, and still paid down $137.6M of commercial paper (short-term borrowing). Management says net debt fell about $170M in the quarter. Total debt principal is $5.40B against $272.3M of cash, so leverage is still elevated. The credit agreement's maximum leverage ratio steps down to 3.75x for the September 2026 quarter, and the covenant-relief period ends no later than December 31, 2026. With earnings recovering this fast, that looks less pressing than a year ago. It still explains why cash is going to debt reduction rather than buybacks: no shares were repurchased, and $1.56B of authorization remains. Note that the common dividend ($246.9M) still exceeds GAAP net income to common ($202.0M). Free cash flow covers it about twice over.
Takeaway: This quarter is the inventory-correction cycle reversing. Revenue rose 38% because customers finished working through their stockpiles, and margins rose even faster because the write-downs and idle-factory charges of the downturn went away. Inventory days of 175 are still well above normal, and distributor stock sits near a 10-year low, so the recovery does not appear to be channel stuffing. The open question is how much of the margin jump survives once reserve reversals stop helping.
Outlook
For the September 2026 quarter (fiscal Q2), Microchip guides:
Net sales of $1.589–$1.618 billion, up 7%–9% sequentially and roughly 40.6% year over year at the midpoint
Non-GAAP gross margin of 66.0%–67.0% (GAAP 65.4%–66.3%)
Non-GAAP operating margin of 38.5%–39.5%
GAAP EPS of $0.53–$0.54 and non-GAAP EPS of $0.91–$0.95
The CEO cited "a book-to-bill ratio well above 1." Book-to-bill compares new orders received with products shipped, so above 1 means orders are arriving faster than shipments, which supports the sequential guide. The company did not disclose the exact ratio.
Our read: the near-term trajectory is well supported. Orders exceed shipments, distributor inventory is lean, and every product line and region grew sequentially. The guided 2–3 point further gain in non-GAAP gross margin looks achievable as factories load up. The risks are the ones the 10-Q itself flags:
Balance-sheet inventory is still high. At 175 days, Microchip may run its fabs below the rate that would maximize absorption until the excess clears.
China and trade policy. The filing points to China's paused antidumping probe into U.S. analog chips and an April 2026 Chinese countermeasures regulation.
Malaysian tax dispute. A pending claim could cost up to about $474.7M.
Semiconductor recoveries can also overshoot, with customers rebuilding stock too fast. Distributor inventory days are the metric to watch for the first sign of that.