Revenue and profitability
- QQ2 2025 net sales: $1.164 billion; QoQ change: -6.2% (sequential). YoY comparison not explicitly stated in the call but 4-quarter revenue shows pronounced declines in the recent period.
- GAAP gross margin: 57.4%; Non-GAAP gross margin: just above midpoint guidance at 59.5% (including $25.9 million capacity underutilization charges). Excluding the license settlement, non-GAAP gross margin would be 59.1%.
- Operating margin: GAAP operating margin 12.6%; Non-GAAP operating margin 28.5% (midpoint of guidance, excluding settlement).
- Net income: GAAP net income $78.4 million; Non-GAAP net income $250.2 million; Non-GAAP EPS $0.46 (beat by $0.03 at the guidance midpoint).
- EBITDA: GAAP EBITDA $338.2 million; Adjusted EBITDA $405.7 million (34.9% of net sales).
- EPS/diluted: GAAP EPS $0.14; Non-GAAP diluted EPS $0.46; Weighted average diluted shares around 542 million.
Liquidity, cash flow and leverage
- Free cash flow (reported): $22.8 million in the September quarter; Adjusted free cash flow: $14 million (as disclosed in the call).
- Operating cash flow: $43.6 million; Net cash provided by operating activities modestly positive amid working-capital timing.
- Cash position: cash and short-term investments totaling $286.1 million at quarter end.
- Debt: Total debt $6.4576 billion; Net debt around $6.1715 billion; Net debt to adjusted EBITDA 2.85x as of September 30, 2024, up from 1.28x year-ago.
- Capex: $20.8 million in the quarter; FY2025 capex guidance about $150 million; 2026 capex expected to be lower as capacity is pre-positioned for the upcycle.
- Inventory and working capital: Inventory $1.34 billion; 247 days of inventory; 40 days of distributor inventory; backlog and lead times remain short (~8 weeks).
Balance sheet quality and capital returns
- Balance sheet remains solid with a substantial net debt load but ample liquidity. The company has reiterated a target of returning 100% of adjusted free cash flow to shareholders over the cycle, with a balance between dividends and share repurchases, and uses borrowings when necessary to pay the dividend in lean quarters.
- Dividend policy remains a focal point of capital allocation, with management outlining a plan to borrow temporarily if needed but to reduce debt when cash flow strength returns.
Market dynamics and management tone
- Management highlighted strength in AI/data center, aerospace/defense, and automotive segments, with weakness in Europe’s industrial end markets. Europe revenue declined about 22% sequentially; Greater China activity was not weak, albeit not a driver of growth either.
- The long-cycle design-in processes, channel dynamics, and a broad product portfolio (MCUs, MPU/space compute, PCIe switches, CXL, etc.) position Microchip to participate in the next upcycle as inventories normalize.
- Near-term guidance emphasizes continued macro uncertainty, seasonality in December, and the potential for green shoots to develop as supply/demand balance improves.