Microchip Q3 Earnings Beat Estimates, Sales Rise Y/Y, Shares Drop

Microchip Technology MCHP reported third-quarter fiscal 2026 non-GAAP earnings of 44 cents per share, which beat the Zacks Consensus Estimate by 3.38% and surged 120% year over year. The company has registered earnings of 20 cents in the year-ago quarter.

Net sales of $1.19 billion increased 15.6% year over year and beat the Zacks Consensus Estimate by 0.08%. Sequentially, revenues increased 4%.

Following the fiscal third-quarter results, Microchip shares moved down 0.24% at the time of writing this article. MCHP shares have soared 50.4%, outperforming the broader Zacks Computer and Technology sector’s appreciation of 22% in the trailing 12-month period.

Microchip’s Segmental Details

Sales from Mixed-signal Microcontroller, Analog and Other accounted for 49.5%, 27.2% and 23.3% of net sales, respectively. The microcontroller and analog business grew flat sequentially, which was well above the typical season level for the December quarter.

Microchip Technology Incorporated Price, Consensus and EPS Surprise

Microchip Technology Incorporated price-consensus-eps-surprise-chart | Microchip Technology Incorporated Quote

In terms of channel, direct sales accounted for 53%, while 47% came from distribution.

Geographically, revenues from the Americas, Europe and Asia contributed 30.9%, 20.8% and 48.3% to net sales, respectively. Net sales grew in the Americas, Europe and Asia by a considerable margin.

MCHP’s Operating Results

The non-GAAP gross margin expanded 510 basis points (bps) on a year-over-year basis to 60.5%, but expanded 379 bps sequentially. The product gross margin was above 65%, driven by a rich product mix of data center products. Underutilization in MCHP’s factories in the reported quarter was $50 million.

Non-GAAP research and development expenses, as a percentage of net sales, decreased 140 bps year over year to 19.8%. Non-GAAP selling, general and administrative expenses, as a percentage of net sales, contracted 150 bps year over year to 12.2%.

Non-GAAP operating expenses, as a percentage of net sales, were 32% compared with 34.9% in the year-ago quarter.

Consequently, the non-GAAP operating margin increased to 28.5% from 20.5% in the year-ago quarter. Sequentially, the operating margin expanded 418 bps with 800 basis points over the year-ago quarter.

Microchip’s Balance Sheet & Cash Flow

As of Dec. 31, 2025, cash and cash equivalents totaled $250.7 million compared with $236.8 million as of Sept. 30. As of Dec. 31, 2025, total debt (long-term plus current portion) was $5.37 billion compared with $5.38 billion as of Sept. 30.

Inventory at the end of Dec. 2025 was 201 days, down from 251 days at the end of March 2025. The distribution inventory days were 28 days, which is in the normal range.

For the fiscal third quarter, cash flow from operating activities was $341.4 million compared with $271.5 million in the previous quarter. The free cash flow was $318.9 million compared with $253.4 million in the previous quarter.

Microchip returned $246.5 million to shareholders through dividends in the fiscal third quarter. The company announced a quarterly dividend of 45.5 cents per share.

MCHP Offers Positive Q4 Guidance

Microchip expects net sales of $1.26 billion (+/-$20 million) at the mid-point for the fourth quarter of fiscal 2026, which indicates 6.2% sequential growth and a 29.8% rise from the year-ago quarter's actual.

Non-GAAP earnings are anticipated between 48 cents and 52 cents per share. 

The non-GAAP gross margin is anticipated between 60.5% and 61.5%. Non-GAAP operating expenses are projected to be 31.3-31.7%. The non-GAAP operating margin is anticipated to be 28.8-30.2%.

Zacks Rank & Other Stocks to Consider

Microchip currently sports a Zacks Rank #1 (Strong Buy).

Ciena CIEN, Broadcom AVGO and MKS MKSI are some other top-ranked stocks that investors can consider in the broader Zacks Computer & Technology sector. These three companies presently sport a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Ciena have skyrocketed 182% in the past 12 months. CIEN is likely to report its first-quarter fiscal 2026 results on March 10, 2026.

Shares of Broadcom have gained 35.5% in the past 12 months. AVGO is likely to report its first-quarter 2026 results on March 4, 2026.

Shares of MKS have soared 107.3% in the past 12 months. MKSI is likely to report its fourth-quarter 2025 results on Feb. 17, 2026.

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This article originally published on Zacks Investment Research (zacks.com).

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