Analog chipmaker Microchip Technology (NASDAQ:MCHP) beat Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 26.8% year on year to $970.5 million. On top of that, next quarter’s revenue guidance ($1.05 billion at the midpoint) was surprisingly good and 5.1% above what analysts were expecting. Its non-GAAP profit of $0.11 per share was in line with analysts’ consensus estimates.
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Revenue: $970.5 million vs analyst estimates of $961.2 million (26.8% year-on-year decline, 1% beat)
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Adjusted EPS: $0.11 vs analyst estimates of $0.10 (in line)
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Adjusted EBITDA: $200.4 million vs analyst estimates of $162.4 million (20.6% margin, 23.4% beat)
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Revenue Guidance for Q2 CY2025 is $1.05 billion at the midpoint, above analyst estimates of $994.5 million
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Adjusted EPS guidance for Q2 CY2025 is $0.22 at the midpoint, above analyst estimates of $0.15
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Operating Margin: -10.3%, down from 19.1% in the same quarter last year
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Inventory Days Outstanding: 251, down from 266 in the previous quarter
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Market Capitalization: $36.71 billion
Microchip Technology’s first quarter results were shaped by a significant reset across its operations, as management executed a broad restructuring plan and continued to address elevated inventory levels. CEO Steve Sanghi highlighted the closure of the Tempe Fab 2 facility and a 10% reduction in headcount as key cost-cutting moves, while also emphasizing a renewed focus on improving customer relationships and product development priorities. The company reported meaningful progress in inventory reduction, achieving the first notable decline in days of inventory in three years, and completed a business unit reorganization to better align with evolving market needs. Sanghi noted, “We have already been able to restore 78% of previously stressed customer relationships to approved or preferred status,” marking a resolution to what management described as a lingering post-pandemic challenge.
Looking ahead, Microchip Technology’s guidance for the next quarter reflects optimism driven by early signs of demand recovery and a normalization of inventory levels among customers and distributors. Management attributes the improved outlook to a “trifecta” of distributor restocking, direct customer inventory drawdown, and an uptick in new product design wins. Sanghi explained, “Bookings in the March quarter were up significantly from any prior quarter, and bookings in April were higher than any other month this year.” The company also expects gross margin improvement as underutilization and inventory reserve charges decline. However, management acknowledged persistent uncertainties around global tariffs and the pace of the broader economic recovery, emphasizing that the ability to ramp production efficiently and maintain cost discipline will be critical in sustaining profitability gains.
