Episode Details

Microchip Technology Incorporated (MCHP) Q1 FY2027 — Fiscal Q1 2027 (the June quarter) net sales $1,484.7M, +38.0% YoY and +13.2% sequential, above the high end of guidance. Non-GAAP EPS $0.76 vs a $0.67-$0.71 guide; GAAP EPS $0.37. September guided UP 7-9% sequentially. AMC print, so the $74.36 close is PRE-print. Microchip beat the high end of its own guidance and raised September hard - and we still rate it HOLD. The number nobody put on screen: FY2027 consensus of $3.18 is at least 12% too low, because H1 is already locked at $1.69. The bar was not cut. It is stale. THE CALL: HOLD (3/5, AN EXCELLENT QUARTER, AND A PRICE THAT ALREADY REFLECTS IT) — base-case value ~$64.0 vs ~$74.36 today. KEY METRICS: - CALL: HOLD 3/5, fair value ~$64 vs the $74.36 pre-print close (-14%). Bull $78, base $64, bear $46 - even our BULL case is only ~5% above the price. Street: 46 analysts, 32 Buy / 14 Hold / 0 Sell, $114.25 avg target (low $88, high $135) = +54%. We are far more CAUTIOUS. Freshest revisions were CUTS: Wells Fargo $88, TD Cowen $90. - THE PRINT (fiscal Q1 2027 = quarter ended June 30, 2026): net sales $1,484.7M vs $1,075.5M, +38.0% YoY, +13.2% sequential, above a $1,456M guide midpoint. Non-GAAP: GM 63.8% vs 54.3%, operating income $521.1M (35.1%) vs $222.3M (20.7%), EPS $0.76 vs a $0.67-$0.71 guide and ~$0.70 Street bar. GAAP: GM 63.2%, operating income $336.8M, EPS $0.37 vs a $0.28-$0.29 guide. - THE BAR WAS NOT CUT - IT IS STALE: the Street sat at ~$0.70 going in, the HIGH end of guidance, so this is a clean beat. But FY2027 consensus is $6.21B revenue and $3.18 EPS. H1 is locked: $1,484.7M + $1,603.5M guided = $3,088M; $0.76 + $0.93 = $1.69. To reach $3.18 the back half must average $0.745 - below the June quarter and 20% below the September guide. Hold September flat twice and FY27 is $3.55, 11.6% above consensus. - 88.5% INCREMENTAL GROSS MARGIN: net sales +$409.2M YoY, gross profit +$362.2M ($576.7M to $938.9M), opex +$57.5M (+10.6%), operating income +$304.7M ($32.1M to $336.8M). A factory story - higher utilisation, lower underutilisation charges. It cuts both ways: FY2023 revenue $8,438.7M at a 36.9% operating margin fell to FY2025 $4,401.6M at 6.7%. Revenue is still 35.1% below the June-2023 peak quarter of $2,288.6M. - TWO SETS OF EARNINGS: non-GAAP EPS $0.76 is 2.05x GAAP $0.37. The bridge adds back $27.8M preferred dividends, $75.0M stock comp, $90.0M acquired-intangible amortisation, $18.9M special charges and a $24.5M tax adjustment; non-GAAP tax rate 7.5% vs 20.7% GAAP. We accept the $90.0M amortisation (sunk Atmel/Microsemi) but charge stock comp in full and tax at 15%: owner earnings ~$2.87/sh vs ~$3.72 non-GAAP, ~30% smaller. - CASH, THE FROZEN DIVIDEND, GUIDANCE, VALUATION: operating cash flow $511.5M (34.5% of sales), capex just $13.9M, FCF $497.6M (33.5%) vs $257.7M. Net debt $5,089M, 3.0x EBITDA, down ~$170M. Dividend 45.5c for September - the EIGHTH straight quarter unchanged since Nov 2024; no buyback; FY27 capex only ~$100M. Q2 guide $1.589-$1.618B (+7-9% seq), non-GAAP GM 66-67%, EPS $0.91-$0.95. Owner-earnings DCF (WACC 9.0%, 15% cash tax) = ~$64; EV $47,794M = 7.5x FY27 revenue. What to watch: UP: December guided up again with gross margin 67%+, or a dividend increase after eight frozen quarters. BEAR: book-to-bill below 1, inventory days rising, or capex stepping up from the ~$100M plan. Next read: the September quarter, early November. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.