Microchip Technology Inc at Wells Fargo TMT Summit Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : So you guys just reported a couple of weeks ago. Maybe just like to like level set the conversation a little bit. Can you talk about just what you're seeing from a demand perspective, looking at the December quarter? When did you kind of realize December maybe a little bit more seasonal than you previously kind of were thinking? Let's just start there.

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. I think when you guys reported that you said, I think, it was like the first two days of November, like the bookings were strong in the first few days. I mean, curious if there's any update there, like they've remained strong like now that we're kind of middle of the month or towards getting closer towards the end of the month? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 18, 2025 / 8:45PM, MCHP.OQ - Microchip Technology Inc at Wells Fargo TMT Summit

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. And then I guess, as we look into March, like what gives you the confidence that like you don't see a similar trend that you saw like in -- for December that like things just kind of -- the bookings age a bit, and they get pushed out like to June? Like I guess, like talk about that just like that confidence.

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. Okay. I guess like you talked about like seeing like the elevated amounts of like expediated orders and things from customers. I guess like what do you think maybe changes that dynamic as you get into '26? Is it just macro confidence? Or you talked about also like your lead times, right, or extending or the lead times to deliver to customers, there's becoming like a gap in that time, right? Like they don't match. So like maybe help us like are you educating your customers in that dynamic? Or just what's their response?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. Okay. How does that like just kind of the more difficulty in visibility? Like how does that translate into thinking about factory loadings and like gross margin dynamics, just given like the underutilization right now?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. Okay. Maybe from a demand perspective, I think one of the areas that's been more of a bright spot, right, has been like aerospace and defense. Can you talk about, I guess, like the demand that you're seeing there? Maybe you can split it out like US versus rest of world and just the opportunities?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. That's helpful. Thinking about just like the growth algorithm, we're thinking about like the growth markets for you. I mean, data centers, also another opportunity you guys have been talking a lot about. Maybe can you just kind of remind us like where you participate in the data center? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 18, 2025 / 8:45PM, MCHP.OQ - Microchip Technology Inc at Wells Fargo TMT Summit And then like what do those opportunities look like out in front of us and we can also talk about some of the product announcements you've recently made?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. And I guess, I mean, like I think data center has historically been like 15% to 20% of the business, and we'll get an update here in March. But where do you think that could go over time? Like could it go to 30%, 40% of the business? Like how do you think about like just kind of the mix drivers of the different end markets?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. Yeah. On the PCIe, like the Gen 6 switch that you briefly touched on, I mean, can you expand on just the competitive positioning of that product relative to peers and just kind of like where your value proposition to customers that you think can drive some pretty meaningful opportunities there?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. That's helpful. Maybe switch gears a little bit. Let's talk about gross margin. Maybe before we get to some of the more like things that you're doing more idiosyncratically, how do you think about like pricing into next year?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. That's helpful. You're guiding, obviously, for gross margin improvement in the December quarter. But when do we think about like this model getting back to like 60%? Like obviously, you talked about 65% maybe over time, but when do we just get back to 60%?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. And like to get to that, if it happened in the March quarter, I mean, can you do that probably still look like even if things were more seasonal in the March quarter? Or do you still have to be kind of above seasonal?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. Okay. The path of inventory reserve charges, I think you talked about that you always have some, right? That path like getting back to the, I think, it's like $15 million, $20 million is what you normally have, like is that linear? Or how do we think about that like on the -- or is it more -- could it be choppy, I guess?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. Okay. We talked a little bit about fabulization a minute ago, but maybe just can you help us just kind of like the logistics of turning on more capacity? Like what does that entail? Maybe like just so we can kind of better understand like it's not just turning on a light switch, right?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Right. I mean on that, I think you talked about this past quarter of your sell-in versus sell-through in the distribution channel, like that continues to kind of shrink. I mean, I guess that how do you think about the trajectory of that? Like do you think you can be like shipping to in demand pretty quickly here on that channel part?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. One of the things that I thought it was interesting, like in your filing, you guys disclosed like the difference of like revenue from products, from foundries versus, I guess, what would be implied of like internal production. And it seems like maybe more of the revenue recovery has actually been kind of like some of the foundry-produced products. Does that matter to gross margin?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. Okay. Maybe shift gears a little bit, talk about kind of capital allocation. How do we think about -- we've seen obviously like a stabilization of like the P&L and revenue we got maybe a nice kind of trajectory over the next several quarters. How do we think about just like the recovery in free cash flow?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. I mean how do you think about just -- you talked about a little bit, but like getting leverage down versus from kind of math of EBITDA going up, right, that ratio getting smaller versus like just the absolute like debt reduction? Like how do we think about like what's the right amount of cash that you think you need to have on the balance sheet?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. That makes sense. Maybe shift gears a little bit. An area that I get a lot of questions on from investors is China and their position in the semi-market and just kind of the various different China for China strategies. I mean, can you talk about just the competitive dynamics you see there as well as just kind of your strategy for China?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. That makes sense. Back to kind of -- if I did the math right, 4% to 5%, that's kind of maybe more subject to Chinese competition. Can you like help us understand is that more -- is that MCU is that like lower ending to use? Or where does that kind of --

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Yeah. Okay. Okay. I guess maybe shift gears a little bit more, but back to the kind of the P&L. I mean you guys have done a lot of just kind of trying to rationalize costs and things. So can you talk about just kind of where -- as we see, right, revenue starting to inflect, how we think about adding costs back to OpEx, R&D? Just how you think about like just kind of the incremental margin of the business? Obviously, gross margin is a big lever, but how do we think about OpEx as a piece of that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 18, 2025 / 8:45PM, MCHP.OQ - Microchip Technology Inc at Wells Fargo TMT Summit

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. And those variable costs like targets and things like those reset in March? Or into the next fiscal year or --?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. That's helpful. Maybe just -- we've got a couple of minutes left here, and I have a couple of more questions. One of the areas, I think, like maybe it gets a little bit like hidden by reporting other revenue, but like your FPGA business, I think, has been a bright spot. Maybe can you talk about just like what you're seeing there of like what's been driving that business?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. That's helpful. Maybe just last question. You take a step back and kind of round out the discussion. You look at the Microchip story and what do you think like investors maybe don't like fully get or don't appreciate that we should or spend more time working on?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Okay. Perfect. We'll end it there.