Microchip Technology Incorporated

Greetings, and welcome to the Microchips Q2 Fiscal 2026 Financial Results Conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Senge. Thank you, sir. You may begin.

Thank you, operator, and good afternoon, everyone. During the course of this conference call, we will be making projections and other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements or predictions and that actual events or results may differ materially. We refer you to our press release of today as well as our recent filings with the SEC that identify important risk factors that may impact Microchip's business and results of operations. In attendance with me today are Rich Simonsec, Microchip COO, Eric Bionholt, Microchip CFO, Brian McKayerson, Microchip's VP of Data Center Business Unit, and Sajid Dowdy, Microchip's Head of Investor Relations. I will provide a reflection on our fiscal second quarter 2026 financial results, then Brian will provide an update on our data center business, and Eric will go over our financial performance. I will then provide an overview of the current business environment and our guidance for third quarter of fiscal year 2026. We will then be available to respond to specific investor and analyst questions. I will now highlight a few salient points of our financial results. Six percent sequential sales growth. Net sales were up sequentially in America and Asia and flat in Europe, which is not bad for a summer quarter in Europe. Sales from our microcontroller and analog businesses were up sequentially. Specifically, our MCU business grew 9.7% sequentially with strong contribution from 32-bit MCU, while our analog business increased 1.7% sequentially. Our Gen 4 and Gen 5 data center products are seeing strong sales growth albeit from depressed levels, as customers seem to have finished their inventory correction. In the new products area, our blockbuster product announcement came on October 13, when we announced the industry's first three-nanometer-based PCIe Gen 6 switch to power modern AI infrastructure. Brian McKesson will comment on this later in today's call. Our non-GAAP gross margin was up 236 basis points sequentially. Incremental non-GAAP gross margin was 95% sequentially. Non-GAAP operating margin was up 364 basis points sequentially. Incremental non-GAAP operating margin was 84.6% sequentially. Our incremental growth and operating margins are very positive. Inventory went down by $73.8 million sequentially. Calendar year-to-date reduction in inventory is $261 million. Inventory days were 199 days. Our inventory over three quarters has gone down. from 266 days to 251 days to 214 days to 199 days. Underutilization in our factories in September quarter was $51 million. The product gross margin in the September quarter was 67.4% due to a rich product mix driven by data center products. We added $71.8 million of new inventory write-off and $51 million of underutilization charge makes a total of $122.8 million of charges. Divide that by the net sales of $1,140.4 million and you get a non-GAAP gross margin impact of 10.8 percentage points. Subtracting it from the product gross margin of 67.4%, we got a non-GAAP gross margin of 56.7%, which is what we reported. So the product gross margin remains very healthy. We still need to bring down inventory write-offs and underutilization charges. We are pleased to announce that we have entered into a purchase and sales agreement to sell our Fab 2 wafer fabrication facility located in Tempe, Arizona to a third party. The sale of this facility is part of our previously announced plan to restructure our wafer fabrication operations. Under this restructuring plan, Microchip completed the closure of Fab 2 in May of 2025 and begin to transfer the process technologies from Fab 2 to Fab 4 in Gresham, Oregon, and Fab 5 in Colorado Springs, Colorado, both of which facilities have ample clean room space for expansion. The transaction is subject to closing conditions and is expected to be completed in December 2025. Now, we have a special guest for you today. Let me introduce Brian MacKerson, Corporate Vice President of our Data Center Solutions Business Unit. Brian will speak about a recent announcement of industry's first three nanometer-based PCIe Gen 6 switch. Brian?

Thank you, Steve, and good afternoon, everyone. I'm the Corporate Vice President and Leader of the Data Center Solutions Business Unit at Microchip. And today I'm excited to introduce you to the latest addition to our switch tech family of products. Our new gen six PCIe switch announced on October 13th marks a significant milestone in microchips technological leadership within the AI and enterprise data center infrastructure markets. The build out of AI data centers continues to accelerate with hyperscalers committing to gigawatt scale deployments Some recent announcements have outlined single infrastructure projects in the 5 to 10 gigawatt range, targeting completion between 2026 and 2027. These developments are driving our current design engagement cycles. It is critical to understand that regardless of whether our customers deploy NVIDIA, AMD, Intel, or custom ASICs, all require high-performance PCIe switching infrastructure. This is where Microchip's Gen6 switch tech products are designed to excel. Last month at the Open Compute Project Global Summit in San Jose, California, we introduced the industry's first PCIe Gen6 switches manufactured using 3 nanometer process technology. These new devices deliver four distinct competitive advantages. First, PCIe 6 doubles the bandwidth to 64 gigatransfers per second per lane compared to PCIe 5.0, eliminating GPU to storage, memory, and CPU bottlenecks that constrained previous generations. Our new Gen 6 switch features an industry-leading maximum of 160 lanes per device, significantly increasing total data transfer capacity. Second, our 3 nanometer implementation provides 15% to 20% power per lane advantage over competitors' products developed on 5 nanometer and older technology nodes. This is critical when deploying hundreds of thousands of GPUs and switches in multi-gigawatt data centers. Choosing microchips devices enables customers to lower total power consumption without compromising performance. Third, all our Gen 6 SwitchTek devices offer advanced device telemetry and multicast capabilities, allowing a single GPU data packet to be transmitted to multiple devices simultaneously, thereby improving GPU efficiency. And fourth, we've implemented a secure boot-based hardware route of trust that supports post-quantum cryptography and is CNSA 2.0, the commercial national security algorithm suite compliant, meeting or exceeding both government and commercial security requirements. This represents industry-leading device security. We are now sampling these products to qualified customers, and recent engagements have been validating both our technical approach and our market timing. From a financial perspective, we believe this represents a significant growth opportunity for the company. AI servers require substantially more PCIe switching infrastructure than traditional servers to enable resource pooling and the composable architectures that hyperscalers demand. Our total addressable market encompasses the entire data center PCIe fabric, not just a subset. We are vendor agnostic, selling into all data center and AI architectures. Design win cycles typically span 12 to 18 months from initial engagement to production, aligning our current sampling activity with initial production starting in June 2026 and volume ramping towards the end of calendar year 2026. Looking ahead, our Gen 6 switch tech devices position us to capture a meaningful share of the committed AI infrastructure build out across three growth sectors, hyperscale training infrastructure, enterprise AI training and inference deployments, and high-performance computing applications. I will pause here and turn the call over to Eric for comments about our financials. Eric?