Analog chipmaker Microchip Technology (NASDAQ: MCHP) reported Q2 CY2025 results topping the market’s revenue expectations, but sales fell by 13.4% year on year to $1.08 billion. The company expects next quarter’s revenue to be around $1.13 billion, close to analysts’ estimates. Its non-GAAP profit of $0.27 per share was 13.2% above analysts’ consensus estimates.

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Steve Sanghi, Microchip’s CEO and President commented that "Fiscal 2026 is off to a strong start as revenue grew 10.8% sequentially to approximately $1.0755 billion, well ahead of our revised guidance. As we execute our strategic imperatives under our nine-point recovery plan, we are seeing improvements across key financial metrics and emerging from the prolonged industry downturn with enhanced operational capabilities and a strengthened financial position. The momentum from the March quarter has accelerated into fiscal 2026, validating our strategic plan and positioning us well to capitalize on the recovery."

Company Overview

Spun out from General Instrument in 1987, Microchip Technology (NASDAQ: MCHP) is a leading provider of microcontrollers and integrated circuits used mainly in the automotive world, especially in electric vehicles and their charging devices.

Revenue Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Microchip Technology’s demand was weak and its revenue declined by 4.2% per year. This wasn’t a great result and suggests it’s a low quality business. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Microchip Technology’s recent performance shows its demand remained suppressed as its revenue has declined by 30.5% annually over the last two years.

This quarter, Microchip Technology’s revenue fell by 13.4% year on year to $1.08 billion but beat Wall Street’s estimates by 1.7%. Despite the beat, the drop in sales could mean that the current downcycle is deepening. Company management is currently guiding for a 2.9% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 16.4% over the next 12 months, an improvement versus the last two years. This projection is healthy and suggests its newer products and services will fuel better top-line performance.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Microchip Technology’s DIO came in at 213, which is 46 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.

Key Takeaways from Microchip Technology’s Q2 Results

We were impressed by Microchip Technology’s strong improvement in inventory levels. We were also excited its EPS outperformed Wall Street’s estimates by a wide margin. On the other hand, its revenue guidance for next quarter slightly missed. Overall, we think this was a solid quarter with some key areas of upside. Investors were likely hoping for more, and shares traded down 6.8% to $61.73 immediately following the results.

So do we think Microchip Technology is an attractive buy at the current price? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.