Microchip Technology shares fell 10% after the chipmaker guided December-quarter sales 1% lower at the midpoint, below the $1.63 billion analysts expected. Chief executive officer Steve Sanghi said "data center is in the bubble." Data centre is 16.7% of sales, he said, so Microchip "should outperform" companies that are "kind of all data center." September sales of $1.622 billion included about $53 million of one-time revenue. Excluding it, management says the December guide is 5% to 7% better than the usual seasonal drop. Sanghi blamed lengthening supply lead times, as data-centre demand takes assembly and test capacity. Texas Instruments and NXP Semiconductors guided December flat to higher.

Microchip Technology chief executive Steve Sanghi said the data centre market is in a "bubble." The head of the $35 billion chipmaker spoke on Thursday's earnings call, hours after the VanEck Semiconductor ETF fell 11.2%. Sanghi said data centres make up 16.7% of Microchip's business, so much of the "upside and bubble is not in our numbers." He said Microchip "should outperform" firms focused on that market if spending corrects. From Tuesday's close through Thursday's, Vertiv and Comfort Systems USA fell 25% each, Ciena 23%, Applied Digital 20%, and Nvidia 12%. Microchip fell 17%. Its September-quarter net sales rose 42.2% from a year earlier to $1.62 billion.

Microchip Technology Q2 earnings call highlights. Microchip Technology (NASDAQ:MCHP) reported a 42.2% increase in fiscal second-quarter revenue, but forecast a slight sequential decline for the December quarter as supply constraints delay shipments of some high-margin products. The chipmaker said demand remained strong across its business, with industrial and data center sales leading growth. President and CEO Steve Sanghi said orders exceeded shipments in the September quarter and that the company entered the December quarter with a higher backlog. Revenue for the quarter ended Sept. 30, 2026, rose to $1.622 billion, up 9.2% from the June quarter. Adjusted earnings were $0.97 per diluted share, $0.04 above the midpoint of the company's guidance. GAAP net income attributable to common shareholders was $373.6 million, or $0.68 per share, including a $0.13-per-share tax benefit. One-Time items boosted September results. CFO Eric Bjornholt said approximately $53 million of infrequent items boosted September-quarter revenue and would not recur in the December quarter. Those items consisted of a $21 million effect from a pricing change on inventory in the distribution channel, $22 million of licensing revenue above the amount expected in December, and a $10 million benefit from a long-term customer contract. All three items carried 100% gross margins, Bjornholt said. Overall non-GAAP gross margin was 66.5%, including $26.6 million in capacity underutilization charges. Sanghi said the company's revenue upside relative to its prior guidance came from product sales, rather than the infrequent items, which had been included in its forecast. Industrial sales grew 50.3% year over year and represented 34.6% of revenue excluding licensing. Data center sales rose 55.7% and accounted for 16.7%. Aerospace and defense grew 41%, while automotive increased 19.3%. Compute was the only listed end market to decline, falling 1.6%. Supply constraints shape December outlook. Microchip expects December-quarter revenue to range from down 3% to up 1% sequentially. At the midpoint, revenue would be up 35.4% from a year earlier. The forecast includes approximately $4 million in sales from recently acquired AI-on-the-edge business Hailo and $6 million from aerospace and defense acquisition VORAGO. The company projected non-GAAP gross margin of 64% to 65% and adjusted diluted earnings of $0.87 to $0.95 per share. Sanghi said the December quarter is typically down 3% to 5% sequentially because of seasonal factors. Supply limitations are also holding back the outlook. Sanghi said lead times across product lines now range from six to 32 weeks, compared with a historical four to eight weeks for most standard products. Constraints at foundries, outsourced assembly and test suppliers, and some internal operations have left the company unable to fill some orders within the quarter. "The backlog for March quarter today is much better than December quarter was at the same point in time," Sanghi said. He said he was hopeful March would be stronger but did not provide formal guidance. Bjornholt said Microchip does not expect a material change in overall underutilization charges in December: wafer-fabrication utilization is improving, but the company is slowing some assembly and test operations after building finished-goods inventory in September. Data center wins and pricing pressure. Data center revenue exceeded $250 million in the September quarter and is on track to reach $1 billion in calendar 2026, Sanghi said. Microchip had 24 combined design wins for its Gen 6 PCIe switches and retimers as of the call, up from 19 at the end of September. Sanghi said the company could not assign a dollar value to those wins, but expects nearly all 24 designs to be in production by the start of 2028. Sanghi argued that AI-related demand has crowded out capacity at suppliers and described the data center market as being "in the bubble." He said a slowdown could free capacity for Microchip's broader business, though he acknowledged volumes from the new Gen 6 design wins could be lower if data center demand slows. Microchip also faces another round of supplier price increases starting in January. Sanghi said the company currently plans to absorb the higher costs rather than quickly raise customer prices again. Management maintained its long-term non-GAAP gross-margin target of 65%. Debt reduction remains the priority. Microchip generated $419.2 million in operating cash flow and $377.1 million in adjusted free cash flow during the September quarter. Its net debt-to-adjusted EBITDA ratio was 2.36 at quarter-end. Bjornholt said the board wants to continue reducing leverage and expects to keep the dividend unchanged for now. The company will likely revisit the broader question of cash returns to investors as it moves into the next fiscal year, he said. About Microchip Technology (NASDAQ:MCHP). Microchip Technology Incorporated (NASDAQ:MCHP) develops and manufactures semiconductor products used in embedded control and connected electronic systems. Its portfolio includes microcontrollers, microprocessors, analog and power-management devices, memory products, timing and connectivity components, security solutions, and field-programmable gate arrays. The company also provides development tools, software, evaluation kits, and technical support to help customers design and produce electronic equipment. Microchip's products are used across a range of markets, including automotive, industrial, aerospace and defense, communications, consumer electronics, data centers, and medical applications.