Microchip (MCHP) investor relations material

Market trends and growth drivers

• Data center segment is experiencing strong growth, with Ethernet, USB connectivity, atomic clocks, power controllers, and PCIe/CXL switches and retimers seeing increased demand.

• Aerospace and defense (A&D) is scaling up production nearly 4x due to missile and defense replenishment, with significant content in Boeing and Airbus platforms.

• Orders for A&D replenishment are arriving now, with revenue ramp expected over the next 12-24 months, supporting high-margin growth for at least five years.

• AI data center revenue from PCIe switches and retimers is projected to grow from $303M to over $500M year-on-year, with total data center-related revenue near $800M and expanding.

• Robotics and factory automation are emerging as long-term growth areas, with PCIe Gen 4 switches and Ethernet products as key components, though large-scale production is expected post-2029.

Product and technology updates

• PCIe Gen 6 switches have achieved eight major wins, with Gen 7 development underway; Switchtec tool suite remains a competitive advantage.

• High-performance space compute products, such as Octal RISC-V 64-bit devices for NASA/JPL, are produced on 12nm FinFET technology in the U.S.

• Robotics content spans six critical layers, including actuation, sensing, connectivity, compute (FPGAs), and functional safety with post-quantum crypto.

• Power management solutions, including dsPIC microcontrollers and silicon carbide-based solid-state transformers, are gaining traction in data centers.

• FPGAs (PolarFire) are seeing traction in A&D, robotics, and quantum applications, with a focus on low power and high security.

Financial and operational outlook

• Gross margin has rebounded to 62%, with potential to reach 65% as underutilization is addressed and higher-margin products ramp.

• Margin strategy balances growth and profitability, avoiding excessive focus on high-margin segments to maintain broad market growth.

• Price increases are being implemented with transparency and on a product-by-product basis, with the impact expected in the October quarter.

• Inventory normalization is largely complete, with customer orders returning to run-rate levels and point-of-sales picking up.

• Lead times are rising slightly but remain within normal ranges, and distribution inventory is running lean.