Microchip (MCHP) 2026 Evercore Global TMT Conference summary

Data center and AI exposure

• Data center and compute end market represents 18% of revenues, equating to $787 million in 2025, with a dedicated data center solutions business unit expected to grow 65% from $300 million in 2025 to $500 million in 2026.

• Data center solutions products are exclusively for data centers, including PCI Express, storage controllers, and memory controllers, while the broader segment includes catalog products used in both data centers and PCs.

• The three main product buckets in data center solutions—storage controllers, memory controllers, and PCI Express—are roughly equal in size.

• PCI Express Gen 6 is regaining lost market share after delays in Gen 5, with eight design wins including a $100 million annual contract, and is positioned for hyperscaler adoption.

• Shifts in data center architecture, such as increasing CPU-to-GPU ratios, are expected to drive further demand for PCI Express products.

Pricing strategy and customer relationships

• Historically, proprietary product prices remained stable, but post-COVID shortages and input cost inflation led to industry-wide price increases, including three rounds by the company.

• Recent efforts focused on repairing customer relationships damaged by unpopular programs and price hikes, resulting in improved market share and customer praise.

• Input cost increases in the first half of the year were absorbed internally, leading to a 950 basis point gross margin improvement, but external cost pressures in the second half necessitate modest, justified price increases effective mainly in Q4.

• The approach to price increases is designed to be margin neutral or slightly accretive, with a focus on maintaining customer goodwill.

• Delayed price increases relative to competitors have helped win back customers and improve relationships, with future increases expected to be well-received due to transparency and justification.

Aerospace, defense, and space market trends

• Aerospace and defense is a fast-growing segment, driven by aviation recovery, military hardware replenishment, and renewed interest in space exploration.

• Military primes are ramping production, leading to long-term sustainable growth, though order flow is still ramping up.

• Space-related products, especially radiation-hardened components, command very high gross margins due to complexity and long production cycles.

• Participation in new space markets (LEO satellites) involves both high-reliability and automotive-grade products, with uncertain long-term market size.