Microchip: 3 Key Takeaways for Long-Term Investors

On its second-quarter fiscal year 2027 earnings call, held on Nov. 5, 2026, Microchip (NASDAQ:MCHP) reported net sales of $1.62 billion. Long-term investors should care because severe external manufacturing bottlenecks are delaying shipments of high-margin products despite steady customer demand across industrial and automotive markets.

Three key takeaways from management explain where the business is heading.

1. External Supply Constraints Are Extending Product Lead Times

Capacity bottlenecks at external foundries that manufacture silicon wafers and at OSATs, or outsourced semiconductor assembly and test providers, are creating severe supply shortages. These constraints are delaying shipment of high-margin microchip orders and stretching delivery schedules for customers.

Lead times for the majority of our standard products historically have been four to eight weeks. But now, with our die inventory substantially reduced and foundry and OSAT capacity constraints, we are seeing lead times broadly stretch out on many of our products.
-- Steve Sanghi, President and CEO

2. Next-Generation Data Center Wins Are Accelerating Growth

Microchip is expanding its presence in artificial intelligence infrastructure through high-speed connectivity parts. Rapid adoption of its PCIe, or Peripheral Component Interconnect Express, data-transfer switches and retimers, which are signal-boosting microchips, is driving its data center business toward $1 billion in annual net sales.

With respect to our Gen 6 PCIe switch and retimer products, we had 19 design wins at the end of September quarter, up from 12 design wins at the end of June quarter. As of today, we now have 24 total design wins.
-- Steve Sanghi, President and CEO

3. Acquired Neural Processing Tech Fast-Tracks Edge Artificial Intelligence

Management completed the acquisition of Hailo to gain an advanced NPU, or neural processing unit, designed for hardware-accelerated machine learning. Integrating this technology allows Microchip to skip five years of internal development work and immediately target edge artificial intelligence applications.

The product line that Hailo brought to us accelerates the roadmap by five years. Therefore, we have canceled the two products that we were developing in the NPU business unit because they have been replaced by Hailo.
-- Steve Sanghi, President and CEO

Looking Ahead

Demand across industrial, automotive, and defense markets remains stable, even as third-party assembly bottlenecks restrict short-term shipments. Management relies on proprietary chip designs and long-standing customer relationships to defend target margins while monitoring external factory capacity allocations.

The backlog for March quarter today is much better than December quarter was at the same point in time. So, currently we're optimistic.
-- Steve Sanghi, President and CEO

Microchip remains committed to its core non-GAAP metrics, which exclude one-time acquisition costs and share-based compensation.

Regarding our long-term model, we maintain our long-term model on a non-GAAP basis to be 65% gross margin, 25% operating expense, and 40% operating profit.
-- Steve Sanghi, President and CEO

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