Microchip: 3 Key Takeaways for Long-Term Investors

Microchip (MCHP -10.02%) disclosed steady net sales of $1.62 billion during its fiscal year 2027 second-quarter earnings call on Nov. 5, 2026. Despite this, severe external manufacturing bottlenecks are causing delays in shipments of high-margin products, despite consistent demand from industrial and automotive sectors.

Three key points from management's presentation delineate the company's future trajectory. The primary issue is a scarcity of silicon wafers and outsourced semiconductor assembly and test providers, both external foundries and OSATs, causing significant supply shortages. These constraints are pushing back delivery schedules for customers and stretching out lead times for most standard products.

Previously, lead times for Microchip's products typically ranged from four to eight weeks. However, with reduced die inventory and constraints in foundry and OSAT capacities, lead times are now extending for many of their products. Steve Sanghi, Microchip's President and CEO, highlighted this during the earnings call.

Microchip is also strategically expanding into artificial intelligence infrastructure via high-speed connectivity parts. The adoption of its PCIe, or Peripheral Component Interconnect Express, data-transfer switches and retimers is driving the data center business toward $1 billion in annual net sales. As of the end of September, Microchip had 24 design wins, up from 12 at the end of June.

Moreover, Microchip recently completed the acquisition of Hailo, a company specializing in advanced neural processing units (NPUs) for hardware-accelerated machine learning. This acquisition allows Microchip to bypass a five-year development period and immediately target edge AI applications. The acquired Hailo products will accelerate this roadmap by five years, rendering two previously developed products obsolete.

Management relies on proprietary chip designs and enduring customer relationships to maintain target margins amidst these challenges. The backlog for the March quarter is currently better than it was in December, giving the company reason to be optimistic.