MICROCHIP TECHNOLOGY INC

Previous wording

•Our ability to effectively utilize our facilities at appropriate capacity levels;

Current wording

•Our ability to effectively utilize our facilities at appropriate capacity levels or obtain sufficient capacity from our manufacturing sub-contractors;

Previous wording

•The amounts and timing, and our plans and expectations relating to the U.S. Statutory Notice of Deficiencies and proposed income adjustment from the Malaysian Inland Revenue Board;

Current wording

•The amounts and timing, and our plans and expectations relating to the U.S. Statutory Notice of Deficiencies, and proposed income adjustment from the Malaysian Inland Revenue Board, and taxation assessments from the German Tax Authorities;

Previous wording

•The impact of any failure by use to adequately control the storage, use, discharge and disposal of regulated substances;

Current wording

•The impact of any failure by us to adequately control the storage, use, discharge and disposal of regulated substances;

Previous wording

We begin our Management's Discussion and Analysis of Financial Condition and Results of Operations with a summary of business and macroeconomic developments followed by a summary of our overall business strategy to provide an overview of the goals and overall direction of our business. This is followed by a discussion of the Critical Accounting Policies and Estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. We then discuss our Results of Operations for the three and six months ended September 30, 2025 compared to the three and six months ended September 30, 2024, followed by an analysis of changes in our balance sheet and cash flows, and discuss our financial commitments in the section titled "Liquidity and Capital Resources."

Current wording

We begin our Management's Discussion and Analysis of Financial Condition and Results of Operations with a summary of business and macroeconomic developments followed by a summary of our overall business strategy to provide an overview of the goals and overall direction of our business. This is followed by a discussion of the Critical Accounting Policies and Estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. We then discuss our Results of Operations for the three and nine months ended December 31, 2025 compared to the three and nine months ended December 31, 2024, followed by an analysis of changes in our balance sheet and cash flows, and discuss our financial commitments in the section titled "Liquidity and Capital Resources."

Previous wording

During most of fiscal 2025, our overall business was weak as we navigated through a large inventory correction. However, in the first half of fiscal 2026, we saw a significant improvement in our overall business compared to the fourth quarter of fiscal 2025. Net sales in our mixed-signal microcontroller and analog product lines increased sequentially in the September 2025 quarter compared to the June 2025 quarter. Net sales were up sequentially in Americas and Asia and flat in Europe in the September 2025 quarter compared to the June 2025 quarter. Consistent with the business recovery plan which we implemented in March 2025, we continued to reduce inventory in the September 2025 quarter compared to the June 2025 quarter. Most of our factory expansion activity remains paused as we continue to execute our recovery plan and take actions to further reduce inventory.

Current wording

During most of fiscal 2025, our overall business was weak as we navigated through a large inventory correction. However, in the first nine months of fiscal 2026, we saw a significant improvement in our overall business compared to the fourth quarter of fiscal 2025. Net sales in our mixed-signal microcontroller and analog product lines increased sequentially in the December 2025 quarter compared to the September 2025 quarter. Net sales were up sequentially in the Americas and Europe and were essentially flat in Asia in the December 2025 quarter compared to the September 2025 quarter. Consistent with the business recovery plan which we implemented in March 2025, we continued to reduce inventory in the December 2025 quarter compared to the September 2025 quarter. Most of our factory expansion activity remains paused as we continue to execute our recovery plan and take actions to further reduce inventory.

Previous wording

We develop, manufacture and sell smart, connected and secure embedded control solutions used by our customers for a wide variety of applications. Our strategic focus includes general purpose and specialized 8-bit, 16-bit, and 32-bit mixed-signal microcontrollers, microprocessors, analog, FPGA, and memory products. With over 30 years of technology leadership, our broad product portfolio is a Total System Solution (TSS) for our customers that can provide a large portion of the silicon requirements in their applications. TSS is a combination of hardware, software and services which help our customers increase their revenue, reduce their costs and manage their risks compared to other solutions. Our synergistic product portfolio empowers disruptive growth trends, including AI/ML, data centers, edge computing and Internet of Things (IoT), E-mobility, networking and connectivity, and sustainability, in key end markets such as automotive, aerospace and defense, communications, consumer appliances, data centers and computing, and industrial.

Current wording

We develop, manufacture and sell smart, connected and secure embedded control solutions used by our customers for a wide variety of applications. Our strategic focus includes general purpose and specialized 8-bit, 16-bit, and 32-bit mixed-signal microcontrollers, microprocessors, analog, FPGA, and memory products. In July 2024, we entered the 64-bit mixed-signal microprocessor market, furthering our expansion beyond 32-bit architecture. With over 35 years of technology leadership, our broad product portfolio is a Total System Solution (TSS) for our customers that can provide a large portion of the silicon requirements in their applications. TSS is a combination of hardware, software and services which help our customers increase their revenue, reduce their costs and manage their risks compared to other solutions. Our synergistic product portfolio empowers disruptive growth trends, including AI/ML, data centers, edge computing and Internet of Things (IoT), E-mobility, networking and connectivity, and sustainability, in key end markets such as automotive, aerospace and defense, communications, consumer appliances, data centers and computing, and industrial.

Previous wording

Our manufacturing operations include wafer fabrication, wafer probe, assembly and test. Due to high inventory levels and ample capacity, on December 2, 2024, we announced our decision to close our Tempe, Arizona wafer fabrication facility that we refer to as Fab 2 and the closure of Fab 2 was completed in May 2025. We entered into an agreement to sell Fab 2 to a third party in October 2025, and we expect the sale of the Fab 2 facility to be completed in December 2025. Many of the process technologies that ran in Fab 2 also run in our Oregon and Colorado factories, which both have ample clean room space for expansion, and we are transferring production of many devices from Fab 2 to our Oregon and Colorado locations. The ownership of a substantial portion of our manufacturing resources is an important component of our business strategy, enabling us to maintain a high level of manufacturing control, resulting in us being one of the lowest cost producers in the embedded control industry. By owning wafer fabrication facilities and our assembly and test operations, and by employing statistical techniques (statistical process control, designed experiments and wafer level monitoring), we have been able to achieve and maintain high production yields. Direct control over manufacturing resources allows us to shorten our design and production cycles and capture a portion of the wafer manufacturing and assembly and testing profit margin.

Current wording

Our manufacturing operations include wafer fabrication, wafer probe, assembly and test. Due to high inventory levels and ample capacity, on December 2, 2024, we announced our decision to close our Tempe, Arizona wafer fabrication facility that we refer to as Fab 2 and the closure of Fab 2 was completed in May 2025. We entered into an agreement to sell Fab 2 to a third party in October 2025 and the closing of the sale is still pending. Many of the process technologies that ran in Fab 2 also run in our Oregon and Colorado factories, which both have ample clean room space for expansion, and we are transferring production of many devices from Fab 2 to our Oregon and Colorado locations. The ownership of a substantial portion of our manufacturing resources is an important component of our business strategy, enabling us to maintain a high level of manufacturing control, resulting in us being one of the lowest cost producers in the embedded control industry. By owning wafer fabrication facilities and our assembly and test operations, and by employing statistical techniques (statistical process control, designed experiments and wafer level monitoring), we have been able to achieve and maintain high production yields. Direct control over manufacturing resources allows us to shorten our design and production cycles and capture a portion of the wafer manufacturing and assembly and testing profit margin.

Previous wording

There were no changes to our critical accounting policies and estimates during the first six months of the fiscal year ending March 31, 2026 compared to our "Critical Accounting Policies and Estimates" as previously described in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2025.

Current wording

There were no changes to our critical accounting policies and estimates during the first nine months of the fiscal year ending March 31, 2026 compared to our "Critical Accounting Policies and Estimates" as previously described in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2025.

Previous wording

The decreases in net sales in the three and six months ended September 30, 2025 compared to the three and six months ended September 30, 2024 were primarily due to many customers having high levels of inventory and delaying or reducing orders and, to a lesser extent, adverse economic conditions, including slow economic activity, business uncertainty, persistent inflation and high interest rates. Due to the size, complexity and diversity of our customer base, we are not able to quantify any material factor contributing to the changes in net sales. See our "Business and Macroeconomic Environment" discussion above for further information on our business outlook.

Current wording

The increase in net sales in the three months ended December 31, 2025 compared to the three months ended December 31, 2024 was primarily due to increased customer purchases as they worked through excess inventory levels as well as new customer design win activity coming to production. The decrease in net sales in the nine months ended December 31, 2025 compared to the nine months ended December 31, 2024 was primarily due to many customers having high levels of inventory and delaying or reducing orders. Due to the size, complexity and diversity of our customer base, we are not able to quantify any material factor contributing to the changes in net sales. See our "Business and Macroeconomic Environment" discussion above for further information on our business outlook.

Previous wording

Other factors that we believe contributed to the changes in our reported net sales for the three and six months ended September 30, 2025 compared to the three and six months ended September 30, 2024 and which are drivers of long-term trends in our net sales but which factors we are not able to quantify include:

Current wording

Other factors that we believe contributed to the changes in our reported net sales for the three and nine months ended December 31, 2025 compared to the three and nine months ended December 31, 2024 and which are drivers of long-term trends in our net sales but which factors we are not able to quantify include:

Previous wording

We sell a large number of products to a large and diverse customer base and there was not any single product or customer that accounted for a material portion of the changes in our net sales in the three and six months ended September 30, 2025 or the three and six months ended September 30, 2024.

Current wording

We sell a large number of products to a large and diverse customer base and there was not any single product or customer that accounted for a material portion of the changes in our net sales in the three and nine months ended December 31, 2025 or the three and nine months ended December 31, 2024.

Previous wording

Our mixed-signal microcontroller product line represents the largest component of our total net sales. Mixed-signal microcontrollers and associated application development systems accounted for approximately 51.3% and 50.4% of our net sales in the three and six months ended September 30, 2025, respectively, compared to approximately 51.1% and 51.5% of our net sales in the three and six months ended September 30, 2024, respectively.

Current wording

Our mixed-signal microcontroller product line represents the largest component of our total net sales. Mixed-signal microcontrollers and associated application development systems accounted for approximately 49.5% and 50.1% of our net sales in the three and nine months ended December 31, 2025, respectively, compared to approximately 52.0% and 51.7% of our net sales in the three and nine months ended December 31, 2024, respectively.

Previous wording

Our analog product line includes analog, interface, mixed-signal and timing products. Our analog product line accounted for approximately 28.2% and 28.8% of our net sales in the three and six months ended September 30, 2025, respectively, compared to approximately 25.1% and 25.9% of our net sales in the three and six months ended September 30, 2024, respectively.

Current wording

Our analog product line includes analog, interface, mixed-signal and timing products. Our analog product line accounted for approximately 27.2% and 28.2% of our net sales in the three and nine months ended December 31, 2025, respectively, compared to approximately 26.6% and 26.1% of our net sales in the three and nine months ended December 31, 2024, respectively.

Previous wording

Net sales from our analog product line increased 10.1% and 2.4% in the three and six months ended September 30, 2025, respectively, compared to the three and six months ended September 30, 2024, primarily due to a portion of our customer base having worked through their previous high inventory balances and needing to purchase products at a higher level to support demand.

Current wording

Net sales from our analog product line increased 18.4% and 7.3% in the three and nine months ended December 31, 2025, respectively, compared to the three and nine months ended December 31, 2024, primarily due to a portion of our customer base having worked through their previous high inventory balances and needing to purchase products at a higher level to support demand as well as new customer design win activity coming to production.

Previous wording

Our other product line includes FPGA products, royalties associated with licenses for the use of our SuperFlash and other technologies, sales of our intellectual property, fees for engineering services, memory products, timing systems, manufacturing services (wafer foundry and assembly and test subcontracting), legacy application specific integrated circuits, and certain products for aerospace applications. Revenue from these services and products accounted for approximately 20.5% and 20.8% of our net sales in the three and six months ended September 30, 2025, respectively, compared to approximately 23.8% and 22.6% of our net sales in the three and six months ended September 30, 2024, respectively.

Current wording

Our other product line includes FPGA products, royalties associated with licenses for the use of our SuperFlash and other technologies, sales of our intellectual property, fees for engineering services, memory products, timing systems, manufacturing services (wafer foundry and assembly and test subcontracting), legacy application specific integrated circuits, and certain products for aerospace applications. Revenue from these services and products accounted for approximately 23.3% and 21.7% of our net sales in the three and nine months ended December 31, 2025, respectively, compared to approximately 21.4% and 22.2% of our net sales in the three and nine months ended December 31, 2024, respectively.

Previous wording

Net sales related to these services and products decreased 15.4% and 15.1% in the three and six months ended September 30, 2025, respectively, compared to the three and six months ended September 30, 2024. These decreases in net sales were primarily due to many customers having high levels of inventory and delaying or reducing orders and, to a lesser extent, adverse economic conditions, including slow economic activity, business uncertainty, persistent inflation and high interest rates. Net sales of our other product line can fluctuate over time based on general economic and semiconductor industry conditions as well as changes in demand for our FPGA products, licenses, engineering services, memory products, timing systems, and manufacturing services (wafer foundry and assembly and test subcontracting).

Current wording

Net sales related to these services and products increased 25.7% in the three months ended December 31, 2025 compared to the three months ended December 31, 2024 primarily due to sales of certain of our intellectual property rights. Net sales related to these services and products decreased 3.3% in the nine months ended December 31, 2025 compared to the nine months ended December 31, 2024 primarily due to many customers having high levels of inventory and delaying or reducing orders. Net sales of our other product line can fluctuate over time based on general economic and semiconductor industry conditions as well as changes in demand for our FPGA products, licenses, engineering services, memory products, timing systems, and manufacturing services (wafer foundry and assembly and test subcontracting).

Previous wording

Distributors accounted for approximately 45% and 46% of our net sales in the three and six months ended September 30, 2025, respectively, and approximately 44% and 45% of our net sales in the three and six months ended September 30, 2024, respectively. With the exception of Arrow Electronics, our largest distributor, which accounted for 11% and 10% of our net sales in the six months ended September 30, 2025 and September 30, 2024, respectively, no other distributor or direct customer accounted for more than 10% of our net sales during these periods. Our distributors focus primarily on servicing the product requirements of a broad base of diverse customers. We believe that distributors provide an effective means of reaching this broad and diverse customer base and that customers recognize Microchip for its products and brand name and use distributors as an effective supply channel.

Current wording

Distributors accounted for approximately 47% of our net sales in each of the three and nine months ended December 31, 2025, respectively, and approximately 43% and 45% of our net sales in the three and nine months ended December 31, 2024, respectively. With the exception of Arrow Electronics, our largest distributor, which accounted for 12% and 10% of our net sales in the nine months ended December 31, 2025 and December 31, 2024, respectively, no other distributor or direct customer accounted for more than 10% of our net sales during these periods. Our distributors focus primarily on servicing the product requirements of a broad base of diverse customers. We believe that distributors provide an effective means of reaching this broad and diverse customer base and that customers recognize Microchip for its products and brand name and use distributors as an effective supply channel.

Previous wording

At September 30, 2025, our distributors maintained 27 days of inventory of our products compared to 33 days at March 31, 2025. Over the past ten fiscal years, the days of inventory maintained by our distributors have fluctuated between approximately 17 days and 43 days. Inventory holding patterns at our distributors have had a material adverse impact on our net sales in recent periods. For example, when our distributors hold relatively high levels of inventory, they are likely to purchase fewer products from us.

Current wording

At December 31, 2025, our distributors maintained 28 days of inventory of our products compared to 33 days at March 31, 2025. Over the past ten fiscal years, the days of inventory maintained by our distributors have fluctuated between approximately 17 days and 43 days. Inventory holding patterns at our distributors have had a material adverse impact on our net sales in recent periods. For example, when our distributors hold relatively high levels of inventory, they are likely to purchase fewer products from us.

Previous wording

Americas sales include sales to customers in the U.S., Canada, Central America and South America. Sales to foreign customers accounted for approximately 75% and 76% of our total net sales in the three and six months ended September 30, 2025, respectively, compared to approximately 74% and 75% of our total net sales in the three and six months ended September 30, 2024, respectively. Net sales decreased in all geographies in the six months ended September 30, 2025, compared to the six months ended September 30, 2024, primarily due to many customers having high levels of inventory and delaying or reducing orders and, to a lesser extent, adverse economic conditions, including slow economic activity, business uncertainty, persistent inflation and high interest rates. Substantially all of our foreign sales are U.S. dollar denominated. Our sales force in the Americas and Europe supports a significant portion of the design activity for products which are ultimately shipped to Asia.

Current wording

Americas sales include sales to customers in the U.S., Canada, Central America and South America. Sales to foreign customers accounted for approximately 72% and 75% of our total net sales in the three and nine months ended December 31, 2025, respectively, compared to approximately 76% and 75% of our total net sales in the three and nine months ended December 31, 2024, respectively. Net sales increased in all geographies in the three months ended December 31, 2025, compared to the three months ended December 31, 2024, primarily due to increased customer purchases as they worked through excess inventory levels as well as new customer design win activity coming to production. The decreases in net sales in the Americas and in Asia in the nine months ended December 31, 2025, compared to the nine months ended December 31, 2024, were primarily due to many customers having high levels of inventory and delaying or reducing orders. Substantially all of our foreign sales are U.S. dollar denominated. Our sales force in the Americas and Europe supports a significant portion of the design activity for products which are ultimately shipped to Asia.

Previous wording

Our gross profit in the three months ended September 30, 2025 was $637.9 million, or 55.9% of net sales, compared to $668.5 million, or 57.4% of net sales, in the three months ended September 30, 2024. Our gross profit in the six months ended September 30, 2025 was $1.21 billion, or 54.8% of net sales, compared to $1.41 billion, or 58.4% of net sales, in the six months ended September 30, 2024.

Current wording

Our gross profit in the three months ended December 31, 2025 was $706.9 million, or 59.6% of net sales, compared to $561.4 million, or 54.7% of net sales, in the three months ended December 31, 2024. Our gross profit in the nine months ended December 31, 2025 was $1.92 billion, or 56.5% of net sales, compared to $1.97 billion, or 57.3% of net sales, in the nine months ended December 31, 2024.

Previous wording

The primary reasons for the decreases in gross profit of $17.4 million and $173.9 million in the three and six months ended September 30, 2025, respectively, compared to the three and six months ended September 30, 2024, respectively, were an unfavorable net impact of sales volume, product mix, and geographic mix in the three and six months ended September 30, 2025. The net impact of product mix may fluctuate over time due to the mix of sales volumes of lower or higher margin products, changes in selling prices, and fluctuations in product costs. We are not able to separately quantify these impacts on our gross profit. The impact of unabsorbed capacity charges was an adverse impact of $11.0 million and $26.6 million in the three and six months ended September 30, 2025, respectively, compared to the three and six months ended September 30, 2024, respectively. Unabsorbed capacity charges are expensed as incurred when we operate our manufacturing facilities below normal levels. The net impact to our gross profit from inventory reserve charges was a favorable impact of $4.1 million and $5.1 million in the three and six months ended September 30, 2025, respectively, compared to the three and six months ended September 30, 2024, respectively. The gross margin impact of changes in licensing revenue, which has no associated cost of sales, was an unfavorable impact of $6.4 million and a favorable impact of $4.5 million in the three and six months ended September 30, 2025, respectively, compared to the three and six months ended September 30, 2024, respectively.

Current wording

The primary reasons for the increase in gross profit of $145.5 million in the three months ended December 31, 2025 compared to the three months ended December 31, 2024 were changes in product mix, including higher sales of networking, data center and FPGA products, and higher licensing revenue and lower inventory reserves. The primary reasons for the decreases in gross profit of $45.3 million in the nine months ended December 31, 2025 compared to the nine months ended December 31, 2024 were the impact of sales volume, product mix, and geographic mix. The net impact of product mix may fluctuate over time due to the mix of sales volumes of lower or higher margin products, changes in selling prices, and fluctuations in product costs. We are not able to separately quantify these impacts on our gross profit. The impact of unabsorbed capacity charges was an unfavorable impact of $9.1 million and $35.7 million in the three and nine months ended December 31, 2025, respectively, compared to the three and nine months ended December 31, 2024, respectively. Unabsorbed capacity charges are expensed as incurred when we operate our manufacturing facilities below normal levels. The net impact to our gross profit from inventory reserve charges was a favorable impact of $34.6 million and $39.7 million in the three and nine months ended December 31, 2025, respectively, compared to the three and nine months ended December 31, 2024, respectively. The gross margin impact of changes in licensing revenue, which has no associated cost of sales, was a favorable impact of $27.9 million and $32.4 million in the three and nine months ended December 31, 2025, respectively, compared to the three and nine months ended December 31, 2024, respectively.

Previous wording

Our overall inventory levels were $1.10 billion at September 30, 2025, compared to $1.29 billion at March 31, 2025. We maintained 199 days of inventory on our balance sheet at September 30, 2025 compared to 251 days of inventory at March 31, 2025. Our overall inventory level in dollars and days decreased as a result of our efforts to balance manufacturing production, customer demand and inventory levels. Our inventory amounts are impacted by timing of shipment activity in the quarter, the timing of receipt of raw materials, foundry wafers, and strategic last time buy materials and completion of finished goods. We believe that our current inventory and production capacity are adequate to fulfill the projected requirements of our customers and our levels of inventory will continue to be lower over the next several quarters based on the actions we have taken.

Current wording

Our overall inventory levels were $1.06 billion at December 31, 2025, compared to $1.29 billion at March 31, 2025. We maintained 201 days of inventory on our balance sheet at December 31, 2025 compared to 251 days of inventory at March 31, 2025. Our overall inventory level in dollars and days decreased as a result of our efforts to balance manufacturing production, customer demand and inventory levels. Our inventory amounts are impacted by timing of shipment activity in the quarter, the timing of receipt of raw materials, foundry wafers, and strategic last time buy materials and completion of finished goods. We believe that our current inventory and production capacity are adequate to fulfill the projected requirements of our customers and our levels of inventory will continue to be lower over the next several quarters based on the actions we have taken.

Previous wording

We operate assembly and test facilities in Thailand and the Philippines. Approximately 66% and 68% of our assembly requirements were performed in our internal assembly facilities during the three and six months ended September 30, 2025, respectively, compared to approximately 63% and 67% during the three and six months ended September 30, 2024, respectively. Approximately 70% and 69% of our test requirements were performed in our internal facilities during the three and six months ended September 30, 2025, respectively, compared to approximately 64% and 67% during the three and six months ended September 30, 2024, respectively. The percentage of our assembly and test operations that are performed internally fluctuates over time based on supply and demand conditions in the semiconductor industry, our internal capacity capabilities and our acquisition activities. We believe that the assembly and test operations performed at our internal facilities provide us with significant cost savings compared to third-party contractor assembly and test costs, as well as increased control over these portions of the manufacturing process. In addition, we have specialized assembly and test facilities dedicated to our aerospace and defense products in Germany, France, Ireland, the United Kingdom, the Philippines, Thailand, and the United States. These facilities are designed to support the unique requirements of these sectors, helping to accelerate time to market and ensure consistent, high-quality products. We plan to continue to selectively invest in assembly and test equipment to increase our internal capacity capabilities and transition certain outsourced assembly and test capacity to our internal facilities.

Current wording

We operate assembly and test facilities in Thailand and the Philippines. Approximately 64% and 67% of our assembly requirements were performed in our internal assembly facilities during the three and nine months ended December 31, 2025, respectively, compared to approximately 67% during each of the three and nine months ended December 31, 2024. Approximately 68% and 69% of our test requirements were performed in our internal facilities during the three and nine months ended December 31, 2025, respectively, compared to approximately 67% during each of the three and nine months ended December 31, 2024. The percentage of our assembly and test operations that are performed internally fluctuates over time based on supply and demand conditions in the semiconductor industry, our internal capacity capabilities and our acquisition activities. We believe that the assembly and test operations performed at our internal facilities provide us with significant cost savings compared to third-party contractor assembly and test costs, as well as increased control over these portions of the manufacturing process. In addition, we have specialized assembly and test facilities dedicated to our aerospace and defense products in Germany, France, Ireland, the United Kingdom, the Philippines, Thailand, and the United States. These facilities are designed to support the unique requirements of these sectors, helping to accelerate time to market and ensure consistent, high-quality products. We plan to continue to selectively invest in assembly and test equipment to increase our internal capacity capabilities and transition certain outsourced assembly and test capacity to our internal facilities.

Previous wording

We rely on outside wafer foundries for a significant portion of our wafer fabrication requirements. Approximately 66% and 65% of our net sales came from products that were produced at outside wafer foundries during each of the three and six months ended September 30, 2025 and September 30, 2024. This percentage may vary based on supply and demand conditions in the market.

Current wording

We rely on outside wafer foundries for a significant portion of our wafer fabrication requirements. Approximately 65% of our net sales came from products that were produced at outside wafer foundries during each of the three and nine months ended December 31, 2025, compared to approximately 64% during each of the three and nine months ended December 31, 2024. This percentage may vary based on supply and demand conditions in the market.

Previous wording

R&D expenses for the three months ended September 30, 2025 were $262.3 million, or 23.0% of net sales, compared to $240.7 million, or 20.7% of net sales, for the three months ended September 30, 2024. R&D expenses for the six months ended September 30, 2025 were $517.8 million, or 23.4% of net sales, compared to $482.4 million, or 20.1% of net sales, for the six months ended September 30, 2024. We are committed to investing in new and enhanced products, including development systems software, and in our design and manufacturing process technologies. We believe these investments are significant factors in maintaining our competitive position. R&D costs are expensed as incurred. Assets purchased to support our ongoing research and development activities are capitalized when related to products which have achieved technological feasibility or that have alternative future uses and are amortized over their expected useful lives. R&D expenses include labor, depreciation, masks, prototype wafers, and expenses for the development of process technologies, new packages, and software to support new products and design environments.

Current wording

R&D expenses for the three months ended December 31, 2025 were $274.3 million, or 23.1% of net sales, compared to $246.2 million, or 24.0% of net sales, for the three months ended December 31, 2024. R&D expenses for the nine months ended December 31, 2025 were $792.1 million, or 23.3% of net sales, compared to $728.6 million, or 21.2% of net sales, for the nine months ended December 31, 2024. We are committed to investing in new and enhanced products, including development systems software, and in our design and manufacturing process technologies. We believe these investments are significant factors in maintaining our competitive position. R&D costs are expensed as incurred. Assets purchased to support our ongoing research and development activities are capitalized when related to products which have achieved technological feasibility or that have alternative future uses and are amortized over their expected useful lives. R&D expenses include labor, depreciation, masks, prototype wafers, and expenses for the development of process technologies, new packages, and software to support new products and design environments.

Previous wording

R&D expenses increased $21.6 million, or 9.0%, for the three months ended September 30, 2025 over the same period last year. R&D expenses increased $35.4 million, or 7.3%, for the six months ended September 30, 2025 over the same period last year. The primary reasons for the increases in R&D expenses was higher employee compensation costs, including higher share-based compensation partially offset by our restructuring efforts.

Current wording

R&D expenses increased $28.1 million, or 11.4%, for the three months ended December 31, 2025 over the same period last year. R&D expenses increased $63.5 million, or 8.7%, for the nine months ended December 31, 2025 over the same period last year. The primary reasons for the increases in R&D expenses were higher employee compensation costs, including higher share-based compensation partially offset by our restructuring efforts.

Previous wording

Selling, general and administrative expenses for the three months ended September 30, 2025 were $172.3 million, or 15.1% of net sales, compared to $157.0 million, or 13.5% of net sales, for the three months ended September 30, 2024. Selling, general and administrative expenses for the six months ended September 30, 2025 were $331.6 million, or 15.0% of net sales, compared to $307.5 million, or 12.8% of net sales, for the six months ended September 30, 2024. Our goal is to continue to be more efficient with our selling, general and administrative expenses. Selling, general and administrative expenses include salary expenses related to field sales, marketing and administrative personnel, advertising and promotional expenditures and legal expenses as well as costs related to our direct sales force, CEMs and FAEs who work to stimulate demand from sales offices worldwide by assisting customers in the selection and use of our products.

Current wording

Selling, general and administrative expenses for the three months ended December 31, 2025 were $168.5 million, or 14.2% of net sales, compared to $158.2 million, or 15.4% of net sales, for the three months ended December 31, 2024. Selling, general and administrative expenses for the nine months ended December 31, 2025 were $500.1 million, or 14.7% of net sales, compared to $465.7 million, or 13.6% of net sales, for the nine months ended December 31, 2024. Our goal is to continue to be more efficient with our selling, general and administrative expenses. Selling, general and administrative expenses include salary expenses related to field sales, marketing and administrative personnel, advertising and promotional expenditures and legal expenses as well as costs related to our direct sales force, CEMs and FAEs who work to stimulate demand from sales offices worldwide by assisting customers in the selection and use of our products.

Previous wording

Selling, general and administrative expenses increased $15.3 million, or 9.7%, for the three months ended September 30, 2025 over the same period last year. Selling, general and administrative expenses increased $24.1 million, or 7.8%, for the six months ended September 30, 2025 over the same period last year. The primary reasons for the increases in selling, general and administrative expenses was higher acquisition related and employee compensation costs, including higher share-based compensation partially offset by our restructuring efforts.

Current wording

Selling, general and administrative expenses increased $10.3 million, or 6.5%, for the three months ended December 31, 2025 over the same period last year primarily due to higher employee compensation costs, including higher share-based compensation. Selling, general and administrative expenses increased $34.4 million, or 7.4%, for the nine months ended December 31, 2025 over the same period last year primarily due to higher employee compensation costs, including higher share-based compensation partially offset by our restructuring efforts.

Previous wording

Amortization of acquired intangible assets for the three and six months ended September 30, 2025 was $108.1 million and $215.7 million, respectively, compared to $122.7 million and $245.7 million for the three and six months ended September 30, 2024, respectively. The primary reason for the decreases in acquired intangible asset amortization was due to the use of accelerated amortization methods for assets placed in service in previous fiscal years.

Current wording

Amortization of acquired intangible assets for the three and nine months ended December 31, 2025 was $107.6 million and $323.3 million, respectively, compared to $122.6 million and $368.3 million for the three and nine months ended December 31, 2024, respectively. The primary reason for the decreases in acquired intangible asset amortization was due to the use of accelerated amortization methods for assets placed in service in previous fiscal years.

Previous wording

During the three and six months ended September 30, 2025, we incurred special charges and other, net of $6.3 million and $28.5 million, respectively, primarily related to restructuring expenses, including contract exit costs, closure of our Tempe, Arizona wafer fabrication facility and employee separation costs. During the three and six months ended September 30, 2024, we incurred special charges and other, net of $1.5 million and $4.1 million, respectively, primarily related to the restructuring of existing wafer fabrication operations to increase operational efficiency.

Current wording

During the three and nine months ended December 31, 2025, we incurred special charges and other, net of $4.8 million and $33.3 million, respectively, primarily related to restructuring expenses, including contract exit costs, closure of our Tempe, Arizona wafer fabrication facility and employee separation costs. During the three and nine months ended December 31, 2024, we incurred special charges and other, net of $3.5 million and $7.6 million, respectively, primarily related to employee severance and the restructuring of existing wafer fabrication operations to increase operational efficiency.

Previous wording

Interest income in the three and six months ended September 30, 2025 was $3.6 million and $8.5 million, respectively, compared to $2.0 million and $4.8 million, respectively, for the three and six months ended September 30, 2024.

Current wording

Interest income in the three and nine months ended December 31, 2025 was $1.3 million and $9.8 million, respectively, compared to $1.7 million and $6.5 million, respectively, for the three and nine months ended December 31, 2024.

Previous wording

Interest expense in the three and six months ended September 30, 2025 was $56.3 million and $113.7 million, respectively, compared to $59.1 million and $120.9 million, respectively, for the three and six months ended September 30, 2024. The primary reason for the decreases in interest expense were lower debt balances in the three and six months ended September 30, 2025.

Current wording

Interest expense in the three and nine months ended December 31, 2025 was $55.9 million and $169.6 million, respectively, compared to $68.7 million and $189.6 million, respectively, for the three and nine months ended December 31, 2024. The primary reason for the decreases in interest expense were lower debt balances in the three and nine months ended December 31, 2025.

Previous wording

Other loss, net in the three months ended September 30, 2025 was $4.4 million compared to other income, net of $2.0 million for the three months ended September 30, 2024. Other income, net in the six months ended September 30, 2025 was $0.2 million compared to other income, net of $3.7 million for the six months ended September 30, 2024. The primary reason for the changes in other loss, net and other income, net in these periods relates to foreign currency exchange rate fluctuations.

Current wording

Other loss, net was $3.5 million and $3.3 million for the three and nine months ended December 31, 2025, respectively, compared to $9.7 million and $6.0 million for the three and nine months ended December 31, 2024, respectively. The primary reason for the changes in other loss, net in these periods relates to foreign currency exchange rate fluctuations.

Previous wording

Our provision for income taxes is attributable to U.S. federal, state, and foreign income taxes. A comparison of our effective tax rate for the six months ended September 30, 2025 and September 30, 2024 is not meaningful due to changes in the amount of pre-tax income earned, changes in the mix of jurisdictions in which income is earned, and the impact of discrete items relative to the amount of income earned.

Current wording

Our provision for income taxes is attributable to U.S. federal, state, and foreign income taxes. A comparison of our effective tax rate for the nine months ended December 31, 2025 and December 31, 2024 is not meaningful due to changes in the amount of pre-tax income earned, changes in the mix of jurisdictions in which income is earned, and the impact of discrete items relative to the amount of income earned.

Previous wording

We are subject to taxation in many jurisdictions in which we have operations. The effective tax rates that we pay in these jurisdictions vary widely, but they are generally lower than our combined U.S. federal and state effective tax rate. Our domestic blended statutory tax rate in each of the six months ended September 30, 2025 and September 30, 2024 was approximately 22%. The difference in rates applicable in foreign jurisdictions results from a number of factors, including lower statutory rates, tax holidays, financing arrangements and other factors. Our effective tax rate has been and will continue to be impacted by the geographical dispersion of our earnings and losses.

Current wording

We are subject to taxation in many jurisdictions in which we have operations. The effective tax rates that we pay in these jurisdictions vary widely, but they are generally lower than our combined U.S. federal and state effective tax rate. Our domestic blended statutory tax rate in each of the nine months ended December 31, 2025 and December 31, 2024 was approximately 22%. The difference in rates applicable in foreign jurisdictions results from a number of factors, including lower statutory rates, tax holidays, financing arrangements and other factors. Our effective tax rate has been and will continue to be impacted by the geographical dispersion of our earnings and losses.

Previous wording

In August 2022, the U.S. government enacted the Inflation Reduction Act into law. The Inflation Reduction Act includes a new corporate alternative minimum tax (Corporate AMT) of 15.0% on the adjusted financial statement income (AFSI) of corporations with average AFSI exceeding $1.00 billion over a three-year period, as well as a 1% excise tax on the net fair market value of stock repurchases made after December 31, 2022. The Corporate AMT was in effect beginning in fiscal 2024. The Inflation Reduction Act did not have a material impact on our tax expense or effective tax rate during the six months ending September 30, 2025.

Current wording

In August 2022, the U.S. government enacted the Inflation Reduction Act into law. The Inflation Reduction Act includes a new corporate alternative minimum tax (Corporate AMT) of 15.0% on the adjusted financial statement income (AFSI) of corporations with average AFSI exceeding $1.00 billion over a three-year period, as well as a 1% excise tax on the net fair market value of stock repurchases made after December 31, 2022. The Corporate AMT was in effect beginning in fiscal 2024. The Inflation Reduction Act did not have a material impact on our tax expense or effective tax rate during the nine months ending December 31, 2025.

Previous wording

The Organisation for Economic Co-operation and Development has introduced a global minimum corporate tax framework (GMT), with phased implementation starting January 1, 2024. While the U.S. has not adopted GMT, several countries where we operate have enacted related legislation, and others are expected to follow. In June 2025, the Group of Seven, comprised of Canada, France, Germany, Italy, Japan, the U.K. and the U.S. (the G7), agreed to exclude U.S. Multi-National Entities from certain aspects of the GMT (the G7 Statement). We will continue to monitor developments around this agreement. The impact of the GMT for the six months ending September 30, 2025 was not material to our financial results.

Current wording

The Organisation for Economic Co-operation and Development has introduced a global minimum corporate tax framework (GMT), with phased implementation starting January 1, 2024. While the U.S. has not adopted GMT, several countries where we operate have enacted related legislation, and others are expected to follow. In June 2025, the Group of Seven, comprised of Canada, France, Germany, Italy, Japan, the U.K. and the U.S. (the G7), agreed to exclude U.S. Multi-National Entities from certain aspects of the GMT (the G7 Statement). We will continue to monitor developments around this agreement. The impact of the GMT for the nine months ending December 31, 2025 was not material to our financial results.

Previous wording

On July 4, 2025, the U.S. president signed into law H.R.1 – One Big Beautiful Bill Act (OBBBA), which includes permanent extensions of certain Tax Cuts and Jobs Act provisions and changes to the international tax framework. The effects of these changes has been recognized in the period ending September 30, 2025. The impact of OBBBA for the six months ended September 30, 2025 was not material to our financial results. We will continue to evaluate the broader implications of OBBBA, including the effects of future regulatory guidance and interpretations.

Current wording

On July 4, 2025, the U.S. president signed into law H.R.1 – One Big Beautiful Bill Act (OBBBA), which includes permanent extensions of certain Tax Cuts and Jobs Act provisions and changes to the international tax framework. The effects of these changes have been recognized in the period ending December 31, 2025. The impact of OBBBA for the nine months ended December 31, 2025 was not material to our financial results. We will continue to evaluate the broader implications of OBBBA, including the effects of future regulatory guidance and interpretations.

Previous wording

We had $236.8 million in cash and cash equivalents at September 30, 2025, a decrease of $534.9 million from the March 31, 2025 balance.

Current wording

We had $250.7 million in cash and cash equivalents at December 31, 2025, a decrease of $521.0 million from the March 31, 2025 balance.

Previous wording

Net cash provided by operating activities was $363.7 million in the six months ended September 30, 2025 primarily due to net income of $23.1 million, adjusted for non-cash and non-operating charges of $476.7 million and net cash outflows of $136.1 million from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities in the six months ended September 30, 2025 include a decrease in income tax payable due to tax payments and settlements, an increase in trade accounts receivable driven primarily by higher revenue and timing of shipments and collections, a decrease in accrued liabilities primarily due to cash refunded to our customers under certain LTSAs, offset by a decrease in inventories as a result of our efforts to balance manufacturing production, customer demand and inventory levels. Net cash provided by operating activities was $420.7 million in the six months ended September 30, 2024 primarily due to net income of $207.7 million, adjusted for non-cash and non-operating charges of $425.0 million and net cash outflows of $212.0 million from changes in our operating assets and liabilities.

Current wording

Net cash provided by operating activities was $705.1 million in the nine months ended December 31, 2025 primarily due to net income of $85.8 million, adjusted for non-cash and non-operating charges of $707.2 million and net cash outflows of $87.9 million from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities in the nine months ended December 31, 2025 include a decrease in income tax payable due to tax payments and settlements, an increase in trade accounts receivable driven primarily by higher revenue including sale of certain of our intellectual property rights, and timing of shipments and collections, a decrease in accrued liabilities primarily due to cash refunded to our customers under certain LTSAs, offset by a decrease in inventories as a result of our efforts to balance manufacturing production, customer demand and inventory levels. Net cash provided by operating activities was $692.2 million in the nine months ended December 31, 2024 primarily due to net income of $154.1 million, adjusted for non-cash and non-operating charges of $589.5 million and net cash outflows of $51.4 million from changes in our operating assets and liabilities.