MICROCHIP TECHNOLOGY INC

Previous wording

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

Current wording

•Our ability to effectively utilize our facilities at appropriate capacity levels or obtain sufficient capacity from our manufacturing, assembly and test 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, and taxation assessments from the German Tax Authorities;

Current wording

•The amounts and timing, and our plans and expectations relating to the proposed income adjustment from the Malaysian Inland Revenue Board;

Previous wording

•Our expectations regarding our tax expense, cash taxes and effective tax rate;

Current wording

•Our expectations regarding our tax expense, unrecognized tax benefits, cash taxes and effective tax rate;

Previous wording

•The impact on our business stemming from Russia’s invasion of Ukraine.

Current wording

•The impact on our business stemming from Russia’s invasion of Ukraine and military conflict in the Middle East.

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 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."

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 months ended June 30, 2026 compared to the three months ended June 30, 2025, 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

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.

Current wording

We develop, manufacture and sell smart, connected and secure embedded control solutions used by our customers for a wide variety of applications. With over 35 years of technology leadership, our broad product portfolio offers a Total System Solution 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 strategic focus includes general purpose and specialized mixed-signal microcontrollers, microprocessors, analog, FPGA, data centers, networking and memory products. In July 2024, we entered the 64-bit mixed-signal microprocessor market, furthering our expansion beyond our 32-bit architecture. Our synergistic product portfolio empowers disruptive growth trends, including AI/ML, data center, edge computing and 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 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.

Current wording

Our manufacturing operations include wafer fabrication, wafer probe, assembly and test and systems builds. In December 2024, we announced our decision to close the manufacturing operations of our Fab 2 wafer fabrication facility in Tempe, Arizona and the closure was completed in May 2025. The decision to close Fab 2 was driven by high inventory levels and ample manufacturing capacity at our other wafer fabrication facilities. All of the process technologies that were running in Fab 2 will be transferred to Fab 4 and Fab 5 and many such technologies are already running in Fab 4 and Fab 5, both of which have ample clean room space for expansion. 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 (such as 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. This control also allows us to capture a portion of the wafer manufacturing, assembly and testing profit margin.

Previous 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.

Current wording

There were no changes to our critical accounting policies and estimates during the first three months of the fiscal year ending March 31, 2027 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, 2026.

Previous 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.

Current wording

The increase in net sales in the three months ended June 30, 2026 compared to June 30, 2025 was primarily due to increased demand after customers reduced excess inventory levels as well as new customer design win activity entering production. 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 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:

Current wording

Other factors that we believe contributed to the changes in our reported net sales for the three months ended June 30, 2026 compared to June 30, 2025 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 nine months ended December 31, 2025 or the three and nine months ended December 31, 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 months ended June 30, 2026 or the three months ended June 30, 2025.

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 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.

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 49.8% of our net sales in the three months ended June 30, 2026 compared to approximately 49.5% of our net sales in the three months ended June 30, 2025.

Previous wording

Net sales of our mixed-signal microcontroller products increased 10.0% 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. Net sales of our mixed-signal microcontroller products decreased 3.9% 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.

Current wording

Net sales of our mixed-signal microcontroller products increased 38.8% in the three months ended June 30, 2026 compared to the three months ended June 30, 2025 primarily due to increased demand after customers reduced excess inventory levels as well as new customer design win activity entering production.

Previous 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.

Current wording

Our analog product line includes analog, interface, mixed-signal and timing products. Our analog product line accounted for approximately 27.7% of our net sales in the three months ended June 30, 2026 compared to approximately 29.4% of our net sales in the three months ended June 30, 2025.

Previous 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.

Current wording

Net sales from our analog product line increased 29.9% in the three months ended June 30, 2026 compared to the three months ended June 30, 2025, primarily due to increased demand due to a portion of our customer base having reduced excess inventory levels as well as new customer design win activity entering 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 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.

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 22.5% of our net sales in the three months ended June 30, 2026 compared to approximately 21.1% of our net sales in the three months ended June 30, 2025.

Previous 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).

Current wording

Net sales related to these services and products increased 47.6% in the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The increase in net sales was primarily due to a portion of our customer base having reduced excess inventory levels and needing to purchase products at a higher level to support demand. 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 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.

Current wording

Distributors accounted for approximately 52% of our net sales in the three months ended June 30, 2026 and approximately 47% of our net sales in the three months ended June 30, 2025. With the exception of Arrow Electronics, our largest distributor, which accounted for 12% and 11% of our net sales in the three months ended June 30, 2026 and in the three months ended June 30, 2025, 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 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.

Current wording

At June 30, 2026, our distributors maintained 25 days of inventory of our products compared to 26 days at March 31, 2026. 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 may have a material impact on our net sales.

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 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.

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 76% of our total net sales in the three months ended June 30, 2026 compared to approximately 77% of our total net sales in the three months ended June 30, 2025. Our net sales in all geographies increased in the three months ended June 30, 2026 compared to the three months ended June 30, 2025, primarily due to increased demand after customers reduced excess inventory levels as well as new customer design win activity entering production. 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

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.

Current wording

The primary reasons for the increase in gross profit of $362.2 million in the three months ended June 30, 2026 compared to June 30, 2025 were due to changes in product mix, lower unabsorbed capacity charges, lower inventory reserves and higher licensing revenue. 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 a favorable impact of $13.0 million in the three months ended June 30, 2026 compared to June 30, 2025. 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 $68.6 million in the three months ended June 30, 2026, compared to June 30, 2025. The gross margin impact of changes in licensing revenue, which has no associated cost of sales, was a favorable impact of $9.6 million in the three months ended June 30, 2026 compared to June 30, 2025.

Previous 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.

Current wording

Our overall inventory levels were $1.05 billion at June 30, 2026, compared to $1.04 billion at March 31, 2026. We maintained 175 days of inventory on our balance sheet at June 30, 2026 compared to 185 days of inventory at March 31, 2026. Our overall inventory level in dollars remained relatively flat and our inventory level in 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.

Previous 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.

Current wording

We operate assembly and test facilities in Thailand and the Philippines. Approximately 68% of our assembly requirements were performed in our internal assembly facilities during the three months ended June 30, 2026, compared to 69% during the three months ended June 30, 2025. During the three months ended June 30, 2026, approximately 71% of our test requirements were performed in our internal facilities compared to 68% during the three months ended June 30, 2025. 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 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.

Current wording

We rely on outside wafer foundries for a significant portion of our wafer fabrication requirements. Approximately 67% of our net sales came from products that were produced at outside wafer foundries during the three months ended June 30, 2026, compared to 64% during the three months ended June 30, 2025. This percentage may vary based on supply and demand conditions in the market.

Previous 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.

Current wording

R&D expenses for the three months ended June 30, 2026 were $308.9 million, or 20.8% of net sales, compared to $255.5 million, or 23.8% of net sales, for the three months ended June 30, 2025. 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 $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.

Current wording

R&D expenses increased $53.4 million, or 20.9%, for the three months ended June 30, 2026 over the same period last year. The primary reasons for the increase in R&D expenses were higher employee compensation costs including higher share-based compensation expenses.

Previous 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.

Current wording

Selling, general and administrative expenses for the three months ended June 30, 2026 were $184.3 million, or 12.4% of net sales, compared to $159.3 million, or 14.8% of net sales, for the three months ended June 30, 2025. 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 $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.

Current wording

Selling, general and administrative expenses increased $25.0 million, or 15.7%, for the three months ended June 30, 2026 over the same period last year. The increase in selling, general and administrative expenses was primarily due to higher employee compensation costs, including higher share-based compensation expenses partially offset by lower costs for professional services associated with certain legal matters.

Previous 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.

Current wording

Amortization of acquired intangible assets for the three months ended June 30, 2026 was $90.0 million, compared to $107.6 million for the three months ended June 30, 2025. The primary reason for the decrease 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 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.

Current wording

During the three months ended June 30, 2026, we incurred special charges and other, net of $18.9 million, primarily due to legal contingencies of $16.0 million and $2.9 million related to restructuring expenses for the closure of our Tempe, Arizona wafer fabrication facility. During the three months ended June 30, 2025, we incurred special charges and other, net of $22.2 million primarily related to restructuring expenses, including contract exit costs, closure of our Fab 2 wafer fabrication facility in Tempe, Arizona and employee separation costs.

Previous 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.

Current wording

Interest income in the three months ended June 30, 2026 was $1.4 million compared to $4.9 million in the three months ended June 30, 2025.

Previous 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.

Current wording

Interest expense in the three months ended June 30, 2026 was $48.8 million compared to $57.4 million for the three months ended June 30, 2025. The primary reasons for the decrease in interest expense in the three months ended June 30, 2026 compared to the same period last year were lower debt balances and lower interest rates.

Previous 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.

Current wording

Other income, net in the three months ended June 30, 2026 was $0.5 million compared to $4.6 million other income, net for the three months ended June 30, 2025. The primary reason for the change in other income, net in the three months ended June 30, 2026 compared to the three months ended June 30, 2025 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 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.

Current wording

Our provision for income taxes is attributable to U.S. federal, state, and foreign income taxes. A comparison of our effective tax rates for the three months ended June 30, 2026 and June 30, 2025 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 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.

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 three months ended June 30, 2026 and June 30, 2025 was approximately 22.0%. 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

Our foreign tax rate differential primarily relates to our operations in Malta taxed at a 35.0% statutory tax rate and Ireland taxed at a 12.5% statutory tax rate. Additionally, our Thailand manufacturing operations are currently subject to numerous tax holidays granted to us based on our investment in property, plant, and equipment in Thailand. Our tax holiday periods in Thailand expire at various times in the future; however, we actively seek to obtain new tax holidays, otherwise we will be subject to tax at the statutory tax rate of 20.0%. We do not expect the future expiration of any of our tax holiday periods in Thailand to have a material impact on our effective tax rate.

Current wording

Our foreign tax rate differential primarily relates to our operations in Malta, taxed at a 35.0% statutory tax rate, and in Ireland, taxed at a 12.5% statutory tax rate. The foreign tax rate differential impact from Malta is offset with the effect of the notional interest deduction. Additionally, our Thailand manufacturing operations are currently subject to numerous tax holidays granted to us based on our investment in property, plant, and equipment in Thailand. Our tax holiday periods in Thailand expire at various times in the future; however, we actively seek to obtain new tax holidays, otherwise we will be subject to tax at the statutory tax rate of 20.0%. We do not expect the future expiration of any of our tax holiday periods in Thailand to have a material impact on our effective tax rate.

Previous wording

In May 2023, we received a proposed income adjustment from the Malaysian Inland Revenue Board (IRB) for fiscal 2020. In December 2023, we received a Notice of Assessment from the IRB asserting the same proposed income adjustment. In March 2025, we entered into a Consent Judgment before the High Court, agreeing that the dispute will be heard before the Special Commissioners of Income Tax (SCIT). It was also agreed that the payment on the taxes assessed is stayed and the IRB will pause all enforcement and proceedings against the collection of the taxes assessed until the appeal before the SCIT is concluded. If the adjustment is upheld by the highest court that has jurisdiction over this matter in Malaysia, it could result in income taxes and penalties up to $410.0 million. The disputed amounts largely relate to the characterization of certain assets. The timing of adjudicating this matter is uncertain but could occur in the next 12 months.

Current wording

In May 2023, we received a proposed income adjustment from the Malaysian Inland Revenue Board (IRB) for fiscal 2020. In December 2023, we received a Notice of Assessment from the IRB asserting the same proposed income adjustment. In March 2025, we entered into a Consent Judgment before the High Court, agreeing that the dispute will be heard before the Special Commissioners of Income Tax (SCIT). It was also agreed that the payment on the taxes assessed is stayed and the IRB will pause all enforcement and proceedings against the collection of the taxes assessed until the appeal before the SCIT is concluded. If the adjustment is upheld by the highest court that has jurisdiction over this matter in Malaysia, it could result in income taxes and penalties up to MYR 1.9 billion (approximately $474.7 million based on the exchange rate as of June 30, 2026). The disputed amounts largely relate to the characterization of certain assets. The timing of adjudicating this matter is uncertain but could occur in the next 18 months.

Previous wording

We firmly believe that the IRB and GTA assessments are without merit and we plan to pursue all available administrative and judicial remedies necessary to resolve these matters. We intend to vigorously defend our position, and we are confident in our ability to prevail on the merits. We regularly assess the likelihood of adverse outcomes resulting from examinations such as these to determine the adequacy of our tax reserves. The ultimate outcome of disputes of this nature is uncertain, and if the IRB or GTA were to prevail on their assertions, the assessed tax, penalties, and deficiency interest could have a material adverse impact on our financial position, results of operations or cash flows.

Current wording

We firmly believe that the IRB assessment is without merit and we plan to pursue all available administrative and judicial remedies necessary to resolve the matter. We intend to vigorously defend our position, and we are confident in our ability to prevail on the merits. We regularly assess the likelihood of adverse outcomes resulting from examinations such as these to determine the adequacy of our tax reserves. The ultimate outcome of disputes of this nature is uncertain, and if the IRB were to prevail on its assertions, the assessed tax, penalties, and deficiency interest could have a material adverse impact on our financial position, results of operations or cash flows.

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 nine months ending December 31, 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. Several countries where we operate have enacted related legislation. In January 2026, the Organisation for Economic Co-operation and Development published a side-by-side system, which excludes U.S. multi-national entities from certain aspects of the GMT. The side-by-side system must be transposed into local tax laws for it to become effective, which has yet to occur in most countries where we operate. We will continue to monitor developments around this guidance, including the transposition of the side-by-side system into local laws. The impact of the GMT for the three months ended June 30, 2026 has been reflected in 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 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.

Current wording

In July 2025, the U.S. government enacted the 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 June 30, 2026. The impact of OBBBA for the three months ended June 30, 2026 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.