MICROCHIP TECHNOLOGY INC

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 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."

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 six months ended September 30, 2026 compared to the three and six months ended September 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

In March 2025, we implemented a business recovery plan which included restructuring actions to reduce our costs, resize our manufacturing operations and reduce our headcount. In fiscal 2026, we saw an improvement in our overall business due to increased demand after our customers reduced excess inventory levels. Consistent with our recovery plan, we reduced inventory in fiscal 2026 and our inventory days decreased sequentially in the June 2026 quarter and we are now experiencing strong revenue growth. Net sales in each of our product lines and each of our geographies as well as net sales to our distributors increased sequentially in the June 2026 quarter compared to the March 2026 quarter. While current market trends are positive, there continues to be uncertainty regarding overall macroeconomic conditions, including increased geopolitical tensions, risk of a recession, and the effects of potential trade policies, including tariffs.

Current wording

In March 2025, we implemented a business recovery plan which included restructuring actions to reduce our costs, resize our manufacturing operations and reduce our headcount. In fiscal 2026, we saw an improvement in our overall business due to increased demand after our customers reduced excess inventory levels. Consistent with our recovery plan, we have made significant progress in reducing inventory after multiple quarters of revenue growth. We have now adjusted our inventory holdings to support our growth while navigating various levels of constraints in our supply chain. Net sales in each of our product lines and each of our geographies increased sequentially in the September 2026 quarter compared to the June 2026 quarter. While current market trends are positive, there continues to be uncertainty regarding overall macroeconomic conditions, including increased geopolitical tensions, risk of a recession, and the effects of potential trade policies, including tariffs.

Previous 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.

Current wording

There were no changes to our critical accounting policies and estimates during the first six 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 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.

Current wording

The increases in net sales in the three and six months ended September 30, 2026 compared to the three and six months ended September 30, 2025 were primarily due to increased demand after customers reduced excess inventory levels as well as new customer design win activity entering production. Economic conditions have resulted in increased costs throughout our supply chain, which we have been generally passing on to our customers in the form of price increases. Our most recent price increase was implemented in the three months ended September 30, 2026 with respect to our very broad range of customers and products. Due to the complexity of the implementation of the price increases and the changes in product, geographic and customer mix, we are not able to quantify the impact of the price increases on our net sales. Additionally, the increase in net sales was positively impacted by licensing fees related to certain of our intellectual property rights. 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 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:

Current wording

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

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 six months ended September 30, 2026 or the three and six months ended September 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 49.8% 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.

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 47.8% and 48.7% of our net sales in the three and six months ended September 30, 2026, respectively, compared to approximately 51.3% and 50.4% of our net sales in the three and six months ended September 30, 2025, respectively.

Previous 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.

Current wording

Net sales of our mixed-signal microcontroller products increased 32.5% and 35.5% in the three and six months ended September 30, 2026, respectively, compared to the three and six months ended September 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

Historically, average selling prices in the semiconductor industry decrease over the life of any particular product. However, the overall average selling prices of our mixed-signal microcontroller products have remained relatively stable in recent periods due to the proprietary nature of these products. We have in the past been able to moderate average selling price declines in our mixed-signal microcontroller product lines by introducing new products with more features and higher prices.

Current wording

Historically, average selling prices in the semiconductor industry decrease over the life of any particular product. However, the overall average selling prices of our mixed-signal microcontroller products have increased recently due to the price increase we implemented in the three months ended September 30, 2026. The overall average selling prices of this product line have remained relatively stable over time due to the proprietary nature of these products. We have in the past been able to, and expect in the future to be able to, moderate average selling price declines in our mixed-signal microcontroller product lines by introducing new products with more features and higher prices.

Previous 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.

Current wording

Our analog product line includes analog, interface, mixed-signal and timing products. Our analog product line accounted for approximately 28.3% and 28.0% of our net sales in the three and six months ended September 30, 2026, respectively, compared to approximately 28.2% and 28.8% of our net sales in the three and six months ended September 30, 2025, respectively.

Previous 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.

Current wording

Net sales from our analog product line increased 42.8% and 36.4% in the three and six months ended September 30, 2026, respectively, compared to the three and six months ended September 30, 2025, 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 entering production.

Previous wording

We consider a majority of the products in our analog product line to be proprietary in nature, where prices are relatively stable, similar to the pricing stability experienced in our mixed-signal microcontroller products. The non-proprietary portion of our analog product line will experience price fluctuations, driven primarily by the current supply and demand for those products.

Current wording

We consider a majority of the products in our analog product line to be proprietary in nature, where prices are relatively stable. The non-proprietary portion of our analog product line will experience price fluctuations, driven primarily by the current supply and demand for those products. Similar to our mixed-signal microcontroller products, the overall average selling prices of our analog product line have increased recently due to the price increase implemented in the three months ended September 30, 2026.

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 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.

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 23.9% and 23.3% of our net sales in the three and six months ended September 30, 2026, respectively, compared to approximately 20.5% and 20.8% of our net sales in the three and six months ended September 30, 2025, respectively.

Previous 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).

Current wording

Net sales related to these services and products increased 65.6% and 56.8% in the three and six months ended September 30, 2026, respectively, compared to the three and six months ended September 30, 2025 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 and also due to licensing fees related to certain of our intellectual property rights. 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 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.

Current wording

Distributors accounted for approximately 50% and 51% of our net sales in the three and six months ended September 30, 2026, respectively, and approximately 45% and 46% of our net sales in the three and six months ended September 30, 2025, respectively. With the exception of Arrow Electronics, our largest distributor, which accounted for 11% of our net sales in each of the six months ended September 30, 2026 and September 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

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.

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 77% and 76% of our total net sales in the three and six months ended September 30, 2026, respectively, compared to approximately 75% and 76% of our total net sales in the three and six months ended September 30, 2025, respectively. Net sales increased in all geographies in the three and six months ended September 30, 2026, compared to the three and six months ended September 30, 2025, primarily due to increased customer purchases as they worked through excess inventory levels as well as new customer design win activity entering production. Additionally, economic conditions have resulted in increased costs throughout our supply chain, which we have been generally passing on to our customers in the form of price increases. Our most recent price increase was implemented in the three months ended September 30, 2026 and positively impacted sales in all geographies. 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 $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.

Current wording

The primary reasons for the increases in gross profit of $430.1 million and $792.3 million in the three and six months ended September 30, 2026, respectively, compared to the three and six months ended September 30, 2025, respectively, were due to our recent price increase, 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 $24.4 million and $37.4 million in the three and six months ended September 30, 2026, respectively, compared to the three and six months ended September 30, 2025, 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 $97.4 million and $166.0 million in the three and six months ended September 30, 2026, respectively, compared to the three and six months ended September 30, 2025, respectively. The gross margin impact of changes in licensing revenue, which has no associated cost of sales, was a favorable impact of $38.7 million and $48.3 million in the three and six months ended September 30, 2026 compared to the three and six months ended September 30, 2025, respectively.

Previous 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.

Current wording

Our overall inventory levels were $1.12 billion at September 30, 2026, compared to $1.04 billion at March 31, 2026. We maintained 184 days of inventory on our balance sheet at September 30, 2026 compared to 185 days of inventory at March 31, 2026. Our overall inventory level in dollars and days remained relatively flat as a result of our continued efforts to balance manufacturing production, customer demand, inventory levels and supply constraints. 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 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.

Current wording

We operate assembly and test facilities in Thailand and the Philippines. Approximately 70% and 69% of our assembly requirements were performed in our internal assembly facilities during the three and six months ended September 30, 2026, respectively, compared to approximately 66% and 68% during the three and six months ended September 30, 2025, respectively. Approximately 75% and 73% of our test requirements were performed in our internal facilities during the three and six months ended September 30, 2026, respectively, compared to approximately 70% and 69% during the three and six months ended September 30, 2025, 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.

Previous 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.

Current wording

We rely on outside wafer foundries for a significant portion of our wafer fabrication requirements. Approximately 65% and 66% of our net sales came from products that were produced at outside wafer foundries during the three and six months ended September 30, 2026, respectively, compared to approximately 66% and 65% during the three and six months ended September 30, 2025, respectively. This percentage may vary based on supply and demand conditions in the market.

Previous 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.

Current wording

R&D expenses for the three months ended September 30, 2026 were $318.5 million, or 19.6% of net sales, compared to $262.3 million, or 23.0% of net sales, for the three months ended September 30, 2025. R&D expenses for the six months ended September 30, 2026 were $627.4 million, or 20.2% of net sales, compared to $517.8 million, or 23.4% of net sales, for the six months ended September 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 $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.

Current wording

R&D expenses increased $56.2 million, or 21.4%, for the three months ended September 30, 2026 over the same period last year. R&D expenses increased $109.6 million, or 21.2%, for the six months ended September 30, 2026 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.

Previous 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.

Current wording

Selling, general and administrative expenses for the three months ended September 30, 2026 were $186.9 million, or 11.5% of net sales, compared to $172.3 million, or 15.1% of net sales, for the three months ended September 30, 2025. Selling, general and administrative expenses for the six months ended September 30, 2026 were $371.2 million, or 12.0% of net sales, compared to $331.6 million, or 15.0% of net sales, for the six months ended September 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 $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.

Current wording

Selling, general and administrative expenses increased $14.6 million, or 8.5%, for the three months ended September 30, 2026 over the same period last year. Selling, general and administrative expenses increased $39.6 million, or 11.9%, for the six months ended September 30, 2026 over the same period last year. The primary reasons for the increases in selling, general and administrative expenses were higher employee compensation costs, including higher share-based compensation partially offset by lower costs for professional services associated with certain legal matters.

Previous 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.

Current wording

Amortization of acquired intangible assets for the three and six months ended September 30, 2026 was $90.2 million and $180.2 million, respectively, compared to $108.1 million and $215.7 million for the three and six months ended September 30, 2025, 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 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.

Current wording

During the three and six months ended September 30, 2026, we incurred special charges and other, net of $7.9 million and $26.8 million, respectively, primarily related to legal contingencies and restructuring expenses related to the closure of our Fab 2 wafer fabrication facility in Tempe, Arizona. 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 Fab 2 wafer fabrication facility in Tempe, Arizona and employee separation costs.

Previous 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.

Current wording

Interest income in the three and six months ended September 30, 2026 was $1.7 million and $3.1 million, respectively, compared to $3.6 million and $8.5 million, respectively, for the three and six months ended September 30, 2025.

Previous 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.

Current wording

Interest expense in the three and six months ended September 30, 2026 was $47.3 million and $96.1 million, respectively, compared to $56.3 million and $113.7 million, respectively, for the three and six months ended September 30, 2025. The primary reasons for the decreases in interest expense were lower debt balances and lower interest rates.

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 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.

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 six months ended September 30, 2026 and September 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

In September 2021, we received a Statutory Notice of Deficiency (2007 to 2012 Notice) from the United States Internal Revenue Service (IRS) for fiscal 2007 through fiscal 2012. The disputed amounts largely relate to transfer pricing matters. In December 2021, we filed a petition in the U.S. Tax Court challenging the 2007 to 2012 Notice. In September 2023, we received a Revenue Agent Report (RAR) from the IRS for fiscal 2013 and fiscal 2016. In October 2023, we received a Statutory Notice of Deficiency (2014 to 2015 Notice) from the IRS for fiscal 2014 and fiscal 2015. The disputed amounts for fiscal 2013 to fiscal 2016 largely relate to transfer pricing matters. In December 2023, we filed a petition in the U.S. Tax Court challenging the 2014 to 2015 Notice. In September 2025, we reached a settlement with the IRS for fiscal 2007 through fiscal 2015.

Current wording

In September 2021, we received a Statutory Notice of Deficiency (2007 to 2012 Notice) from the United States Internal Revenue Service (IRS) for fiscal 2007 through fiscal 2012. The disputed amounts largely relate to transfer pricing matters. In December 2021, we filed a petition in the U.S. Tax Court challenging the 2007 to 2012 Notice. In September 2023, we received a Revenue Agent Report (RAR) from the IRS for fiscal 2013 and fiscal 2016. In October 2023, we received a Statutory Notice of Deficiency (2014 to 2015 Notice) from the IRS for fiscal 2014 and fiscal 2015. The disputed amounts for fiscal 2013 to fiscal 2016 largely relate to transfer pricing matters. In December 2023, we filed a petition in the U.S. Tax Court challenging the 2014 to 2015 Notice. In September 2025, we reached a settlement with the IRS for fiscal 2007 through fiscal 2015. The timing of the agreed final stipulations is uncertain but could be completed in the next 12 months.

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 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.

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 $473.2 million based on the exchange rate as of September 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 12 months.

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. 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.

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 six months ended September 30, 2026 has been reflected in our financial results.

Previous 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.

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 September 30, 2026. The impact of OBBBA for the six months ended September 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.

Previous wording

We had $272.3 million in cash and cash equivalents at June 30, 2026, an increase of $32.0 million from the March 31, 2026 balance.

Current wording

We had $457.0 million in cash and cash equivalents at September 30, 2026, an increase of $216.7 million from the March 31, 2026 balance.

Previous wording

Net cash provided by operating activities was $511.5 million in the three months ended June 30, 2026 primarily due to net income of $229.8 million, adjusted for non-cash and non-operating charges of $245.7 million and net cash inflows of $36.0 million from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities in the three months ended June 30, 2026 include an increase in accrued liabilities driven by increases in sales related reserves, wage related accruals and accrued interest partially offset by a decrease due to cash refunded to our customers under certain LTSAs, and an increase in income tax payable, offset by an increase in trade accounts receivable driven primarily by higher revenue and timing of shipments and collections. Net cash provided by operating activities was $275.6 million in the three months ended June 30, 2025 primarily due to net loss of $18.6 million, adjusted for non-cash and non-operating charges of $225.4 million and net cash inflows of $68.8 million from changes in our operating assets and liabilities.

Current wording

Net cash provided by operating activities was $930.7 million in the six months ended September 30, 2026 primarily due to net income of $631.2 million, adjusted for non-cash and non-operating charges of $436.1 million and net cash outflows of $136.6 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, 2026 include an increase in inventories related to increased production levels to support growth, an increase in trade accounts receivable driven primarily by higher revenue and timing of shipments and collections, as well as decreases in accrued liabilities and other long-term liabilities due to cash refunded to our customers under certain LTSAs, partially offset by an increase in accounts payable related to higher spending to support increased production levels and an increase in income tax payable. 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.

Previous wording

Net cash used in investing activities was $52.0 million in the three months ended June 30, 2026 compared to $36.9 million in the three months ended June 30, 2025. During the three months ended June 30, 2026, and the three months ended June 30, 2025, net investing activities primarily related to capital purchases and investments in other assets.

Current wording

Net cash used in investing activities was $151.5 million in the six months ended September 30, 2026 compared to $98.9 million in the six months ended September 30, 2025. During the six months ended September 30, 2026, and the six months ended September 30, 2025, net investing activities primarily related to capital purchases and investments in other assets.

Previous wording

Our level of capital expenditures varies from time to time as a result of actual and anticipated business conditions. Capital expenditures in the three months ended June 30, 2026 were $13.9 million compared to $17.9 million in the three months ended June 30, 2025. Capital expenditures were primarily for the selective expansion of production capacity and the addition of research and development equipment. We have paused most of our factory expansion actions and reduced our planned capital investments through fiscal 2027. Our investments in equipment and facilities during the next 12 months are expected to be at or below $100.0 million. We believe that the capital expenditures anticipated to be incurred over the next 12 months will provide sufficient manufacturing capacity to support the growth of our production capabilities for our new products and technologies and to bring in-house more of the assembly and test operations that are currently outsourced. We expect to finance our capital expenditures through our existing cash balances and cash flows from operations.

Current wording

Our level of capital expenditures varies from time to time as a result of actual and anticipated business conditions. Capital expenditures in the six months ended September 30, 2026 were $37.0 million compared to $54.4 million in the six months ended September 30, 2025. Capital expenditures were primarily for the selective expansion of production capacity and the addition of research and development equipment. We have paused most of our factory expansion actions and reduced our planned capital investments through fiscal 2027. Our investments in equipment and facilities during the next 12 months are expected to be at or below $100.0 million. We believe that the capital expenditures anticipated to be incurred over the next 12 months will provide sufficient manufacturing capacity to support the growth of our production capabilities for our new products and technologies and to bring in-house more of the assembly and test operations that are currently outsourced. We expect to finance our capital expenditures through our existing cash balances and cash flows from operations.

Previous wording

Net cash used in financing activities was $427.5 million in the three months ended June 30, 2026 compared to $443.9 million in the three months ended June 30, 2025. Significant transactions affecting our net financing cash flows included:

Current wording

Net cash used in financing activities was $562.5 million in the six months ended September 30, 2026 compared to $799.7 million in the six months ended September 30, 2025. Significant transactions affecting our net financing cash flows included:

Previous wording

•in the first three months of fiscal 2027, $137.6 million of net cash used to pay down our Commercial Paper program, and

Current wording

•in the first six months of fiscal 2027, $15.5 million of net proceeds from our Commercial Paper program, and

Previous wording

•in the first three months of fiscal 2026, $174.1 million of net cash used to pay down our Commercial Paper balance, and

Current wording

•in the first six months of fiscal 2026, $1.20 billion of net cash used to pay down our 4.25% 2025 Notes and $938.3 million of net proceeds from our Commercial Paper program, and