FULLTEXT DEL 1 AV 2
10-Q – 2025-08-07 – mchp-20250630.htm
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mchp:SteveSanghiMember 2025-04-01 2025-06-30 0000827054 mchp:SteveSanghiMember 2025-06-30 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ( Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number: 0-21184 MICROCHIP TECHNOLOGY INCORPORATED (Exact Name of Registrant as Specified in Its Charter) Delaware 86-0629024 (State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification No.) 2355 W. Chandler Blvd. , Chandler , AZ 85224-6199 (Address of Registrant's Principal Executive Offices) ( 480 ) 792-7200 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered Common Stock, $0.001 par value per share MCHP NASDAQ Stock Market LLC (Nasdaq Global Select Market) Depositary Shares, each representing a 1/20th interest in a share of 7.50% Series A Mandatory Convertible Preferred Stock $0.001 par value per share MCHPP NASDAQ Stock Market LLC (Nasdaq Global Select Market) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act: Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ The number of shares outstanding of the registrant's Common Stock, $0.001 par value per share, as of July 28, 2025 was 539,679,667 . MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets – June 3 0 , 202 5 and March 31, 202 5 4 Condensed Consolidated Statements of Operations – Three Months Ended June 3 0 , 202 5 and 202 4 5 Condensed Consolidated Statements of Comprehensive (Loss) Income – Three Months Ended June 3 0 , 202 5 and 202 4 6 Condensed Consolidated Statements of Cash Flows – Three Months Ended June 3 0 , 202 5 and 202 4 7 Condensed Consolidated Statements of Changes in Equity - Three Months Ended June 3 0 , 2025 and 2024 8 Notes to Condensed Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Item 3. Quantitative and Qualitative Disclosures About Market Risk 35 Item 4. Controls and Procedures 35 PART II. OTHER INFORMATION Item 1. Legal Proceedings 37 Item 1A. Risk Factors 37 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 63 Item 3. Defaults Upon Senior Securities 63 Item 4. Mine Safety Disclosures 64 Item 5. Other Information 64 Item 6. Exhibits 65 Signatures 2 MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES Defined Terms (1) Term Definition 4.250% 2025 Notes 2025 Senior Unsecured Notes, maturing on September 1, 2025 4.900% 2028 Notes 2028 Senior Unsecured Notes, maturing on March 15, 2028 5.050% 2029 Notes 2029 Senior Unsecured Notes, maturing on March 15, 2029 5.050% 2030 Notes 2030 Senior Unsecured Notes, maturing on February 15, 2030 2015 Senior Convertible Debt 2015 Senior Convertible Debt, matured on February 15, 2025 2017 Senior Convertible Debt 2017 Senior Convertible Debt, maturing on February 15, 2027 2020 Senior Convertible Debt 2020 Senior Convertible Debt, matured on November 15, 2024 2024 Senior Convertible Debt 2024 Senior Convertible Debt, maturing on June 1, 2030 ASU Accounting Standards Update CEMs Client engagement managers CHIPS Act CHIPS and Science Act of 2022 Commercial Paper Short-term unsecured promissory notes, of up to $2.75 billion outstanding at any one time, further updated to $2.25 billion outstanding at any one time pursuant to the Credit Agreement, as amended in March 2025 Convertible Debt 2015 Senior Convertible Debt, 2017 Senior Convertible Debt, 2020 Senior Convertible Debt and 2024 Senior Convertible Debt. Credit Agreement Amended and Restated Credit Agreement, dated as of December 16, 2021, among the Company, as borrower, the lenders from time to time party thereto, and J.P. Morgan Chase Bank, N.A., as administrative agent, as amended by the Second Amended and Restated Credit Agreement, dated as of March 25, 2025 Depositary Shares Depositary Shares, each representing a 1/20th interest in a share of Series A Preferred Stock EAR Export Administration Regulation ESEs Embedded solutions engineers ESG Environmental, social and governance Exchange Act Securities Exchange Act of 1934, as amended FASB Financial Accounting Standards Board FPGA Field-programmable gate array LTSAs Long-term supply agreements OEMs Original equipment manufacturers PSUs RSUs with a market condition or a performance condition, and a service condition R&D Research and development Revolving Credit Facility $2.75 billion revolving credit facility created pursuant to the Credit Agreement, reduced to $2.25 billion pursuant to the Second Amended and Restated Credit Agreement, dated as of March 25, 2025 RSUs Restricted stock units SEC U.S. Securities and Exchange Commission Senior Indebtedness Revolving Credit Facility, Commercial Paper, 4.250% 2025 Notes, 4.900% 2028 Notes, 5.050% 2029 Notes, and 5.050% 2030 Notes Senior Notes 4.250% 2025 Notes, 4.900% 2028 Notes, 5.050% 2029 Notes, and 5.050% 2030 Notes Series A Preferred Stock 7.50% Series A Mandatory Convertible Preferred Stock, issued on March 25, 2025, $0.001 par value per share U.S. GAAP U.S. Generally Accepted Accounting Principles (1) Certain terms used within this Form 10-Q are defined in the above table. 3 Table of Contents PART I. FINANCIAL INFORMATION Item 1 . Financial Statements MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in millions, except share and per share amounts; unaudited) ASSETS June 30, March 31, 2025 2025 Cash and cash equivalents $ 566.5 $ 771.7 Accounts receivable, net 765.5 689.7 Inventories 1,169.1 1,293.5 Other current assets 252.7 236.4 Total current assets 2,753.8 2,991.3 Property, plant and equipment, net 1,153.9 1,183.7 Goodwill 6,695.4 6,684.8 Intangible assets, net 2,292.2 2,389.0 Long-term deferred tax assets 1,734.6 1,728.1 Other assets 349.6 397.7 Total assets $ 14,979.5 $ 15,374.6 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 161.9 $ 160.6 Accrued liabilities 1,028.5 994.5 Total current liabilities 1,190.4 1,155.1 Long-term debt 5,458.1 5,630.4 Long-term income tax payable 640.2 633.4 Long-term deferred tax liability 36.3 33.8 Other long-term liabilities 797.4 843.6 Stockholders' equity: Preferred stock, $ 0.001 par value per share; authorized 5,000,000 shares; 7.50% Series A mandatory convertible preferred stock, 1,485,000 shares issued and outstanding at June 30, 2025 and March 31, 2025, with a liquidation preference of $ 1,000 per share, or $ 1,485.0 million in the aggregate — — Common stock, $ 0.001 par value per share; authorized 900,000,000 shares; 578,423,869 shares issued and 539,676,850 shares outstanding at June 30, 2025; 577,996,915 shares issued and 538,704,604 shares outstanding at March 31, 2025 0.6 0.6 Additional paid-in capital 3,974.0 3,909.9 Common stock held in treasury: 38,747,019 shares at June 30, 2025; 39,292,311 shares at March 31, 2025 ( 2,600.3 ) ( 2,611.6 ) Accumulated other comprehensive loss ( 6.4 ) ( 1.7 ) Retained earnings 5,489.2 5,781.1 Total stockholders' equity 6,857.1 7,078.3 Total liabilities and stockholders' equity $ 14,979.5 $ 15,374.6 See accompanying notes to condensed consolidated financial statements 4 Table of Contents MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share amounts; unaudited) Three Months Ended June 30, 2025 2024 Net sales $ 1,075.5 $ 1,241.3 Cost of sales 498.8 504.4 Gross profit 576.7 736.9 Research and development 255.5 241.7 Selling, general and administrative 159.3 150.5 Amortization of acquired intangible assets 107.6 123.0 Special charges and other, net 22.2 2.6 Operating expenses 544.6 517.8 Operating income 32.1 219.1 Interest income 4.9 2.8 Interest expense ( 57.4 ) ( 61.8 ) Other income, net 4.6 1.7 (Loss) income before income taxes ( 15.8 ) 161.8 Income tax provision 2.8 32.5 Net (loss) income ( 18.6 ) 129.3 Dividends on Series A Preferred Stock ( 27.8 ) — Net (loss) income attributable to common stockholders $ ( 46.4 ) $ 129.3 Basic net (loss) income per common share $ ( 0.09 ) $ 0.24 Diluted net (loss) income per common share $ ( 0.09 ) $ 0.24 Dividends declared per common share $ 0.455 $ 0.452 Basic common shares outstanding 539.2 536.7 Diluted common shares outstanding 539.2 542.8 See accompanying notes to condensed consolidated financial statements 5 Table of Contents MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (in millions; unaudited) Three Months Ended June 30, 2025 2024 Net (loss) income $ ( 18.6 ) $ 129.3 Components of other comprehensive loss: Actuarial losses related to defined benefit pension plans, net of tax effect ( 4.7 ) ( 0.2 ) Other comprehensive loss, net of tax effect ( 4.7 ) ( 0.2 ) Comprehensive (loss) income $ ( 23.3 ) $ 129.1 See accompanying notes to condensed consolidated financial statements 6 Table of Contents MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions; unaudited) Three Months Ended June 30, 2025 2024 Cash flows from operating activities: Net (loss) income $ ( 18.6 ) $ 129.3 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 171.1 188.7 Deferred income taxes ( 3.0 ) ( 8.1 ) Share-based compensation expense related to equity incentive plans 52.9 44.0 Amortization of debt discount 1.4 16.6 Amortization of debt issuance costs 1.4 2.0 Impairment of intangible assets 2.2 — Other ( 0.6 ) ( 18.4 ) Changes in operating assets and liabilities, excluding impact of acquisitions: (Increase) decrease in accounts receivable ( 75.8 ) 47.9 Decrease in inventories 125.0 9.2 Increase (decrease) in accounts payable and accrued liabilities 27.6 ( 41.2 ) Change in other assets and liabilities ( 3.4 ) ( 20.7 ) Change in income tax payable ( 4.6 ) 27.8 Net cash provided by operating activities 275.6 377.1 Cash flows from investing activities: Proceeds from capital-related government incentives 4.8 0.1 Investments in other assets ( 23.8 ) ( 52.7 ) Capital expenditures ( 17.9 ) ( 72.9 ) Net cash used in investing activities ( 36.9 ) ( 125.5 ) Cash flows from financing activities: Proceeds from issuance of Commercial Paper — 3,573.4 Repayments of Commercial Paper ( 174.1 ) ( 4,637.5 ) Proceeds from issuance of convertible debt — 1,250.0 Deferred financing costs — ( 15.6 ) Purchase of capped call options — ( 105.0 ) Proceeds from sale of common stock 12.4 13.1 Tax payments related to shares withheld for vested RSUs ( 8.4 ) ( 18.9 ) Repurchase of common stock — ( 72.7 ) Payment of cash dividends on Series A Preferred Stock ( 25.1 ) — Payment of cash dividends on common stock ( 245.5 ) ( 242.6 ) Capital lease payments ( 0.4 ) ( 0.4 ) Other Financing ( 2.8 ) — Net cash used in financing activities ( 443.9 ) ( 256.2 ) Net decrease in cash and cash equivalents ( 205.2 ) ( 4.6 ) Cash and cash equivalents, at beginning of period 771.7 319.7 Cash and cash equivalents, at end of period $ 566.5 $ 315.1 See accompanying notes to condensed consolidated financial statements 7 Table of Contents MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in millions; unaudited) Preferred Stock Par Value Common Stock Par Value Additional Paid-in-Capital Common Stock Held in Treasury Accumulated Other Comprehensive Loss Retained Earnings Total Equity Balance at March 31, 2024 $ — $ 0.5 $ 2,482.9 $ ( 2,581.6 ) $ ( 3.5 ) $ 6,759.5 $ 6,657.8 Net income — — — — — 129.3 129.3 Other comprehensive loss — — — — ( 0.2 ) — ( 0.2 ) Proceeds from sales of common stock through employee equity incentive plans — — 13.1 — — — 13.1 RSU withholdings — — ( 18.9 ) — — — ( 18.9 ) Treasury stock used for new issuances — — ( 13.0 ) 13.0 — — — Repurchase of common stock — — — ( 72.7 ) — — ( 72.7 ) Purchase of capped call options — — ( 105.0 ) — — — ( 105.0 ) Share-based compensation — — 45.2 — — — 45.2 Dividends on common stock — — — — — ( 242.6 ) ( 242.6 ) Balance at June 30, 2024 $ — $ 0.5 $ 2,404.3 $ ( 2,641.3 ) $ ( 3.7 ) $ 6,646.2 $ 6,406.0 Balance at March 31, 2025 $ — $ 0.6 $ 3,909.9 $ ( 2,611.6 ) $ ( 1.7 ) $ 5,781.1 $ 7,078.3 Net loss — — — — — ( 18.6 ) ( 18.6 ) Other comprehensive loss — — — — ( 4.7 ) — ( 4.7 ) Common stock issued for acquisition — — 19.1 — — — 19.1 Proceeds from sales of common stock through employee equity incentive plans — — 12.4 — — — 12.4 RSU withholdings — — ( 8.4 ) — — — ( 8.4 ) Treasury stock used for new issuances — — ( 11.3 ) 11.3 — — — Share-based compensation — — 52.3 — — — 52.3 Dividends on Series A Preferred Stock — — — — — ( 27.8 ) ( 27.8 ) Dividends on common stock — — — — — ( 245.5 ) ( 245.5 ) Balance at June 30, 2025 $ — $ 0.6 $ 3,974.0 $ ( 2,600.3 ) $ ( 6.4 ) $ 5,489.2 $ 6,857.1 See accompanying notes to condensed consolidated financial statements 8 Table of Contents MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements Note 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of Microchip Technology Incorporated and its majority-owned and controlled subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated in consolidation. All dollar amounts in the financial statements and tables in these notes, except per share amounts, are stated in millions of U.S. dollars unless otherwise noted. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP, pursuant to the rules and regulations of the SEC. The information furnished herein reflects all adjustments which are, in the opinion of management, of a normal recurring nature and necessary for a fair statement of the results for the interim periods reported. Certain information and footnote disclosures normally included in audited consolidated financial statements have been condensed or omitted pursuant to such SEC rules and regulations. It is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2025. The results of operations for the three months ended June 30, 2025 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2026 or for any other period. Note 2. Recently Issued Accounting Pronouncements and Other Developments Accounting Pronouncements Pending Adoption In December 2023, the FASB issued ASU 2023-09- Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which modifies the rules on income tax disclosures to enhance the transparency and decision-usefulness of income tax disclosures, particularly in the rate reconciliation table and disclosures about income taxes paid. The amendments are intended to address investors’ requests for income tax disclosures that provide more information to help them better understand an entity’s exposure to potential changes in tax laws and the ensuing risks and opportunities and to assess income tax information that affects cash flow forecasts and capital allocation decisions. The guidance also eliminates certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred tax liabilities. ASU 2023-09 is effective for the Company for the fiscal period ending March 31, 2026. All entities should apply the guidance prospectively but have the option to apply it retrospectively. The new standard will result in enhanced disclosures in the Company's financial statements. In November 2024, the FASB issued ASU 2024-03- Income Statement (Subtopic 220-40 ): Disaggregation of Income Statement Expenses requiring disaggregated disclosures of certain expense captions into specified categories in the notes to the financial statements. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted with updates to be applied prospectively with the option for retrospective application. The Company is currently evaluating the applicable disclosures. Note 3 . Geographic and Segment Information The Company's business is made up of two operating segments, semiconductor products and technology licensing. These segments represent management's view of the business for which separate financial information is available and evaluated regularly by the Chief Operating Decision Maker (CODM), which is the Company’s Chief Executive Officer. In the semiconductor products segment, the Company designs, develops, manufactures and markets mixed-signal microcontrollers, development tools and analog, interface, mixed-signal, timing, wired and wireless connectivity devices, and memory products. Under the leadership of the CODM, the Company is structured and organized around standardized roles and responsibilities based on product groups and functional activities. The Company's product groups are responsible for product research, design and development. The Company's functional activities include sales, marketing, manufacturing, information technology, human resources, legal and finance. The Company's product groups have similar products, production processes, types of customers and methods for distribution. In addition, the tools and technologies used in the design and manufacture of the Company's products are shared among the various product groups. The Company's product group leaders, under the direction of the CODM, define the product roadmaps and team with sales personnel to achieve design wins and revenue and other performance targets. Product group leaders also interact with manufacturing and 9 Table of Contents operational personnel who are responsible for the production, prioritization and planning of the Company's manufacturing capabilities to help ensure the efficiency of the Company's operations and fulfillment of customer requirements. The technology licensing segment includes sales and licensing of the Company's intellectual property. The CODM uses segment gross profit for evaluating each segment's performance and allocating resources. The Company does not allocate operating expenses, interest income, interest expense, other income or expense, or provision for or benefit from income taxes to these segments for internal reporting purposes, as the Company does not believe that allocating these expenses is beneficial in evaluating segment performance. Additionally, the Company does not allocate assets to segments for internal reporting purposes as it does not manage its segments by such metrics. The information that is regularly provided to the Company's CODM includes net sales, cost of sales and gross profit for each segment. The following tables include net sales, cost of sales and gross profit for each segment (in millions): Three Months Ended June 30, 2025 Semiconductor products Technology licensing Total Net sales $ 1,042.5 $ 33.0 $ 1,075.5 Cost of sales 498.8 — 498.8 Gross profit $ 543.7 $ 33.0 $ 576.7 Three Months Ended June 30, 2024 Semiconductor products Technology licensing Total Net sales $ 1,219.1 $ 22.2 $ 1,241.3 Cost of sales 504.4 — 504.4 Gross profit $ 714.7 $ 22.2 $ 736.9 Note 4. Net Sales The following table represents the Company's net sales by product line (in millions): Three Months Ended June 30, 2025 2024 Mixed-signal Microcontrollers $ 532.6 $ 644.7 Analog 316.2 330.6 Other 226.7 266.0 Total net sales $ 1,075.5 $ 1,241.3 The product lines listed above are included entirely in the Company's semiconductor product segment with the exception of the other product line, which includes products from both the semiconductor product and technology licensing segments. The following table represents the Company's net sales by customer type (in millions): Three Months Ended June 30, 2025 2024 Distributors $ 507.0 $ 584.4 Direct customers 535.5 634.7 Licensees 33.0 22.2 Total net sales $ 1,075.5 $ 1,241.3 Distributors are customers that buy products with the intention of reselling them. Distributors generally have a distributor agreement with the Company to govern the terms of the relationship. Direct customers are non-distributor customers, which generally do not have a master sales agreement with the Company. The Company's direct customers primarily consist of OEMs and, to a lesser extent, contract manufacturers. Licensees are customers of the Company's technology licensing segment, which include purchasers of intellectual property and customers that have licensing agreements to use the Company's SuperFlash ® embedded flash technology. All of the customer types listed in the table 10 Table of Contents above are included in the Company's semiconductor product segment with the exception of licensees, which is included in the technology licensing segment. All of the Company's net sales are recognized from contracts with customers. The consideration received from customers is fixed, with the exception of consideration from certain distributors and customers under LTSAs. Certain of the Company's distributors are granted price concessions and return rights, which result in variable consideration. The amount of revenue recognized for sales to these certain distributors is adjusted for estimates of the price concessions and return rights that are expected to be claimed. These estimates are based on the recent history of price concessions and stock rotations, which are recorded as refund liabilities within accrued liabilities on the Company's condensed consolidated balance sheets. The Company collects amounts in advance for certain of its contracts with customers. These amounts are deferred until control of the product or service is transferred to the customer at which time it is recognized as revenue. As of June 30, 2025, the Company had approximately $ 418.5 million of deferred revenue, of which $ 160.1 million is included within accrued liabilities and the remaining $ 258.4 million is included within other long-term liabilities on the Company's condensed consolidated balance sheet. As of March 31, 2025, the Company had approximately $ 597.9 million of deferred revenue, of which $ 213.4 million is included within accrued liabilities and the remaining $ 384.5 million is included within other long-term liabilities on the Company's condensed consolidated balance sheets. Deferred revenue represents amounts that have been invoiced in advance which are expected to be recognized as revenue in future periods. Approximately $ 62.6 million of deferred revenue recorded on the Company's consolidated balance sheets as of March 31, 2025 was recognized as revenue during the three months ended June 30, 2025 . Approximately $ 73.8 million of deferred revenue recorded on the Company's consolidated balance sheets as of March 31, 2024 was recognized as revenue during the three months ended June 30, 2024. Of the $ 418.5 million of deferred revenue as of June 30, 2025, $ 334.3 million is cash collected from customers under LTSAs, of which $ 93.0 million is included within accrued liabilities and $ 241.3 million is included within other long-term liabilities. Under these LTSAs, the Company receives an upfront deposit from the customer in exchange for assured supply over the contract period, which typically ranges from three years to five years . If the customer does not meet the minimum purchase commitments defined in the contract, the Company may retain all, or portions of, the deposit as revenue. If the Company fails to assure supply as defined in the contract, the deposit, or portions of it, will be returned to the customer. The remaining $ 84.2 million of deferred revenue as of June 30, 2025 is related to other cash payments received from customers in advance of the Company’s performance obligations being satisfied. Most of the $ 84.2 million will be recognized as net sales within the next 12 months. The amount of other firmly committed orders with performance obligations in excess of 12 months at the time of order is immaterial. Note 5 . Net (Loss) Income Per Common Share The following table sets forth the computation of basic and diluted net (loss) income per common share (in millions, except per share amounts): Three Months Ended June 30, 2025 2024 Net (loss) income $ ( 18.6 ) $ 129.3 Dividends on Series A Preferred Stock ( 27.8 ) — Net (loss) income attributable to common stockholders ( 46.4 ) 129.3 Basic weighted average common shares outstanding 539.2 536.7 Dilutive effect of RSUs — 5.2 Dilutive effect of 2015 Senior Convertible Debt — 0.2 Dilutive effect of 2017 Senior Convertible Debt — 0.7 Dilutive effect of Series A Preferred Stock — — Diluted weighted average common shares outstanding 539.2 542.8 Basic net (loss) income per common share $ ( 0.09 ) $ 0.24 Diluted net (loss) income per common share $ ( 0.09 ) $ 0.24 The Company computed net (loss) income attributable to common stockholders by reducing net (loss) income by the dividends on Series A Preferred Stock accumulated during the period. The Company computed basic net (loss) income per common share based on the net (loss) income attributable to common stockholders divided by the weighted average number of common shares outstanding during the period. The Company computed diluted net (loss) income per common share 11 Table of Contents based on the net (loss) income attributable to common stockholders divided by the weighted average number of common shares outstanding plus potentially dilutive common shares outstanding during the period. Potentially dilutive common shares from employee equity incentive plans are determined by applying the treasury stock method to the assumed vesting of outstanding RSUs. Potentially dilutive common shares from the Series A Preferred Stock are determined by applying the if-converted method on the outstanding Series A Preferred Stock. Prior to conversion of its Convertible Debt, the Company will include, in the diluted net income per common share calculation, the effect of the additional shares that may be issued when the Company's common stock price exceeds the conversion price using the if-converted method. The Company's Convertible Debt has no impact on diluted net income per common share unless the average price of the Company's common stock exceeds the conversion price because the Company is required to settle the principal amount of the Convertible Debt in cash upon conversion. For the three months ended June 30, 2025, the calculation of diluted net loss per common share excluded 3.0 million common shares from employee equity incentive plans, 0.3 million common shares issuable upon the exchange of the Company's 2017 Senior Convertible Debt, and 27.0 million common shares issuable upon the exchange of the Company's Series A Preferred Stock as the related impact would have been anti-dilutive as the Company generated a net loss. The following is the weighted average conversion price per share used in calculating the dilutive effect (see Note 6 for details on the Convertible Debt): Three Months Ended June 30, 2025 2024 2015 Senior Convertible Debt (1) $ — $ 28.66 2017 Senior Convertible Debt $ 43.47 $ 44.69 2020 Senior Convertible Debt (2) $ — $ 91.23 2024 Senior Convertible Debt $ 121.82 $ 121.84 (1) The weighted average conversion price per share for the 2015 Senior Convertible Debt was prior to the settlement of the outstanding principal amount in February 2025. (2) The weighted average conversion price per share for the 2020 Senior Convertible Debt was prior to the settlement of the outstanding principal amount in November 2024. Note 6 . Debt Debt obligations included in the condensed consolidated balance sheets consisted of the following (in millions) (1) : Coupon Interest Rate Effective Interest Rate June 30, March 31, 2025 2025 Commercial Paper $ — $ 175.0 4.250% 2025 Notes 4.250 % 4.6 % 1,200.0 1,200.0 4.900% 2028 Notes 4.900 % 5.1 % 1,000.0 1,000.0 5.050% 2029 Notes 5.050 % 5.2 % 1,000.0 1,000.0 5.050% 2030 Notes 5.050 % 5.2 % 1,000.0 1,000.0 Total Senior Indebtedness 4,200.0 4,375.0 Senior Subordinated Convertible Debt - Principal Outstanding 2017 Senior Convertible Debt 1.625 % 1.8 % 38.0 38.0 2024 Senior Convertible Debt 0.750 % 1.0 % 1,250.0 1,250.0 Total Convertible Debt 1,288.0 1,288.0 Gross long-term debt including current maturities 5,488.0 5,663.0 Less: Debt discount (2) ( 11.4 ) ( 13.1 ) Less: Debt issuance costs (3) ( 18.5 ) ( 19.5 ) Net long-term debt including current maturities 5,458.1 5,630.4 Less: Current maturities (4) — — Net long-term debt $ 5,458.1 $ 5,630.4 12 Table of Contents (1) The Company had no outstanding borrowings under the Revolving Credit Facility at June 30, 2025 and at March 31, 2025. (2) The unamortized discount consists of the following (in millions): June 30, March 31, 2025 2025 Commercial Paper $ — $ ( 0.1 ) 4.250% 2025 Notes ( 0.5 ) ( 1.3 ) 4.900% 2028 Notes ( 3.0 ) ( 3.3 ) 5.050% 2029 Notes ( 4.0 ) ( 4.3 ) 5.050% 2030 Notes ( 3.9 ) ( 4.1 ) Total unamortized discount $ ( 11.4 ) $ ( 13.1 ) (3) Debt issuance costs consist of the following (in millions): June 30, March 31, 2025 2025 4.250% 2025 Notes $ ( 0.1 ) $ ( 0.2 ) 4.900% 2028 Notes ( 1.5 ) ( 1.7 ) 5.050% 2029 Notes ( 1.7 ) ( 1.8 ) 5.050% 2030 Notes ( 1.7 ) ( 1.7 ) 2017 Senior Convertible Debt ( 0.1 ) ( 0.1 ) 2024 Senior Convertible Debt ( 13.4 ) ( 14.0 ) Total debt issuance costs $ ( 18.5 ) $ ( 19.5 ) (4) As of June 30, 2025, the 4.250% 2025 Notes which mature on September 1, 2025, were excluded from current maturities as the Company has the intent and ability to utilize proceeds from its Revolving Credit Facility to refinance such notes on a long-term basis. As of June 30, 2025, the 2017 Senior Convertible Debt was convertible and was excluded from current maturities as the Company has the intent and ability to utilize proceeds from its Revolving Credit Facility to settle the principal portion of its Convertible Debt upon conversion. As of March 31, 2025, the outstanding Commercial Paper which matures within the three months ending June 30, 2025, and the 4.250% 2025 Notes which mature on September 1, 2025, were excluded from current maturities as the Company had the intent and ability to utilize proceeds from its Revolving Credit Facility to refinance such notes on a long-term basis. Expected maturities relating to the Company’s debt obligations based on the contractual maturity dates as of June 30, 2025, are as follows (in millions): Fiscal year ending March 31, Amount 2026 $ 1,200.0 2027 38.0 2028 1,000.0 2029 1,000.0 2030 1,000.0 Thereafter 1,250.0 Total $ 5,488.0 Ranking of Convertible Debt - Each series of Convertible Debt is an unsecured obligation which is subordinated in right of payment to the amounts outstanding under the Company's Senior Indebtedness. The Senior Subordinated Convertible Debt is subordinated to the Senior Indebtedness; ranks senior to the Company's indebtedness that is expressly subordinated in right of payment to it; ranks equal in right of payment to any of the Company's unsubordinated indebtedness that does not provide that it is senior to the Senior Subordinated Convertible Debt; ranks junior in right of payment to any of the Company's secured and unsecured unsubordinated indebtedness to the extent of the value of the assets securing such indebtedness; and is structurally subordinated to all indebtedness and other liabilities of the Company's subsidiaries. 13 Table of Contents Summary of Conversion Features - Each series of Convertible Debt is convertible, subject to certain conditions, into cash, shares of the Company's common stock or a combination thereof, at the Company's election, at specified conversion rates (see table below), adjusted for certain events including the declaration of cash dividends. Except during the three-month period immediately preceding the maturity date of the applicable series of Convertible Debt, each series of Convertible Debt is convertible only upon the occurrence of (i) such time as the closing price of the Company's common stock exceeds the applicable conversion price (see table below) by 130 % for 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter, (ii) during the 5 business day period after any 10 consecutive trading day period, or the measurement period, in which the trading price per $ 1,000 principal amount of notes of a given series for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company's common stock and the applicable conversion rate on each such trading day, or (iii) upon the occurrence of certain corporate events specified in the indenture of such series of Convertible Debt. In addition, for each series, with the exception of the 2024 Senior Convertible Debt, if at the time of conversion the applicable price of the Company's common stock exceeds the applicable conversion price at such time, the applicable conversion rate will be increased by up to an additional maximum incremental shares rate, as determined pursuant to a formula specified in the indenture for the applicable series of Convertible Debt, and as adjusted for cash dividends paid since the issuance of such series of Convertible Debt. However, in no event will the applicable conversion rate exceed the applicable maximum conversion rate specified in the indenture for the applicable series of Convertible Debt (see table below). The following table sets forth the applicable conversion rates adjusted for dividends declared since issuance of such series of Convertible Debt and the applicable incremental share factors and maximum conversion rates as adjusted for dividends paid since the applicable issuance date: Dividend adjusted rates as of June 30, 2025 Conversion Rate Approximate Conversion Price Incremental Share Factor Maximum Conversion Rate 2017 Senior Convertible Debt (1) 23.0022 $ 43.47 11.5020 32.7781 2024 Senior Convertible Debt (1) 8.2090 $ 121.82 — 10.4664 (1) As of June 30, 2025, the 2024 Senior Convertible Debt was not convertible. As of June 30, 2025, the holders of the 2017 Convertible Debt have the right to convert their notes between July 1, 2025 and September 30, 2025 because the Company's common stock price has exceeded the applicable conversion price for such series by 130% for the specified period of time during the quarter ended June 30, 2025. With the exception of the 2024 Senior Convertible Debt, which may be redeemed by the Company on or after June 5, 2027, the Company may not redeem any series of Convertible Debt prior to the relevant maturity date and no sinking fund is provided for any series of Convertible Debt. Under the terms of the applicable indenture, the Company may repurchase any series of Convertible Debt in the open market or through privately negotiated exchange offers. Upon the occurrence of a fundamental change, as defined in the applicable indenture of such series of Convertible Debt, holders of such series may require the Company to purchase all or a portion of their Convertible Debt for cash at a price equal to 100 % of the principal amount plus any accrued and unpaid interest. Additionally, holders of the 2024 Senior Convertible Debt may require the Company to purchase all or a portion of their 2024 Senior Convertible Debt for cash at a price equal to 100 % of the principal amount plus any accrued and unpaid interest if, prior to the close of business on the business day immediately preceding June 1, 2027, the last reported sale price of our common stock is less than the applicable conversion price of the 2024 Senior Convertible Debt. Interest expense consists of the following (in millions): Three Months Ended June 30, 2025 2024 Debt issuance cost amortization $ 0.7 $ 0.9 Debt discount amortization 1.4 16.6 Interest expense 51.0 41.3 Total interest expense on Senior Indebtedness 53.1 58.8 Debt issuance cost amortization 0.7 1.1 Coupon interest expense 2.5 1.1 Total interest expense on Convertible Debt 3.2 2.2 Other interest expense 1.1 0.8 Total interest expense $ 57.4 $ 61.8 14 Table of Contents Commercial Paper In September 2023, the Company established a Commercial Paper program under which the Company may issue short-term unsecured promissory notes up to a maximum principal amount outstanding at any time of $ 2.75 billion with a maturity of up to 397 days from the date of issue. The Company's obligations with respect to the payment of the Commercial Paper are guaranteed by certain of its subsidiaries. The Commercial Paper will be sold at a discount from par or alternatively, will be sold at par and bear interest rates that will vary based on market conditions and the time of issuance. The Company's intention is to reduce the amounts that would otherwise be available to borrow under the Company's Revolving Credit Facility by the outstanding amount of Commercial Paper. As of June 30, 2025, the Company had no Commercial Paper outstanding. Pursuant to the Credit Agreement, as amended and restated in March 2025, the maximum principal amount outstanding at any time under the Commercial Paper program was updated to $ 2.25 billion. Note 7 . Fair Value of Financial Instruments Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the Company utilizes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1- Observable inputs such as quoted prices in active markets; Level 2- Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3- Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The carrying amount of cash equivalents, which include money market funds, approximates fair value because their maturity is less than three months. The Company held $ 289.1 million of cash and cash equivalents in the form of money-market funds as of June 30, 2025. The amount of cash and cash equivalents held by the Company in the form of money-market funds as of March 31, 2025 was $ 491.1 million. The carrying amount of accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short-term maturity of the amounts and are considered Level 2 in the fair value hierarchy. The fair value of the Company's Commercial Paper is estimated using discounted cash flow analysis, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Company's Commercial Paper approximates the carrying value excluding debt discounts and debt issuance costs and are considered Level 2 in the fair value hierarchy. The Company measures the fair value of its Convertible Debt and Senior Notes for disclosure purposes. These fair values are based on observable market prices for this debt, which is traded in less active markets and are therefore classified as a Level 2 fair value measurement. The following table shows the carrying amounts and fair values of the Company's debt obligations (in millions): June 30, 2025 March 31, 2025 Carrying Amount (1) Fair Value Carrying Amount (1) Fair Value Commercial Paper $ — $ — $ 174.9 $ 175.0 4.250% 2025 Notes 1,199.4 1,199.0 1,198.5 1,196.9 4.900% 2028 Notes 995.5 1,012.0 995.0 1,002.5 5.050% 2029 Notes 994.3 1,015.9 993.9 1,005.8 5.050% 2030 Notes 994.4 1,014.7 994.2 996.9 2017 Senior Convertible Debt 37.9 76.2 37.9 57.7 2024 Senior Convertible Debt 1,236.6 1,229.6 1,236.0 1,173.4 Total $ 5,458.1 $ 5,547.4 $ 5,630.4 $ 5,608.2 (1) The carrying amounts presented are net of debt discounts and debt issuance costs (see Note 6 for further information). 15 Table of Contents Note 8 . Intangible Assets and Goodwill Net amounts excluding fully amortized intangible assets, consist of the following (in millions): June 30, 2025 Gross Amount Accumulated Amortization Net Amount Core and developed technology $ 7,161.5 $ ( 5,082.5 ) $ 2,079.0 Customer-related 202.5 ( 155.9 ) 46.6 In-process research and development 50.8 — 50.8 Software licenses 261.1 ( 145.3 ) 115.8 Total $ 7,675.9 $ ( 5,383.7 ) $ 2,292.2 March 31, 2025 Gross Amount Accumulated Amortization Net Amount Core and developed technology $ 7,149.9 $ ( 4,981.6 ) $ 2,168.3 Customer-related 199.5 ( 152.8 ) 46.7 In-process research and development 50.8 — 50.8 Software licenses 259.3 ( 136.1 ) 123.2 Total $ 7,659.5 $ ( 5,270.5 ) $ 2,389.0 The following is an expected amortization schedule for the intangible assets for the remainder of fiscal 2026 through fiscal 2030, absent any future acquisitions or impairment charges (in millions): Fiscal Year Ending March 31, Amortization Expense 2026 $ 395.1 2027 $ 425.0 2028 $ 320.0 2029 $ 246.8 2030 $ 239.8 The Company amortizes intangible assets over their expected useful lives, which range between 1 and 15 years. Amortization expense attributed to intangible assets are assigned to cost of sales and operating expenses as follows (in millions): Three Months Ended June 30, 2025 2024 Amortization expense charged to cost of sales $ 5.2 $ 3.7 Amortization expense charged to operating expense 126.4 142.0 Total amortization expense $ 131.6 $ 145.7 The Company recognized impairment charges of $ 2.2 million in the three months ended June 30, 2025. There were no impairment charges in the three months ended June 30, 2024. Goodwill activity by segment was as follows (in millions): Semiconductor Products Reporting Unit Technology Licensing Reporting Unit Balance at March 31, 2025 $ 6,665.6 $ 19.2 Additions due to acquisition 10.6 — Balance at June 30, 2025 $ 6,676.2 $ 19.2 At March 31, 2025, the Company applied a qualitative goodwill impairment test to its two reporting units, and concluded that goodwill was not impaired. Through June 30, 2025, the Company has never recorded a goodwill impairment charge. 16 Table of Contents Note 9 . Other Financial Statement Details Accounts Receivable Accounts receivable consists of the following (in millions): June 30, March 31, 2025 2025 Trade accounts receivable $ 755.1 $ 684.1 Other 16.1 11.5 Total accounts receivable, gross 771.2 695.6 Less: allowance for expected credit losses 5.7 5.9 Total accounts receivable, net $ 765.5 $ 689.7 Inventories The components of inventories consist of the following (in millions): June 30, March 31, 2025 2025 Raw materials $ 165.8 $ 174.8 Work in process 793.2 857.6 Finished goods 210.1 261.1 Total inventories $ 1,169.1 $ 1,293.5 Property, Plant and Equipment Property, plant and equipment consists of the following (in millions): June 30, March 31, 2025 2025 Land $ 84.8 $ 84.8 Building and building improvements 702.5 705.9 Machinery and equipment 2,313.1 2,311.3 Projects in process 428.4 424.1 Total property, plant and equipment, gross 3,528.8 3,526.1 Less: accumulated depreciation and amortization 2,374.9 2,342.4 Total property, plant and equipment, net $ 1,153.9 $ 1,183.7 Depreciation expense attributed to property, plant and equipment was $ 39.5 million for the three months ended June 30, 2025, compared to $ 43.0 million for the three months ended June 30, 2024. The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amount of such assets may not be recoverable. For each of the three months ended June 30, 2025 and 2024, the Company’s evaluation of its property, plant and equipment did not result in any material impairments. 17 Table of Contents Accrued Liabilities Accrued liabilities consists of the following (in millions): June 30, March 31, 2025 2025 Accrued compensation and benefits $ 129.2 $ 108.1 Income taxes payable 86.2 99.1 Deferred revenue 160.1 213.4 Sales related reserves 365.4 329.7 Current portion of lease liabilities 36.4 35.7 Accrued expenses and other liabilities 251.2 208.5 Total accrued liabilities $ 1,028.5 $ 994.5 Note 10 . Commitments and Contingencies Purchase Commitments The Company's purchase commitments primarily consist of agreements for the purchase of goods and services including wafer purchase obligations with the Company's wafer foundries, and manufacturing supply capacity reservation commitments. Total purchase commitments as of June 30, 2025, are as follows (in millions): Fiscal Year Ending March 31, Purchase Commitments 2026 $ 225.9 2027 130.9 2028 112.5 2029 66.3 2030 70.7 Thereafter 72.1 Total $ 678.4 Indemnification Contingencies The Company's technology license agreements generally include an indemnification clause that indemnifies the licensee against liability and damages (including legal defense costs) arising from any claims of patent, copyright, trademark or trade secret infringement by the Company's proprietary technology. The terms of these indemnification provisions approximate the terms of the outgoing technology license agreements, which are typically perpetual unless terminated by either party for breach. The possible amount of future payments the Company could be required to make based on agreements that specify indemnification limits, if such indemnifications were required on all of these agreements, is approximately $ 197.0 million. There are some licensing agreements in place that do not specify indemnification limits. As of June 30, 2025, the Company had not recorded any liabilities related to these indemnification obligations and the Company believes that any amounts that it may be required to pay under these agreements in the future will not have a material adverse effect on its financial position, cash flows or results of operations. Warranty Costs and Product Liabilities The Company accrues for known product-related claims if a loss is probable and can be reasonably estimated. During the periods presented, there have been no material accruals or payments regarding product warranty or product liability. Historically, the Company has experienced a low rate of payments on product claims. Although the Company cannot predict the likelihood or amount of any future claims, the Company does not believe these claims will have a material adverse effect on its financial condition, results of operations or liquidity. 18 Table of Contents Legal Matters In the ordinary course of the Company's business, it is exposed to various legal actions as a result of contracts, product liability, customer claims, pricing or royalty disputes with customers and licensees, governmental investigations and other matters. The Company is involved in a limited number of these legal actions, both as plaintiff and defendant, with respect to the foregoing types of matters. Consequently, the Company could incur uninsured liability in any of these legal actions. The Company also periodically receives notifications from various third parties alleging infringement of patents or other intellectual property rights, or from customers requesting reimbursement for various costs. With respect to pending legal actions to which the Company is a party and other claims, although the outcomes are generally not determinable, the Company believes that the ultimate resolution of these matters (other than certain tax matters in the U.S., Germany, and Malaysia as described in Note 11 below) will not have a material adverse effect on its financial position, cash flows or results of operations. Litigation, governmental investigations and disputes relating to the semiconductor industry are not uncommon, and the Company is, from time to time, subject to such litigation, governmental investigations and disputes. As a result, no assurances can be given with respect to the extent or outcome of any such litigation, governmental investigations or disputes in the future. The Company accrues for claims and contingencies when losses become probable and reasonably estimable. As of the end of each applicable reporting period, the Company reviews each of its matters and, where it is probable that a liability has been or will be incurred, the Company accrues for all probable and reasonably estimable losses. Where the Company can reasonably estimate a range of losses it may incur regarding such a matter, the Company records an accrual for the amount within the range that constitutes its best estimate. If the Company can reasonably estimate a range but no amount within the range appears to be a better estimate than any other, the Company uses the amount that is the low end of such range. As of June 30, 2025, the Company's estimate of the aggregate potential liability for legal matters that is possible but not probable is approximately $ 25.0 million in excess of amounts accrued. Note 11. Income Taxes The Company accounts for income taxes in accordance with ASC 740. The provision for income taxes is attributable to U.S. federal, state, and foreign income taxes. The Company’s effective tax rate for the interim period ended June 30, 2025 is ( 17.02 )% and is based on an estimated annual effective tax rate including the tax effect of items required to be recorded discretely in the interim periods in which those items occur. A comparison of the Company’s effective tax rates for the three months ended June 30, 2025 and June 30, 2024 is not meaningful due to changes in the amount of pre-tax income earned, changes in the mix of jurisdictions in which income is earned, and the impact of discrete items relative to the amount of income earned. The Company's effective tax rate is different than the statutory rates in the U.S. due to foreign income taxed at different rates than the U.S., changes in uncertain tax benefit positions, changes to valuation allowances, generation of tax credits, and the impact of Global Intangible Low Tax Income (GILTI) in the U.S. In addition, the Company has numerous tax holidays it receives related to its Thailand manufacturing operations based on its investment in property, plant and equipment in Thailand. The Company's tax holiday periods in Thailand expire at various times in the future, however, the Company actively seeks to obtain new tax holidays. The material components of foreign income taxed at a rate lower than the U.S. are earnings accrued in Thailand, Malta, and Ireland. The Company files U.S. federal, U.S. state, and foreign income tax returns. For U.S. federal, and in general for U.S. state tax returns, the fiscal 2007 and later tax years remain open for examination by tax authorities. For foreign tax returns, the Company is generally no longer subject to income tax examinations for years prior to fiscal 2007. In September 2021, the Company 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, the Company filed a petition in the U.S. Tax Court challenging the 2007 to 2012 Notice. In September 2023, the Company received a Revenue Agent Report (RAR) from the IRS for fiscal 2013 and fiscal 2016. In October 2023, the Company 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, the Company filed a petition in the U.S. Tax Court challenging the 2014 to 2015 Notice. In May 2023, the Company received a proposed income adjustment from the Malaysian Inland Revenue Board (IRB) for fiscal 2020. In December 2023, the Company received a Notice of Assessment from the IRB asserting the same proposed income adjustment. In March 2025, the Company entered into a Consent Judgment before the High Court, agreeing that the 19 Table of Contents 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 commence in the next 12 months. In January 2025, the Company received several assessments from the German Tax Authorities (GTA) regarding the German extraterritorial taxation of royalty payments between nonresidents (referred to as offshore receipts in respect of intangible property or ORIP) and intellectual property transfers by nonresidents (referred to as extraterritorial capital gains taxation or ETT). If the assessment is upheld, it could result in income taxes and penalties up to $ 92.0 million. The timing of adjudicating this matter is uncertain but could occur in the next 12 months. The Company firmly believes that the assessments described above are without merit and plans to pursue all available administrative and judicial remedies necessary to resolve these matters. The Company intends to vigorously defend its positions and the Company is confident in its ability to prevail on the merits. The Company regularly assesses the likelihood of adverse outcomes resulting from examinations such as these to determine the adequacy of the Company's tax reserves. The ultimate outcome of disputes of this nature is uncertain, and if the IRS, IRB, or GTA were to prevail on their assertions, the assessed tax, penalties, and deficiency interest could have a material adverse impact on the Company's financial position, results of operations or cash flows. Note 12. Share-Based Compensation The following table presents the details of the Company's share-based compensation expense (in millions): Three Months Ended June 30, 2025 2024 Cost of sales (1) $ 7.7 $ 6.6 Research and development 29.1 23.3 Selling, general and administrative 16.1 14.1 Pre-tax effect of share-based compensation 52.9 44.0 Income tax benefit 10.9 9.2 Net income effect of share-based compensation $ 42.0 $ 34.8 (1) During the three months ended June 30, 2025, $ 3.6 million of share-based compensation expense was capitalized to inventory and $ 7.7 million of previously capitalized share-based compensation expense in inventory was sold. During the three months ended June 30, 2024, $ 5.0 million of share-based compensation expense was capitalized to inventory and $ 6.6 million of previously capitalized share-based compensation expense in inventory was sold. Note 13 . Stockholders' Equity Changes in Share Balances The following table shows the changes in each class of shares (in millions): Series A Preferred Stock Common Stock Treasury Stock Balance at March 31, 2024 — 577.8 41.1 Repurchase of common stock — — 0.8 Common stock issued under employee equity incentive plans — 0.8 — Common stock withheld for tax withholdings on employee equity awards — ( 0.2 ) — Treasury stock used for new issuances — ( 0.6 ) ( 0.6 ) Balance at June 30, 2024 — 577.8 41.3 Balance at March 31, 2025 1.5 578.0 39.3 Common stock issued for acquisition — 0.4 — Common stock issued under employee equity incentive plans — 0.7 — 20 Table of Contents Series A Preferred Stock Common Stock Treasury Stock Common stock withheld for tax withholdings on employee equity awards — ( 0.1 ) — Treasury stock used for new issuances — ( 0.6 ) ( 0.6 ) Balance at June 30, 2025 1.5 578.4 38.7 Treasury Stock In November 2021, the Company's Board of Directors approved a stock repurchase program to repurchase up to $ 4.00 billion of the Company's common stock in the open market or in privately negotiated transactions. There is no expiration date associated with the repurchase program. There were no repurchases of common stock during the three months ended June 30, 2025. As of June 30, 2025, approximately $ 1.56 billion remained available for repurchases under the program. Shares repurchased are recorded as treasury shares and are used to fund share issuance requirements under the Company's equity incentive plans. As of June 30, 2025, the Company had approximately 38.7 million treasury shares. Series A Mandatory Convertible Preferred Stock In March 2025, the Company issued 29.7 million Depositary Shares, representing approximately 1.5 million shares of its Series A Preferred Stock. The Series A Preferred Stock has a $ 1,000.00 per share liquidation preference and a $ 0.001 per share par value. As a result of the transaction, the Company received cash proceeds of $ 1.45 billion, net of underwriting fees and other issuance costs. Dividends are cumulative at an annual rate of 7.50 % on the liquidation preference of $ 1,000.00 per share of Series A Preferred Stock and may be paid in cash, shares of the Company's common stock or a combination of cash and shares of common stock. Dividends that are declared will be payable on the 15th of March, June, September and December to holders of record on the 1st of each month of the relevant dividend payment date. Dividends are recorded as a reduction to retained earnings and are reflected in accrued liabilities within the condensed consolidated balance sheets until paid. A quarterly cash dividend of $ 16.875 per share of Series A Preferred Stock was paid to the holders of Series A Preferred Stock on June 16, 2025 in the aggregate amount of $ 25.1 million. A quarterly cash dividend of $ 18.750 per share of Series A Preferred Stock was declared on August 7, 2025 and will be paid on September 15, 2025 to the holders of Series A Preferred Stock of record as of September 1, 2025. The following table provides the conversion rate per share of our Series A Preferred Stock, subject to certain anti-dilution adjustments: Applicable Market Value of Common Stock Conversion Rate per share of Series A Preferred Stock Greater than $ 62.4766 16.0060 shares of common stock Equal to or less than $ 62.4766 but greater than or equal to $ 50.9996 Between 16.0060 and 19.6080 shares of common stock, determined by dividing $1,000 by the applicable market value Less than $ 50.9996 19.6080 shares of common stock Unless earlier converted, each share of Series A Preferred Stock will automatically convert on March 15, 2028, into between 16.0060 shares and 19.6080 shares of the Company's common stock, depending on the applicable market value of the common stock and subject to certain anti-dilution adjustments described in the certificate of designations governing the Series A Preferred Stock (Certificate of Designations). The applicable market value of the Company's common stock will be determined based on the average volume-weighted average price per share of the common stock over the 20 consecutive trading day period beginning on, and including, the 21st scheduled trading day immediately prior to March 15, 2028. If a fundamental change, as defined in the Certificate of Designations, occurs on or prior to March 15, 2028, then holders of the Series A Preferred Stock will be entitled to convert all or any portion of their shares into shares of the Company's common stock at the fundamental change conversion rate, as defined in the Certificate of Designations, for a specified period of time and also to receive an amount to compensate such holders for unpaid accumulated dividends and any remaining future scheduled dividend payments. Other than during a fundamental change conversion period, at any time prior to March 15, 2028, holders of Series A Preferred Stock may elect to convert all or any portion of their shares at a conversion rate of 16.0060 shares of common stock per share of Series A Preferred Stock, subject to certain anti-dilution and other adjustments as described in the Certificate of Designations. 21 Table of Contents In connection with the issuance of the 29.7 million Depositary Shares, representing approximately 1.5 million shares of its Series A Preferred Stock, the Company entered into capped call option transactions with several financial institutions at a cost of $ 55.1 million. Upon conversion of the Series A Preferred Stock, the Company may exercise the capped call options subject to a cap price of $ 71.40 per share, subject to certain adjustments under the terms of the capped call options, which are generally expected to reduce the potential dilution to the Company's common stock upon conversion of the Series A Preferred Stock and/or offset any cash payments the Company is required to make. As these transactions meet certain accounting criteria, the capped call options are recorded as a reduction of stockholders' equity and are not accounted for as derivatives. Common Stock Dividends A quarterly cash dividend of $ 0.455 per share was paid on June 5, 2025 in the aggregate amount of $ 245.5 million. A quarterly cash dividend of $ 0.455 per share was declared on August 7, 2025 and will be paid on September 5, 2025 to stockholders of record as of August 22, 2025. The Company expects the September 2025 payment of its quarterly cash dividend to be approximately $ 245.7 million. 22 Table of Contents Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Note Regarding Forward-looking Statements This report, including "Part I – Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II - Item 1A. Risk Factors" contains certain forward-looking statements that involve risks and uncertainties, including statements regarding our strategy, financial performance and revenue sources. We use words such as "anticipate," "believe," "can," "continue," "could," "expect," "future," "intend," "plan," and similar expressions to identify forward-looking statements. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth under "Risk Factors," beginning at page 37 and elsewhere in this Form 10-Q. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements. We disclaim any obligation to update information contained in any forward-looking statement. These forward-looking statements include, without limitation, statements regarding the following: • Our expectation that we will experience period-to-period fluctuations in operating results, gross margins, and product mix; • The effects that uncertain global economic conditions and fluctuations in the global credit and equity markets may have on our financial condition and results of operations; • The effects and amount of competitive pricing pressure on our product lines and modest pricing declines in certain of our more mature proprietary product lines; • Our ability to moderate future average selling price declines; • The amount of, and changes in, demand for our products and those of our customers; • The impact of national security protections, trade restrictions and changes in tariffs, including those impacting China; • Our intent to vigorously defend our legal positions and our expectations of the impact of litigation on our operations; • The future impact on our business in response to public health concerns; • Our goal to continue to be more efficient with our selling, general and administrative expenses; • Our belief that customers recognize our products and brand name and our use of distributors as an effective supply channel; • Our belief that familiarity with and adoption of development tools from us and from our third-party development tool partners will be an important factor in the future selection of our embedded control products; • The accuracy of our estimates of the useful life and values of our property, assets and other liabilities; • The possibility of future pricing fluctuations in our analog product line; • The impact of any supply disruption we may experience; • Our ability to effectively utilize our facilities at appropriate capacity levels; • Our ability to maintain manufacturing yields; • The maintenance of our competitive position based on our investments in new and enhanced products; • The cost effectiveness of using our own assembly and test operations; • Our plans to continue to transition certain outsourced assembly and test capacity to our internal facilities; • Our expectations regarding investments in equipment and facilities and the timeline of expansions of our manufacturing capacity; • The continued development of the embedded control market based on our strong technical service presence; • Our anticipated level of capital expenditures; • The possibility that loss of, or disruption in the operations of, one or more of our distributors could reduce our future net sales and/or increase our inventory returns; • Our intent, including length, timing, planned closure days, to reduce production levels at global fabrication facilities, or closure of facilities completely and its impact on inventory levels and estimated cash savings; • Our expectations regarding LTSAs and the realization of deferred revenue; • The continuation and amount of quarterly cash dividends; • The sufficiency of our existing sources of liquidity to finance anticipated capital expenditures and otherwise meet our anticipated cash requirements, and the effects that our contractual obligations are expected to have on them; • Our belief that the capital expenditures 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 production requirements that are currently outsourced; • Our belief that our IT system compromise will not have a material adverse effect on our business or result in any material damage to us; 23 Table of Contents • Our expectation that we will continue to be the target of cyber-attacks, computer viruses, unauthorized access and other attempts to breach or otherwise compromise the security of our IT systems and data; • Our plans to modify and enhance our cybersecurity risk management processes and strategy; • The impact of the resolution of legal actions on our business, and the accuracy of our assessment of the probability of loss and range of potential loss; • 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; • Our expectation regarding the treatment of our unrecognized tax benefits in the next 12 months; • Our belief that the expiration of any tax holidays will not have a material impact on our effective tax rate; • Our expectations regarding our tax expense, cash taxes and effective tax rate; • Our expectation that the global minimum tax (GMT) will not have a material impact on our fiscal 2026 results; • Our belief that the estimates used in preparing our condensed consolidated financial statements are reasonable; • Our actions to vigorously and aggressively defend and protect our intellectual property on a worldwide basis; • Our ability to obtain and maintain patents and intellectual property licenses and minimize the effects of litigation or other disputes or the loss of patent protection; • The level of risk we are exposed to for product liability claims or indemnification claims; • The effect of fluctuations in market interest rates on our income and/or cash flows; • The effect of fluctuations in currency rates; • The impact of inflation on our business; • Our ability to increase our borrowings or seek additional equity or debt financing to maintain or expand our facilities, or to fund cash dividends, share repurchases, acquisitions or other corporate activities, and that the timing and amount of such financing requirements will depend on a number of factors; • Our expected debt obligation maturities, including the conversion of debt, Depositary Shares, and Series A Preferred Stock, and plans to refinance our existing debt; • Our expectations regarding the amounts and timing of repurchases under our stock repurchase program; • Our expectation that our reliance on third-party contractors may increase over time as our business grows; • Our ability to collect accounts receivable; • The impact of the legislative and policy changes implemented or which may be implemented by the current administration on our business and the trading price of our stock; • Our belief that our culture, values, and organizational development and training programs will continue to provide a work environment where our employees are empowered and engaged to deliver the best embedded control solutions; • Our belief that our continued success is driven by the skills, knowledge, and innovative capabilities of our personnel, a strong technical service presence, and our ability to rapidly commercialize new and enhanced products; • The potential impact of changes in regulations or in their enforcement, including with respect to the capital expenditures or other costs or expenses; • The impact of any failure by use to adequately control the storage, use, discharge and disposal of regulated substances; • Estimates and plans regarding pension liability and payments expected to be made for benefits earned; • Our expectations regarding the amount, timing, and future applications for investment tax credits under the CHIPS Act; • Our expectations regarding past or potential future acquisitions, joint development agreements or other strategic relationships and any related benefits; and • The impact on our business stemming from Russia’s invasion of Ukraine. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth in "Item 1A. Risk Factors," and elsewhere in this Form 10-Q. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements. We disclaim any obligation to update the information contained in any forward-looking statement. 24 Table of Contents Introduction The following discussion should be read in conjunction with the condensed consolidated financial statements and the related notes that appear elsewhere in this document. 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, 2025 compared to the three months ended June 30, 2024, followed by an analysis of changes in our balance sheet and cash flows, and discuss our financial commitments in the section titled "Liquidity and Capital Resources." Business and Macroeconomic Environment During most of fiscal 2025, our overall business was weak as we navigated through a large inventory correction. However, in the first quarter of fiscal 2026, we saw a significant improvement in our overall business compared to the fourth quarter of fiscal 2025. Net sales in our mixed-signal microcontroller and analog product lines increased from the March 2025 quarter. Net sales in all geographies were also up from the March 2025 quarter. Consistent with the business recovery plan which we implemented in March 2025, we reduced inventory and days of inventory in the June 2025 quarter compared to the March 2025 quarter. Most of our factory expansion activity remains paused as we continue to execute our recovery plan and take actions to further reduce inventory. Strategy We develop, manufacture and sell smart, connected and secure embedded control solutions used by our customers for a wide variety of applications. Our strategic focus includes general purpose and specialized 8-bit, 16-bit, and 32-bit mixed-signal microcontrollers, microprocessors, analog, FPGA, and memory products. With over 30 years of technology leadership, our broad product portfolio is a Total System Solution (TSS) for our customers that can provide a large portion of the silicon requirements in their applications. TSS is a combination of hardware, software and services which help our customers increase their revenue, reduce their costs and manage their risks compared to other solutions. Our synergistic product portfolio empowers disruptive growth trends, including AI/ML, data centers, edge computing and Internet of Things (IoT), E-mobility, networking and connectivity, and sustainability, in key end markets such as automotive, aerospace and defense, communications, consumer appliances, data centers and computing, and industrial. 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. 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. We employ proprietary design and manufacturing processes in developing our embedded control products. We believe our processes afford us both cost-effective designs in existing and derivative products and greater functionality in new product designs. While many of our competitors develop and optimize separate processes for their logic and memory product lines, we use a common process technology for both mixed-signal microcontroller and non-volatile memory products. This allows us to more fully leverage our process research and development costs and to deliver new products to market more rapidly. Our engineers utilize advanced computer-aided design tools and software to perform circuit design, simulation and layout, and our in-house photomask and wafer fabrication facilities enable us to rapidly verify design techniques by processing test wafers quickly and efficiently. We are committed to continuing our investment in new and enhanced products, including development systems, and in our design and manufacturing process technologies. We believe these investments are significant factors in maintaining our 25 Table of Contents competitive position. Our current research and development activities focus on the design of new mixed-signal microcontrollers, digital signal controllers, memory, analog and mixed-signal products, FPGAs, timing systems, Flash-IP, development systems, software and application-specific software libraries. We are also developing new design and process technologies to achieve further cost reductions and performance improvements in our products. We market and sell our products worldwide primarily through a network of direct sales personnel and distributors. Our direct sales force focuses on a wide variety of strategic accounts in three geographical markets: the Americas, Europe and Asia. We currently maintain sales and technical support centers in major metropolitan areas in all three geographic markets. We believe that a strong technical service presence is essential to the continued development of the embedded control market. Many of our CEMs, ESEs, and sales managers have technical degrees or backgrounds and have been previously employed in high technology environments. We believe that the technical and business knowledge of our sales force is a key competitive advantage in the sale of our products. The primary mission of our ESE team is to provide technical assistance to customers and to conduct periodic training sessions for our sales team. ESEs also frequently conduct technical seminars and workshops in major cities around the world or through online webcasts. Our licensing division has dedicated sales, technology, design, product, test and reliability personnel that support the requirements of our licensees. See the risk factor captioned " Our operating results are impacted by seasonality and wide fluctuations of supply and demand in the industry " on page 44 for discussion of the impact of seasonality on our business. Critical Accounting Policies and Estimates There were no changes to our critical accounting policies and estimates during the first three 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. Results of Operations The following table sets forth certain operational data as a percentage of net sales for the periods covered by this report: Three Months Ended June 30, 2025 2024 Net sales 100.0 % 100.0 % Cost of sales 46.4 40.6 Gross profit 53.6 59.4 Research and development 23.8 19.5 Selling, general and administrative 14.8 12.1 Amortization of acquired intangible assets 9.9 9.9 Special charges and other, net 2.1 0.2 Operating income 3.0 % 17.7 % Net Sales We operate in two industry segments and engage primarily in the design, development, manufacture and sale of semiconductor products as well as the licensing of our SuperFlash and other technologies. We sell our products to distributors and OEMs in a broad range of markets, perform ongoing credit evaluations of our customers and generally require no collateral. In certain circumstances, a customer's financial condition may require collateral, and, in such cases, the collateral would be typically provided in the form of letters of credit. The following table summarizes our net sales for the periods covered by this report (dollars in millions): Three Months Ended June 30, 2025 2024 Change Net sales $ 1,075.5 $ 1,241.3 (13.4) % The decrease in net sales in the three months ended June 30, 2025 compared to June 30, 2024 was primarily due to many customers having high levels of inventory and delaying or reducing orders and, to a lesser extent, adverse economic conditions, including slow economic activity, business uncertainty, persistent inflation and high interest rates. Due to the size, 26 Table of Contents 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. Other factors that we believe contributed to the change in our reported net sales for the three months ended June 30, 2025 compared to June 30, 2024 and which are drivers of long-term trends in our net sales but which factors we are not able to quantify include: • economic and competitive conditions in the semiconductor industry; • our various new product offerings that have increased our served available market; • customers’ needs for the flexibility offered by our programmable solutions; • increasing semiconductor content in our customers’ products; and • geopolitical conditions, tariffs and other trade restrictions. 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 change in our net sales in the three months ended June 30, 2025 or the three months ended June 30, 2024. Net sales by product line for the periods covered by this report were as follows (dollars in millions): Three Months Ended June 30, 2025 % 2024 % Mixed-signal Microcontrollers $ 532.6 49.5 $ 644.7 51.9 Analog 316.2 29.4 330.6 26.6 Other 226.7 21.1 266.0 21.5 Total net sales $ 1,075.5 100.0 $ 1,241.3 100.0 Mixed-signal Microcontrollers 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% of our net sales in the three months ended June 30, 2025 compared to approximately 51.9% of our net sales in the three months ended June 30, 2024. Net sales of our mixed-signal microcontroller products decreased 17.4% in the three months ended June 30, 2025 compared to the three months ended June 30, 2024 primarily due to many customers having high levels of inventory and delaying or reducing orders and, to a lesser extent, adverse economic conditions, including slow economic activity, business uncertainty, persistent inflation and high interest rates. 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. Analog Our analog product line includes analog, interface, mixed-signal and timing products. Our analog product line accounted for approximately 29.4% of our net sales in the three months ended June 30, 2025 compared to approximately 26.6% of our net sales in the three months ended June 30, 2024. Net sales from our analog product line decreased 4.4% in the three months ended June 30, 2025 compared to the three months ended June 30, 2024, was primarily due to many customers having high levels of inventory and delaying or reducing orders and, to a lesser extent, adverse economic conditions, including slow economic activity, business uncertainty, persistent inflation and high interest rates. 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 27 Table of Contents of our analog product line will experience price fluctuations, driven primarily by the current supply and demand for those products. Other 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 21.1% of our net sales in the three months ended June 30, 2025 compared to approximately 21.5% of our net sales in the three months ended June 30, 2024. Net sales related to these services and products decreased 14.8% in the three months ended June 30, 2025 compared to the three months ended June 30, 2024. The decrease in net sales was primarily due many customers having high levels of inventory and delaying or reducing orders and, to a lesser extent, adverse economic conditions, including slow economic activity, business uncertainty, persistent inflation and high interest rates. Net sales of our other product line can fluctuate over time based on general economic and semiconductor industry conditions as well as changes in demand for our FPGA products, licenses, engineering services, memory products, timing systems, and manufacturing services (wafer foundry and assembly and test subcontracting). Distribution Distributors accounted for approximately 47% of our net sales in each of the three months ended June 30, 2025 and June 30, 2024. With the exception of Arrow Electronics, our largest distributor, which accounted for 11% of our net sales in each of the three months ended June 30, 2025 and the three months ended June 30, 2024, no other distributor or direct customer accounted for more than 10% of our net sales in the three months ended June 30, 2025 or in the three months ended June 30, 2024. 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. Generally, we do not have long-term agreements with our distributors and we, or our distributors, may terminate our relationships with each other with little or no advance notice. The loss of, or the disruption in the operations of, one or more of our distributors could reduce our future net sales in a given quarter and could result in an increase in inventory returns. At June 30, 2025, our distributors maintained 29 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. Sales by Geography Sales by geography for the periods covered by this report were as follows (dollars in millions): Three Months Ended June 30, 2025 % 2024 % Americas $ 307.6 28.6 $ 374.2 30.2 Europe 225.4 21.0 271.9 21.9 Asia 542.5 50.4 595.2 47.9 Total net sales $ 1,075.5 100.0 $ 1,241.3 100.0 Americas sales include sales to customers in the U.S., Canada, Central America and South America. Sales to foreign customers accounted for approximately 77% of our total net sales in the three months ended June 30, 2025 compared to approximately 76% of our total net sales in the three months ended June 30, 2024, respectively. Our net sales in all geographies decreased in the three months ended June 30, 2025 compared to the three months ended June 30, 2024, primarily due to many customers having high levels of inventory and delaying or reducing orders and, to a lesser extent, adverse economic conditions, including slow economic activity, business uncertainty, persistent inflation and high interest rates. Substantially all of our foreign sales are U.S. dollar denominated. Our sales force in the Americas and Europe supports a significant portion of the design activity for products which are ultimately shipped to Asia. 28 Table of Contents Gross Profit Our gross profit in the three months ended June 30, 2025 was $576.7 million, or 53.6% of net sales, compared to $736.9 million, or 59.4% of net sales, in the three months ended June 30, 2024. The primary reason for the decrease in gross profit of $156.5 million in the three months ended June 30, 2025 compared to June 30, 2024 was an unfavorable net impact of sales volume, product mix, and geographic mix in the three months ended June 30, 2025. The net impact of product mix may fluctuate over time due to the mix of sales volumes of lower or higher margin products, changes in selling prices, and fluctuations in product costs. We are not able to separately quantify these impacts on our gross profit. The impact of unabsorbed capacity charges was an adverse impact of $15.6 million in the three months ended June 30, 2025 compared to June 30, 2024. 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 $1.0 million in the three months ended June 30, 2025 compared to June 30, 2024. The gross margin impact of changes in licensing revenue, which has no associated cost of sales, was a favorable impact of $10.9 million in the three months ended June 30, 2025 compared to June 30, 2024. Our overall inventory levels were $1.17 billion at June 30, 2025, compared to $1.29 billion at March 31, 2025. We maintained 214 days of inventory on our balance sheet at June 30, 2025 compared to 251 days of inventory at March 31, 2025. Our overall inventory level in dollars decreased as a result of our efforts to balance manufacturing production, customer demand and inventory levels. Our days of inventory decreased from the prior quarter levels driven by our inventory reduction actions. 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. We operate assembly and test facilities in Thailand and the Philippines. Approximately 69% of our assembly requirements were performed in our internal assembly facilities during the three months ended June 30, 2025, compared to 68% during the three months ended June 30, 2024. During the three months ended June 30, 2025, approximately 68% of our test requirements were performed in our internal facilities compared to 66% during the three months ended June 30, 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. We rely on outside wafer foundries for a significant portion of our wafer fabrication requirements. Approximately 64% of our net sales came from products that were produced at outside wafer foundries during the three months ended June 30, 2025, compared to 63% during the three months ended June 30, 2024. This percentage may vary based on supply and demand conditions in the market. We anticipate that our gross margins will fluctuate over time, driven primarily by capacity utilization levels, the overall mix of products sold during the period, as well as manufacturing yields, unabsorbed capacity charges, and competitive and economic conditions in the markets we serve. We continue to transition products to more advanced process technologies to reduce future manufacturing costs. Research and Development R&D expenses for the three months ended June 30, 2025 were $255.5 million, or 23.8% of net sales, compared to $241.7 million, or 19.5% of net sales, for the three months ended June 30, 2024. We are committed to investing in new and enhanced products, including development systems software, and in our design and manufacturing process technologies. We believe these investments are significant factors in maintaining our competitive position. R&D costs are expensed as incurred. Assets purchased to support our ongoing research and development activities are capitalized when related to products which have achieved technological feasibility or that have alternative future uses and are amortized over their expected useful lives. R&D expenses include labor, depreciation, masks, prototype wafers, and expenses for the development of process technologies, new packages, and software to support new products and design environments. 29 Table of Contents R&D expenses increased $13.8 million, or 5.7%, for the three months ended June 30, 2025 over the same period last year. The primary reason for the increase in R&D expenses were higher employee compensation costs, including higher share-based compensation expenses partially offset by our restructuring efforts. R&D expenses fluctuate over time, primarily due to revenue and operating expense investment levels. Selling, General and Administrative Selling, general and administrative expenses for the three months ended June 30, 2025 were $159.3 million, or 14.8% of net sales, compared to $150.5 million, or 12.1% of net sales, for the three months ended June 30, 2024. Our goal is to continue to be more efficient with our selling, general and administrative expenses. Selling, general and administrative expenses include salary expenses related to field sales, marketing and administrative personnel, advertising and promotional expenditures and legal expenses as well as costs related to our direct sales force, CEMs and ESEs who work remotely from sales offices worldwide to stimulate demand by assisting customers in the selection and use of our products. Selling, general and administrative expenses increased $8.8 million, or 5.8%, for the three months ended June 30, 2025 over the same period last year. The increase in selling, general and administrative expenses was primarily due to higher acquisition related and higher employee compensation costs, including higher share-based compensation expenses partially offset by our restructuring efforts. Selling, general and administrative expenses fluctuate over time, primarily due to revenue and operating expense investment levels. Amortization of Acquired Intangible Assets Amortization of acquired intangible assets for the three months ended June 30, 2025 was $107.6 million, compared to $123.0 million for the three months ended June 30, 2024. 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. Special Charges and Other, Net 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 Tempe, Arizona wafer fabrication facility and employee separation costs. During the three months ended June 30, 2024 we incurred special charges and other, net of $2.6 million primarily related to restructuring of existing wafer fabrication operations to increase operational efficiency. Other Income (Expense) Interest income in the three months ended June 30, 2025 was $4.9 million compared to $2.8 million in the three months ended June 30, 2024. Interest expense in the three months ended June 30, 2025 was $57.4 million compared to $61.8 million for the three months ended June 30, 2024. The primary reason for the decrease in interest expense in the three months ended June 30, 2025 compared to the same period last year was due to lower debt balances offset by higher interest rates on such outstanding debt balances in the three months ended June 30, 2025. We had $4.6 million other income, net in the three months ended June 30, 2025, compared to $1.7 million other income, net in the three months ended June 30, 2024. The primary reason for the change in other income in the three months ended June 30, 2025 compared to the three months ended June 30, 2024 relates to foreign currency exchange rate fluctuations. Provision for Income Taxes 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 three months ended June 30, 2025 and June 30, 2024 is not meaningful due to changes in the amount of pre-tax income earned, changes in the mix of jurisdictions in which income is earned, and the impact of discrete items relative to the amount of income earned. 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 30 Table of Contents domestic blended statutory tax rate in each of the three months ended June 30, 2025 and June 30, 2024 was approximately 22%. Our non-U.S. blended statutory tax rates in the three months ended June 30, 2025 and June 30, 2024 were lower than this amount. 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. Our foreign tax rate differential benefit primarily relates to our operations in Malta taxed at a 5.0% 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. 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 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. In January 2025, we received several assessments from the German Tax Authorities (GTA) regarding the German extraterritorial taxation of royalty payments between nonresidents (referred to as offshore receipts in respect of intangible property or ORIP) and intellectual property transfers by nonresidents (referred to as extraterritorial capital gains taxation or ETT). If the assessment is upheld, it could result in income taxes and penalties up to $92.0 million. The timing of adjudicating this matter is uncertain but could occur in the next 12 months. We firmly believe that the assessments described above 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 IRS, 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. Various taxing authorities in the U.S. and other countries in which we do business are increasing their scrutiny of the tax structures employed by businesses. Companies of our size and complexity are regularly audited by the taxing authorities in the jurisdictions in which they conduct significant operations. For U.S. federal, and in general for U.S. state tax returns, our fiscal 2007 and later tax returns remain effectively open for examination by the taxing authorities. We are currently being audited by the tax authorities in the U.S. and in various foreign jurisdictions. At this time, we do not know what the outcome of these audits will be. We record benefits for uncertain tax positions based on an assessment of whether it is more likely than not that the tax positions will be sustained based on their technical merits under currently enacted law. If this threshold is not met, no tax benefit of the uncertain tax position is recognized. If the threshold is met, we recognize the largest amount of the tax benefit that is more than 50% likely to be realized upon ultimate settlement. In August 2022, the U.S. government enacted the Inflation Reduction Act into law. The Inflation Reduction Act includes a new corporate alternative minimum tax (Corporate AMT) of 15.0% on the adjusted financial statement income (AFSI) of corporations with average AFSI exceeding $1.00 billion over a three-year period, as well as a 1% excise tax on the net fair market value of stock repurchases made after December 31, 2022. The Corporate AMT is effective beginning in fiscal 2024. The Inflation Reduction Act did not have a material impact on our tax expense or effective tax rate during the three months ending June 30, 2025. 31 Table of Contents 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 three months ending June 30, 2025 was not material to our financial results. 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 will be recognized in the period in which the legislation was enacted. We will continue to evaluate the broader implications of OBBBA, including the effects of future regulatory guidance and interpretations. Additional adjustments may be required in periods subsequent to enactment as further information becomes available. Liquidity and Capital Resources We had $566.5 million in cash and cash equivalents at June 30, 2025, a decrease of $205.2 million from the March 31, 2025 balance. Operating Activities 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. The primary drivers of the changes in operating assets and liabilities in the three months ended June 30, 2025 include a decrease in inventories, increases in accrued liabilities driven by increases in accrued interest and wage related accruals, partially offset by a decrease due to cash refunded to our customers under the LTSAs, and 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 $377.1 million in the three months ended June 30, 2024 primarily due to net income of $129.3 million, adjusted for non-cash and non-operating charges of $224.8 million and net cash inflows of $23.0 million from changes in our operating assets and liabilities. Investing Activities Net cash used in investing activities was $36.9 million in the three months ended June 30, 2025 compared to $125.5 million in the three months ended June 30, 2024. During the three months ended June 30, 2025, and the three months ended June 30, 2024, net investing activities primarily related to capital purchases and investments in other assets. 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, 2025 were $17.9 million compared to $72.9 million in the three months ended June 30, 2024. 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 2026. Our investments in equipment and facilities during the next 12 months are expected to be at or below $100 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. Despite pausing our expansion activity, we believe that our current inventory and production capacity are adequate to fulfill the projected requirements of our customers. In August 2022, the U.S. government enacted the CHIPS Act to provide billions of dollars of cash incentives and a new investment tax credit to increase domestic manufacturing capacity in our industry. In December 2023, we reached a Preliminary Memorandum of Terms with the U.S. Department of Commerce for $162 million in CHIPS Act grants for two of our U.S. wafer fabrication facilities; however, we have not concluded negotiations with the U.S. Department of Commerce and there can be no assurance that the grants will receive final approval. If we do receive a CHIPS Act grant, the restrictions and operational requirements that are imposed on CHIPS Act grant recipients could add complexity to our operations and increase our costs. We expect to receive the cash benefit associated with the investment tax credit for qualifying capital expenditures in future periods and may apply for other incentives provided by the legislation; however, there can be no assurance that we will receive any such other incentives, what the amount and timing of any incentive we receive will be, as to which other companies will receive incentives and whether the legislation will have a positive or negative impact on our competitive position. 32 Table of Contents Financing Activities Net cash used in financing activities was $443.9 million in the three months ended June 30, 2025 compared to $256.2 million in the three months ended June 30, 2024. Significant transactions affecting our net financing cash flows included: • in the first three months of fiscal 2026, $174.1 million of net cash used to paydown our Commercial Paper balance, and • in the first three months of fiscal 2025, $80.9 million of net proceeds from the issuance of our 2024 Senior Convertible Debt offset by the purchase of our capped call options, and the paydown of our Commercial Paper balance, and • in the first three months of fiscal 2026 and fiscal 2025, we paid cash dividends to our common stockholders of $245.5 million and $242.6 million, respectively, and • in the first three months of fiscal 2026, we paid cash dividends to our preferred stockholders of $25.1 million, and • in the first three months of fiscal 2025, we repurchased shares of our common stock for $72.7 million. In March 2025, we entered into a Second Amended and Restated Credit Agreement (the Second Amended and Restated Credit Agreement) pursuant to which the Credit Agreement, was amended and restated in its entirety. The Second Amended and Restated Credit Agreement provides for an unsecured revolving loan facility in an aggregate principal amount of up to $2.25 billion, with a $250.0 million foreign currency sublimit, a $25.0 million letter of credit sublimit and a $20.0 million swingline loan sublimit. The Second Amended and Restated Credit Agreement amended the maximum total leverage ratio financial covenant to the following: 5.50 to 1.00 for period ending March 31, 2025, 5.50 to 1.00 for period ending June 30, 2025, 6.25 to 1.00 for period ending September 30, 2025, 5.75 to 1.00 for period ending December 31, 2025, 4.75 to 1.00 for period ending March 31, 2026, 4.00 to 1.00 for period ending June 30, 2026, 3.75 to 1.00 for period ending September 30, 2026, and 3.50 to 1.00 for any such period ended after the Restatement Effective Date that is not a period ending during the Covenant Relief Period. The Covenant Relief Period means the period following the Restatement Effective Date to (but excluding) the earlier of (a) December 31, 2026 and (b) the date in which the Total Leverage Ratio for the most recently ended fiscal quarter shall not exceed 3.50 to 1.00 and certain other conditions are satisfied. In September 2023, we established a Commercial Paper program under which we may issue short-term unsecured promissory notes up to a maximum principal amount outstanding at any time of $2.75 billion with a maturity of up to 397 days from the date of issue. The Commercial Paper is sold from time to time at a discount from par or alternatively, sold at par and bears interest rates that will vary based on market conditions and the time of issuance. Our intent is to reduce the amounts that would otherwise be available to borrow under our Revolving Credit Facility by the outstanding amount of Commercial Paper. Pursuant to the Second Amended and Restated Credit Agreement, in March 2025, the maximum principal amount outstanding at any time under the Commercial Paper program was updated to $2.25 billion. As of June 30, 2025, the principal amount of our outstanding indebtedness was $5.49 billion. We had no outstanding borrowings under the Revolving Credit Facility at June 30, 2025 and at March 31, 2025. At June 30, 2025, we had no outstanding principal amount of Commercial Paper compared to $175.0 million at March 31, 2025. In March 2025, we issued 29.7 million Depositary Shares, representing approximately 1.5 million shares of our Series A Preferred Stock. The Series A Preferred Stock has a $1,000.00 per share liquidation preference and $0.001 per share par value. As a result of the transaction, we received cash proceeds of $1.45 billion, net of underwriting fees and other issuance costs. Dividends and Share Repurchases In November 2021, our Board of Directors authorized the repurchase of up to $4.00 billion of our common stock in the open market or in privately negotiated transactions. No shares were repurchased under this authorization in the first three months of fiscal 2026. In the first three months of fiscal 2025, we repurchased approximately 0.8 million shares of our common stock for $72.7 million under this authorization. As of June 30, 2025, approximately $1.56 billion remained available for repurchases under the program. As of June 30, 2025, we held approximately 38.7 million shares as treasury shares. Any future repurchases of shares of our common stock will be evaluated based on our cash generation, leverage metrics, and market conditions. In October 2002, we announced that our Board of Directors had approved and instituted a quarterly cash dividend on our common stock. To date, our cumulative dividend payments have totaled approximately $7.87 billion. A quarterly dividend of $0.455 per share was declared on August 7, 2025 and will be paid on September 5, 2025 to stockholders of record as of August 22, 2025. We expect the aggregate cash dividend on our common stock for the September 2025 quarter to be 33 Table of Contents approximately $245.7 million. Our Board is free to change our dividend practices at any time and to increase or decrease the dividend paid, or not to pay a dividend on our common stock on the basis of our results of operations, financial condition, cash requirements and future prospects, and other factors deemed relevant by our Board. Our current intent is to maintain our level of quarterly cash dividends depending upon market conditions, our results of operations, and potential changes in tax laws. With respect to shares of our Series A Preferred Stock, dividends are cumulative at an annual rate of 7.50% on the liquidation preference of $1,000.00 per share of Series A Preferred Stock. A quarterly cash dividend of $16.875 per share of Series A Preferred Stock was paid to the holders of Series A Preferred Stock on June 16, 2025 in the aggregate amount of $25.1 million. A quarterly cash dividend of $18.750 per share of Series A Preferred Stock was declared on August 7, 2025 and will be paid on September 15, 2025 to the holders of Series A Preferred Stock of record as of September 1, 2025. We believe that our existing sources of liquidity combined with cash generated from operations, borrowings under our Revolving Credit Facility and proceeds from issuance of our Commercial Paper will be sufficient to meet our currently anticipated cash requirements for at least the next 12 months. Our long-term liquidity requirements primarily arise from working capital requirements, interest and principal repayments related to our outstanding indebtedness, capital expenditures, cash dividends, share repurchases, and income tax payments. For additional information regarding our cash requirements see "Note 10. Commitments and Contingencies", "Note 6. Debt" and "Note 11. Income Taxes" to our condensed consolidated financial statements. The semiconductor industry is capital intensive and in order to remain competitive, we must constantly evaluate the need to make significant investments in capital equipment for both production and research and development and to expand our existing facilities or potentially construct new facilities. We may increase our borrowings under our Revolving Credit Facility or our Commercial Paper program or seek additional equity or debt financing from time to time to refinance our existing debt, maintain or expand our wafer fabrication and product assembly and test facilities, for cash dividends, for share repurchases or for acquisitions or other purposes. The timing and amount of any such financing requirements will depend on a number of factors, including the maturity dates of our existing debt, our level of dividend payments on our common stock and Series A Preferred Stock, changes in tax laws and regulations regarding the repatriation of offshore cash, demand for our products, changes in industry conditions, product mix, competitive factors and our ability to identify suitable acquisition candidates. We plan to refinance certain of our existing notes as they mature and we may from time to time seek to refinance certain of our other outstanding debt or Convertible Debt through issuances of new notes or convertible debt, term loans, Commercial Paper, tender offers, exchange transactions or open market repurchases. Such issuances, tender offers or exchanges or purchases, if any, will depend on prevailing market conditions, our ability to negotiate acceptable terms, our liquidity position and other factors. There can be no assurance that any financing will be available on acceptable terms due to uncertainties resulting from tariffs, high interest rates, high inflation, economic uncertainty, instability in the banking sector, public health concerns, or other factors, and any additional equity financing or convertible debt financing would result in incremental ownership dilution to our existing stockholders. Summarized Financial Information The tables below present the summarized financial information on a combined basis for Microchip Technology Incorporated and the following subsidiaries of Microchip Technology Incorporated that provide guarantees of our Senior Notes: Atmel Corporation, Microchip Holding Corporation, Microchip Technology LLC, Silicon Storage Technology, Inc., Microsemi Corporation, and Microchip Storage Solutions LLC (such subsidiaries collectively, the Subsidiary Obligors). The debt securities are fully and unconditionally guaranteed by the aforementioned subsidiaries and rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. The summarized financial information is provided in accordance with the reporting requirements of Rule 13-01 under Regulation S-X and is not intended to present our financial position or results of operations in accordance with generally accepted accounting principles as such principles are in effect in the U.S. We have presented summarized financial information below for Microchip Technology Incorporated and the Subsidiary Obligors after the elimination of intercompany transactions and balances among Microchip Technology Incorporated and the Subsidiary Obligors and investments in any subsidiaries (in millions). The Subsidiary Obligors regularly sell goods and services to non-guarantor subsidiaries (Non-Guarantors) and the Subsidiary Obligors regularly purchase goods and services from Non-Guarantor through intercompany arrangements. The summarized financial information does not eliminate the effects of 34 Table of Contents these intercompany arrangements and separately presents the net effect of all of the Subsidiary Obligors’ transactions with Non-Guarantor for the financial measures presented below. As of June 30, 2025 As of March 31, 2025 Current assets, excluding intercompany $ 454.2 $ 671.8 Intercompany receivables from Non-Guarantors 3,403.9 3,527.3 Goodwill and intangible assets 4,580.3 4,586.8 Non-current assets, excluding intercompany 1,176.3 1,213.6 Non-current intercompany receivables from Non-Guarantors 180.4 181.6 Total assets $ 9,795.1 $ 10,181.1 Current liabilities, excluding intercompany $ 392.3 $ 314.9 Intercompany payables due to Non-Guarantors 6,058.0 6,095.1 Long-term debt 5,458.1 5,630.4 Non-current liabilities, excluding intercompany 935.8 959.6 Non-current intercompany payables due to Non-Guarantors 2,114.2 2,116.2 Total liabilities $ 14,958.4 $ 15,116.2 Three Months Ended June 30, 2025 For the Year Ended March 31, 2025 Revenue, excluding intercompany $ 315.4 $ 1,365.3 Revenue from Non-Guarantors 117.7 400.2 Total revenue $ 433.1 $ 1,765.5 Gross profit, excluding intercompany 194.8 971.0 Gross loss from Non-Guarantors (48.0) (378.9) Total gross profit $ 146.8 $ 592.1 Operating income, excluding intercompany 49.7 483.0 Operating loss from Non-Guarantors (48.0) (378.9) Total operating income $ 1.7 $ 104.1 Net (loss) income, excluding intercompany (14.0) 210.8 Net loss from Non-Guarantors (54.4) (402.8) Total net income (loss) $ (68.4) $ (192.0) Item 3. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk As of June 30, 2025, our current and long-term debt totaled $5.49 billion, all of which was fixed rate and not subject to interest rate exposure. We intend to finance the repayment of our fixed rate debt maturing within the next 12 months using available borrowings under our Revolving Credit Facility, our Commercial Paper program or other instruments at which point, changes in interest rates will have a more significant impact on our interest expense if we refinance such fixed rate debt with variable rate debt. For additional information, refer to "Note 6. Debt" for a summary of our debt obligations by maturity date. Inflation Risk Inflation has not had a material adverse impact on our operating results in recent periods. However, if our costs were to continue to become subject to significant inflationary pressures, we may not be able to offset such higher costs through price increases which could adversely impact our operating results. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this Quarterly Report on Form 10-Q, as required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Exchange Act, we evaluated under the supervision of our Chief Executive Officer and our Chief 35 Table of Contents Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our disclosure controls and procedures include components of our internal control over financial reporting. Management's assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance because a control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system's objectives will be met. Changes in Internal Control over Financial Reporting During the three months ended June 30, 2025, there was no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 of the Exchange Act that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 36 Table of Contents PART II. OTHER INFORMATION Item 1. Legal Proceedings Refer to "Note 10. Commitments and Contingencies" to our condensed consolidated financial statements for information regarding legal proceedings. Item 1A. Risk Factors When evaluating Microchip and its business, you should give careful consideration to the factors below, as well as the information provided elsewhere in this Form 10-Q and in other filings we make with the SEC. Risk Factor Summary Risks Related to Our Business, Operations, and Industry • impact of global economic conditions on our operating results, net sales and profitability; • impact of economic conditions on the financial viability and performance of our licensees, customers, distributors, or suppliers; • impact of price increases, increased tariffs, raw material availability or other factors affecting our suppliers; • dependence on wafer foundries and other contractors by our licensees and ourselves; • dependence on foreign sales, suppliers, and operations, which exposes us to foreign political and economic risks; • dependence on orders received and shipped in the same quarter, limited visibility to product shipments other than those shipped through our LTSAs; • intense competition in the markets we serve, leading to pricing pressures, reduced sales or market share; • ability to introduce new products on a timely basis; • ineffective utilization of our manufacturing capacity or failure to maintain manufacturing yields; • impact of seasonality and wide fluctuations of supply and demand in the industry; • dependence on distributors; • business interruptions affecting our operations or that of key vendors, licensees or customers; • technology licensing business exposes us to various risks; • the impact of the effects of sustained adverse climate change on our operations; • reliance on sales into governmental projects, and compliance with associated regulations; • risks related to grants from, or tax arrangements with, governments, agencies and research organizations; • ability to realize anticipated benefits from completed or future acquisitions or divestitures; • future impairments to goodwill or intangible assets; • our failure to maintain proper and effective internal control and remediate future control deficiencies; • customer demands to implement business practices that are more stringent than legal requirements; • ability to attract and retain qualified personnel; and • the occurrence of events for which we are self-insured, or which exceed our insurance limits. Risks Related to Cybersecurity, Products, Privacy, Intellectual Property, and Litigation • interruptions in and unauthorized access to our IT systems and security breaches or incidents impacting our systems, or data that we or our service providers maintain or otherwise process including, but not limited to, data belonging to us or our customers, suppliers, contractors or employees; • exposure of our customers' business and proprietary confidential information due to security vulnerabilities of our products; • risks related to use of artificial intelligence (AI); • risks related to compliance with laws and regulations regarding privacy, data protection, cybersecurity (including U.S. Department of Defense requirements), and handling of government-regulated data (e.g., controlled unclassified information, classified data, export-controlled data); • risks related to legal proceedings, investigations or claims; • risks related to contractual relationships with our customers and suppliers; and • protecting and enforcing our intellectual property rights. 37 Table of Contents Risks Related to Taxation, Laws and Regulations • impact on our reported financial results by new accounting pronouncements or changes in existing accounting standards and practices; • the issuance of new export controls or trade sanctions, tariffs or other trade barriers, fines, restrictions or delays in our ability to export or import products, or increase costs associated with the manufacture or transfer of products; • outcome of future examinations of our income tax returns; • exposure to greater than anticipated income tax liabilities, changes in or the interpretation of tax rules and regulations or unfavorable assessments from tax audits; • impact of the legislative and policy changes implemented globally by the current or future administrations; • impact of stringent environmental, climate change, conflict-free minerals and other regulations or customer demands; • failure to meet ESG expectations, standards or disclosure requirements; • impact regarding the responsible use of our technologies; and • requirement to fund our foreign pension plans. Risks Related to Capitalization and Financial Markets • impact of various factors on our future trading price of our common stock; • fluctuations in the amount and timing of our common stock repurchases; • our ability to effectively manage current or future debt; • our ability to generate sufficient cash flows or obtain access to external financing; • impact of conversion of our convertible debt, Depositary Shares, and Series A Preferred Stock on the ownership interest of our existing stockholders and market price of our common stock; and • fluctuations in foreign currency exchange rates. Risks Related to Our Business, Operations, and Industry Our operating results are impacted by global economic conditions and may fluctuate in the future due to a number of factors that could reduce our net sales and profitability. Our operating results are affected by a wide variety of factors that could reduce our net sales and profitability, many of which are beyond our control. Some of the factors that may affect our operating results include: • general economic, industry, public health or political conditions in the U.S. or internationally, including uncertain economic conditions in U.S., China and Europe, changes in tariffs, interest rates, persistent inflation or instability in the banking sector; • trade restrictions and increase in tariffs, including those on business in China, or focused on specific companies or types of products; • the level of order cancellations or push-outs due to uncertain economic conditions or other factors; • levels of inventories held by our customers and the customers of our distributors; • the mix of inventory we hold and our ability to satisfy orders from our inventory; • the level of orders that are received and can be shipped in a quarter, including the impact of product lead times; • disruptions in our business, our supply chain or our customers' businesses due to public health concerns (including viral outbreaks and pandemics), cybersecurity incidents, terrorist activity, armed conflict, war (including military conflict in the Middle East and Russia's invasion of Ukraine), worldwide oil prices and supply, fires, natural disasters or disruptions in the transportation system; • changes in demand or market acceptance of our products and products of our customers, and market fluctuations in the industries into which such products are sold; • availability of raw materials including rare earth minerals, supplies and equipment due to supply chain constraints, disruptions in transportation systems, trade restrictions, or other factors; • constrained availability from other electronic suppliers or disruptions in transit systems impacting our customers' ability to ship their products, which in turn may adversely impact our sales to those customers; • our ability to decrease or increase our factory capacity as needed to respond to changes in customer demand; • our ability to secure sufficient wafer foundry, assembly and testing capacity; • increased costs and availability of raw materials, supplies, equipment, utilities, labor, and/or subcontracted services for wafers, assembly and test; • changes in utilization of our manufacturing capacity and fluctuations in manufacturing yields; • changes or fluctuations in customer order patterns and seasonality; • changes in tax regulations in countries in which we do business; 38 Table of Contents • new accounting pronouncements or changes in existing accounting standards and practices; • risk of excess and obsolete inventories; • competitive developments including pricing pressures; • unauthorized copying of our products resulting in pricing pressure and loss of sales; • our ability to successfully transition to more advanced process technologies to reduce manufacturing costs; • the level of sell-through of our products through distribution or resale; • our ability to realize the expected benefits of our past or future acquisitions; • fluctuations in our mix of product sales; • announcements of other significant acquisitions by us or our competitors; • costs and outcomes of any current or future tax audits or any litigation, investigation or claims involving intellectual property, our acquisitions, customers or other issues; and • property damage or other losses, whether or not covered by insurance. Period-to-period comparisons of our operating results are not necessarily meaningful and you should not rely upon any such comparisons as indications of our future performance. In future periods, our operating results may fall below our public guidance or the expectations of public market analysts and investors, which would likely have a negative effect on the price of our common stock. Uncertain global economic and public health conditions have caused and may in the future cause our operating results to fluctuate significantly and make comparisons between periods less meaningful. Our operating results may be adversely impacted by the financial viability and performance of our licensees, customers, distributors, resellers or suppliers. We regularly review the financial viability and performance of our licensees, customers, distributors, resellers and suppliers. Any downturn in global or regional economic conditions as a result of the enactment of broad sanctions or tariffs by the U.S. or other countries, high interest rates, high inflation, instability in the banking sector, public health concerns, industry work stoppages, transit stoppages or other factors, may adversely impact their financial viability. The financial decline of a large licensee, customer, reseller or distributor, an important supplier, or a group thereof, could have an adverse impact on our operating results and could result in our inability to collect our accounts receivable balances, higher allowances for credit losses, and higher operating costs as a percentage of net sales. Also, these parties may not comply with their contractual commitments, or may interpret them differently than we do, which could lead to termination of their performance with little or no notice to us, which could limit our ability to mitigate our exposure. If one of our counterparties becomes insolvent, files for bankruptcy, has business leverage, or favorable contractual terms, then our ability to recover any losses suffered as a result of that counterparty's cessation of performance may be limited by their liquidity, the applicable laws, or their willingness to negotiate a resolution. In the event of such default or cessation of performance, we could incur significant losses, which could have a material adverse effect on our business, results of operations, or financial condition. We have various arrangements with financial institutions for our cash deposits, and other banking activities, that subject us to risk if such institutions were to experience financial or regulatory difficulties. As a result, we may experience losses on our holdings of cash and cash equivalents due to failures of financial institutions or other related parties. We may lose sales if suppliers of raw materials, components or equipment fail to meet our or our customers' needs, increase prices, are impacted by increases in tariffs, or such raw materials, components or equipment become restricted or unavailable. Our manufacturing operations require raw and processed materials and equipment that must meet exacting standards. We generally have multiple sources for these supplies, but there may be a limited number of suppliers capable of meeting our standards. We have experienced supply shortages from time to time in the past, and on occasion our suppliers have told us they need more time to fill our orders, that they cannot fill certain orders, that they will no longer support certain equipment with updates or parts, or that they are increasing prices. In particular, in fiscal 2023 and in fiscal 2022, we experienced increased prices at certain suppliers for certain materials required for production purposes. However, in fiscal 2024 and fiscal 2025, the pricing environment stabilized compared to the two prior fiscal years. An interruption of any materials or equipment sources, or the lack of supplier support for a particular piece of equipment, could harm our business. The supplies necessary for our business could become more difficult to obtain as worldwide use of semiconductors increases, or due to supply chain disruptions, transit disruptions, tariffs, trade restrictions or political instability. Additionally, consolidation in our supply chain due to mergers and acquisitions may reduce the number of suppliers or change our relationships with them. Also, the reduced availability of necessary labor, the application of sanctions, trade restrictions or tariffs by the U.S. or other countries or the impact of public health concerns, may adversely impact the industry supply chain. The U.S. has imposed additional tariffs on imports, and certain countries have imposed retaliatory tariffs on imports that have the U.S. as their country of origin. For example, in March and April 2025, the U.S imposed tariffs on imports from China and other countries 39 Table of Contents and foreign governments imposed tariffs on imports from the U.S. It is unclear what tariffs will apply to semiconductors during this time. Additional tariffs imposed on components, raw materials, or equipment may increase our costs and have an adverse impact on our operating results in future periods. We also have in the past and may in the future incur increases in manufacturing costs in taking actions which are designed to mitigate the impact of tariffs on our operations. We will attempt to mitigate the impact of these various tariffs on our business but may experience an increase in operating costs, impaired sourcing flexibility, and reduced demand for our products, resulting in reduced revenue. Our customers may also be adversely affected by the tariffs and other issues described above. The labor, supplies and equipment necessary for their businesses could become more difficult to obtain for various reasons not limited to business interruptions of suppliers, reduced availability of labor, transit disruptions, consolidation in their supply chain, or sanctions, trade restrictions or tariffs or the impact of public health concerns that impair sourcing flexibility or increase costs. If our customers are not able to produce their products, then their need for our products will decrease. Such interruptions of our customers’ businesses could harm our business. We do not, nor have we historically, purchased significant amounts of equipment from Russia, Belarus, or Ukraine. However, the semiconductor industry, and purchasers of semiconductors, use raw materials that are sourced from these regions, such as neon, palladium, cesium, rubidium, and nickel. If we, or our direct or indirect customers, are unable to obtain the requisite raw materials or components needed to manufacture products, our ability to manufacture products, or demand for our products, may be adversely impacted. This could have a material adverse effect on our business, results of operations or financial condition. While there has been an adverse impact on the world’s palladium, neon, cesium, and rubidium supply chains, at this time, our supply chains have been able to meet our needs. While sales of our products into Russia, Belarus and Ukraine and to customers that sell into these countries, have been negatively impacted by the Russian invasion of Ukraine, at this time, we have not experienced a material impact on our business, results of operations or financial conditions. Further, because we do not support the actions of Russia against Ukraine, in March 2022 we stopped selling products to customers and distributors located in Russia and Belarus. Additionally, certain materials are primarily available in a limited number of countries, including rare earth elements, minerals, and metals. Trade disputes, geopolitical tensions, economic circumstances, transit disruptions, political conditions, or public health issues, may limit our ability to obtain materials or equipment. Although rare earth and other materials are generally available from multiple suppliers, China is the predominant producer of certain of these materials. In April 2025, China imposed export restrictions on certain rare earth minerals. If China were to further restrict or stop exporting these materials or pressure other countries to do so, our suppliers' ability to obtain such supply may be constrained and we may be unable to obtain sufficient quantities, or obtain supply in a timely manner, or at a commercially reasonable cost. Constrained supply of rare earth elements, minerals, and metals may restrict our ability to manufacture certain of our products and make it difficult or impossible to compete with other semiconductor memory manufacturers who are able to obtain sufficient quantities of these materials from China or other countries. We are dependent on wafer foundries and other contractors, as are our SuperFlash and other licensees. We rely on outside wafer foundries for a significant portion of our wafer fabrication needs. Specifically, during the first three months of fiscal 2026 and during fiscal 2025, approximately 64% of our net sales came from products that were produced at outside wafer foundries. We also use several contractors for a portion of the assembly and testing of our products. Specifically, during the first three months of fiscal 2026, approximately 31% of our assembly requirements and 32% of our test requirements were performed by third-party contractors, compared to approximately 33% and 33%, respectively, during fiscal 2025. We have long-term commitment contracts with certain of our third-party suppliers to help ensure that we receive capacity from them to manufacture wafers and assemble and test our products. Due to decreased demand for our products in recent periods, we have taken actions to decrease our capacity allocation from our wafer fabrication, assembly and test subcontractors. However, these actions are not complete, and we could be liable for penalties if we do not take the minimum product or services required under any of our long-term commitment contracts, or we may be required to purchase products or services even though we do not need them. This could result in excess inventory, inventory reserve charges and penalties that may negatively affect our gross margin and results of operations. Additionally, if we have a need for greater manufacturing, assembly or test capacity in the future, there can be no assurance that we will be able to secure the necessary allocation of capacity from our wafer foundries and other contractors with the process technologies that we need, or that such capacity will be available on acceptable terms. As our manufacturing subcontractors move to more advanced process technologies over time, we may find that they do not invest in some of the trailing edge process technologies on which a large portion of our products are manufactured. If this occurs, it may limit the amounts of net sales that we can achieve or require us to make significant investments to be able to manufacture these products in our own facilities or at other foundries and 40 Table of Contents assembly and testing contractors. We expect that our reliance on third party contractors may increase over time as our business grows, and any inability to secure necessary external capacity could adversely affect our operating results. Transitioning production of products to new manufacturers may result in delayed product launches, reduced yields, or decreased product performance. If we encounter issues with product quality, insufficient capacity from a third-party manufacturer, or if we discontinue using a particular manufacturer or contractor, we may face challenges in securing an alternative supply for specific products in a timely manner. This could lead to significant delays in product shipments, potentially having an adverse impact on our results of operations. If our reliance on third-party contractors increases over time, our inability to secure necessary external capacity could adversely affect our operating results. In August 2022, the U.S. government passed the CHIPS Act to provide billions of dollars of cash incentives and a new investment tax credit to increase domestic manufacturing capacity in our industry. We expect to receive the cash benefit associated with the investment tax credit for qualifying capital expenditures in future periods and applied for other incentives provided by the legislation; however, we have not concluded negotiations with the U.S. Department of Commerce and there can be no assurance that we will pursue or receive any such other incentives, what the amount and timing of any incentive we receive will be, as to which other companies will receive incentives and whether the legislation will have a positive or negative impact on our competitive position. If we conclude our CHIPS Act negotiations and receive a CHIPS Act grant, the restrictions and operational requirements that are imposed on CHIPS Act grant recipients could add complexity to our operations and increase our costs. Our use of third parties reduces our control over the subcontracted portions of our business. Our future operating results could suffer if a significant contractor were to experience production difficulties, insufficient capacity, decreased manufacturing, reduced availability of labor, assembly and test yields, or increased costs due to disruptions such as political upheaval, transit disruptions, infrastructure disruption or pandemics. Additionally, our future operating results could suffer if our wafer foundries and other contractors increase the prices of the products and services that they provide to us. If third parties do not timely deliver products or services in accordance with our quality standards, we may be unable to qualify alternate manufacturing sources in a timely manner or on favorable terms, or at all. Additionally, these subcontractors could abandon processes that we need, or fail to adopt technologies that we desire to control costs. In such event, we could experience an interruption in production, an increase in manufacturing costs or a decline in product reliability, and our business and operating results could be adversely affected. Further, use of subcontractors increases the risks of misappropriation of our intellectual property. Certain of our SuperFlash and other technology licensees rely on wafer foundries. If our licensees experienced disruption in supply at such foundries, this would reduce the revenue from our technology licensing business and would harm our operating results. We are highly dependent on foreign sales, suppliers, and operations, which exposes us to foreign political and economic risks. Sales to foreign customers account for a substantial portion of our net sales. During the first three months of fiscal 2026, approximately 77% of our net sales were made to foreign customers, including 19% in China and 14% in Taiwan. During fiscal 2025, approximately 75% of our net sales were made to foreign customers, including 17% in China and 16% in Taiwan. Having a strong position in the Chinese market is a key component of our global growth strategy. Although our sales in the Chinese market were very strong in calendar 2021, competition in China is intense, and China's economic growth slowed in calendar 2022 and through the first half of calendar 2023. In fiscal 2024 and in fiscal 2025, economic weakness in the Chinese market adversely impacted our sales volumes in China. As discussed above, the trade relationship between the U.S. and China remains challenging and could worsen in 2025, economic conditions in China remain uncertain, and we are unable to predict whether such uncertainty will continue or worsen in future periods. Any increase in tariffs on semiconductors and raw materials that have the U.S. as their country of origin could lower demand for our products in China and other countries. Further, increasing investment in the semiconductor industry by the Chinese government and various state-owned of affiliated entities are intended to advance China's stated national policy objectives. The Chinese government may restrict us from participating in the China market, or may prevent us from competing effectively with Chinese companies. Weakening of foreign markets, especially in China, has resulted in lower demand for our products, which has adversely impacted our revenue in recent quarters and, if such conditions continue, it could have a material adverse effect on our business, results of operations or financial conditions. We purchase a substantial portion of our raw materials and equipment from foreign suppliers. Please see the risks 41 Table of Contents related to access to raw materials, components, or equipment on page 39 . In addition, we own product assembly and testing facilities, and finished goods warehouses near Bangkok, Thailand, which has experienced periods of political instability and severe flooding in the past. There can be no assurance that any future flooding or political instability in Thailand would not have a material adverse impact on our operations. We have a test facility in Calamba, the Philippines, and specialized test and assembly facilities for our aerospace and defense products in Germany, France, Ireland, the United Kingdom, the Philippines, Thailand, and the United States. We use foundries and other foreign contractors for a significant portion of our assembly and testing and wafer fabrication requirements. Our reliance on foreign operations, foreign suppliers, maintenance of substantially all of our finished goods inventory at foreign locations and significant foreign sales exposes us to foreign political and economic risks, including, but not limited to: • economic uncertainty in the worldwide markets we serve; • trade restrictions and changes in tariffs; • political instability, including changes in relations between China and Taiwan which could disrupt the operations of our Taiwan-based third-party wafer foundries, and subcontractors; • social and economic instability due to public health concerns, wars, or other factors; • supply chain disruptions or delays; • potentially adverse tax consequences; • import and export license requirements and restrictions; • changes in laws related to taxes, trade, environmental, health and safety, technical standards, climate change, and consumer protection; • restrictions on the transfer of funds, including currency controls in China, which could negatively affect the amount and timing of certain customer payments, and as a results our cash flows; • currency fluctuations and foreign exchange regulations; • difficulties in staffing and managing international operations; • employment regulations; • disruptions due to cybersecurity incidents; • disruptions in international transport or delivery; • public health conditions (including viral outbreaks such as COVID-19); and • difficulties in collecting receivables and longer payment cycles. If any of these risks occur or are worse than we anticipate, our sales could decrease and our operating results could suffer, we could face an increase in the cost of components, production delays, business interruptions, delays in obtaining export licenses, or denials of such licenses, tariffs and trade restrictions, longer payment cycles, increased taxes, restrictions on the repatriation of funds and the burdens of complying with a variety of foreign laws, any of which could ultimately have a material adverse effect on our business. Further changes in trade policy, tariffs, additional taxes, or restrictions on supplies, equipment, and raw materials including rare earth minerals, may limit our ability to produce products, increase our selling and/or manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial conditions. We depend on orders that are received and shipped in the same quarter and have limited visibility to product shipments other than orders placed under our LTSAs. Our net sales in any given quarter depend upon a combination of shipments from backlog, and orders that are both received and shipped in the same quarter, which we call turns orders. We measure turns orders at the beginning of a quarter based on the orders needed to meet the shipment targets that we set entering the quarter. Historically, our ability to respond quickly to customer orders has been part of our competitive strategy, resulting in customers placing orders with relatively short delivery schedules. Shorter lead times generally mean that turns orders as a percentage of our business are relatively high in any particular quarter and reduce our visibility on future shipments. Turns orders correlate to overall semiconductor industry conditions and product lead times, and in light of current industry conditions, turns orders are once again key to our ability to meet our business objectives. Because turns orders can be difficult to predict, especially in times of economic volatility and changes in tariffs, as experienced in current and recent quarters, where customers may change order levels within the quarter, varying levels of turns orders make it more difficult to forecast net sales. The level of turns orders has in the past and may in the future decrease in periods where customers are holding excess inventory of our products. We believe our customers increased their order levels in previous periods of tight supply to help ensure they had sufficient inventory of our products to meet their needs, and then they were unable to sell their products at their forecasted levels which reduced our level of turns orders. As a significant portion of our products are manufactured at foundries, foundry lead times may affect our ability to satisfy certain turns orders. If we do not achieve a sufficient level of turns orders in a particular 42 Table of Contents quarter relative to our revenue targets or effectively manage our production based on changes in order forecasts, our revenue and operating results will likely suffer. Starting in the first quarter of calendar 2022, we began entering into LTSAs, which offer our customers the ability to receive prioritized capacity. LTSAs are not a guarantee of supply; however, they were designed to provide the highest priority for those orders which were under this program, and the capacity priority was on a first-come, first-served basis until the available capacity was booked. For example, in the fourth quarter of fiscal 2023, in fiscal 2024 and in fiscal 2025, we accommodated requests by customers to push-out certain orders to help them manage inventory levels and, in some cases, to help other customers that are experiencing supply shortages. However, in the event that we decide to not accommodate a request to push out orders and customers under this program still attempt to cancel or reschedule orders, or refuse shipment, we may be unable to recover damages from customers that default under this program. Additionally, this program has resulted in some customers holding excess inventory of our products and thus decreased their need to place new orders, including turns orders, in recent periods. We built inventories in response to customer demand, and the cancellation or deferral of product orders has resulted in excess inventory, which has resulted in write-downs of inventory and an adverse effect on our gross margins in recent periods. Intense competition in the markets we serve may lead to pricing pressures, reduced sales or reduced market share. The semiconductor industry is intensely competitive and faces price erosion and rapid technological change. We compete with major domestic and international semiconductor companies, many of which have greater market recognition and substantially greater financial, technical, marketing, distribution and other resources than we do. In addition, some governments, such as China, may provide, or have provided and may continue to provide, significant assistance financial or otherwise, to some of our competitors, or to new entrants, and may intervene in support of national industries and/or competitors, including to try to disrupt the U.S. semiconductor industry. The semiconductor industry has experienced significant consolidation in recent years which has resulted in several of our competitors becoming much larger in terms of revenue, product offerings and scale. We may be unable to compete successfully in the future, which could harm our business. Our ability to compete successfully depends on a number of factors, including, but not limited to: • changes in demand in the markets that we serve and the overall rate of growth or contraction of such markets, including but not limited to the automotive, personal computing and consumer electronics markets; • our success in designing and manufacturing new products including those implementing new technologies or complying with new governmental restrictions regarding implementation of new technologies; • the rate at which customers incorporate our products into their applications and the success of such applications; • our ability to obtain adequate foundry and assembly and test capacity and supplies at acceptable prices; • our ability to ramp production and increase capacity as needed, at our wafer fabrication and assembly and test facilities; • the quality, performance, reliability, features, ease of use, pricing and diversity of our products; • the rate at which the markets that we serve redesign and change their own products; • product introductions by our competitors or by us in response to actions taken by our competitors; • the number, nature and success of our competitors in a given market; • our ability to protect our products and processes by effective utilization of intellectual property rights; • our ability to address the needs of our customers; • our ability to attract and retain talent, including talent with expertise in developing areas such as AI; and • general market and economic conditions. Historically, average selling prices in the semiconductor industry decrease over the life of a product. The average selling prices of our mixed-signal microcontroller, FPGA products, and proprietary products in our analog product line have remained relatively constant over time, while average selling prices of our memory and non-proprietary products in our analog product line have declined over time. The overall average selling price of our products is affected by these trends; however, variations in our product and geographic mix of sales can cause wider fluctuations in our overall average selling price in any given period.