MCHP - Earnings call transcript Q2 2018 | Microchip Technology Incorporated

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Operator

Good day, everyone, and welcome to this Microchip Technology Second Quarter and Fiscal Year 2018 financial Results Conference Call.

As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Microchip's Chief Financial Officer, Mr. Eric Bjornholt. Please go ahead, sir.

James Bjornholt

afternoon, good and you, everyone. Thank

and of of During be or call, wish as performance predictions will events actual conference with identify SEC our projections the We the recent are differ caution and that financial important give fiscal that events course XXXX operations. making future and will results Steve releases other second we of or our that President factors Sanghi, regarding today you We filings the this forward-looking may you risk company. the Microchip's to statements performance, future and impact press business may I our today to Chairman results and materially. discuss In that quarter statements on such results are refer as the Microchip's well of comment as guidance. year CEO; Microchip's comments me our their well current Moorthy, as COO. business and on Ganesh attendance will financial with then environment and and and Ganesh Steve the

and then investor respond release including in this and GAAP press be to on I non-GAAP you call questions. we various to conference available information our to specific measures. are on will that want We remind analyst

million in $X.XXX September share-based with the effects X.X% immediately now will useful quarter. quarter results including sales. above GAAP comparing operating expenses. Investor non-GAAP website of find guidance billion, results. was quarter the in from and of compensation. to This believe to margin preceding net were prior Net and acquisition be GAAP $X our basis We our have $XXX.X billion posted first and record a sales referring these the sales, activities full through net page when than non-GAAP sequentially Microchip's our will more in Relations up the we I will to go of you of reconciliation well a I operating on on gross a and the at which sales non-GAAP a some www.microchip.com, results,

was of the have on your a were for On above and After gross revenue million net of a the provider. well product significant was to We these website for basis, in a XX.XX% and margins a cash income record below end were adjustments, is flow non-GAAP Oregon charges of of the our GAAP special the operating expected a $X.X million, was provide fees guidance a high million future. for acquisition-related change in of million, a by And GAAP $XX.X $XX.X negative and and utility income XX.XX%. Non-GAAP expense quarter guidance, amortization quarter. $XXX.X geography in tax September of end non-GAAP which diluted record $XXX.X summary reference. just expenses from our of our tax XX.X%. X.X% XX.XX% posted public sales, line rate in our operating XX.X% $X.X XX.X%, charge low transitioning share gross of was per last sequential compensation expenses, basis, gross share. of was Non-GAAP lower-cost the of in net X.X% the Total quarter and $X.XX. and with other of well intangible $X.XX the to was margins primarily margins, which $X.XX above September million, $XX.X compensation guidance September include up direct share consisting the of guidance the same of diluted higher high were of up X.X% expenses and XX.X% or and as year. earnings On to a than a compared midpoint savings $X.XX, The and share-based per share-based acquisition-related were access was compensation. the million acquisition costs provider million $XXX.X operating based was This quarter. rate the quarter, our on of basis a GAAP income XX.XX%. Non-GAAP of $XXX.X and include impact was the million including million GAAP end record associated the our non-GAAP

the sheet. to balance on Moving

from was at levels Our at at the flow at a XXXX, September and of the Inventory levels. significant $XXX.X million. Microchip as days to the capacity from and balance quarter X inventory September September was from buy-aheads continued starting activities record efforts $XXX.X the well cash constrained inventory XX, had million days are to below still selective end days well expansion in our XX quarter XXXX, of Inventory be up XX, June our XXX The of quarter. as opportunistic were our the quarter. June low improve operating materials. days September distributors targeted to are flat but in

December to September elected We and about bonds position of back consolidated total XX, which million As domestic cash. bought $X.XXX was quarter the bondholders the million is where convert. the of investment cash had $XXX of our convertible billion, in X,XXX XX.X

We quarter. expect to these million $XX.X of call bonds during the or date December expenditures is bonds by X,XXX XX, be by the X called convertible $XX.X amount X/X% the in the principal the bondholders Microchip XXXX December for remaining million XXXX. converted The of September Capital were XXXX either quarter.

from growth $XXX overall fiscal the million, $XX million on and We year about reduction in million capitalize $XXX prior in as of XXXX expect and about to expenditures be cost December quarter capital $XXX opportunities. we our million up to guidance the capital for spending

test particularly the our adding for are our to will Atmel the margin are factories. new the business, our assembly that bring capital of capital and into are improvements to These we operations activities currently capabilities products for manufacturing support aggressively significant We that gross bring more investments technologies and fast-growing growth bringing our outsourced. and to production own in-house of

to we us in Germany, spending to on and the reductions give expense lease us the well constructing capital will Depreciation new as as reflects allow Our the the business are I cost now of Arizona, and in also Ganesh? in growth. the in buildings which September give quarter X meaningful future India avoidance future ask comments million. $XX.X our for scale September quarter. us was performance cost-effectively Ganesh will

Ganesh Moorthy

good connected Thank our there how growth the afternoon, all performed everyone. growth revenue September contribution no X.X% of sequential as you, and very quarter organic pleased in and We're acquisitions XX.X%, in with with product microcontrollers. the of year-over-year with lines overall Taking was last innovation Eric, X.X strong growth continues to from secure X make a very in new transformation progress, of our closer best we quarters. look enable opportunities The solutions. terms Microchip as clients' especially smart, at and the design

sequentially to the strongly new XX%. quarter, compared lines, in June microcontroller September performed September year-over-year has the up XX-bit, setting the a revenue a with new strong All the quarter, XX-bit business X-bit, microcontroller microcontroller Our in was X.X% set revenue very On record up quarter product and a revenue process. records. being as basis,

we seeing almost quarters, annualized time. To in put revenue, XX.X% design microcontroller has over into stronger, in and overall to the we X.X billion microcontroller Now Our our X we differential continue momentum on are are Microcontrollers and funnel, perspective, we market annualized the in grown cylinders even represented customer microcontroller performance engagement product the continued strengthen and have revenue and designs revenue firing $X.X all the our All Microchip's future growth as have of been never progress expect these the which We last lines driving our will into transformation our new in Microchip and share microcontroller the billion. drive product we end by moving in gain franchise business. at further to more $X.X industry production believe to growth recent advance our over and best-performing share roadmap portfolio gains. analog growth as September quarter.

quarter, X.X% set compared a new the basis on revenue in flat sequentially up and a September Our June the by and quarter record analog process. whisker was also as a year-over-year in the to

Microchip impacted These seeing; products quarters reporting ramping products growth our smart new and to second, into as by to connectivity time replace microcontroller on well, answer, system over capacity products, resolve discussed does Our as for wins. these the heritage, factors, at more to are are so as the with in from much earnings a line connectivity older our with the taken sitting last two analysts classification for were products the are new the interested include microcontroller analog back-end next has firmware that which solutions. suppliers two cores our the we connectivity smart to in sticky more longer-than-expected, competitive of conditions subsume call, total that us products higher-margin products connectivity as right as complex been analog has shifts design our are, products line enables designs, lead equipment Transitioning revenue constraints stickier revenue been new some provide they shifted have This And line. and product nicely. therefore, last form our impact we to reflecting more is first, they time revenue those results our of which product the negatively clients analog have back-end some Atmel line. the product product the but in our the that analog of strong solutions microcontrollers smart several microcontroller adding also industry especially that to were and

overall will that growth our revenue line get September start and the of in grow wins As analog in overall design XX.X% expect to Microchip's back-end the annualized the ramp, fully continue rate. At or attach product over to above million revenue, a analog at represent from products constraints revenue Microchip's quarter. our capacity relieved we revenue $XXX analog

making in larger future to our attach products products we pay a than production. and timing new at microprocessors of revenue $X Atmel signal, annualized innovative and proprietary and linear, time new power, relentlessly of We billion business find these to continue the effort are in vast microcontrollers products And as analog This mixed interface, fuel coming soon more over successfully to portfolio we march the much multiple and go dividends developing products greater growth as of and lines the for and a wins range Microchip analog business introducing to design years. opportunities towards to customers wide a Microchip's security should applications. analog

Moving X% in also next licensing year-over-year the in the process. record sequentially setting to new up on and business a our a basis, is This quarter business. up X.X% September

multiple that up further and this improve X.X% using There underway more the reductions our and competitive of in business to for sequentially September results process cost Last several independent in many not on nodes business fruits are was We foundries years the our technology for manifest makers seeing royalty but generate our memory effort revenue of Atmel. as will We make having for believe the the licensed are compared to gross as Microchip significant quarter this licensed the June least, processes and strength years several even combined come. us device quarter. margins.

me pass our Let business for about and general our to guidance Steve now comments forward. it going some Steve?

Stephen Sanghi

and Ganesh, on you, times I provide activities, the Today, second Thank reflect I X.X. XXXX. of provide capacity quarter like of then will of well Microchip update lead I good would to the afternoon, third XXXX. guidance fiscal for will the as first quarter enhancement as everyone. fiscal also results on

Our were strong. September extremely financial quarter results

sales of net milestone important new net $X our were first a the very for Our time above sales ever and our billion being guidance, above record quarter. crossed a

is Atmel's Our quarter of XXXX in acquisition was from revenue up ago, since quarter any revenue comparison a impacted the September quarter for net by quarter not and sales results. XX.X% this September the were this full year

points each September of a share quarter share Our percentage per end guidance. to per margin year high margin XX% improving earnings earnings over every others, analog, the percentage, Asia, geography, year-ago X from due the up and up over quarter. and operating non-GAAP major September ago other on sales, in were gross the of There our of every all in acquisitions. gross the XXXX make I growth, product successful the XXXX were business our exceeded to year-ago operating X-bit MCU, memory over were the quarter Europe two, like major wireless, are in one was percentage, our This our were respect. profit and September XX-bit Non-GAAP North XXXth in quarter number the significantly of worldwide execution September accretion up end-markets our thank delivering MCU, employees America, quarter; I licensing, lines, leverage sales three, Microchip from year-ago also up profitable as XX-bit record consecutive first, quarter. of quarter and well significantly would XXXX quarter core for our all to expense want a in the every sales as number MCU, and quarter;

you provide will on I with Now X.X. update an Microchip

customer solutions to acquisitions microcontrollers built with We product and have our solutions powerful provide line total preference experience are system applications. our which X-bit, enormous continuing through various XX-bit to XX-bit, our On we're top customer able to in to diversified that, a now an customers. all design of

wins We are boards of design products incremental customers. same multiple winning in our the with

We X-, September XXXX market feel and is increasing have a that X.X the robust Microchip. A working very design of win ago, in growth XX- an funnel, XXX share XX-bit September XX.XX%, organic year. and is optimistic in was quarter, SIA we share as our XX.XX% microcontroller our the X In year Microchip of market XXXX quarter, and increase bps per combined up to in numbers.

I number before that environment have and see company-specific December worldwide we the to drivers. for continuing I into say go products Now good the guidance are for a business demand will quarter, of our

the are well as Our low inventories at distributors range. of the towards as end normal our Microchip

lead have at bottlenecks. incremental a any landing soft double with add slowly from so stabilized, With our far engineering our times ordering panic we're base. times that, to customer continuing without are capacity or triggering We lead stable various

from in in quarter Our book-to-bill to both as March September June ratio has stabilize. moderated X.XX quarters lead and times X.XX the

We further will the At landing. still as capacity, our rate times take adding we normal. expect book-to-bill to and we to return down that come moderate, June engineering the us believe hence continue when through soft times it lead lead XXXX to are fully ratio

quarter. us go the non-GAAP for December into let Now guidance the

August last total growth want in we that a in quarter. midpoint, August would revenue of X%, average and in December number. in X September to expect 'XX. quarter about We All represents quarter which, X the year quarter. full investors taking of X at in middle net a basis. fiscal the of year-over-year X in years, Therefore, years 'XX. the ISSC approximately last quarter of a year of I on the fiscal revenue give closed closed acquisitions December remind flat growth closed September that fiscal SMSC in had and be quarter you closed down XX.X% to July the sequential to these had of year sales a 'XX, acquisitions Micrel the in a mathematically partial of false the

a X.X% years in compare Excluding December acquisitions, between should and beat quarter guidance. December to seasonal net down decline average backdrop the over the performance of sequential with past our X.X%. of the plus and been X% and guidance of ranged in against X-year an sales our revenue flat quarter of has X.X%, minus the X.X% average minus X X% for FQX Investors

have Regarding on investors. margin margins, overall a steady we gross margin see in improvement that X.X Microchip gross of with the the we based drivers discussed company

gross We expect December XX% sales. to quarter for XX.X% and of margin the between be

confounding profit profit be attach an additional operating total to per investors overall X% driven can expect to growth extra due X% XX.X% achieve XX.X% we our share remind earnings about to to achieve higher to this you growth above X% we annual and industry X% be have XX.X% continuing; we traditional expect partnership expect of We we can between we X% and X% we down from And expect we non-GAAP. distributor pulling and versus marching system relentlessly operating per operating achieve growth be and effects sales, from much higher from growth solution X% to XX.X% towards between are model financial model. that due a achieve gross and And stable of longer-term single-digits. expenses sales. share a can our share of And of rate We growth operating by to to to X% seen, back. have we less XX%. ASPs, margin percentage the long-term between growth X% competitors to yield revenue XX.X%, judged growth approach X% to four XX.X% of is approach; want going non-GAAP or to our $X.XX it $X.XX we we I forward. believe due our ASP can high can factors, expense grow higher and And erosion be our market to as to

intangibles, and Given on including write-up non-GAAP its Microchip of charges for will complications We track provide accounting on guidance a of results inventory all to acquisitions, continue amortization and restructuring the the acquisitions, basis. comparison results prior you will to report please analysts the continue meaningful non-GAAP operator, that and this, to to estimates that the we provide believe quarters, With more First questions? expect pool for non-GAAP Call.

Operator

Instructions]. of [Operator we'll take question Arya now our And Vivek Lynch. from first Bank Merrill America with

Vivek Arya

guys. are been last the of strong Steve, of that company-specific? of you very I into been think this you How trying for macro? Can for growth give sense a year, of us look has the if is we much to as you most sense how over much that sort what growth of Because how has a actually much look the near-to-intermediate term. investors sustainable has is been get out

Stephen Sanghi

very Well, that design. than to I'm design. this hard good Customers So -- it a that a winning we don't more very doing difficult. have me it's is that? winning are well, very, Is answer for or is industry because this you're decipher. very, giving

If quarter, year We're X% X% XX.X%. guiding December. expecting at of prior the to that. was forward the last about December XX.X% expecting not you our that. over with growth We're quarter a our guided look growth and going year-over-year at not We're

conditions. will is high that from and driven numbers, of some these So the moderate growth excess industry by

Vivek Arya

about right. is follow-up, in of lot excitement buybacks all is And semis. there's to in after as might decide with at M&A level. the industry? you it that be that assets resume last marked-up of a leverage given going And how very excitement you very, at better maybe All comfortable would but I'm the that wondering what instead the thinking And a few M&A your in a days, been were point

Stephen Sanghi

changed times. have many with since strategy all discussed you our capital of allocation and our we Well, not thoughts

to our our is out are the reference R&D first and cash into other balance do P&L, need activities, really not to and but into excess spend cash. well-funded those utilize the reach Our operations, to very for we sheet

The second priority to cash is utilize towards M&A. our

priority growing program. not really And to are, last but for the buy only amount really its second is we priority M&As. maintain keep dividend, large our is our which to cash utilize priority we a small Our dividend incrementally, Then next like is back, opportunistically. to our very stock have do incremental

Operator

Suisse. question we'll And Credit next our with Pitzer from now take John

John Pitzer

to your gave what's I guess, back comments, sort did, that. good want Eric, I prepared a CapEx a of rundown in go to you just budget. the increase the driving in of

cost And You some did just target will does me the that of put I'm margin or towards feel bringing target percent the in of say environment, better be of stuff because overall can there savings if above kind demand, margin? you just going because understand your versus more what the that. increase you curious, demand in-house? is you help sort of CapEx about

James Bjornholt

Well, a activity historically the we of talking quarters, that of the been about, get they've line with are by to improvement lot them several out we've versus are percentages lot internal for in-house, and of margin the last of production outsourced where Atmel can our we'd there like a bringing be. where

aggressive our and teams and given margin us we things So in-house, But XX.X% are only significant any There's in the there and to These margins from gross a out can improve time. incremental that capabilities manufacturing we're margin plan the these making there. of to the gradual. operating much laid period XX% operations investments, will come quarter. and for pretty a to think increase our production steady margins come. it's so these do we've can We over by And gross investments, goal. get making gross

John Pitzer

about as follow-up, M&A. follow-on Vivek's helpful. That's Steve, my just to And to maybe question then

price You've for always to about willing an pay you're very been the disciplined asset.

to just does confidence the value you've in that kind you're can just would done, curious. parameters probably X you change around index every the willing to think value faster said, X there the comment that for With vetted deals. given asset or grow is you've and than now, the around asset perception increasing your Microchip deal And SOX M&A from and I revenue your past, walked away front? you've industry, pay the I'm helpful. any of X.X be where on level

Stephen Sanghi

There is really no change.

We the multidimensional end at have our M&A off. have place a others. can't I metrics of which are that on we the too And growth lower in assets could the revenue operating terms always higher available outside that, be complex and but and all could strong metrics. there they on And of fairly it, fit in but end check the always filters multiples give expensive profit won't companies which or you and higher on beyond metrics it's metrics we available those metrics. various metrics. still margin, the really, end analysis, if they're and times, rates to gross companies the the in But they're of filters, of in and do be go fall that the that are and even

Operator

And we'll now take from with Craig our Morgan next Stanley. Hettenbach question

Craig Hettenbach

the above share Just any and a call seeing in single-digit high tick grow that to where just you'd particular things share out you're segments you should market you allow as product end-markets in terms best growth, positioning? that or of through the industry question of microcontroller the on the some

Ganesh Moorthy

able with order be We view end-market don't in go-to-market to an to grow.

get broad line that we incrementally as about our of is them. Clearly, area product the of particular XX% us. industries we overall end-market driving in for helping approach that X they've But in it broad markets, from those some another. we was go one We've strength. have and been ago, us how strengthen had direction share, revenue a industrial have And a months don't when as or presented very one course, and applications, the after shown a other, to to have and automotive you there. We markets market participation end

Craig Hettenbach

And a the on some cyclical Appreciate for color Steve. follow-up lead of book-to-bill. question then and around times barometers just it. the Got all

holding distributors that? cycle landing, it's As of and versus cycles, help to kind you're through navigate a soft is prior you of inventory try to to there this terms with anything navigate competition of whether customers, kind in different

Stephen Sanghi

lead than did have as, been times normal has behavior as Well, not other time we the some they other the the get behavior long seen time this this and times. gotten have clearly, times. The I customer distributor think, in more much

to on before longer But to conform the and where orders our the anywhere December lead moderated on I all our times going informing have the wrote everybody lead where as letter the lead In we XX the were book-to-bill March in lead out. because the our placed place. letter times there the have wrote this a the after They has seen bookings. some time X.XX, what June orders the industry customers doing book-to-bill we in the right lead to was quarter, was, think from really, to quarter, and quarter, down with panic of large doing which times the products the now So have and are place. created. April ratio April have moderated, place was behaved. times. products And in X, strengthening X.XX products were very over had book-to-bill they to then become conditions came back X.XX. bookings no means, orders. the And the that We times conformed letter are lead strong weeks again, in them And the ratio our No and customers the to weeks X rushed shorter, the kept people

build if industry. that because or ours one we said same available or want of the seen the products. one of And don't companies But competitors to coming either. I they one not where not not competitors scattered cases. one a where by happening and products have willing those needs other are customer the rest of can he place. product product It's our that competitors So think from the over cases the know before. those so than is isn't environment available, cannot it's There time are do analogs all kind products the the of I sell. our their wasn't entire take more to complete There's of with didn't he other his be kit. But a much what's behaved scattered this

think and I reasonable pretty reasonably well-behaved. environment is

Operator

next Stein SunTrust. And take with our we'll from now William question

William Stein

next the digital in subsuming your was You they're us the help analog this, the almost sounds thought Can that you like much spoke prepared more from in I direction. is being that opportunity when microcontrollers to analog a little remarks the elaborate to would products. have other dynamic cross-selling competitive on understand the cross-selling It bit? MCU. driven about opportunity

Ganesh Moorthy

It happens in directions. both

enter very where gives to have begin complex in subsume. connectivity we from analog cases, businesses a the in else are smart through where standpoint, function, what and we it we, to of we there connectivity those now analog can So can we and on But in microcontroller the see a acquired specific especially controllers to have attach And direction, analog early begin the of products. do and, microcontrollers micro that the There in are the see in ability many cases, when many analog the see surrounds else addition the and in didn't cases we many able where the the it's application. microcontroller with. we design, connectivity, that's more that it's are integrated goes once breadth our smart needs product some where, that it cases microcontroller. And total that came what to attach to us center some an us of the solutions the at system where opposite entities. from gives where We strength complete

William Stein

the follow-up. in shortages been it's asked. that clarification of on someone passive have point sort sure to want I That's It side the demand. one -- of make squeeze helpful. perhaps else I overall really If just last the question clipping can sounds like

ago the sort rate? might peak of other or your dynamic that soft yet clipped moment mentioned that he's let's hand say, full say, a of I have get to sort passives things do did least product short, because about you a he complete want think can can't a at product, a he doesn't capacitor kit and of understand a where I if some contributed as landing because, the customer get demand until kit, not out didn't

Stephen Sanghi

they're because if number So where is available. of are I product cases able the know don't not others product to a massive seeing not passive ship the some

large seeing other. that I'm or think where not kind it's excuse, it that, where I enough way the sporadically of just a one becomes number, an the

for it's but larger possible people, certainly I think level, other it's It's it's much some noise that, factor. a a factor. a

Operator

Caso And take we'll our next Chris from now James. Raymond question with

Christopher Caso

seasonally of is I ability quarters a fabs somewhat? couple that little just about into capacity you then the in to more you give the that demand talk the in Or inventory catch how wait slowing gross little bit inventory. harder place and you up December now? And margin does have to its on from until of the inventory efforts and want a as to XXXX? that timing a With that. is talk bit imagine Can build to the the that, quantify run to there's to I build benefit some that benefit with way about a works quarter,

Stephen Sanghi

It this now, a I inventory doesn't the is, right So all grows where quarter, from grow continuous the phenomenon. couple answer digital of it not a way it's level. and will is years to

models. June, again by and X quarter. get in days some by days to expect March. quarter this by grew the we grow to inventory grow will try to And Our some Inventory last

So we it's largely grow more of produced seasonally even is stronger have quarters, a we quarter the or the X the Current was inventory though continuous weak last seasonally a added in phenomenon. year. them had quarter, shipped because the harder quarter units, quarter, into to we In X growth. weakest capacity, like the

inventory little X So quarter, the now. continuous we it's to for It's more gives a really capacity produce us we're adding chance a But to weaker happen the bit waiting quarters the the phenomenon. can demand. from not than this incremental because to something add

Ganesh Moorthy

thing is to other The mind distribution is end range keep low inventory as at in our the their well. of

us having go the we into So inventory little helps quarters. growth a extra as

the combined, right of that So the we inventory amount market. for have

Christopher Caso

And as I'm margin the is the sorry, inventory impact building?

Stephen Sanghi

or It doesn't care whether essentially about overall is cares impact margin production. So building is inventory not. about

better more effect. you has test, it absorption and accretive If has in wafers produce then an assembly

up every quarter. seen quarter, have and So we the more going units been have every you margin producing

that's phenomenon. also continuous a So

Christopher Caso

Okay.

measure you for grow inventory would of about Can As you over than talked think us you year? some backwards are forward difficult why a that a in walk-through, the be. factors. follow-up, you number factors more what faster perhaps looking growing to prepared a than And had But and about give think last these perhaps know the factors And of your share. I I the others. talk remarks some impact market

guess. that last growth You over a what revenue talked little compared your have Microchip to and bit, X.X, the how industry, affected the say, we'd pricing, I years may about,

Stephen Sanghi

or better a same gains, can the of to the When by both factors. it X depends up of have competitor's becomes pulling growth, focusing at X% the market ASPs And it it's ASP our our market where difficult or portion and lot XX.X% both the that attention growth judged last and had do, to combine we replace the of integrated take gaining we And analog the approach so whatever kind X% an growth giving total those integrated customer you we're X% for able talked part, distributions product from over very with year elements price year are portion share, little and traditional systems to a X either impossible what portion their and analog together, are drove end, it's X% to distribution with industry, we we to to ASPs you the less about shipping. if it in what counting assumptions down because microcontroller plus assign more of history part. management, doesn't the your those do. last number of because previous a continue growth come ways, incremental, quarter with SKUs partnerships, Ganesh higher is overall bit micro time, where achieving programs, want have it increasing what what distributor to kind our the us. able we're then growth with competitors are, X% a from to But we increase, of the it on really parts X and factors, happened X% combined where to numerically a to lines. the win And and happening are is take them where in various out customers on Well, It share XXX,XXX-plus will that the happened happened forward going back figure erosion. drive XXX,XXX stable

Operator

now we'll And take Citi. our from next Chris with Danely question

Christopher Danely

in if and March so this dropping for Steve, lead below-normal bit, coming X and the you could is quarter, some could that suddenly be the book-to-bill seasonality? it lead book-to-bill below potentially a fairly the said that you possible see little as dropped times are the that quarter is times

Stephen Sanghi

big Well, and other is because and lot into go not large. we're not capacity because the a it, lead that there's semiconductors there's it equipment, we of of Many time for are coming the equipment increments equipment, test fab in seeing them. not expecting

their aren't times the to our So product. And long acquire need. because all they suppliers equipment lead can't able the produce they semiconductors are

incrementally. Capacity So and that's incrementally, bulk big soft rather capacity And is is not a coming lead think times there capacity it's said, kind is that all than And I to in. of coming contraction. I slowly. of coming a are -- leads landing moderating why

Christopher Danely

great. follow-up. then for And my Okay,

think about talking down to, you slowed said, to long-term analog you're was year-over-year like, X% X% it growth. like I and X% growth, Okay,

grow a what And would So expect analog forward? revenue faster like to the than the you driving be on analog microcontroller would growth? business going reacceleration

Stephen Sanghi

over years is a a X.X ago. little the cycle. X what analog acquisition year, year usually, Atmel drives think have design was I you And reacceleration in

of large So with business. Atmel, amount we microcontroller acquired a

was sockets it. analog enemy. had it around about which was think microcontroller, million, were We microchip I $XXX X the those $XXX their of million business

analog was except it anybody's ours. So

that opportunity identified very, large So was a you. we for very

of it the We are going front-end in to just production.

what Don't quarters analog the that's was couple because, just cases, It be think fooled growth producing I So product. already of analog. lower accelerates by of integrated the were last in we some therefore, in it And to microcontroller in the bucket. sell put to analog bucket, the we've customer. were it the shifted. package putting analog we with the the revenue able Rather than And microcontroller.

Ganesh Moorthy

We coming [indiscernible] in still have that analog. It's it's just

Stephen Sanghi

still We XX% revenue our but revenue. has microcontroller a it. microcontroller still amount part a the as analog, of it's counts analog of have the XX%, microcontroller of as that large But on counted revenue.

James Bjornholt

core, Any as Right. we a a ship we has classify microcontroller product. that microcontroller product that

Stephen Sanghi

That's not different anybody. for

LDOs. all XX-bit do converters, microcontrollers. supervisors, All have built the the analog power into competitors same. XX-bit, Our And micro, they micro, some X-bit management, is

you analog So analog There's large -- fooled that's quarters. microcontrollers and soon. rate that, amount can a I we designs by that for couple it will captured why it. around Atmel's be sequential saw and coming growth there large were attach of some of not a depress where

Operator

[Operator Instructions]. our Sur question We'll next now from with take Harlan JPMorgan.

Harlan Sur

You were ratio at the OpEx your quarter. September in target

bit Actually, be December You'll than there better the as that. a well in quarter.

to are team guys continuing basis, going leverage. go-forward you I OpEx clearly, drive on think the OpEx faster to than I growth revenue drive And So is a think to growth. continue

target So thinking about? be is there a new we that should OpEx ratio

Stephen Sanghi

calling the mean, the We if substantial by or have higher not to we've going could them, happens above be to bps long-term to slightly and thinking that revising of to happen not good longer-term, the the in something. within very, time below not we revised to target well situation. XX In leverage and We is business. XX.X%. than future, them. But in discretionary strong times believe very the slightly in And we're the growth continue temporarily range. for be We're make investments we times, be that be our the you And Basically, be grow could that. forward. got OpEx

Harlan Sur

team the board. executing on focus, content Okay. Microchip more clearly The per initiatives, X.X is system-level

you lot to to a other terms any a growth. content success per analytics use a Or guys basis? board. quantify content have It tracks guys contributor design wins, platforms system? value of that you gauge capture Can is increase in per board per of seems in-house year-over-year tracks like strong You the this year-over-year on metrics that

Stephen Sanghi

indicator. we have a know. anybody want or competitors certainly We else Well, propriety don't to

last for the growing, several customer that Microchip's been we tracking years, number And average have is per parts So of significantly. and design. growing

is effort. of to of success that that the the want with So success you qualitatively, We not TSS the quantitatively. measure share

Operator

now from our Cassidy question And we'll Kevin next with take Stifel.

Kevin Cassidy

which your within units are on growing can and fastest, you say revenue? the Just business, products microcontroller both

Stephen Sanghi

microcontroller X-bit next would microcontrollers XX-bit think I fastest, microcontrollers XX-bit and growing next. the are

making Given that, X are record all quarter-after-quarter.

Kevin Cassidy

Right.

not so on So a much like-to-like basis.

up you're because more in selling ASPs, general, Your are trending XX-bit.

Stephen Sanghi

That could if you ASP. going cost more products it at then too, than X average would But make microcontroller true the COGS be XX-bit to because XX. the up, just be average look or

Kevin Cassidy

Right. Yes.

devices, you outgrowing your justifies concerned end-markets. why shifting end are it investors markets you'd about ASP your if some are higher then But Just your to end-market. outgrow

Stephen Sanghi

Yes.

Okay.

Kevin Cassidy

that. you with see if agree checking to just No,

Stephen Sanghi

Yes. I agree that. with

Operator

Group. now Rolland we'll next And our from International question with Susquehanna take Christopher

Christopher Rolland

MCU So have guys, your times expanded European others, lead their some increased, some yours. lead times but have beyond like well

have do industry? times net lost share guys gained you lead you overall, So because competitive think of in the or

Stephen Sanghi

you Well, today, was microcontroller XX.XX%. numbers the I've say the our are year-ago gained revenue the by announcing we XX.XX%. divided share the we and our in quarter was The in that September September have SIA numbers. share, given revenue quarter, And

year. increase bps the in been the slower. of share one We market in have that's increase year. XXX share ago. years That's So X that lately, of And X in an of used kind significant to gains gain

a the In think lead ours. increase. gains gone you longer for share the than reason that. was gain cannot the the don't But competitive because very is this significant times So have I like just share microcontroller,

have in with is have years, design X.X to your done design. product, You the put part takes to which it your

year won So ago, these designs and not more times do have an share gained we years year of winning may share time. some and effect year designs with the nothing of effect it. had competitors. higher the the we're to winning onwards unhappy The lead the next their to That does we are because with today competitors customers were the X It could on lead more after. designs lead last year will have we're X be ago. because But now,

Christopher Rolland

the had upfront energy do that? in provider guys you going What's the then kind something. direct that, of thought, hydroelectric And assuming see. direct something like on I'm or I And get, interesting commentary, margin charge? access benefit or million some then we $XX maybe gross Oregon. nearly what I from forward maybe

James Bjornholt

X- a essentially make X-year have covers fee that change. period. So pay you And that transition when fee or there's that a to you

flow over the the inventory, And get at come impact quarters. cash so And way statement to in a capitalized income with couple next will the P&L, of later. from will start works, But benefit getting savings get accounting the the the we'll flow date. and cost benefit a it just cash later perspective, here our then that the

and So there But future. us. for good it's why flow a cash to That's we it's that's better were onetime in transition essentially, and incremental fee being the that change drive the paid, savings. cost a us going are for better We think charge. have

Christopher Rolland

at Or it And too is all? small? just quantify can you

James Bjornholt

margin. small too It's the overall gross big-picture in

Ganesh Moorthy

to us and it good able Clearly, accrues to years. enough be many it substantial many, for a make for investment, was

Stephen Sanghi

along will XX% but higher X I our them, mean, all our top which is products, and of we it's are of more It factor assembly taking plus the fabs, them X really have business bringing gross of of other in in margin analog, drivers list. this other Atmel margin, be of kind to test. foundries. for just the And all with yields, on you one about, the one these comes talked from shrinks, the of not drivers,

Operator

Associates. from our question from Alexandre Darphil next take And Gil we'll now

Gilbert Alexandre

said it only that In your But And you what out quarter now X% products giving last the do you X% talked results. gain? just long it which X past, continue you X% like the is you to is great. And in see? gain, you to to sell does how on through have And to giving X%, go addition of use I'll Is commentary. what this? your which go

Stephen Sanghi

in talked about call conference commentary, last So single-digit. I high Gil, the had

and that. it traditional And I one. with about circle, to X%. my or to you approach, I didn't don't share investor High attach, into disagree gains, market But translated go single-digit distributor TSS the X% said words were this it. to exact call, broke In like partnership somewhere listen was on them along X% if was and there. as into events, I earlier, somewhere And sounds different back got fourth which which the conference X% I X single-digit high

Ganesh Moorthy

ASPs.

Stephen Sanghi

increasing or ASPs Stable ASPs.

years drivers. ASPs didn't enough be So when talk not We ago, did we higher. differentiated only drive the to X didn't in or to the few long-term. past, we these stable have A as about system rich have not We total driving said you were portfolio solution. a

ASP Some can consolidation the our own you have efforts keep environment where created as stable. as industry well of the the

our have are. ago, were we competitors focus they and Years it. things pulling away are from So And Today, changed. approaching they're them, on not distribution. more putting

And given know. continue? the had we which us I was, does the quantify guide capitalizing last opportunity. on it happened, can grow how so I have we're higher. that and things long don't And your So those to able opportunities part really question don't we're of know.

Operator

And from we'll Sachs. Goldman Delaney question next now Mark with take our

Mark Delaney

billion mark $X that crossing on with revenue. Congratulations

cash, First early, question effective may foreign U.S. I the cash how couple Microchip but repatriating it's it is what Microchip's know its proposed proposed thinking overseas the balance? that tax actually I guess, for any topic. And reform on is tax about of the mean parts for rate changes to some consolidated in a point given sense managing rate? of this related at

Stephen Sanghi

do. with much care is general health and a not there's if burn happened don't And really reason a number much not has support of I Senate they that Washington. in know to in really to anything it. there calories is against on want And on is proposals think senators tax come haven't and we have answer A on rate, other, out that fully lot that a it. I other proposal. just proposed of that evaluated

So be the to to to we'll it some may early. possibilities law in something understanding I were change, that our add utilizing and think kind upfront about cash fully more. advantage happen, take think and exist were of I foreign of all tax thinking it, But if it's too

James Bjornholt

exactly that's right. It's think I too early.

are at being proposed. what's tax Our advisors group and looking

to we'll respond So we of fruition actually what kind have comes to here, see accordingly. and

Mark Delaney

much Microchip us revenue your at part know has outlook IoT. the the of that is for more as and in not criteria up I how what can That's counts what level IoT. stringent to is But business. if you you think follow IoT versus for a I helpful. And a point over on tied IoT as growth just of this maybe for part And that's been realized, past. strategy company's the

Ganesh Moorthy

a revenue out as haven't We broken segment. IoT

those some of it just for around to done insight and point. that a we've times connector company is have more provide strategy smart in The We classified And the would at of a providing past couple IoT the that today explained secure what solutions. feeding And X requirements requires big all is ingredients. line as product what are large IoT. the our chunk of of be

product applications capabilities. for lot And strong the connected have don't unfortunately, more good us. We that that. estimate line advantage So growth way have a the we to take to building driver I a are able of and the be secure it a is But IoT-specific to the see revenue.

Operator

our John take Credit now we'll from And question with Pitzer Suisse. next

John Pitzer

the going CapEx. just back Eric, to

to how with 'XX? year. If X% for that historically Should at rev we raise back announced the this do you we the It down of sort range for your look has long-term to CapEx today, X.X%. expect CapEx think about run fiscal target fiscal you over X% that it come CapEx? guys to to puts in year Or

James Bjornholt

Chandler, avoidance of higher. cost percentage And in our were items lease we The kind remarks to or right. I'll lease -- cost. mentioned onetime future buildings you're of, are them, India in that X that have prepared So help and with that call Germany is we

-- flow to that that's very out from cash were ordinary. And one So And a we've make get payback very thing. products gross were those the investments. historically, fast worthwhile those from where on of those it's we perspective return Atmel bit piece the investments can other margin is are outsourced all that perspective much that the got

we're X% cost-beneficial. So are but and worthwhile the long-term, making at to don't be today definitely the expect, rate, we investments that

So hopefully, that's the for. color that looking you're

Operator

from Riley take now question B. we'll our FBR. next And with Ellis Craig

Craig Ellis

follow-up comments to growth. the single-digit I the some to of drivers with earlier high the Steve, wanted regarding company-specific

next attached they? are mentioned question of we as is X and things if distribution, for each us look from Or those traditional share that ASP or year? optimal more that there are so, declines, Microchip, what formative benefit drivers is, early those more lower give gain. getting would now? And innings company the at My are You benefit analog company right

Ganesh Moorthy

Yes.

to cycle that out and into coming you in to more TSS, TSS go when figure are years we when of from X which able baked say, I coming the those design gains going from he's go begin in Those we in, design-driven. as would It which to are time. production. time. of engage, look complete think kind fully typically are attached to attach accruing be ones to I are at designs takes X, trying to

of ahead. that you're So I larger the takes new think of It's That the ones one in time. designs the changes Clearly, distribution some I took affecting, engagement, last that's think. in within place again, year. change

the of from us is the come what's of Steve So some of I described. think ahead best that changes to

Operator

we'll Rajvindra from & our next question take Company. Needham And with Gill now

Rajvindra Gill

kind the rates Atmel overall you products? And had And smart analog maybe if expect mentioned a -- in quantify maybe mentioned Steve, connectivity to attach your the as little of for we where you sorry, growth. strategy. Can for you talked where -- do are for bit you can talk drive about increasing or about go obviously, a attach rates you in of future? terms the that you Ganesh,

Ganesh Moorthy

designs in low attached Qualitatively, we much it's with and Atmel didn't customers, our they lines inherited when because product microchip have those still them. the

Microchip teams product increase our showcase our Now have as up and to come working to be able sales of teams on and attach. they line to designs microchip that the overall been rest the new

we in how activity. we can the Now indicators see own design-in see leading our

is rate talked attach the we which as the place that's time. indicators Steve about, Some taking measure of over of

through on, designs, the the especially place. goes into small from start production, see XX-month time to to all to and come, they growth begin period, may as of that go on are XX- so revenue when there attach. taken go themselves, the the revenue that's have that you And the they And incubation line. comes part But numbers these in that still things be the yet as and Atmel to product

Rajvindra Gill

And just a follow-up.

XX million that they've it more, percentage is a the $XXX core? that generated, you be attached to that microcontroller would months period, talk certain over design adversive it's Atmel will maybe whether So effect ASPs to with fair start Can that about revenue that what that of microcontroller be? on or the assume of the of

Ganesh Moorthy

look increasing So board. when in the towards you dollar content board, dollars at we're driving the per general, per

it we So in taking place, microcontroller. as is attach is where X earlier, way, ways. mentioned we the have And one

is is Microchip In dollar had or come analog lines, still other they came some product that us to of providing that where, that the case, from the acquisition. if where but shipping, board. and incremental our the as solution, Atmel don't what Ours the with the microcontroller the a perhaps have onboard. microcontroller we been And through we microcontroller way something they that from a Atmel always acquisitions or of of richer else are analog, only some well, security, older come Atmel, higher now with integration content

didn't products, because own than design. the will those that more up Now microcontroller portion often we of the ASP go not,

and new with have going people's other silicon analog expect And portion see are We and we products. do we we subsuming up. the the our ASP, there, do

Operator

at Chief at additional over time, no remarks. closing further Sanghi, Officer, any And to this questions there appears back this Steve it conference the or the in I And Executive for queue time. would to are like turn

Stephen Sanghi

joining Well, we thank to for everyone want the call.

go I is conference CSFB. we next think to the

James Bjornholt

Credit Suisse.

Stephen Sanghi

here which in is backyard in our Yes, Scottsdale.

love conference. to much. of we'd at very the see So you, Thank you you, all

Operator

gentlemen, you participation. today's concludes and ladies conference that call. for thank We And your

Microchip Technology (MCHP) 6 Nov 172018 Q2 Earnings call transcript