MCHP - Earnings call transcript Q4 2018 | Microchip Technology Incorporated

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Operator

Good day, everyone, and welcome to this Microchip Technology fourth 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 President (sic) [Chairman] and Chief Executive Officer, Mr. Steve Sanghi. Please go ahead, sir.

Steve Sanghi

you. Thank turn Eric to Officer, Chief call first. the like Bjornholt, to Financial I'd go Eric, ahead.

J. Eric Bjornholt

everybody. morning, Good Okay.

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

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

over results, will activities non-GAAP and from X.X% on sales, full results preceding just will of net our Non-GAAP margin, useful believe go share-based net compensation. operating a March billion, find $XXX.X acquisition results. non-GAAP posted million end of you and sales and Investor to to immediately up of we and above the gross sequentially expenses. some website in referring guidance our our quarter comparing of now high have a We in which non-GAAP were page on the $X I the the GAAP I operating through effects net when GAAP prior of www.microchip.com, be including to reconciliation the at the Relations basis will these sales quarter.

the a $XXX.X of was March posted March geography which of which income gross level your operating EPS of the XX.X%, resulting up by income a for high to for $X.XX, non-GAAP record a our On a reference. margins record was share XX.X% sales, in and of quarter of net of product was was high operating above on Non-GAAP record of quarter million, in our basis, website guidance line end XX.X% Non-GAAP non-GAAP the were have new our We compared per diluted XXXX revenue is XX.X%. the guidance Non-GAAP summary at XXXX. our Microchip. earnings expenses $X.XX. were end and a at

million, have share-based XXXX million GAAP tax in acquisition but recorded intangible non-GAAP the income were the acquisition-related GAAP or investments income For margins $X.X to $XX recognized of include be of the a the million $X.XXX Act. charge was of of EPS discrete comprehensive and XXXX, million, associated and expenses, and share-based and quarter. basis, over maturity, and by operating of share, $X.X events Net and per acquisition-related in On net also expenses sales. liquidated to a quarter, absence marking million in was was to XX.X% gross couple a of billion a include the $X.XXX loss were other Operating during of March fiscal were the income margins basis, margins income million was per the net fund the acquisition associated billion, was of Tax share-based investments These and income anticipated year $XX.X unrealized compensation. net by operating the on charges million up held $XXX acquisition GAAP the P&L. to of income and of that was share. sales, record non-GAAP million GAAP market compensation of compensation were including the since in million. XX.X%. diluted been in through costs, $X.X Microsemi, quarter, XX.X% net gross diluted $XXX.X impact XX.X%. with impacted expenses will quarter other $XX.X GAAP of the amortization would investments earnings. used Cuts in was special with and $X.XX expense Jobs discrete $XXX.X was Total impacted year. our sales $X.XX impacted year a primarily by were Gross XX.X% be

$X.XX rate XXXX, tax operating billion. expenses $XXX.X fiscal year was in were the a net Operating XX.X% record sales, quarter. and income March margins Gross per For The share. of of diluted was was XX.X%. sales $X.XX non-GAAP were sales. Net of were million X.X% income XX.X%

to we As continued the Act, that eight to of $XXX seven, permanently modestly year approximately through the related the to foreign years are We five, year one expecting the to taxes million discussed million transition year estimate from and incurred in Cuts investors now million tax. we eight. $XX up paid $XX and Tax quarter. were six, be had million Jobs years on impact $XX with over in tax we This in about offshore, have million payments the of estimate $XX tax as earnings evaluate invested the is to referred last what be in

Cuts of impact may analysis. the as full and estimates our evaluate complete and Jobs to continue the we change Act, these Tax will We

Tax look we operating Jobs for ongoing are the from to between forward, flow expect we we our long-term Cuts is which and and transition Act, investors model excluding be and forecasting cash what As the tax to cash providing rate non-GAAP X%, tax purposes. X%

days March of Inventory Microchip $XXX.X operating of balance from million $XXX.X XX to quarter. was at distributors was had at the at March in days December three quarter. on end cash million. two the up XXX Moving at XXXX inventory March inventory days was balance the down December XXXX, sheet, our XX, the our from activities days and flow quarter. The the from XX,

March and cash majority the domestic $XXX million was any Due material the our consolidated offshore billion, over total can of Jobs tax of brought which is without position Tax investment cash. XX, additional the U.S. to cost. $X.XXX of be the As and Act, incurring cash back to Cuts

the March quarter in record a $XXX.X was EBITDA Our million. XXXX

XXXX In well net expenditures the X.XX times convertible the and Microsemi was at positioning XX, our Our were ongoing of quarter purchase million, in purchase building Capital XXXX. Jose expenses. excluding year fiscal we $XXX.X previously XXXX April, reduce XXXX, our San leverage million which in us for had a March for completed will acquisition. operating debentures March This $XX.X million we leased. a $XX.X for

spending $XX Excluding million in June this building capital about in purchase, the quarter. to million $XX we expect

for three the expenditures you million, constructed, year San be capital purchase buildings other which expect Jose and million building We fiscal we between $XXX $XX million and $XXX before. have to with XXXX being represents of which discussed

test capital technologies new outsourced. for capital house our bring of to fast-growing in We significant production are will investments capabilities our adding to currently the assembly growth These to more operations improvement I in that and factories. bring gross million. are now Depreciation and business, and bringing we into the performance support Ganesh products March of are of margin our Ganesh? our the particularly in own that manufacturing Atmel expense comments business was his activities give for ask $XX.X will the March on quarter the quarter. the the to aggressively

Ganesh Moorthy

everyone. fiscal continues year Taking as and very XXXX. last grew market growth, contribution fiscal grew fiscal a sequential look record XXXX. Microcontrollers revenue year to overall four was XXXX December morning, from our seasonally basis, as XX.X% strong over well good very a strong fiscal quarter. terms and for We revenue revenue than a a secure Microchip strong business make of quarter. performed all-time up report share March fiscal was XXXX their XXXX organic in XX%, expected at revenue quarter to best with $X.X grew over design Eric, quarter, especially microcontroller Microcontroller over growth X.X progress, March in an was and year Microcontroller March with there billion in XXXX. quarter you, March XX.X% On at closer clients' XXXX a year smart, Dataquest compared over March quarter calendar connected for a revenue a revenue Last acquisitions year the of with X.X%. of the we released XX.X% the down good revenue quarters. X.X% fiscal Microchip's new only transformation we no enable On a in opportunities, year The month, quarter all solutions. microcontrollers, Gartner XXXX. has our innovation the revenue sequentially represented XX.X% the March Thank performed quarter, as March better XXXX slower basis,

X-bit pleased position we franchise. position five retained microcontroller so are We Microchip we to but player. franchise gained also the In we so are share, in X-bit microcontroller much two the grew the as faster In were market, XX-bit report and and microcontroller and significant XX-bit position market continued market, remained than one microcontrollers. gained share, fastest-growing market much number the the XXXX, significant the much to number XX-bit microcontroller in franchise the remained for than than too. X-bit microcontroller the substantial much calendar microcontroller XX-bit but we now the market, the as number We six we fastest-growing fastest-growing larger in than the that faster share grew market, X-bit faster here gain market, as market we're we're microcontroller number approximately we XX% grew the

at in continued the franchise We're times almost number relentless as the we For march our towards number and grew microcontrollers position. we overall, the remained fastest-growing X.X three one microcontroller market, spot. the

gain into XXXX, We share as will and we future continued portfolio further in seeing product microcontroller new industry. stronger, these continue as progress time. microcontroller even the which and in we we have believe never in to been engagement roadmap are and momentum more funnel, expect Our design-in performing production drive the franchise growth to over customer designs our best build we has the growth

XXXX quarter over analog was December in quarter, as moving On basis, year Analog setting grew quarter quarter. fiscal X.X% overall new a X.X% the revenue in March fiscal analog XXXX. the X% quarter compared process. the revenue $XXX record our to all-time revenue grew March was business, Now fiscal million Microchip's to XX.X% revenue our at March represented sequentially March an in analog record of year XXXX. the and over analog XXXX a up year

us term, strategy line analog a from quarters deliberate our to resulting to that replace classification impact products have they of analog system shift product especially these headwind. for line. new products ramp, will have this of communications expect microcontroller analog does analog last analog our of line sticky and product time provide results microcontroller interested with microcontroller smart revenue to complex several sell analog Transitioning The answer, into we we as the older In higher-value the headwinds as defensible microcontroller And strategy in revenue wins change in fully as designs, adding to will our are growing the ago. the The from investor has see these right classification cores but product connectivity more smart products from made nicely. connectivity been publicly of reported smart quarters, classification continue outgrow revenue product revenue cores enables more are the to higher-margin over design in product some revenue clients total product reporting products our products, is the those addition in, highlighted line. is several As lines to analysts growth These connectivity shifted solutions. that longer a few solution. the that some revenue more revenue our we and we some the attach Microchip some our for in that line shifts

quarter March fiscal sequentially at business March in licensing X% year and million XXXX revenue business quarter, On XX.X% year was although grew XXXX Moving this XXXX. the March business, next seasonally record licensing was down XXXX. our grew year quarter basis, an XX.X% over fiscal all-time $XXX.X a over to fiscal

in the licensed many seeing royalty independent and results years ramp to makers of having are process our many and nodes, volume foundries device several multiple revenue the for as manifested on licensed processes We for years generate technology come. fruits

X.X% memory sequentially up million was fiscal December March XXXX. revenue as Finally, our quarter XXXX business to over X.X% $XXX.X fiscal memory at over March basis, XXXX in the quarter and the year quarter, March year X.X% grew On grew compared fiscal XXXX. quarter a year

support a units, system update reference integration cover the close discussions cross-selling at designs our both announcement, occurring we'll sales, the line than earnings call. be quick product section. and for a after and you can combined between update that approvals both the approach. product and other business how Microsemi close, are we to that of of can We're planning done Steve our identified our manufacturing, meetings and Now also started also his companies total have of the since an take X advantage next post and identify will reporting about Teams determining and later no the in regulatory progress have March companies. pursue status will groups opportunities

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

Steve Sanghi

first on everyone. I morning of will and XXXX then results for good the fiscal the would fiscal year quarter to reflect provide for fourth quarter fiscal like and first of you, XXXX. XXXX. Thank you, guidance I Ganesh, the of Today,

were Our financial quarter March results excellent.

was were Our consistent sequentially the and Atmel-originated The in revised X.X% seasonality. up guidance. XX% net business Atmel our with down, sales sales from year-ago our and end above high up the of were quarter

very Microchip core up Our was sequentially. strong and significantly business

basis, XXXX was share revised made it midpoint gross guidance high fiscal high it in all-time best Microchip, year XXXX we I and all sales of the organic growth. the year And made profit new better and of of a clearly margin which Reflecting of the was fiscal Operating want XXXth was and employees year XX.X% our earnings non-GAAP of worldwide XX.X% than also our better up the all consecutive records. sales this quarter. Fiscal On sales on end to a of of a record. the XXXX. were than the per history many guidance. was the outstanding for record our at Microchip was from non-GAAP Our XX.X% an of quarter in profitable year year and $X.XX our guidance. of new net was fiscal thank of delivering $X.XXX end XXXX, results,

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

XX-bit our to preference design XX-bit, continuing experience to customer enormous an and customer all solutions X-bit, are in microcontroller We applications. with

powerful Our diversified to which to various a acquisitions have now through product able we solutions our line, total provide built system are customers.

trend growing of XX% our Microchip and under products was another we We parts wins in ago. on quarter XX% same annual are the at customers. system boards year system a of March Analyst With same Day rate. continuing At that winning over multiple per parts quarter our our being per the up belt, design XXXX, this showed of number incremental customer the with is Investor X, number of a the

feel We we is have a robust Microchip design very optimistic and working. win that X.X funnel,

versus of our the year-ago the quarter SIA received Based [Semiconductor Association] in ending quarter grew We and numbers also share XXXX. March XXXX for lines each SIA recently on numbers, Industry XX, in product March X-bit, market microcontroller XX-bit XX-bit, quarter.

is to at of slightly were of end target XXX March at which below Microchip XXX XXX Our our days, just XXXX inventories days. the

enormous continue conference the make online side to bringing and between to call, to lead times weeks. progress stated times. and capacity our decreasing manufacturing the We In be we lead X last XX on

Our between Normal to lead lead XX be weeks. times X X weeks. between now times X are to would

start we the had had around grown Our given Day. With has to numbers record. as Analyst was to continuing, said will ratio, the healthy and book-to-bill for higher ratio the quarterly book-to-bill our Day, backlog ratio be healthy extremely number at March providing Analyst quarter we book-to-bill now and the another the for in you time even

lead that times. We always and simply said is confusing tracks book-to-bill the ratio have

in it quarter. December we proven to in in again the providing, the the of quarter. continue stock. will business In have ratio book-to-bill business, with grow soft-landed March quarter. with The the Providing ratio have guidance quarter, book-to-bill healthy the we in X.X simply remained June volatility We successfully consistent been and March we the increases

to During of time to currently revenue whereas GAAP is such XX, product distributors, will customer. standard, are the a end are by we deferred result new sold our adopt revenue recognition the transactions revenue until quarter the which recognition will distributors at ending products sold on June in XXXX, an

to We at are a not or we to provide decrease this predict able able business. will in our basis, whether we guidance are not relation demand, how and GAAP to as on increase not distributors inventory manage our end-market is

our amount by As a distributors evidence increase a of inventory years this at net decrease recent uncertainty, we significant have in quarter. single seen or in

Our non-GAAP based we revenue revenue the which customer, our so based demand continue revenue which is to end-market sold a when true measure non-GAAP report by will sell-through. non-GAAP based based distributors we will be product revenue will end-market on report to on in end on meaning demand, will a be on we the true an

manage to sell-through relationships our such distributor business continue and will We based on revenue recognition.

revenue continue on sell-through bonus will our All also on work report Microchip's which based non-GAAP programs sell-in, be will revenue on of results based recognition. we along with results, to will GAAP Therefore, sell-through recognition. based

In terms revenue, sequentially, to non-GAAP we June the X% us expect total of up based guidance a at revenue net will only for X.X%. giving to non-GAAP midpoint quarter we of on provide X% be guidance, guidance so the

Day. the in had is the guidance modestly than provided March quarter, amount revenue of better expectation the Given this beat we Analyst during

gross a based company margin margin X.X we in margin, Microchip Regarding improvement drivers. see overall on steady the gross of

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

sales. be We expect between expenses XX% of our to XX.X% and operating overall

include not expect XX% we and operating earnings XX.X% numbers All sales. per be do $X.XX between We expect of per be Microsemi. to $X.XX And share between profit percentage and these to share.

XX, Microchip's review yesterday's Simplified that a press MOFCOM optimistic acquisition antitrust received we Microsemi. XXXX, comments Procedure. April Now accepted China's XXXX, We We of the in filing for transaction. that cannot clearance. U.S. will April under China's On that smoothly, XX, I cleared we running we pending and MOFCOM the wanted shortly. of confirm review to on report has remain the On couple is clearance believe process the receive make

Japan's In did receive addition, clearance. yesterday, May we antitrust X, on

Microsemi We expect we May on antitrust June several other XXXX, I scheduled believe XXXX. acquisition The operating to financial want to an is Analyst for Day we that presentations, remind the sometime gross shareholder our of Microsemi and investors of XX.X%, expense countries margin long-term increased XX%, non-GAAP operating clear schedule the the for early that closing profit of month. are our Investor during to XX, during and and with this a model we acquisition XX.X%. vote review

to you assure know, of to of the we the balance Microsemi all all which acquisition, transaction. closure after $X generation, As dividend borrowing delever will target. until our close our long-term you the and capital, to rapidly comes billion course, plan Microsemi down be about that to about is after cash want use X.Xx, I to leverage sheet of we the

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

Operator

Thank you.

SunTrust. William our Please question with go take ahead. from first will Stein We

William Stein

my question. for much thanks so taking Great,

products to from relates forward. in that details. anything quarter? prepared we earlier like wondering I'd range you you about hear expect that Atmel and very it remarks it's get materials the your lead you And see lead current that, for or to normal to your remarkable as the reduce whether in to capacity, go times time it as can lead foundries, highlighted that I'd Do know to the the range extended. the raw about much. your within there's to already also if anticipation And as if love You there. you Thank think, you've I'm related added as if times talk in normal I

Steve Sanghi

XX% normal So of weeks thank lead be circumstances be some are lead extra time X or what lead time. to There times that extreme we projects on always need the you, XX% products. The where products call That's longer. the will strange a – work would normal specialized usually Will. or X

X normal. So majority the lead X weeks is to for a of time products,

the make. about We X got currently we've are expect that and year at we June, saying become on we times so the weeks, a or that. are for we for as have schedule And lead to longer of by XX end more to little been really a essentially to is progress normal

and lead your need normal. some to also to are that. to there, was that on what and times equipment issues lead longer weeks test able Scattered wafers and capacity assembly/test but be But could at not on trying it other the Again, is, lead X lead either the X part get assembly get the foundry depends setup and our need. times of largely equipment able on what suppliers of The the foundries. we the all here what really foundries you're test in times or foundry buy, get to We're we're and the and equipment, acquiring. you question particular general, of time excessive equipment. We're are mix what to from but you're buying

William Stein

congrats the and outlook. on so much good results and thanks Helpful,

Steve Sanghi

Thanks.

Operator

Craig ahead. comes with question next from Our Please Hettenbach Morgan go Stanley.

Craig M. Hettenbach

from Steve, be relative the influencing you. be there, update today pricing? might consolidation, some favorable and any some it conditions also just on pricing, how to that thank of of the impact Yes, industry tight the

Steve Sanghi

Type of what?

Craig M. Hettenbach

conditions. environment The influencing can, is tight industry the talk well that how pricing the consolidation you as just just in as today, if just about industry the

Steve Sanghi

Okay, conditions. tight industry

down went very trend. that normal. really pricing year, been industry following the So historic no where saying the that longer the We've practice quite are every we a for is prices while

some We have follow others seen it.

year-to-year not price succeed some lot times; of we winning today customers a are reduction. ago, giving We years we'll Five time. of more at the most succeed often them the

last looks very did two really price increases years. normal. pricing So in us the industry We for some

behind I us. think that's largely

are as cost but not the we going it. the lot cases, are assembly/test to by those of margin inside you're products some seeing those and improve with die they're a gross down. of stable on are And Meanwhile, bringing shrinks others. continuing in prices Now improving

that's Now are products in are industry weeks is where Industry other on where really Wi-Fi We the think very and make. but of seeing the for time tool and our we get conditions It's tightest There devices supply obviously that, don't and and increases. like XX especially passives. is price we compete pricing. tool long helping not The times I all are of development are tight sell we on industry terms but are them, a on XX with conditions not small those to microcontroller, component development those could seeing lead business, some also and lead they're – helping tight very conditions, and a consolidation prices, devices. don't because but We tightest really for products passives. that. be high-cost we us capacitors analog, buy

Craig M. Hettenbach

on milestones And Ganesh additional share then Microchip follow-up with making? that. a the you're the can for for sharing progress thanks and X.X just you it, Got on cross-selling, any us

Ganesh Moorthy

All our internal look indicators good.

but how those Steve to sowing continue taking a us are things that they very to make we're an those as sure and bloom, will for and attach provide it and growth is seeds is seeds incremental of growing year. growth driver. quarter grow confident one care and to It's we're long-term continuing of As year over mentioned, we measure lots over of quarter that process, that

Craig M. Hettenbach

Got it, thanks.

Operator

Please with Our Goldman ahead. next Mark from Sachs. comes go question Delaney

Mark Delaney

could in is question. I any Microchip's you came inventory below Thanks a think own where realize their the for be Yes, to inventory. a you range. is your taking and good distributors talk the about down and little extend target hoping with morning. that expect I was bit discussion changes inventory bit channel making you further and

Steve Sanghi

a our was because inventory higher The than little expectation expectation. lower were our than sales

X.X% Our result guidance inventory X.X%, XXX up were And Instead, slightly lower. of XXX which range net was would minus higher sales we Its slightly to so days was and X% on were the sequentially. based days. inventory be in the the midpoint reported beat. at days that,

difference. I product is that days always the inventory Inventory, products don't fine. the make and are was We're which little think of with really a Two, three position. inventory comfortable are there showed high. kind

So such but there's in constantly a the inventory to mix. thing in our continuous as perfect inventory shape. perfect, there's no good get And the effort is

Mark Delaney

Day normal company the hoping Okay, And help in us was the call think a could how what is. lot for new contextualize Analyst at there seasonality about that's about better I for was last you earnings guidance and that coming the helpful. of discussion you to X% what there of are tailwinds trying or sequentially. guidance may be? up new quarter that this headwinds compare factor this quarter? your any relative coming that does to X% And seasonality How for to seasonality you're to into

Steve Sanghi

was So the if Day, quarter we Analyst by X.X%. I sequentially, June you said think at beat X%, recall, but we the March quarter

April guidance. delinquency last that that it some shipping better X.X%, passive but a slightly than to manufacturing ZTE. quarter of sound to quarter, We lowered some get it May in on is XX%. did their to because because times because shipment has we from we we thought passives number on That customers X. doesn't we're been were put March. we are issues. China. the so originally that ship delay telling one-time There trivial, us the about, long in better complete to little facing We do bit There you effective then better of to and May talked when beating It the from resulted into but they systems. and the product which went at were that lower quarter, able quarter, June all XX% a product the So together, going are ZTE. June don't can't We're in lead much, a of lot VAT into the ship sounds our boards customers to more to from were March us March and was asked need able of impact cannot a in certain slight they ship

crazy didn't that trade April – that, together. add impact to wash all from in any have and some do really and you They're kind them that's into result happens, account are of None whether then be quarter. items the X% not. April will of X.X% it if quarter, never they anything hopefully of a could else the these shipments The May, but impact talked net I but overall but we're all four many any factors or X.X% sequentially, to of you be five you about of for for probably So But not seeing there some whether X.X% in that. by for driven a know significant. issues production those pushed tensions,

we I X% been minus March have seasonal, especially June and quarter would quarter quarter was think really seasonal. what the guided is totally June if

So seasonality, don't have that what seasonal. of years to and for experience the we're be close guiding Atmel but seems we to numbers with

the learning acquisitions. And on next through Atmel, is closes And June, other finished we of rest deal the so going of all The again. the to again, growth process is this to March when June. have we point when to the don't then again in and challenge change have barely seasonality. to learning go the And same we're going the next experience come quarters is Microsemi that on through process all we

Operator

next our take will question... We

Steve Sanghi

Did that answer your question?

Mark Delaney

much. so Thanks

Operator

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

Craig A. Ellis

especially the round for announcement about any billion. question seen on whether that clarifications. One, secondly, thought billion taking I I is expected upcoming the the I $X for but past. the was the Microsemi MOFCOM, company related on the color approvals, you heard thought you this could, initial two you've through transaction, of to I And Thank wanted the on statement it nice $X.X to than Steve, what us with is congratulations to borrow start different if provide and execution. in

undertaken reduction transaction? has that's debt there the to in modest a been So expected that complete

Steve Sanghi

So a answering that the of December your question so to in are of we second the cash numbers. And was Microsemi. entity, and has your from time, part off first, we December $X.X going cash number we so June, generating had generated billion-plus have really that stated substantially

a portion from coming there's reduction So there.

do want to anything change. think that's to only Eric, the I you add that?

J. Eric Bjornholt

December of represents closing the and between just that's flow exactly end the right, cash expected so No, that essentially date. the

Steve Sanghi

debt down. was have what bit Microsemi They some at that the level lower And from it paid is that time. has debt a

Craig A. Ellis

That's through from differ helpful, process prior? how any color and would this then on MOFCOM

Steve Sanghi

to Atmel, back lot required So deals then. unorganized it when Any At used them M&A in few Micrel, time, we ISSC, MOFCOM require between, approval was have Supertex, as MOFCOM XXXX. It relatively a and was [SMSC], time Microsemi bought resources. didn't (sic) wasn't was deals of long of last have that we done MOFCOM. seemed process. brisk, activity largely and we none and The in the MOFCOM including of had which a was

seller, You if buyer exceed both require entities, in threshold a the MOFCOM China. and of Mainland revenue

in I MOFCOM. range, me think required million, It's none $XX.X and but have of hold the it. to number that don't other is exactly our acquisitions

simple a a transaction procedure. first takes a procedure very XXXX, we identify is has now time little and since They normal a be take a that procedure. XX cleared to first MOFCOM, usually to the this found applied So normal procedure longer. month or for within we is MOFCOM good is substantially days, procedure and Simple well-organized, given have the a very

and when that pretty simple investors. it going our it (sic) news very, why on questions or be end day shared simple getting that so we under get procedure, longer on with takes transaction or (XX:XX), and [April here. is XX May even it May that smooth that's happened guarantee that on days not approval rated you optimistic There's new That encouraging emerge, but was any or rapidly by this should the XX very procedure, no XX. XX] very be we're we under So really to MOFCOM was

Craig A. Ellis

or board. X.X driving That's Microchip per If you initiatives in increase I a either to question impressive parts could with Ganesh, very XX% system performance one helpful. ask

As you per system impact ahead look Microsemi rate to board on Microsemi, Thanks, does basis? how growth guys. on a design wins your that

Steve Sanghi

Ganesh. ahead, Go

Ganesh Moorthy

Day uses So it's multiple is to are we products they the methodology on days. by very equivalent that the organized an Total have from March take Investor extremely some What how their of X, showed and early approach Solutions. I well encouraged the examples those Microsemi of for have position other's that into during propositions can that each we strengthen business demo identified or the between designs And further or products both customer they're companies, units places markets two and providing discussions the in get. where them can for. boards end early reference solutions System we

you companies encouraged close. it's is will common the of the what the to approach the rate for I exploit early be, but the employees two very to tell by farther So too ways am how and are after looking that

Craig A. Ellis

thanks Great, again.

Operator

Our from go Danely Citigroup. Please next with Chris comes question ahead.

Christopher Brett Danely

of give versus we're plus of also maybe best us just September seasonality quarters, for through the that end deceleration December then can compare combined you just Thanks, guys. deceleration that and seen for the June the occurred Atmel now guess at your that you XXXX? guys Hey. we've this quarter, and working the Steve,

Steve Sanghi

numbers thing weak I quarters then weakest So – driven we're And June good really also think that June. December believe September companies. we continue and negative don't the And numerical the positive. be and was announced I slightly be quarter for for just quarters quarters, quarters, slightly this March have is continue growth by December and March, sequential to in so the would seasonality. I all the guiding same strong expect quarter the to the although for September, for is Atmel combined usually I and seasonality,

question second what? March. not strong going September, your think that whose do has strong was you, don't this a understand So we all weakest And yet. December, is with weak change I changed, to and part of Microsemi, Mind the June, seasonality

Christopher Brett Danely

a that the what Yes, had the just back times compare it in bit seen XXXX. the roughly sharper, a but agree same. like to with was period deceleration coming deceleration little then. happened was lead time that? seems Would It We in with obviously you we've

Steve Sanghi

in significant China what that. I XXXX slowdown deceleration driven that don't everybody was recall saw. a caused by

is the is as good so just were think from it by basically reduced is XXXX. so the This is was in, and business normal, regulations worldwide. driven environment of I subsidies I think not of economies up, don't This deceleration going think there going to and like place. the back government China. driven some lot There pretty are World by at synchronously clearly business change, really the some it's coming all a longer were any markets. things, lead I are times various

Christopher Brett Danely

helpful. Okay, thanks. That's

Steve Sanghi

last have telling give have we to year, the compare we letter to trying it everybody to that compare has put to and trying April and this soft-landed talk, the you've analysts completely. will to been XXXX. think that it it got We've soft-land, since me and out Investors XXXX. I you XXXX, there been been like Ever to this on it's nothing

Operator

Kumar next with ahead. Our Harsh go from Jaffray. comes Piper Please question

Harsh V. Kumar

you, thank Hey, Steve, excellent and results. congratulations,

what an perfect landing so said the think a So business, part far and into would I just is of you give a not now segue that's us question, you you're just terms plays MSCC, soft your business my that part thinking in of it idea the is I the question as out of of have your as how growth follow-up. concerned? a but And complete,

Steve Sanghi

the it's strong question strong same think just answered, June, I I September.

and results us quarter March. You slow and we should quarter, next into and see go December good from this then the slow a for

think after mid what business current that's we to have where guidance gone has high the are that's landing. and the the to before, and talked I normal a is, about growth, soft numbers I think think I single-digit we

Harsh V. Kumar

And Steve. is then enough, business your MCU pretty strong. Fair

X.X all the play guys players A the better. are automotive, industrial growth things of mentioned Everybody's on, are in I your large doing Is same substantially in opinion? there times share going as and other think targeting rate. of you. you Steve, take markets lot or you it, the but

Steve Sanghi

Do Ganesh. to that? ahead, you want Go take

Ganesh Moorthy

taking substantial is of portion it share. A

focus I also XX isn't approach consistent to others. in we're think going do an picking only that bits and not on we're

Each They're bits, between records X as new succeed growing. XX they're broad-based find the We them each that growing. in. of and setting are bits. We of XX bits, spots them is

we we who growing. to that, in And in go how And little want in many of may have from they have that year-in show the share I way been and market other to what the market solutions, results the different a position how go growing, us so that been market. and think differentiates has people ranking has ways of to breadth year-out

the it, contributing there's approach think one in to no microcontrollers. silver bullet but I microcontrollers is causing in So results go-to-market the differentiated across that's our

Harsh V. Kumar

Thanks, guys.

Steve Sanghi

with I at large both know is we have the acquisition as to play absorbed or dislocation Harsh, bought and for before. would then we I The Europe, have that most done rapidly that's other think have why. challenges. being experience supplier, company problems companies number not positive significant companies and of all China reliable right MOFCOM, the Microchip Atmel add large our have in we any for now is created havoc customers delivery supply of those of you from names companies. from And Those waiting the the significant and seen customers. the are and their a customers seen with that that, the perceived and have preferred in that, microcontrollers. they end-of-life and inconsistent or other supplier. and end-of-life'd of of They And us so the through customer what have other are a very significant very products companies the have Japan merged some challenges discontinued have seen microcontroller the the in we competitors they

Harsh V. Kumar

Thank guys. Congratulations, you.

Steve Sanghi

Thanks.

Operator

& with Please from next Rajvindra go Needham Company. Our question Gill ahead. comes

Rajvindra S. Gill

the my how I Steve, maybe industrial from conversation and you, qualitative and the thank we congratulations. trends perspective, from going if could last in echo environment and was shift automotive et wondering seeing Yes, from ADAS, inventory cetera, demand a IoT, what distribution, characterize forward. different I year away and and that's you're

Steve Sanghi

still less think be healthy, – seems business the growth is but was last normal. the can it this year, grow growth year year more This quite grew was times last just out is is last than year, heated. positive. more the really I growth argues per last environment was environment as year, what anybody and think single-digit XX% it demand don't the than After the XX% to industry outliers, growth more can in many, and year demand last low I described. be the years but normal. I environment year. is That's as normal environment year. the think of industry the very but it went of lead year always many some industry, this normal are is There

Rajvindra S. Gill

of Okay, if us wondering but change – but could in it, CapEx got Eric, with terms should longer-term last CapEx, rate you the more on this CapEx how going XXXX fiscal growth more about to some so a we think of year. kind Microsemi, give then, I'm And the is year also versus normalized on is insight in basis.

J. Eric Bjornholt

projects there for always year, today the So million can of about but just between up like efficient on, to to and guided growth forward, are going the building $XXX XXXX, things be that around projects. be for that for but that world going different reduce that. lease fiscal that and for And costs and we $XXX CapEx includes million we us projects million nicely adding building set we've $XX four some got

So I'd the ordinary. out of call that one

decline, for our fiscal of take XXXX, normal reason at building range So fiscal maintenance as any in million $XXX significantly well If projects we a CapEx I if out that's saw million the fiscal growth to environment. growth for XXXX, as you $XXX is think last activities and lower us forward year, we've CapEx, over our so control give manufacturing margin to the than growth, going dramatically. house, that, for investing which chain, bring But can gross we'll and supply continue that those make more seen to we're investing overall investments. enhance in we're come how down

Rajvindra S. Gill

near start the deleveraging on be about medium you're one term? any Okay, out, impact in that just got rapidly. interest will question taking on specific expense the the to you and Can tranches going term the it, Thanks. talk what and

J. Eric Bjornholt

flow will that not his of be rapidly investing remarks have but in what Steve delever. CapEx take to that say and dividend yet, outside in the to question. We're we cash prepared for and I'll of give ready So really our used specifics business all did

high-operating going generation drive of remarks. very and one. of couple Steve target debt in day to his combination If high-quality, the they first cash those times the cash you really are down prepared two models over and improve all on years from companies, pay mentioned And be and Microchip X.X at is that that leverage are high us these margin, will combined absolutely flow look Microsemi, where to that

year, quarter up or your by So modeling have can specifics pretty by don't do come good and with a but I estimate. I think you

Ganesh Moorthy

Atmel did well. as the we You with can see what delevering

Rajvindra S. Gill

you. thank Excellent,

Steve Sanghi

a highest We're basically what's interest And combination going looking credit, down fixed of and debt of the and and of with no-brainer. regards to paying kind the combination some the that. at the debt a term to some line of pay variable first, loan what's

Operator

next Associates. go Our comes question ahead. from Gil Darphil Please with Alexandre

Gilbert Alexandre

congratulations. and morning Good

what you acquisition, did Microsemi comment I your the the negative as you. three. earnings year don't On can thought you you recall surprises? due be any accretion diligence, And one and positive might Thank on or

Steve Sanghi

we announced Since It's very we question. haven't seen general the or any transaction, a positive negative surprises.

know to are diligence a did we were like. went profiles, units of as transaction, through there But about so prior baseline really the business and didn't we not things the as company have positive corporate things there negative. various the During or announcement was we we a much this we liked before, the and we always see didn't against could that

I discussion longer way it to into not a a think remember offhand. probably (XX:XX) to be it, will it go

a days as spend and positive we I the next we see think step that's the what found negative probably surprise. when XX then the close or we will company, transaction is when with

calls that couple another probably So of earnings ask question in later.

J. Eric Bjornholt

our add which haven't And assuming is in and we achieve June can annualized after March EPS revenue would year $X.XX people's of a synergy basis close, cost refresh just of expectation. maybe contribute and would changed X. Microsemi first in savings $X.XX had to said that what We $XXX after were non-GAAP Things that I in add from on that the would EPS. to close an memory from of that indicated on we and standpoint. year rate XXXX We close, Microsemi million third growth, run still the non-GAAP accretion

Gilbert Alexandre

congratulations. Thank right. much, All very you

Steve Sanghi

Thank you.

Operator

Please Stifel. from is question next Our Kevin go with Cassidy ahead.

Kevin Edward Cassidy

units Thanks. growth the it driving X-bit, Within fastest-growing, or And XX-bit? your or the dollars? business, what was XX-bit microcontroller is

J. Eric Bjornholt

rates can We the segment out I growth break microcontrollers. don't of for take that. by revenue Steve,

happy I providing records, to of outside is with nothing other that, any no them. the them of is follow can ones. the And three you have that remarks, of of setting As offsetting prepared very one say. We're there's been of think more all them so from new that the growth there's all

Kevin Edward Cassidy

know Okay, the best end you from? don't you're markets, can seeing the break but what by it out that I say world growth area of you

Ganesh Moorthy

how reflected in the the world, Asia. by our of in is So the regions XX% XX% revenue in company under balance in broken we is the is Europe, so just out the for over and growth all Americas, just have

represents go is U.S. consumption other local reflects revenue for demand Asian to then country. that back also which not the business European or only creation, originating companies, Now, local there and manufactured but

by to is Microchip and being in of growth to revenue the in those world. range are the growing that be the of XX% regions end of similar Microchip dominant microcontrollers very is market, going rates such So at growth any as what a same the portion

Kevin Edward Cassidy

Okay, thank you.

Operator

Securities Our to next revenue. Suisse Pitzer hoping quarter Pitzer. dive Thanks a question March go with little Suisse. a ask Kazarian letting me Credit Kazarian the comes Hi, for bit behalf today. Credit Please John ahead. this (USA) from Charles John was LLC - deeper question is Charlie on I of into

Could Specifically, over upside March mostly with more specific talk you little revenue month that unchanged. the quarter? narrowed Thank rev saw was about of buckets bit X midpoint a of you a what the guidance you. remaining just on

Steve Sanghi

you don't markets Kazarian by you. mean Credit by or end bucket. or or or geographically mean buckets, Thank have Just you whatever whether lines be mean (USA) we you LLC think provide would helpful. product know Charles markets line? could don't Suisse data by - generically you Securities that By end I I buckets product

Steve Sanghi

know break XX% distribution. by on across where the business the we end markets business End basis, our quarterly a of through because customers don't is cannot markets we XXX,XXX

data in only don't nuggets any where line, a data we once have work, some came the while of amount market. provide we extra we product really By so by from? the that end Eric, do So growth after painstaking of

J. Eric Bjornholt

of March They to saw all X strength the we lines. across product close, the from performed think I Honestly, really all well.

quarter definitely the that. microcontroller the You but see that that will business opposite in better before performed analog business, the quarter was the the than

we in see very out really don't down closed that peg we good and but it like lines. product quarter it can March that, growth strong. think strong, was overall the That's what typically just the Europe across I various So

Ganesh Moorthy

versus helped (USA) cleared we - month actually delinquencies what of that Credit the LLC helped been saw. we some that expecting growth Charles March, Kazarian the And Thank Suisse Securities had you. we in

Operator

comes Rolland ahead. question Christopher next from Our Please go Susquehanna. with

Christopher Rolland

quarter. and the guys, execution Thanks, nice on

are you people Steve, well. like you I can and going And describe as Perhaps wish I So against that do that the get I that guys then, in report. sell-through you are the to sell-in past. how between more seen guys difference sense the that sell-in. philosophically would big sell-through that almost we've is

Some think creates behaviors. people bad it

You're sales could you how if Thanks. I force sell-in. not about that. you wondering incentivize to talk your on view was going philosophically

Steve Sanghi

you're So absolutely correct.

payment that of the my parts. to incentivization buy the the by the we we've to your from your know quarter from philosophically books, more And in, all built the distributors distribution, In the really main at records, is is sell-through, difference. distribution relationship Micrel against have more sales million parts and we force driving that we quarter the a sell-in and history, and Hey, Company out going on effort essentially. the sell-in, with their wins of their to have of are deals We in behavior, and because the others, represent pricing sell-in we end and end shelves company in design the my been involved is the have bad $XX with goes making distributor buddy-buddy that now the buy all me, that giving Atmel the revenue had after recognition. so doesn't commercial amount they demand. on buyers distribution of of terms to another managing bought, are their companies that's to parts, in deals, from concessions it please to take stuff revenue, channel customer, happens

few recognition, defining During that. as fought at we the last looking revenue years was FASB

went down for we but be wrote to a has where paper sell-in. long revenue GAAP recognition it the FASB their think decision on ago, time a I

religion lost on sell-in, going battle, so manage going GAAP create and we're demand. to we announce that to sell-through. We're throw but therefore, we based We're away. have going the business our not based to on to So

wins an We're as All Our motto on we'll sell-through, to We're measure based distribution to people. SEC-required is design sell-through. bonus incentivize drive revenue. based programs going to but to going GAAP through sell-in. go our exercise be will on report

Christopher Rolland

that for sell-through. Great, offering thanks for thanks and color,

just Going could, tiny of forward for if a Perhaps going, percentage me, higher thanks. those OpEx investments about a you talk bit was where are as revenue. guys

Steve Sanghi

terms I the of don't we any think in anywhere. investments conscious meaningful changes made are

people. just parts, juggernaut, are think the for large come higher are I rates the moving and some social not of some could you to of in being have it's back turnover, quarter, replace lower and later the quarters, a turnover security first have In there lots in too. you exchange out who of able and payments people maxed the slightly the

conscious whole So – it's decisions just bunch were nothing to more or was moving invest no of less. really a made There parts.

Christopher Rolland

guys. Thanks, Great.

Steve Sanghi

Eric? Thank you have anything add, you. Do to

J. Eric Bjornholt

onto I'm that. just going one to add thing

you model. investments what XX% in R&D, below operating expense been And been a salespeople, our to in goes to make we've everything that margin and in it. Microchip into technical said operating drive So has have has functions company, operating support

a today to lot it's years just strong from investments X, have to those company now. business open X, we're isn't make but going We strong make in requisitions sure our and to continue XX of the

Christopher Rolland

Eric. Thanks, Great.

Operator

Our ahead. next JPMorgan. go question Please from Harlan comes Sur with

Harlan Sur

per that, program, the trend this drove the is Is on Good as The and deceleration the nice reflection think in over morning, despite it grew half year rates fluctuations? upside a reacceleration Analyst year-over-year performance. X% X.X% at the you're quarter business the do a That's prior Day, it's about quarter you year. XXXX and attach growth the from in fiscal about reclassification headwinds. just prior great of quarterly to acceleration normal incremental highlighted achieving or analog of execution and increased March the you the

Steve Sanghi

Ganesh?

Ganesh Moorthy

attach Quarter solutions. from part is because and we our some the of previously total with that attach underlying nice to longer-term it but selling all trend remain we've to reclassify there's growth quarter work And system for and create will analog is but of that what standpoint. quarters going to of we done certainly it, you have you with the analog fundamentals what fluctuations of a the we're think see intact. way So that on reflection of several headwind should that, only telling business an which and is doing the the can it, a do as other things you're those expect have growth we I associated been

Harlan Sur

Great, core in That is of AMD thanks I've Microsemi. aerospace hear insights Microchip than more increases And pre-Microsemi. only is defense about percentage than and better margins your X% are about the industrial. with products. industrial X.Xx for there. AMD heard I sticky business mix that

a First family would agree high-rel with that? radiation-hardened to guys with you all, of does MCUs, of or have you something And team? is Microchip achieve that hope Thanks. the Microsemi

Steve Sanghi

Ganesh?

Ganesh Moorthy

business. It grow It business. is of our very Microsemi. aerospace, up will sticky high-margin that portion will is with space the business and clearly, defense, be So

the have of product other family it that characteristics. automotive lines similar in so And and joins sense, have we and that industrial

technically the product take rad-hard to also have of yes, that we automotive. what Some Specific line, and advantage the of have industrial do have work to we rad-hard do for we do to microcontrollers.

Some rad-hard started business portion significantly to and And but portfolio, And Atmel for Microsemi's Atmel defense prior were acquisition. and doing in grow from the is products quite well what areas other had rich work heritage. obviously had the of really will as the it more that which defense from building aerospace. that of ready they came with Microchip been been

Harlan Sur

you. Great, thank

Operator

for Sanghi to would questions. I Steve like call additional turn no closing time, remarks. have additional we this And the Mr. At back to any or

Steve Sanghi

We Microchip. joining in and the Thank see you. best conferences. this for you of investors want the call the at thank from for investors All quarter and all the we'll us, some to being during maybe

Operator

this concludes call, today's you participation. and your for gentlemen, thank Ladies and we

You may now disconnect.

Steve Sanghi	Microchip Technology, Inc.
J. Eric Bjornholt	Microchip Technology, Inc.
Ganesh Moorthy	Microchip Technology, Inc.
William Stein	SunTrust Robinson Humphrey, Inc.
Craig M. Hettenbach	Morgan Stanley & Co. LLC
Mark Delaney	Goldman Sachs & Co. LLC
Craig A. Ellis	B. Riley FBR, Inc.
Christopher Brett Danely	Citigroup Global Markets, Inc.
Harsh V. Kumar	Piper Jaffray & Co.
Rajvindra S. Gill	Needham & Co. LLC
Gilbert Alexandre	Darphil Associates
Kevin Edward Cassidy	Stifel, Nicolaus & Co., Inc.
Charles Kazarian	Credit Suisse Securities (NYSE:USA) LLC
Christopher Rolland	Susquehanna Financial Group LLLP
Harlan Sur	JPMorgan Securities LLC

Microchip Technology (MCHP) 8 May 182018 Q4 Earnings call transcript