MCHP - Earnings call transcript Q2 2020 | Microchip Technology Incorporated

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Operator

Good day, everyone, and welcome to the Microchip's Second Quarter Fiscal 2020 Financial Results Conference Call.

As a reminder, today's call is being recorded.

At this time, I would like to turn the conference over to Microchip’s Chief Financial Officer, Mr. Eric Bjornholt. Please go ahead, sir.

Eric Bjornholt

afternoon, good and you everyone. Thank

of of During or such be or statements call, wish results performance will are predictions actual differ conference projections the the caution and events that financial events may course making future other we regarding materially. We that this forward-looking you company. the and future to statements

that business SEC We our recent as results today as that important refer identify well you Microchip's to our press may risk operations. of factors with and releases the impact of filings

business attendance and with Steve And comment year update well provide environment guidance and Microchip's COO. me Ganesh Microchip's In Microsemi the fiscal with on our today as are performance. will CEO; the President then will and Sanghi, Steve I their current on comments Chairman quarter as financial Moorthy, an give our integration second acquisition. on and the activities ongoing Ganesh associated the results, discuss XXXX and

available specific will to We respond analyst be investor questions. to then and

We call on are and and this GAAP our conference in non-GAAP measures. including various release press information

and useful non-GAAP comparing a have we to on find the you page We non-GAAP results. which GAAP of our will www.microchip.com, full Relations Investor GAAP website posted our at believe reconciliation when

summary We on our and have website. also debt a outstanding of posted our leverage metrics

by products transactions an revenue sold product time I revenue on standard the which where during investors until XXXX, to was our historical sold the end GAAP recognized distributor revenue customer. that deferred the the versus want our at new recognition policy remind we requires to June to such to quarter was adopted recognition of be distributors revenue are

internally distribution measure direct metric non-GAAP with GAAP for sell-out along end-market we demand Therefore release. our earnings and track provide our based on sell-through each plus investors distribution based on with not this quarter discussed P&L calls, end-market distribution provide a our will conference our a we previous on also continue end-market called in results based provide and and but activity As demand on we'll to revenue based in will performance earnings sell-in, demand.

the will which in described go $X.XXX compensation billion. operating expenses based is basis, to prior our expenses. $X.X revenue results I quarter on the of non-GAAP in I End-market press adjustments will the GAAP other effects million be demand results in gross demand based some certain about quarter. than including more a September on of referring activities, the our to as margin now End-market acquisition release. was sales, through net and operating our was these share XXXX and

Net modestly sales in our sequentially was $X.XXX and guidance the $X.XXX below X.XX% the were quarter down of billion. which billion, midpoint of September

a and our posted demand for reference. have on summary net and your of geography product sales end-market our We line by GAAP website

basis, gross per line all-time which income a net XX.XX%, XX.XX% guidance. near Non-GAAP earnings at share XX, On margins Non-GAAP of were income with and operating was our highs was midpoint XXX.X million. non-GAAP at was $X the were in operating was diluted expenses XX.X%.

were Total and margins per income XXX.X was amortization of of diluted net million related impact GAAP XX.X million XX.X based of X.X acquisition and were compensation share of $X.XX costs, charges special included million, share. million, of operating The XX.X% gross GAAP On tangible million other based of compensation. million. XXX.X share and and or million basis, a and acquisition XXX.X the include expenses X.X

of non-GAAP to releases, foreign of income GAAP and quarter, million tax but quarter assessment. refund cash September fiscal the benefits these tax Microchip defendant’s position seek net impacted of year negatively a September tax foreign partially future. statute was that by related to and the XX.X XXXX, in a tax in limitations assessment Our will expiring, due included taxes X.X% reserve was in offset benefits rate pay The tax tax discrete by

for our operations audit expect Exclusive into of global and between tax structure, the be settlements any potential Microchip taxes to the in X%. Microsemi non-GAAP transition and with X% rate fiscal tax related 'XX years. cash tax accrued the prior associated tax to restructuring We fiscal tax, any

be We net The tax cash the that next associated will as future with keep six million be and payments U.S. tax believe attributes paid cash about will well we payments interest the tax tax and and expected operating transition have low. as many is losses our credits, deductions over years. to XXX tax

of payments page have We on tax our posted projected transition Investor our the the Relations website. of schedule

XX, Our prior inventory at days June. the quarter's one at our the at quarter We the September Inventory compared were the of XX end of XXX.X days had of down million. was day in from level. XXXX September at end balance inventory distributors XX XXX at September the days to quarter,

our lower had been have only inventory have fiscal current days We XXXX, past years, distribution one which the than of at quarter year XX was levels. of QX in the

flow quarter. from activities XXX was million cash in September The the operating

As the of XXX.X the We and quarter, investment million September September down XXX.X position million. was and of debt on by net cash million. was XX, balance the total total sheet XXX.X the paid consolidated reduced debt in

to down the debt debt the of billion down bring paid $X since incurred so, acquisition allocate Over in aggressively of the excess dividends substantially have this five and to Microsemi full debt. closed continue last do to cash quarters, beyond all billion we our and X.XXX we over

of the which accomplished most adverse business. testimony have capabilities and the a period, during macro is We market conditions despite to generation this our cash this of

years. over the levels debt to We expect significantly several next our reduce

was adjusted and XX trailing was in EBITDA our million, X.XXX September adjusted month billion. Our XXX.X EBITDA quarter the

long to and debt our as was debt in EBITDA equity in matures net XXXX. XX at XXXX dated nature that adjusted convertible Our very excluding more September like X.XX

the was quarter dividend September payment million. XX.X in Our

in Capital expenditures quarter. the million September were XX.X

between $XX million last provided $XX from quarter quarter. million be forecast in to spending and and capital a million reduction We the overall the $XXX fiscal between XX for million, expect expenditures we and XXXX in capital XX million December

We bring of more to capital currently the add the new technologies test production assembly our support and capabilities are house growth our of of in outsourced. continue and operations that products and to to

expect our business, are capital these particularly our was gross Actel factories. Microsemi that outsourced we own into quarter the and margin bringing some for the million. bring will improvement Depreciation investments activities We September manufacturing XX.X in to expense

will over September ongoing of on I to Ganesh us update Microsemi on give the business our now integration an in performance activities. of turn some and it the provide to the quarter Ganesh? comments

Ganesh Moorthy

Eric. good afternoon, And you, Thank everyone.

end-market how Microchip weakness performance further are line that as Before I get Also, measured which you remind comparisons through will with based be demand, to September. is its broad on I'd product accentuated started, of in reports, sharing the line the I month continued internally. serve. you the like in was macro go weakness we I product reflect they markets This broad the today will

closer by look microcontrollers. at start taking Let's a

down business the microcontroller June X.X%, compared was as sequentially quarter. Our to

well Microcontrollers and of end-market September first device continue controller, Type-C in serial in won introduce XXXX as our Summit, solid-state steady We charging XX.X% which Power stream the of drive the Best-of-Show controllers, Memory to functionality. commercially quarter. a including award represented fast which enabled available Delivery innovative the demand different microcontrollers, of this simplifies implementation memory USB as industry's two new the Flash

Now moving analog. to

are quarter. business as up compared analog Our to X.X% sequentially the June

the the introduce Platform represented analog the and quarter, products, end-market solution providing first CryptoAuthenticaion, storage steady Analog key introduction of for small demand volumes. innovative continue stream to During the a large of September Trust our the for we including pre-provision industry's secure quarter, XX.X% in of

the June compared was to business as down quarter. X.X%, sequentially FPGA Our

As significant priorities, we have mentioned and the in calls, of of FPGA defense to a exposure space, aviation shifting a prior function have and procurement markets budgets. can does where business schedules they're because and conference timing lumpiness, programs some be

family quarter, And Embedded machine our remain the optimistic continue PolarFire the represented with our wins demand for designing September for Vision for X.X% Design FPGA announced product our the the low we Smart to grow strongly. During end-market this family. about providing of FPGAs. in quarter. vision we prospects systems power initiative, intelligent PolarFire

in as outpaced other compared broader weakness September of sequentially end-market licensing product in represented quarter. timing in demand Our to our the business the which as well we our licensing Strength June LMO as XX.X% the was quarter, the LMO September as macro our memory to and up quarter. experienced. refer we systems business, XX.X% line

In of completed two acquisition the companies. September, small we early stage private

for the vector processing. first power solutions embedded embedded The and for our machine computing machine inference, algorithms knowledge acquisition learning applications depth learning enables families. product also adds This acquisition and areas of vision smart low FPGA domain in

enables driver comprehensive complements silicon our The discrete solutions offerings, The total Technologies. second and conversion provide power MOSFET solutions. provides us acquisition modular digital gate IGBT to for and bandgap acquisition carbide more system and wide

experts and domain in not to focused us combined was at debt. we're to were along akin cash paying acquisitions to our more two property The very hence business These specific intellectual rate with acquiring than our and the which less accelerate down small laser $X million areas. outflow material agenda help

Microsemi update ongoing Finally, a about quick integration. the

We operations business continue forward to plow the systems integrations. with and

and And about calls, and live prior estimate tedious more we effort year conference of mentioned have On XX% we went we're I ahead systems and with front, completion few another work that of consuming us. November on business a the to as the systems way of time X. a this on about is

for close the environment, week we expect and since the with We synergy we gains come. synergies we macro many quarters to pleased are continued the have achieved transaction, of despite

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

Steve Sanghi

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

$X.XXX September to on was a quarter flat selling sequentially based guidance net X%. X.XX% GAAP recognition versus up of Our a revenue says billion,

slightly guidance we missed at GAAP the midpoint. So the sales

demand was working believe $X.X the million that conservatively manage sales, Our uncertainty. we shows by channel sell is higher due to continuing than end-market GAAP which reducing based capital inventory, to on the through

billion did on has industrial the on the bottom of of June billion from dispute. resolution appliance of headwinds This to and trade end-market in unresolved. been and remains contingent flat U.S. Recall due Since that happen end-markets. multitude then, we our quarters trade and resulting settlement September cycle at February China demand the XXXX, X.XX trade automotive X.XX back consumer of not call impact X.XXX tensions, March, billion, respectively, and for and

and guidance near end our was consolidated just Our high. gross XX.XX% non-GAAP high record of a was the above of margin

of operating in for the Microsemi integration are non-GAAP of Since improvements the continues closing products. growth consolidated very strong than XX.X%. and of operating margins synergies continuing Our proceed midpoint and nicely. was we to also see guidance XX.X% of margin our Microsemi acquisition, The to the of higher

midpoint our XXX also non-GAAP was quarter. basis, right was per Our this $X.XX of consolidated consecutive at earnings our the share On profitable non-GAAP guidance.

In of our down million the $XXX.X September quarter, we paid debt.

been has billion. of debt despite XXXX total debt uncertain weekend the The working squeeze June $X.XX payments the conditions Our been since to strong, as end of business capital. payments has pace continue we

Now quarter, and before geographical on I sales. comment December let provide for you guidance end-market me the

with While conditions U.S. the global. China trade uncertainty can all uncertainty friction, business begins in be seen week has the geographies. The become

in exiting month expected distribution weakness the unusually a was had was as was business September. business demand our inventory in being well down end-market quarter the December for weaker the we and down backlog XX.X%, did in was also We on lower September This quarter. X.X% Americas Asia as Our the of September reflected the quarter September expedience quarter, down ago based studying Europe than over XX.X%. year low in

aerospace markets are significantly, center customers inventory. especially uncertainty has strong. this standpoint, down end-market geographies communication In capital automotive continuing data The been the by consumer and manage working reducing and in defense distributors an appliances and the industrial, From continuing. is market and are have been to direct all and flattish, environment, end-markets

are to there point quarter, In was of However, XX.X signs days. some inventory the down September too. inflection distributor

XXXX, We XX of the at the years, quarter of been inventory only was than quarter have year one days where our third in the distribution levels. have current had which past fiscal lower

of Secondly, since were booking October of for the the month June XXXX. highest achieved booking

of with backlog steeper. steeper quarter the for especially backlog much where end backlog is same With the the at fill the is than up backlog lower for for the quarter, holidays quarter shipments game, is the the slope in current quarter, fill, December backlog the the coming. in point a September much While guessing

saw quarter. March net judgment down the even point, selling may another we that take bottom indicators this is we of back a was inflection a several on Our forming of with bottom the this the leg see based will recognition resolved. when showing false revenue here though dispute trade year But not sales in

in between steps reduction be sales products We of recognition in capital manufacturing the the to reduce XX% based GAAP our the selling this we to expect guidance, sharp sequentially well sales minus to net December are as as quarter. revenue taking capacity, minus to midpoint for at expenses. GAAP on expenditures X% our Due

X-inch to clean Therefore transistors, planning size, effect competitive we reduce other with fab. and Atmel in room the field footprint are devices. longer turning X-inch X-inch the fab At discrete with We X-inch specialty fab high silicon fab the be carbide is discrete acquisition. our that other acquired transistors, wafer doing Colorado the a will we fab and into no MEMS volume

fab We products process This we take transferring to Arizona complete, sourcing largely X-inch will Atmel and from Colorado our up be fab Oregon. in months because in transfer the high for fabs earlier. X-inch volume volume X-inch highest about dual the brought will to XX

fabs the of be products create good $XX about savings fab the transferring completed. million X-inch from in will X-inch to per when actions These Microsemi will we cost In addition, year of discrete Colorado. in some

first The tail the about first to will The the about of we’ll and take years take balance and two have will this complete savings. thirds phase. another transfers two phase transfer of year a of long after one the achieve

reduction capital year guidance million $XX for a CapEx CapEx between expenditures, XXXX be of quarter. Regarding and for last the $XXX our to reducing from our million on $XX fiscal million we’re year,

doing Regarding the we’re things. OpEx, three reduction

are doing. continuation been those of what Some we of have

First, approving sparingly. we acquisitions and very are new replacement

for discretionary in will our tightly. will reduction we third, lower a yield bonus And Second, program managing sales. be very spending net payout the

XX.X% be expect gross our be margin between margin and sales. sales to quarter, and XX% of XX% to non-GAAP XX% gross we – of December between For

We operating and sales. between be expect XX.X% to non-GAAP expenses XX% of

And to share. non-GAAP earnings to share expect the sales. between non-GAAP per we expect We share operating $X.XX be profit per and XX% per be our between of to XX.X% $X.XX

basis including charges on We will analysts that the Given for continue and to accounting provide comparison acquisitions, Microchip be believe first inventory call. amortization for estimates report write-up and results non-GAAP provide results will non-GAAP continue except more meaningful restructuring we and which all to a non-GAAP track that quarters net the GAAP its to prior to sales guidance intangibles, basis. request their complications of acquisitions, of on

will operator, please With questions. you for this poll

Operator

our Absolutely. [Operator Chris Instructions] first Please James. All take from question ahead. from go right, we’ll Caso Raymond

Chris Caso

in for Yes. I the Thank Good quarter. sell versus evening. the is December expectations you. sell-in guess first Steve, question through the

at that is You the already inventory said distribution channel a record low.

suggesting December? December Could that for in is the difference guidance explain declining end this is demand So, you there? that actually

Steve Sanghi

in end The some demand has various There is been end-markets. declining. destruction of end demand

in increased we’re in automotive of The clearly the seeing build are and thing home tariffs end much because Europe, and So, the and where market number weaker has been market. cost lower of U.S., similar impact units demand all the appliances China. of in automotive industrial

GAAP we’re higher terms than and But net we same be they or end sales in demand do and will think the in sell-in be whether end-market down. be roughly will slightly. not what could is either yes, go the So, the or way. know demand weaker range decreasing, distribution of could guiding inventory We increasing to lower

Chris Caso

Right.

Okay.

perhaps As potential you you’re point. quarter a maybe this that are with was with demand, saying a the then, what is reconciling end your through go seeing How better bit comments of I as the you the opening coming can understand inflection that stronger prospect lower, reconcile of backlog you’re I the fill you into order weaker? guess the follow-up fill but of quarter.

Steve Sanghi

the So, quarter are weaker. minus guidance starting significantly in weaker midpoint, was significantly it X% we the reconciling how backlog more is than at the

of are we up backlog the that much expecting the significantly amount deeper. curve weeks of would curve providing, curve end close quarter. that require of the for last than to with will closed but lower quarter. that and the be guidance really where end more will fill five the continue will we fair – has that in And kind some because be even up is to still last steeper So, of last It

So, get because to flat it steeper last doesn’t but we us are compare to curve, improvement expecting quarter. of

Ganesh Moorthy

the XXXX is bookings our we’ve month already and June Yeah, Steve seen since that of said were has probably worth October strongest it XXXX. what repeating bookings

Chris Caso

you. Thank Right. All

Steve Sanghi

For to much mixed that inflection in leaves some was but We bottom, back it. weaker the very lot be We February messages, get backlog, tied a read to hard said of very kind of still this in but could it and environment. the settlement. trade points didn’t

this the So, and just time, takes. and we’re cautious being all giving you puts

Chris Caso

Thank Got Right. it. you.

Operator

you. Thank

Please ahead. Gary with Securities. Next, Fargo from Mobley go we’ll go Wells

Gary Mobley

for taking question. thanks Hey, guys, my

that impact margin is like XX the decrease. How much mix? sequential positive near XXX due retooling mentioned looks The we’re that point and much term. how of the on is a You sort margin gross due of Colorado bring degradation, facility basis underutilization to term point to term the your long basis near gross of contemplating to could maybe

Ganesh Moorthy

I can address can it. Steve to and that on add

So, will about the are That quarter charge underutilization we quarter. just be in the completed, we December higher $X.X had million. charge

some basis. that margins accounting but So, the seeing related down, likely impact that on we’re demand isn’t gross some have anymore, like quarter. obsolescence margins also charges that that product with that a factor an we’ll we’ll that good There’s then charges the sequential things that And to on impact also. this produce gross mean it mix we it’s have product into always obsolescence having is will doesn’t

Gary Mobley

us today? call, past you bookings seasonal Okay. see here based how just of And and very, linearity it’s about trends very sense but perhaps we as quarter, I could in know – on early feeling give March are you some to the history the

Steve Sanghi

was acquisition, for Well, to to acquisitions various automotive appliances. example, and the completed. about, of our Prior seasonality by industrial, Microsemi talk we that hardest mix end-market because dominated consumer one the is have

been aerospace where and now, addition added September the year, last five A exposure. U.S. other China last Microsemi, then and hasn’t end-markets, and Microsemi three had other significant And had and very last we datacenter subsequently, the or of since environment trade correction of in the and June defense, have communication year, through all year the issues. little the significant quarters we’ve sanctions normal. we With inventory fighting

company haven’t out to the or mix we year longer what able So, seasonality combined the to really figure for environment is. current normal with seen a be a

that that minus think the of answer that seasonal. would at be I X% the below my we midpoint, clearly So, is –

to minus any is is We used think be We’re where Prior remember. December if I X not defending about don’t I acquisition, know that it of this seasonality to quarter seasonal. today. for it

Gary Mobley

Thank right. All you, guys.

Operator

Vivek We’ll you. with America. the of next go Thank Arya from Bank

Vivek Arya

XX-ish Thanks some guidance. my Steve, hoping question. could the for And hope At back chronology you be the was midpoint you of gave confirm guidance, September, then, because you below. September that in us time, are the taking here, then normal about, in I that a was million would the of somewhat help that kind results since understand August, month.

bad, of And heard is of very then So, backlog been weak. but of And not your peers now, in kind weak, a know you’re but somewhat others here, wide line. are just that most was we bookings time, views strong one since have but that have October such below. from very range you saying very

confused what what’s think week as are this? just is such is subtitle, a now investors all going driving and really backlog causing the I what is driving on, what horribly to

Steve Sanghi

trade environment. the hit they’ve hand, and very three fits and starts of this front, party. of largest automotive heavily are on our therefore large appliances and has tariffs join confusing very, mean which been added. terms anytime some a On of a not any demand consumer markets with with really shipping destruction. the have they about you of industrial, amount been with confusion, multitude And trade Huawei, Hikvision ship in ago one and guess had I the the many Vivek, then issues ZTE you of have it resolution lot of you then hasn’t other year happened. of customers make a other In then can dispute, kind and is,

pretty confusion. the inventory when reasonable, lasted. but at the our you year-over-year to a of correction, quarter-over-quarter, been just you see somebody the went of is look correction every think performance last how inventory a there I our measured performance will And year. September So, year-over-year, into company on lot it has We depends number – September if long that performance

last However, a year, September numbers revenue sell through as on non-GAAP. based still we were recognition reporting

If substantial the last up, quarter because we if don’t in you know was September correct. September it’s September compare distribution a actually quarter GAAP, exactly inventory. GAAP to to numbers there reduction quarter, I were

Ganesh Moorthy

million Yeah, in reduction we we distribution not but were that up had in September an $XX about last quarter. inventory

Steve Sanghi

Yeah.

So, as compared that, get of number you confusing. the very to

went parallel change confusions, we of revenue with last these other So, year, all through recognition. also in

lay that find talked So, simply the numbers our the other about. is various I competitor large performance would and say companies than better will out for year-over-year you you

Ganesh Moorthy

the mind to taking Vivek, if it to announced in that early is, there additional was place in tariffs time. were were remember, August, I chronology, be terms you in of think were going other and in thing points keep various at

were I think and was we market. then And happened guidance went distribution people the out, trying we inventory weaker think And I being October, had and are reflected customers a going you’re down, seeing to do. the to sort what then the the ended overall results uncertainty to midpoint, at more up reflected out, trying less as being that as to that was what reverse sort what in going into expected they are creates today. beginning than September in lot in

Vivek Arya

down will in And inventory I think how you’ve lowest this that it. far much you? XX my follow-up, the seen Got the you below the mentioned Steve, distribution of say you years give think from think for for I look you some so channel you or take definitely normalize do sense What willing is you does be is DIB perhaps to too are distributors hearing a historical or what trends. mentioned, see to the distribution benefits it crunching that do from that but early uncertainty, them? – point, at level you the understand last

Steve Sanghi

destruction and a putting demand another Those confusion trends the and effect that of two, over three impacts and of much trends other trade distribution focus the of years. the us. on this friction severe. impact in larger all than all much really and I things happen competitors by more distribution much created immediate more secular in think is the And macro the more tariffs

go defense few business, down, inventory So, but are through sure inventory that distribution their the market had of appliance in distribution least went the a think say can’t we’ve now, we year been sell-in. it. sell several inventory telling probably be when years now, except wouldn’t quarters seeing ‘XX. The you in the And quarters aerospace in now if of in I communications lowest Distributors issues quarters fiscal in industrial but confidence. manage and better weakness would. would five been even don’t lower market, kind distributors flattish, further, we XX down than would and with they same for at that one have consumer and strange quarter can market seeing It automotive

Ganesh Moorthy

to going short are generally to are advantage. They Right. times their leverage lead

Steve Sanghi

on numbers We go request GAAP well selling for distributor business of sell and manage you’re stock to to any not do reporting very we Despite, any shelves. take a through stance. inventory based a kind aware of

is focused and through So, sell therefore weak sell selling is and the we on through weak. are

Vivek Arya

the for comment. Thanks

Operator

Thanks.

Please Piper ahead. taking go our Harsh next Kumar be will We the Jaffray. from from question

Harsh Kumar

all for to so the comments. Steve, Yeah, thanks, of your square far. some I’m trying colors

commentary sort an point some your So, taking upward. of suggesting CapEx, some October inflection from you’re OpEx steps in and but

profitable we’re December the go as So, sort you of it current okay from little from going last should that into read and business you’re adjusting down into base it at cash read guidance I can it? more be flow or maybe to just out? we not just optimize new the bit gave should is look just we get your for to a it and the more and that guess

Steve Sanghi

five of than would we Well, with it on X that backlog what have we reading last is guidance December made I'm that quarter the short gap of if it was you being good. coming, the significant think could But in December. much the by be continued started had then But lower And of holidays are month know, double the that there middle know November, X. up digit shuts much strength in off July into continues, October stronger. And weeks, if of the fill results the negative. fill December, Europe you reasonably I in be also short month that

those and September quarter one. takes, the the all backlog quarter. puts a that how our than from is October X% X% guess ends huge in lower that December still low about up So makeup And minus was by is

backlog guidance March yet. be booking, but strength X. sort with any And what bookings, October than And a of strong good better for the we hopefully bookings, was like experienced far quarter continued then have continue, could hopefully, the as of the looks giving October with we some January strength so If for bookings November the March backlog on really strong then of recovery, bookings. I'm the one not

Harsh Kumar

in go And color, you you December. down acquisition classic for earlier think as the mentioned Steve. Thanks call some Understood. typically your that the core business to I X% from Microchip about

of time of closer maybe in you You Christmas that's small some Chinese you this on think some of kind perhaps on, October? has back impacting consumer part stack September portion up think some New effect Year coming know, your of the and to that going and then business,

Steve Sanghi

reconfirmed I gentleman gave we you that we midpoint in our guidance early of asked earlier guidance. our know, September that think,

miss sales expected So we I and to $XX quite about causing weak. you was million, Weaker million. Ganesh than kind of us know a of mentioned also by what $XX September mentioned what month the happened,

the of was You and stronger much know, month much October November is continuing stronger.

light low with phase the enough. first of inventory some of could the at be gone it of settlement on the sort you So, could know, of end tunnel be because China, has

environment. gave points points. make Numbers very You there takes on where judgment to and judgment disagree bad the and with these or puts uncertain could them it are And table, agree call you know, all you a is. we the you ours. have put in all good That's then own hard know, really and this and we are your or

Harsh Kumar

Thank for the you Steve. Understood, color.

Operator

Thank you.

ahead. are Longbow We Harrison Research. go next Shawn Please from taking

Shawn Harrison

Hi, good of September my a any just guess higher there I how tracking toward Would in have afternoon. sales? I end talked questions. know the disappointed the terms is so be, you far, otherwise? guidance, for to lot much or would way actual first taking about been it quantify, my Thanks of either backlog you've

Steve Sanghi

No. And by Yeah. mean was were XX to us we essentially reconfirmed towards guidance, midpoint. our I million, tracking I miss causing am we the correct? weak when September

Shawn Harrison

also and consider And should what that's kind well? that we the the shortfall of was as backlog amount general

Steve Sanghi

weaker. was backlog No, much, the much

Ganesh Moorthy

into exceeding cross us quarters December quarter as Remember well. over the backlog and

Steve Sanghi

And you change then now even backlog the guidance XX. right, on in mentioned the that October are on And worse down October much backlog digits be $XX you earlier know worse on started if X. XX, giving our compared backlog we number. minus the X I July And would started million, if X% double than know minus to than was significantly revenue X% minus X,

we amount with huge have So, made up steeper a of slope. significantly gap

Shawn Harrison

helpful. a And just as follow-up... Very

Steve Sanghi

during it in but to be you then on that's tell the the we Unfortunately the low, fill the holidays. when know, have a steeper not of backlog a so that Today early middle slope number and you and December number. and can ruler change slope and can could the end get slope seen start the

putting that takes. we into you that's you got giving consideration, and there that that we're all headed. So are guidance account lots of is keep believe And all stressing where we're I puts them for and why

Shawn Harrison

if very follow-up. helpful. I may a Steve, It's

side was in incremental the you more the microcontroller the backlog, analog saw portfolio weakness it the the side? or of Just on

Steve Sanghi

was largely much pretty across the It board.

Ganesh Moorthy

the specific other. backlog that product no There's than weaker was

Shawn Harrison

Understood. Thank you.

Operator

We're SunTrust. Please go Stein you. going Thank William ahead. to next from

William Stein

you've already told markets wonder my questions. particular, attributed by broad weakness us geo. recent any I in if for bookings or event. the in that was very very Great. end-market, taking Steve, based and be anything the by strong Thanks any trends strength any recovery to geo, could the

Steve Sanghi

you have be I strength, say, would to China. that has it So, a shown would pick geography if

William Stein

about nothing significantly. as But seeing We've China you auto by heard that well? end-market recovering there. Are

Steve Sanghi

manage business lines you product Yeah, you we know. our I know, by mean, as

been weakest consumer has only and industrial centers, and data we So, appliances the the defense believe and you flattish, automotive end-market and know, have where markets. we were communication end-market that rough commentary, aerospace stronger were

just month You you that you it track know, change that a with booking really, know in we October, We can't one in a tone. don't way. tell

William Stein

that complete the to there's of that Microsemi With remind we it just more ERP is of of size us of the Can us a One you. if I that, integrations the at remind function happens the cost it end go timing doing. more I to as step please? you're Or that linear whether can. Thank you and savings Thanks. forget system, all? And regards these?

Ganesh Moorthy

have the X a get about year. systems, So if we We're said November at savings this transitions the time. year take more my in the I and to number the function as remarks, that synergy to rather And on we this you did substantially we a a quarter. of through recent that of have complete. most add are time over what just halfway enough through every savings done. recall, And a you we becomes of of and ago, we four get another change. at we've that know, than make had least step prepared this began we We In quarters point

Operator

going with you. thank Sur next We're right, JPMorgan. from Harlan All

Harlan Sur

afternoon. SIA general with X% results, calendar X-bit at of XX-bit taking it's QX, look tricky for I data grew relatively overall SIA But decline, almost my I was while always question. know for growth Good sequentially. to market all sequentially. Thanks came XX-bit, that if about your data the MCU flattish reconcile from but

it's size but overall think XX-bit about your MCU still You've I strongly, business. your of grown a third the of pretty

potential in because you the business more and slightly the your general September underperformed this why adjusted exposure. have reason mix the industry still quarter? Is MCU X-bit XX-bit So

Steve Sanghi

numbers have rather We any again SIA, analyzed make for not the not comments. so I'd and guess

I was base X.X%. end-market business demand think our mentioned you – down know you microcontroller

SIA from other know construct the comes and X%. think I in if know to add how the with many the up companies lead wouldn't don't can quarter others, various have I was numbers, TI from I results we you numbers whether us up I up believe business don't that that heard September number.

Ganesh Moorthy

is much business X-bit XX-bit. doing, XX-bit you than know, stronger and Our

all focused. and of market trends are are the affect segments industrial, these as market. XX-bit They much they appliances in that think not X-bit, broad and consumer businesses microcontroller XX-bit, I automotive in are

Steve Sanghi

think times belief they most you get know, SIA numbers causing Our of I it's right this, they microcontrollers, during the is especially the easily I SIA, like really add companies, like reported make confusion and can you in revise at, numbers. know turbulent and the I it's significant history look that causes changes now. results If don't up

Harlan Sur

point. fair a that's know, You

back looks in know, spending couple data year. of half my of quarters centers as you spending to up then And but a well. second cloud is It follow-up, that Okay. you've are been of seeing here guys looks like this the picking digestion, like you

to enterprise position guys MCUs of you've products as the think a cloud then team? I it's go that as is a like well. center a strong easier acquisition, controllers, data via you've purpose have the data for are bit PCIe Roughly your applications? NVMe into strong for products end-market switching these products some the you cloud an I how platform got the products. Ethernet given got relatively center And probably designed assume track secure is in right big and core that Microsemi for

Ganesh Moorthy

good. SSDs The the out line that's to It's is Microsemi lines product is that good seen more that the relative if center. where than address in big be what all and the center. I based but product our data some these are guess had from came what on company, the we and the strength combined know break of don't would a data way mid-teens So to center mentioned that that that exactly in strength have Clearly what position data we several storage. ago. just is a to you quarters have my I

Steve Sanghi

center products also We business from to data into Microsemi. the have the classic Microchip prior

power of into, go know, control other they various some you different And IO areas. supplies, go those and products into

obviously, Microsemi. came center So, but exposure in we one had data some the before, big

Harlan Sur

Yeah.

you. thank Okay,

Operator

Mark question. from Thank next [Operator our We'll question your for take Instruction] you very much Delaney from Goldman Sachs.

Mark Delaney

Thanks the in the December giving bookings that the your the for quarter, one. a the taking for good quarter? primarily of that are some for spoke Yes, company The for on give you March it or bookings question. are shipping backlog quarter shipment good in March I'll are bookings October to, and Thanks. start those to maybe afternoon. those strength

Steve Sanghi

here Those aged on every from bookings into the are and out. month future six, months eight

for So are some some are spill beyond some quarter, even it for March match quarter. December the quarter, of

Operator

Thank you.

from go We Please Suisse. will John next Pitzer question ahead. take from our Credit

John Pitzer

December what's for to the the – from terms pretty that quarter, Steve, to been strength second Yeah, business here returns kind Do questions. or guidance? my the expectations you've to on out, you the relative steepness hit trend? taking half the you've just assumptions your for continue turns need of more good given Thanks to to seen of afternoon, of higher. in clear quarter entire a are kind embedding guys. terms of I'm in curious, you expect date, midpoint you to the that in of midpoint hit quarter the normal

Steve Sanghi

We're continues, now good. the was, disclosed speak qualitatively continue. slop very current slope expecting I'll the results is where So not backlog rather If be the haven't the backlog will and we that. to fill then because it what of quantitatively than all

that judgment So slope, we in have our current slope. moderated

over people order, know, holidays, and because the to December, over then starts And do effect other Some low backlog Thanksgiving is will as lot the weak very the and fill a place holidays. usually the then the backlog the just And is moderate. because bookings the slope of know, you work don't second continues as started up, to Europe high, Asia slope U.S. you you usually, then of is week. is

have we from based slope on is the that sustainable. experience not have model that have admit I But because we moderated our think we we So will history, our in. that slope

Eric Bjornholt

of that I given point we've out broad range guidance. think I'll also

Steve Sanghi

we puts range for broad and pretty given And a of guidance takes. to account have those all

Operator

Thank from taking Citigroup. next you. our Chris Danely We're question from

Christopher Danely

what to Hey, quarter. as be question. of the I Steve, is type far as I'll thanks, your try do this looking goes guys. guess, into stick in Theoretically, environment to one own continues OpEx you March inventory? to sluggish would

Steve Sanghi

in environment were if the would Well, continue, to the sluggish basically OpEx the range. be

acquisitions. will to on of any keep approve Bonus sparingly be bonuses. any replacement We additions, lower, the continue headcount know, target will type you know, you controlling then

and CapEx needed know, capital know, growth, we growth tighten, a incremental is will capacity. You we're continue will, to for there if capital just lot there's in this you here need of is And no investing because the environment. no big

to environment upside. think would to and still were the know, inventory things I If the you those accelerate, sluggish. sufficient know, capacity we continues the you So, be are the do would if ship sufficient environment have to we

you So you see know, either. expenses CapEx wouldn't wouldn't growth in, a and in you immediately see growth

bottom. were to for pretty So think I revenue come a if in the the there upside to earnings be will good to leverage through, go the

Christopher Danely

Thanks, Great. guys.

Operator

ahead. Thank with Rakesh next go from go you. Vijay Mizuho We'll Group. Please

Vijay Rakesh

Thanks.

or visibility to Just Steve you briefly you the I just you also, end come inventory end well? talked customer the has the about to have up come end out customers and a seen customers down of bit. the ahead the tariffs wondering Eric, if as just stock – extended have down think quite was going inventories

Ganesh Moorthy

they're We case the visibility in don't see their as do from with week have really end report customers meaningful into week no we don't doing They inventory. what know, to us. the You change distribution. we and of to

presume we – way what So the you they doing right other. for they one know, no the have thing But color or their is think are we business.

Vijay Rakesh

pickup Got you a it. you a And different nice backlog I snapback October mentioned know China. saw or in most

the Steve rebounder? we industrial Thanks. Given others That's expect weakest, it. where back auto some than – if the and mentioned snap faster those would to see

Steve Sanghi

be there It's of some there to hard end-markets. tweet, really talk there's know, about the trade easier on there. settlement duties Automotive, and should so rules clear GM call normalcy settlement, go to the overnight a to Yeah, was you by sort it's and higher would impact to some past. industrial the another future see were some to not return something So you if appliance and will you is know, see market. or market GM stability with then and

So the I are would strength. think that Yes. show things those

Vijay Rakesh

Thanks. it. Got

Operator

International We'll with Group. go from next Christopher Rolland Susquehanna

Christopher Rolland

this ones. how talk thanks about stuff. experience, for cycle been maybe this can prior your you has different Thanks for Steve, In from big the all picture question.

You being And have you an you cycle you has semiconductor cycle surprised economic of specific this time And given around? more most cycle, kind a lasted? know, of feel economic a how driven this an long thoughts cycle? do any you what then know, on this versus how do about economic

Steve Sanghi

Well, that's ball a have you tough that served.

my know not that's You economist an field. not I'm and

So for and cycles the I'll build, give know and and created our shipping cycles the while you the I'm times, seen of company you some inventory and then by Many then our other demand bursting way through correcting. below feel a excessive own going the has thinking. are cycle for industry lonely industry how bubble really, the

really customer has This are, be demand those industry larger and its by under successively that. hasn't the caused been cycles to were the economic name semiconductor you trade. and it I And cycle the a caused forces. U.S. been shipping This So industry. It’s if cycle will by caused over cause been know, shipping single much China demand. by one, by

that another it. forecast into will take come and customers world on product. me let and manufactures with a the runs building before it that economy The explain to product at tried and putting the inventory I the buy shot

store, an electronic of store, into example and grocery is can you grocery. come with lots an a go your the stores, of out you inventory can full given bags there or Now of

time of a the You do ahead go not and up week order delivery. your pick then grocery

fact, another store there, go you grocery it. were and store which will it to isn’t you want, into to the if buy go In you

are run economies world So, largely on inventory.

China Now, and they it, XX% let’s it a product tariff were enter the in there on sorry it imagine uncertainty, – bringing no is tariff tariffs I’m say to U.S. – the on were building there customer and format. tariffs

the is no U.S. XX% risk. inventory on then pass Once whether with the then because can a they to announced. settlement at their is customer. brought settlement uncertainty So, they be don’t to there to second will on to own tariff the and end able it And it risk XX% tariff the with tariff, to know manufacturer and to the can’t. is here pay bring product tariff end bring They U.S. they customer the having or that the announced,

raw in everybody dock makes inventory it is on down does down it material, they positive and draw do front, pass manufacturing stop inventory, landed goods, the to on to That would not what effect they cost the market. can the many, the the which transportation finished their chain tariff loading lines, then the to many customers. is there supply the on to know the is the the their people impact have So, because to everywhere, have hubs tracks. what the the They very when see clarity what you And a we of will inventory, in us. cut of seen is the rebuilding that

Christopher Rolland

Thank Got insight. it. you, great. that’s helpful. extra that Thank Very Yeah, you Steve. for

Operator

Thank you.

We’re going Associates. Alexandre from Please the next Darphil with go Gil ahead.

Gilbert Alexandre

assume you once these long over I evening. at as and operating margins that look Good at at have XX.X%, margins get your gross term problems? XX% we models still you

Steve Sanghi

Gil. Yes,

not term changed model. longer have a We

products the we today and higher fabs restructuring X-inch our and our revenue the on million really announced we What we at the volume fact, the have and changes some we in which of model. process. creating savings $XX achieve Colorado to done X-inch our is bringing target those lowered of In have fab

revenue a we out certain of galvanized much we factories we achieve the it not target target that, how remove amount of the and we’re revenue achieve for you achieve but the because to to cost up making to fill taking required XX% system. margin to are So, have the prior to our By so changes those underutilization margin. a much, lowered need

Gilbert Alexandre

Thank I China it. on skip and you ask May you. can just question one

Steve Sanghi

ahead. Go

Gilbert Alexandre

Have you – to ended? tariff. open tariff that that is XX% talk this people they or want all that seen may of that talk any reduce You

Steve Sanghi

information have You some you sharing. are

Ganesh Moorthy

in uncertainty Are tariff as I point regions trade is that world is other and ocean, to you sides the on talking China? that Because between the XX% discussion be, is U.S. think well. the the creating the going of of the creating about uncertainty entire is both

Steve Sanghi

only one tariff tariff will far? agreed talk XX, doesn’t but that increase whether is just certain XX in phase In They the gets those to talk of down, some the worth $XXX phase so tariff the there touted settlement it’s are goods, to in not phase by done from has but XX% the away. or one billion two with go go administration, been

Ganesh Moorthy

I different news think and we decisions. direct into see have the discussions insight don’t reports. We any

into, a, that comes deescalate which it than designed is to products we faith there from unclear to where impacted phase, is impacts, effort it the try us. by the think are, and we I time down in the at are one to customers are take and when our but more may good rate that

not tariffs is to which but a customers, is are get tariffs Once another finality, a constant those and if the tariffs. creates Even are has and to XX%, not they zero, settlement, be number are a the some XX%, it’s tweet going going is don’t uncertainty increase there which normal everybody will they inventories distributors, know manufacturers, replenished. be. causes which the business contract It because in can they what the the will finality way it that run cost and landed the

Gilbert Alexandre

thank luck. you. Good I want to

Steve Sanghi

Thank Gil. you, else, Operator? Anything

Operator

Ellis We’ll next take B. from Riley question Craig our from FBR.

Carlin Lynch

for Carlin Hey Craig. guys, on Lynch this is

ask cross wanted on the question to Just selling Microsemi. a opportunities with

be see If that to the would the a muted great? year, that muted qualitative could those of next to progress. I or on selling opportunities Is said the think slow you selling opportunities color design get springboard? could you kind quarter, kind going cross of everywhere, on seeing some we last down of we and were of any environment activity normalized demand or just kind give had environment cross had

Ganesh Moorthy

the opportunities note, selling cross all are the So, as stage. in at design you

of these back production environment time. time. XX clearly to XX, designs combined the months focused system and of well. the that are seeds as new But months total of are then and over all a is – Microchip time. for will The unit sales are get XX, planted, And current XX products production activity muted The that environment teams, new going really extremely in new And XX, teams platforms the time solutions the in are increased business being design. design today address off design across highly doesn’t in, that of the to to go So, designed designs enabling in is go board, on combined able the change. were as pay

Carlin Lynch

if just clarify So, I there. could

the here? start So we even along next would selling the kind cross to skips of manifest expect year, to if some of bottom environment just demand opportunity that

Steve Sanghi

next got And single second this drives year, that if applications application, one time, there is the comes that designs a cross go time, Yeah, or it. half happen. more multiplier customer customers improves, take the complete solution benefits would this single from that a from I environment to production, in of There’s over know But in another. over to the to if new see and a as exactly these in, customer. selling hundreds you is half, as clearly we that from is it not selling ramps which first but don’t it come will of way

Carlin Lynch

All right. guys. Thanks,

Operator

Thank you.

to Morgan We’re Craig Hettenbach going from next Stanley.

Craig Hettenbach

Question for Steve.

you localization a you a more war might maybe portfolio think, to overlap from Can do of immune parts the to that of of acceleration is your what you other where the of see to effort. China a about parts more One that just China the trying versus lot perspective? some to to to development be secondary impacts try just trade talk of move maybe

Steve Sanghi

our maybe today see they’re we we on their certain microcontroller an trying and about not product a In we be products, So, discrete on processes want hear it. Americans. there our where our that data to and There analog, on a action product may and lines, talk not products, to or of they be lot with hear impact term, really longer center our a issue graphic build action can FPGA do really talk we of I prefer that front. see think processes design other products, own and design to don’t lot lot either on of others, could on

of trade than short a a a to on this in portfolio microchip design it. make can’t that think war, less period impact really I massive time, of has year you a meaningful

not really today, but seeing on seeing revenue in it we that we sentiment. So,

Ganesh Moorthy

is that threat It's the of many for product, in be able with the applications to of a there of the question China you years. do from the nothing of they to been new. range capability quality the add It's designs, serve And customers types have products, to the local to it, suppliers I need it. wide and the support would

would local be And You says, wants very know, could, more the for it. that And years task. that have supplier, more several of but task who been should for is may today you a know, do they environment consider they it large doing very you if before. a they large anybody very, is to

Craig Hettenbach

it. Got Thanks.

Operator

of America. you. Thank Bank Vivek to We're going Arya with

Vivek Arya

the for lines substitution. terms quick I follow-up. does that time? in have any shifts of know, have or who period factor same your Thanks perhaps your – those competition in you design been longer going Japanese wonder Steve, of to a the competitors market Actually a become very and for seen You forward? European

Steve Sanghi

I like customers. plus said, customer You we over broad base, very, have very serve we know, a XXX,XXX first

you track. sentiment, XX%, or Europeans pin Asian in customers first, is with We're any the with nature proprietary all no heard is very Americans know, Taiwanese you the know, non-sentiment, know, of have, design know, hitting you with of We're where, so there you government of design hard design available. you kind build XX% part is may know, you at see the But last. shift. very, it's So second, saying, not called evidence to seeing we compatible to any preponderance design language that products Chinese with and third,

shift. we short a that of So haven't any really in period seen time, of

happening. will first at today that's have it We're don't crazy. the become if The I think evidence shift we losing stage like not that design does, strong visible and designs

we're very like same if large. still a our commodity board. products, very, to they're is more on of the system with And more but size solution leverage funnel products advanced total the Our able lot

Vivek Arya

you. Thank

Steve Sanghi

watching to This making and cause mechanisms we're all and better, and for that. other bundle product sales are it the finding concern we

it's and revenue really, sentiment know, seen you not there, in in is dollars today. being definitely bookings negative So China but

Operator

turn like appears time. the Thank you. back at any this further closing to or are there I'd for conference questions remarks. that Sanghi, additional Mr. It no you to

Steve Sanghi

you been on very with uncertainty. Thank see the continue Well, various to to we has of and road all much. as I This want to us a Please go some the you bear thank with conferences. difficult everyone. we'll year

Operator

call. you participation. concludes This for today's your Thank

and You may now ahead go disconnect.

Microchip Technology (MCHP) 5 Nov 192020 Q2 Earnings call transcript