Microchip Technology (MCHP) 6 Nov 202021 Q2 Earnings call transcript

Company Profile

Participants

Steve Sanghi	Chairman and Chief Executive Officer
Ganesh Moorthy	President and Chief Operating Officer
Eric Bjornholt	Chief Financial Officer
Ambrish Srivastava	BMO
Vivek Arya	Bank of America Securities
John Pitzer	Credit Suisse
Toshiya Hari	Goldman Sachs
Harlan Sur	JPMorgan
Craig Hettenbach	Morgan Stanley
William Stein	Truist Securities
Shawn Harrison	Loop Capital
Chris Caso	Raymond James
Janet Ramkissoon	Quadra Capital
Matt Ramsay	Cowen
David O’Connor	Exane BNP Paribas
Vijay Rakesh	Mizuho
Mark Lipacis	Jefferies

Call transcript

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Operator

Good day, everyone, and welcome to Microchip's Second Quarter Fiscal 2021 Financial Results.

As a reminder today's call is being recorded. At this time I would like to turn the conference over to Microchip's, President and Chief Executive Officer, Mr. Steve Sanghi. Please go ahead sir.

Steve Sanghi

operator. you, Thank everyone. Good afternoon,

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

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

innovative price solutions embedded of has of grown System a focused We Microchip XXXX data XX automotive, Company a years, on $XX Market consecutive on well to $XX completed Chair on Turned effective February documented it So in then was of to an role and effective annual XXXX President solutions, Today addition into this stock Microchip quarter a in broad President million public will nonvolatile was time last the the March step Microchip Microchip The XXXth a profitability communications, President, Executive of losing took memory CEO of announced and million. President in million capitalization from market dividends. sales company and I XXXX. of March approximately year. transition we the small March the Failing eCom will the Leader. a let the $XX and with join gross was Board about was industrial XXXX. of of was excluding also XXXX. joined of basis. leadership January In Operations in X as as had Microchip's In Microchip as Ganesh announce main by Directors at the products net and range produces XX role, July its me aerospace non-GAAP center, to Microchip's and today company approximately will per $XX lead promoted Moorthy with million Board capitalization current defense of Senior years its Ganesh sales turnaround operating Microchip's gross X, about Excellence: market The as to Vice a billion Since industry begin commenting public also grew leading its powerhouse from Driving and an The and X, Microchip a company margins. Microchip commodity How the last $X.X the XX%. markets. Today about billion. effective line to has company, and transformed members. transition XX,XXX% Aggregate and IPO, to XXXX. to sales company CEO that grew and my the that positions product book of consumer in margin I of $XX

Micra, Atmel an and XX been We acquired Micro consolidator industry well-known including having have Storage companies Technology, Standard also industry names Silicon Microsemi. about like Systems,

has investors promoted and served manufacturing Ganesh as role hiring with of known the in assumed XXXX. XXXX, I given February Board of time. CEO Vice in as no in and the this planning that greatest the the decided created Vice integrated the role and have have In for right I the but successfully thought process and of the COVID-XX discussed the thought years in to Leading XX units. since and the entire was privilege as the decision last the led I change. him multiple earlier widely Executive was by it Officer management analysts best of year with XX he turbulent has And make I very of it business made date. The then, Microchip now this that Microchip's over made were the succession outstanding Since President our a employee about as years Executive given into joined at XX and a makes Microchip Microchip role as for that would Chief and new given Then our responsibilities a in business our transition as years customers, track Microchip. has companies Officer for any the Microchip. delay been XX during overall an and Operating him of was as to demonstrated partnership not to unit an President was He to He amongst well assume acquired value that base. stockholders qualified President business from I of semiconductor have jointly Directors Chief logical someone I has the time rest year. as Chair unpredictable easier Ganesh extended this thoughtful is Ganesh and Operating of XXXX. strength XXXX and I Board respected Ganesh and my All of that suppliers, last college graduate Microchip Intel team. the turned Microchip July XXXX. transitioning who at decision success. of unexpected leader at partners, proven industry. is record XX articulate my our is pandemic, of to successor. often years part occur this Ganesh so time. energetic a our served

XXXX with to Chairman. and work direction succession Ganesh March Microchip starting as and Now the company President continue strategic the we X, and become will remain planning that a culture an of developed here. of maintain have strong I to will CEO will Ganesh I this Executive drive

company January no on governance, accomplishments Plexus, She's the National in Karen Instruments. financial that her cybersecurity. also today and join significant Rapp contract Karen She its a large public We X, the the technology serves CFO will brings and Audit Directors to extensive will of which starting is currently join of XXXX, and is also announced large manufacturer. Board company Board investment experience leadership Microchip technology Committee. -- financial of Karen information of management, with also the community. stranger

now We are will pass join call Bjornholt Eric? all our and he I this this Board. Karen very the pleased will to cover call. earnings part Eric to have conference of

Eric Bjornholt

afternoon Thanks, everyone. good Steve, and

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

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

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

a our I down on activities, acquisition basis, results and and in some the as will sales operating We X% quarter sequentially above go sales margin described on prior non-GAAP and guidance between adjustments based certain which including was $X.XX the were range share-based to September sales, Other be the which compensation of press billion, and these our gross sales, results release. expected operating net than be expenses. of is effects XXXX will our to referring of expenses in from September to were net Net sequentially. high-end X, through flat net now narrowed the X% other when

end product geography on reference. We line income expenses of very were On our have levels posted GAAP high-end from gross non-GAAP net better XX.X%. market was by the Operating at XX% demand and website our at an our for XX.X%, than and near-record a as of a guidance were all September well basis, X. operating outstanding summary strong margins revised sales as and your

factories as stronger-than-expected respond to charges million $XX.X to business Our decreased sequentially the to conditions. factory $XX.X underutilization million started ramp from we our to

share. special expense. charges $X.X was include compensation compensation of XX.X% other were acquisition million, $X.XX net million, of and We expect amortization were costs the and the share GAAP the The was above of impact net include $X Total share-based GAAP midpoint intangible above operating $X.X of of basis acquisition-related million quarter. Non-GAAP $X.XX per guidance lower earnings million. our high-end margins the December to $XXX.X continued in Non-GAAP to was September guidance ramp the factories $X.XX, from $XX.X $XX.X On $XXX.X and September gross $X.XX or of in of our million. income per and the and of million a our underutilization quarter, of charges million lead $XXX.X diluted million income share-based expenses X.

impacted period, of limitations reserve by including accruals GAAP statute a was Altera of expiring, by the tax of releases quarter September reserve with Our developments offset factors variety tax the associated associated expense with tax court during and case occurring tax during matters. the exchange the an changes other active debt occurring deferred tax of our impacts impacts of tax period, law deferred in during transactions the convertible period

tax in Our September rate quarter. cash the was non-GAAP X%

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

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

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

quarter. XXX September from XX XX of was range and strong the past have and September at flat at at days, the Inventory at prior three the primarily quarter, a for XX prior our inventory distributors which We up quarter to our was of compared gross $XXX.X the is low the We margin still the experienced XX, were Microchip to days distribution result million. inventory September performance. Our believe days had days. which years balance of the inventory quarter's end XXXX over historical are we XX levels in between level

in flow was activities quarter. million September $XXX.X cash Our the operating from

September cash debt XX, consolidated position of the total quarter. down of and paid million $XXX.X We total in $XXX.X our investment million. As September was

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

which generation cash our capabilities this the We and of this the have operating during period business discipline. market ongoing we testimony well of feel despite most to our a as macro adverse conditions accomplished as is

reduce significantly quarters. shares In $XXX.X the also to million levels continue cash exchanged subordinated senior stock. We debt over next our to quarter, we convertible common our XXXX expect of notes the and September several XXXX and of for

level to While the our did by balance over believe convertible transactions debt that not price impact count significantly the share reducing dilution overall of sheet, exchanges the on we these will stockholders appreciates time. benefit these extent stock our

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

debt Our convertible matures in was long-dated XXXX, net down at September debt to more nature equity-like is XXXX. XXXX at adjusted X.XX X.XX EBITDA from June in and XX, excluding XX, very our that

Our expenditures in million. million September Capital in was $X.X $XX.X the XXXX payment quarter. September dividend quarter the were

between for in about fiscal expenditures the We million million capital in and $XXX December spending $XXX $XX be million. capital and quarter XXXX to expect overall

for forecast capacity in in experiencing, the business we expenditure are fiscal capital actions as partners increase about. taking as we face which outsourcing prepare to Ganesh has growth XXXX of Our increased our as will more well talk our for our internal constraints are

internal in-house support bring to to fabrication, products add We continue the some test as our capabilities operate maintain manufacturing of and are outsourced. as and wafer technologies of currently capital production assembly the and well to new operations, that operations selectively

$XX investments to us million. We periods expense increased over Ganesh September constraints. of give will turn our the during control gross business Depreciation comments margin of September quarter. give and the on I expect industry-wide the over to quarter in will these bring performance it destiny now business in us our Ganesh? capital the was improvement to

Ganesh Moorthy

afternoon, good and Thank Eric you, everyone.

we Let's better revenue look taking microcontrollers. closer a microcontroller than weaker start normal macro our at In a environment, performed by expected. than

XX.X% quarter, was June revenue X.X%, basis X.X%. compared revenue on microcontroller in sequentially up microcontroller represented Our quarter. September year-over-year our was overall the a down revenue to our as Microcontrollers of the

moving analog. Now to

higher as year-over-year June The compared Our to analog end from our the of had market analog weaker sequentially analog to X.X% product as in aviation was performance year-over-year September to to down originated the X.X%. the Analog revenue basis, revenue and the due a lines market. down revenue quarter. compared was was quarter. our Huawei, commercial in the our our represented of revenue which space primarily XX.X% our On general, market communications exposure revenue which Microsemi, microcontroller

FPGA caution investors to the is positive, lumpiness have Our as it record that all-time revenue FPGA revenue the the June a compared Microsemi history. like revenue of of X.X% to going September the would large trajectory up although our the represented revenue the our even associated does the aerospace FPGA to to I was XX.X%. with back exposure market. FPGA quarter revenue XX.X% achieved sequentially an some up basis in because and year-over-year On quarter. was

LMO flat in the of quarter. represented private two as licensing, quarter. September companies. and Our October, which acquisition revenue in we to other completed of June refer In the small we XX.X% was business, LMO our the revenue compared as memory to

The secure power leader within the more real-time complexity International, first Tekron at industrial and smart and industrial the grid for us enables a to timekeeping Modernization, time. precise, Acquiring the expand management our Tekron technologies applications. smart monitoring. markets. driving operational solutions reliable Zealand-based of was utilities for and energy and and an acquisition New cybersecurity offering for other global necessity challenges smart Timing for expanding grid is need and

regulation, accelerating acquisition for acquisition, make Microchip's The acquisitions in at which property the to Blocks laser-focused LegUp of in harness acquiring dollars expertise level with to made mid-single-digit not millions power us expands areas. to compute to applications. Tekron domain whose domain for FPGA Toronto-based we're tool add December a of in The of acquisitions, revenue processing were algorithm paying we PolarFire acquisition our than edge PolarFire the quarter. agenda rate of which added the areas LegUp akin two specific Department material In mid-September Commerce intellectual was engineers edge synthesis along also The the of year down we our Both U.S. are easier platforms. learning machine accelerate debt. experts Vector Computing, more second to complements and very the the $X stopped ago, FPGA and LegUp small to solution for shipments help business high expected stack Huawei. the million software in less algorithms hence system-on-chip were tuck-in vector and compute to and acquisitions valued all it our

overall revenue originated quarter. Huawei June and the down X% the about September to Our represents to X% was quarter Microchip's revenue of from sequentially

We provide. granted. are with interest. for technologies national We know to no quarter products apply revenue of Steve will impact when licenses, if, believe Department have that or we we licenses security U.S. December have such not working and our the be Therefore, to for may no Commerce in that guidance Huawei do

competes industry-wide a competitors all chain; for to through of chain saw. competition which During of very consumer At products we ongoing Among the of for last them quarter, which market used; our the refresh these the industrial not and the avoid pressuring where trade push other same least, the their supply share mobile countries, of number seeking the by out markets to partners; further manufacturing chain from of a and factors automotive in demand The supply but cycle and capacity sanctions, significant Huawei's China and manufacture shift confluence phone fortunate rising are we the this, stressed we we created which semiconductor Asian factors. outsourced in continuing to and internal to September our rising growth. position to to began are we investments are supply making business capacity manufacturing better replace ban; capacity the to seek the our which Huawei's we as December capabilities constraints complete throughout shipment to we our prior constraints experience like chain factory strategic times have for due them, quarter. into tariffs supply

are principal end into for Given qualitative we some the the market trend insights September providing dynamics, our current quarter. markets

markets recovery. the slowdown we recovery as started the September procedures experienced quarter. devices and in consumer their and like quarter pacemakers also which expected for As et in Medical a appliance individuals automotive aids, hearing home hospitals elective the delayed cetera, start industrial saw procedures, elective the June

we and deferring the office environment. In dissipated. enterprise work-from-home June expected, markets weak As demand policies, with computing the remains work-from-home of data demand the spending thus related in medical also remain for enterprise saw revert general, predominantly as the well saw to as surge center, more for we as hospitals, most businesses normal as quarter devices patterns

the Steve, being express responsibility handed gratitude to the take to Finally Steve Board Microchip the hand me March. off next in the before would gets I for deep to when baton and to Directors my to I like opportunity entrusted of

business him. that his privileged Steve my As the learn that an to CEO to I've Microchip mentor of the thank chair and have being the you next as at shoes to we support Steve. with I confidence continued and for challenges we of long-tenured my advice Microchip engaged of Microchip. and and again Thank big thankful his in for through working I count I together be Steve from opportunities particularly support addition team many many am all leaving in history once will been and over the years executive can Microchip. and together, everything years role. know, partner partnership we on me glad to fill of our phase to lead forged have would Yet impeccable like gives especially executive XX-year

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

Steve Sanghi

the XXXX. quarter to quarter results then I the of fiscal you, for first of its third of of on represent. The September provide will second continued fiscal best culture quarter would XXXX. the Thank demonstrate like the what Ganesh. to reflect guidance people Microchip and I Today,

global $X.XX X% down and in at all that quarter. and was sales to capitalize is delivered and pandemic, we cut while as came a terms sequentially billion the only compared midpoint ago September. Despite together team business Our was groups, middle support net sequentially the in superb quarter. sales This we which to working our of units, year be operations, the flat a and net with challenges, a X% from opportunities the global guidance sales pandemic down strong on delivered marketing essentially COVID-XX of of pay

margin record delivered non-GAAP near gross were of XX.X% also outstanding We which an all-time level.

non-GAAP the of above guidance. also achieved We XX.X% operating margin our end high of

Our EPS $X.XX, the was of consolidated above midpoint guidance. non-GAAP $X.XX our

to Our bookings backlog a on were be from strong the churns in as We and fill backlog quarter. ended very to quarter September guidance. X our in strong for midpoint of position X. the with at strong flat began June With compared on September quarter X% down the minus essentially quarter quarter, the X% bookings July the the we April

guidance discuss quarter. Now I December will the our for

Our bookings have remained strong in October.

our making is Huawei these the quarter. good account be effect. a that December December and work-from-home approximately markets. guidance that industries sequentially. of by other and to X% be December same procedures in factor bottom us medical multiple net quarter with tremendous elections, for Huawei we seeing in for as in elective this well is we about markets for quarter that making to as and There markets make as guidance the we into in and related as the X% computing have call time Microchip X% and months in it willing are cycle. the appliance multiple believe and data well demand. Taking are to call. expect With seasonal share At and zero represents market more quarter of we up our recovery the all that minus COVID-XX been revert the between we in will situation X% product to end the lines. have for December flat surged centers, about uncertainty one that Huawei is September devices factors asked pandemic well X% to recovering automotive, home We sales the to above effect, continuing customer down medical about Investors the industrial, few normal and call. the to Today devices was and have a gain last Considering over is the counting not analysts consideration, certain seasonally quarter our that the

We September business and this the were Microchip. expect quarters that for cycle June bottom for

significant the bonus. growth We are sacrifice to gave their quarter, on than XXXX. our form seasonal September we December results back employees September in half of salary in stronger a quarter calendar year quarter better-than-expected guiding expect a much financial much and Based the in the of we

the back We COVID-XX have entire three that in multiple changes represents have salary uncertainties month. the as all to us to that also this of commitment salary into the And shared just prepared dialed to lowering of past employees yesterday, guidance full today. This the approved company. long-term traveled with of thank salary Microchip percentage of gradually the ensure the and contingencies sacrifice. are of be us we unfolded. worldwide salary These quarters, the best culture Directors our been of success the to sacrifice journey for We our employees are later revert this Board providing company our of enabling

record. be quarter, will margin to For gross XX.X% be expect a new December sales our which non-GAAP all-time between XX.X% we of and

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

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

to $X.XX per share. to We between expect $X.XX our be earnings share per non-GAAP share per

expect down quarter. also million of December in approximately $XXX We debt pay to the another our

advice and and to past, our We providing the other investors In change. the mid-quarter at about markets have we to businesses coincide continue market presentation one long-term achieve like the strength often growth. analysts update, conferences. in financial been I excess with of in, growth would of to believe diversity are in average we and to semiconductor a sell-side end the

will discontinue not provide do typically competitors this a this longer such plan and to quarter practice no peers mid-quarter Our updates. provide update. we and Beginning

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

Operator

[Operator we'll question first Srivastava go take BMO. Instructions] ahead. Certainly. And from our with Ambrish Please,

Ambrish Srivastava

Thank you. to when on well. Steve, and Ganesh be we congratulations congratulations get to you'll you'll us you question. have ask and guess on as I to call toes missed role to take over keep a this Steve's our

Ganesh Moorthy

hard a to follow. act It's

Ambrish Srivastava

you know, I for but One you fill, Could or me. on capacity understand what how one can been? on question has Eric then, And if didn't big the business the constraints, side. be constrained is is the is shoes to And we'd times? Two guidance translated us the this would then just the on us have have side. of to. lead much help that you maybe how -- second the into expecting help questions

the those is Thanks. And two end, how of to that versus both, gross And what So so the expecting been to parts lot a increase, then outsourced both has what in-source be there, -- margin? be? what should the we front was CapEx then back moving impact going end?

Ganesh Moorthy

lead time the to want you take Steve? Do

Steve Sanghi

No. Go Take ahead. it.

Ganesh Moorthy

is eating have standard is lead times, on the into these things products. the What I package multiple There still layers chain, time. same as described, and week are have subassembly combinations the packaging together line times into a items many happening packaging of come so times. the testing for infrastructure, the of it for of type supply the at the that of vast our involved do lead longer some So specific lead factors and is that majority of in four-to-eight into the

ahead, with issues supply times. combinations, lead good have don't products issues, where pretty So the for But are. we have vast spot product Go large, of have and issues we but they specific package we our majority still huge Eric. with by

Eric Bjornholt

Okay.

was of there of we've piece question capacity kind was -- but got your there, questions. The second it some multifaceted

But prepared should in current margin XX% to the adds add walked test, quarter, These as even to So about assembly capacity tests quarter, And road. fab incremental, all again through us we assembly remarks, and slow-moving last all assembly we And metrics, investments metrics. capacity. are gross we expect making of time ramp and our margin at its these making relatively, you quarter. current guiding make are investments these we absolutely all can in-house, we're up, to making as we are slow-moving they're And about or factories. up our the gross would if we're we're XX% of to you we fab, are had that underutilization and wafer over And assembly our that our our expecting accretive. our as wafer the test increase making fab for whether gross in look XX% the of percentages in benefits But we relatively test. that see with margin investments. investments. go our lower But the charges in down

Ambrish Srivastava

and term think would to the not steady-state the end what quantify longer this to at to look would -- as assembly like would margin, the gross point like, in-source versus test front outsource? and unable Eric, But about how look

Eric Bjornholt

So again, in in versus we fab I move don't terms expect percentage that the wafer outsource. to the of significantly, do

investments. obviously, business As making the we're grows

over test side, go those you do and you Ganesh, think want percentages on, time? they assembly do go can the we up. expect a to where give comment On to

Ganesh Moorthy

to gives itself XX% in it over get some will And into parts in the short expect control. well. And on north some us don't we time, do It more of time. do. difficult periods when to a all they move probably it's They us as we outside, what that for assembly, moving us at. be in test. for gives there's going the bit slowly a gives capacity, little pays probably be It we of costs our control to what or way measure But like we north that's XX% lot And Yeah. longer of for of term there.

Ambrish Srivastava

you. Very good. Congrats Thank again.

Steve Sanghi

So I'll acquisition, test. as were and add about at and XX% XX% Microsemi assembly to, Atmel we

test. as companies, percentages to bought back way too probably it's outsourced many assembly and were would slow variants, two more Microsemi they higher because XX% to and than So all and were the our like many there's than ideally working And large these get packages, we've quite just that. transition many we programs XX% test too up painful our dramatically. higher Atmel been to dropped much But we too correlate and than and

effort, really movements. ongoing quick that an are no it's So there go will years but on for

Ambrish Srivastava

it. That's good historical. a Okay. you. the perspective Thank Got on

Operator

We'll and Securities. from take ahead. of Arya Please go ahead with Bank question next our Vivek go America

Vivek Arya

for taking to little Steve congratulations look and a and Ganesh. bit. my sales question at the and is also bit, in little they Steve September year. analog and microcontroller near-term you're growth for question your I my quarter next near-term the both, expecting Thanks year-on-year were down are a best both and When wishes down

so X%, in about at or look you. significant What growth mean of to I'm what lockdowns. is are they the significant views. say I'm Thank it confidence cycle, when because to What growth mean? I hear curious, uncertainty for when at and does is consensus bottom when X% some sales I So still macro you those XX%? giving for just growth. elections the then, the significant there numbers XXXX, now, Does curious right book? we calendar you is say, XX%, are your think And

Steve Sanghi

the XXXX is not if modeling crisis. global that us XX%. February, all of go to in clearly that X.X% because some gives and it worked of is it's in were. drop the of It was was many had business Even business down time people in of very, modeling were we up confidence through March XX%, were June. large we the be business were much. saw you flat the our down we back We the And Many COVID in It what and frame estimates going really, right financial -- September competitors up the the like have to our investors very type only March. sequentially and analysts the of Well, were December.

anybody than correct have of kind else. more we So been relatively

We backlog And very to up. to backlog substantial well. and very, quarter building quarter. is significantly we for a the we're after are are quarter which backlog the just than quarter. the for down bookings. The this be aging stronger is the seasonally quarter last supposed very, seeing do Still the And going bookings We're are we're large. strong then, pretty the very receiving, getting next think into current

much, concerns Now time, much earlier. a that -- than so about of Not orders supply chain the all giving chart already we're that. people better point mean expecting orders crawl because lot at after is a despite in rolls then becomes -- the that constraints and you people and March earlier a off, But growth give that that our larger but some quarter much all growth, that, the bookings. got that of because significant similar doesn't all are backlog is you and before a

it what that does means X% mean, consensus. like significant more than asked You have you

Vivek Arya

Thanks very Steve. much,

Steve Sanghi

Welcome.

Operator

Please go Suisse. John from and And next with Credit take Pitzer we'll ahead. go our ahead question

John Pitzer

appreciate of the same and for the So, both bottom sure calling I call over is, September lot on Steve June a I'll my of Ganesh. question the add way. of And the congratulations the Steve, guess, the sort levels. analysts to feel the my first I cycle years. I'm you're help Steve, all

in the But focusing from the variable this just about curious very can where here? go a just bottom we are you're comp. I'm kind operating given your that really should that of because I the buying cycle. you're and how market that little year, is assets I not of you impressive of think guys operating expenses think and where been efficiencies, the know we're back have what's margins on despite margins have bit fact like be light pulled to incremental margins operating operational on things kind going of at

Steve Sanghi

So, with quarter some have XX.X% a little Street going XX% I XX.X% We head I or expense the been targets don't next margin at that more targets our and get margin at looking year got numbers quite we and either back think before quite margin. XX.X% have about longer-term the not a getting We're Midpoint on this the which achieved think, have and operating in my all number coming of fiscal there. is operating We're model top we close. in given gross the is a that on guidance gross operating of be to we'll our striking longer-term we point bit go into current analyzing, will range. be a to to within time really we the new and when margin.

John Pitzer

for That's then, follow-up my Ganesh. And for helpful.

now, lumpy that if of M&A activity market. that's That's over little can for sort kind What in prepared FPGA a core space. FPGAs a the longer-term do commentary you? your a of you talk space of kind comments, curious in the I'm bit of kind your the some advantage just business, you see Your in about in asset of prospects kind becoming your with notwithstanding of caution, time around rarer

Ganesh Moorthy

Sure.

midrange lower it. There FPGA by So is We very how in the the are go that in power. measured are after other we market, need play invested elements the we players of But there. and don't midrange applications high end low many logic specifically end. the there in FPGAs, focus are on which in who

and have We strength. once products, and end markets robustness that these into industrial, And are aerospace. into products that really now have defense FPGA Those and memory They're security historical that our like. end our markets nonvolatile take on taking us FPGA taking have with Microchip historical automotive needs. strength those we Microchip into again needs,

the products strengths. have what position FPGA we where it able believe we into long those the in that able the of with term, we being to markets over are of markets terms the we're security, advantages end low-power, robustness take to bring So the and our

John Pitzer

guys. Thank you,

Operator

go go Please Hari ahead. next we'll ahead and Goldman from And take Sachs. question our with Toshiya

Toshiya Hari

guidance Thanks question about guys. quarter take for Huawei you both percentage you the congrats and consideration Steve to seasonality, the being Ganesh. when typical your into December dynamic. Hi, Steve and X% above maybe talked taking roughly points X

the share And outperformance of portion that seasonality typical in X% talked are see market that XXXX? relative of are you You and end before, that but correction sometime concerned X% in pulling all to first sort and customers you share alluded demand of in outperformance. market end to end also half gains is What about is a contributing strength? this you to to strength growth? at And percentage what

Steve Sanghi

really season all, the -- the of two what growth portion of you it's share first growth a do everybody rate Well, seasonality longer-term end what to at down how comparison basis better you That's the on components than the growth portion into market. really grew. really else is very impossible described, difficult that short-term could and the basis, very, of break a looking a growth market is just better on

We how year. to or next next everybody have do or going else idea no quarter is this quarter

something in, good customers So their really orders longer-term correction pulling that requirements I the us, we year the you've time And we the to quarter us ask a customers that placing the plan letter answer have But in pulling the us capacity question don't and strongly. of accordingly have because put demand customers place. pulling your in in We don't next is responded very customers really and in then see next next orders scheduling question. and quarter constraints so July. giving to asked the about are backlog near-term your can And the for in back please been year a our -- to addition we tell through in building customers into give that we after. them see this

for that's But very good. backlog very So after the is quarter. quarter. the March into already We have quarter for we're the even And and getting aging we of component next a bookings. lot June backlog a had very, very, very strong the strong the quarter of bookings

pulling pulling not the placing deliveries, in they're in orders they're scheduling So and delivery.

are left there constraints. in case not they're short So

Toshiya Hari

Steve, follow-up the had the and over that multiple the leaving Anything list it. table? Thank a move career like company, feel know you you you. you've successful Got decades. team you're left to-do very not on on forward obviously, And but anything necessarily then I as with? a can your quick Ganesh potentially

Steve Sanghi

out in I'm go the have don't and that. set back we I But any earnings family And end could more we Microsemi situation more about much of -- $X share goals all XXXX. the as were to Well, doing age-related talking acquisition announced had it, I the terms the which it's year. achieving and and overall -- we regrets in the grandkids third and really in of per timing of by accretion

XX%? of we as $X what if in an what then to to Back lot business were our I U.S.-China top today. a accretion difficult. them if a they under came that it credit years rating over XX%. of of trade Ganesh And And higher and of believing investors got years that two comfortable level the able on we COVID-XX. been business due earnings going the have but achieved than were not down was situation a if The by the major entire questions And start telling in interrupted took the rather which why not two we today not hopefully the and near in two normal XXX have would were that uncertain two is not of like front all the it, last and Some is of happens? growth March when the is situation leverage would share business And So it. wind war of comfortable say industry a I business, timeframe, your a our events, has to with $XXX goes be that that for leave became those where uncertainty. put in have the was growing and per was it last in events. asking regarding and happens analysts down leverage in I some sails And high those me One out pressure. much the

Toshiya Hari

And you. good luck, Thank Ganesh.

Ganesh Moorthy

you. Thank

Operator

And we'll JPMorgan. from take our next Sur question with Harlan

Harlan Sur

book-to-bill to quarter? Ganesh. but the manufacturing was your offer and afternoon. environment fabs believe then strong time guys network the congratulations question of to given And constraints footprint. right have a let now first executing and in be what my to Steve not me that still you this, in also may be I demand small guess And very Good I the

fabs consolidated? how of be Can savings consolidate time? yet what just these to of much more is how you come over if just as are this you period COGS to you remind and much smaller maybe still can So us

Steve Sanghi

not QX. for So we're a specifically book-to-bill providing ratio

times for had we think the that past. in many I the given reason

book-to-bill work. translate try March the Because I already quarter receiving are ratio really bookings we the quarter. aging ratio book-to-bill that said and -- And essentially take to was number, into growth and usually, seen bookings some a and the which not good. investors that that, Our very even actually does a into lot are we June into the strong have analysts of

So The the was part XX correctly. numerically bookings have over we billings and that number it's into of so the receive your next interpret number that not very little over aging months apples divide quarter, one bit over the providing quarter. months, XX we seen billings last but good, bookings but in bookings second months oranges. number a investors the by XX you and And next for the -- it that next What the aging shipped question? was

Eric Bjornholt

do cost and to had ongoing sales of with of factories It that. improvement things like and consolidation

add So to Ganesh Steve or can on that. and start then I'll

margins making of wafer gross And fronts well. and work of we're progress our achieved hold large still have There's savings that Colorado on those amount be fab done. announced the our and that we a excellent to at you've we last So outlined up cost restructuring November, extremely seen some time.

the Our And operations the obviously large back-end see factories capital are of cost the improvement the And through have front-end operations teams our we extremely in our expansion we on we'll product activities the running operations more side. margin about absorbs talked and busy. and and both flywheel gross there. the plans own that

a our margin. XX.X% on from this gross to away at guided far target. which midpoint isn't we've of got the good XX% very working So quarter We've things lot

are specific taken, that. Steve but -- the on Ganesh to we talk the I but that And add doing So we're good feel being that? appropriately. of about going or we're to structuring specifically some operations to actions think well anything about don't

Ganesh Moorthy

it mean gross you any and Well we and exemplary just is compare cycles, down margin cycle, that, prior this of performance add operating yes. our in look did I well. margin I if to it's extremely will What at been the

basis many hundreds Our gross operating down not of margins did by go points.

by points. margin gross down to think used XXX-plus I go basis

us Now the solution. help total I of why of that? the that, end several is entire system markets, solution the think did, partially serving acquisitions creating with diversifying build really result business, the we the customer that's And

high-volume increases next rapid from ramp are as all are here our and the go the as we and operating So revenue see record fall into the margin as much. just to didn't gross we I And test cycle. much. as ramping margin fall fabs spoke year. all operating sitting gross And the about had revenue of of assembly as we as And and all of our much. bottom fall shy The on margin provide growth a near-record didn't margin are and didn't factories the at at that the we the

expense capital our budget. increased have We

is achieve concept. cost product incremental So ramp, we incremental margin that you absorption next you making understand gross the make because and product as we're we and much than the operating of that of the today lower get the better cost

really to what regarding need numbers put do the in talk we very and that would are and a some then dropping you And and So it's operating what factories as good. then there point go does mean ramp to to prepared bottom underutilization going very, that be near where we you cycle today. margin record. to that we're very in that we're And from the at time a above do some incrementally time, goes start not and at the long-term the model very, into X and exciting the it of around first is gross

Harlan Sur

it. Got

as that Okay. on And addition introduced thought but I to side. maybe to your you just actually FPGA based product product, views that you. open a get Thank the architecture guys portfolio? MCU terms in has quick product the initiatives RISC-V wanted on your RISC-V the of in follow-up team any

Ganesh Moorthy

before the part Microsemi foundation RISC-V through us. So of started had we It are acquisition. the

you at on Microchip, nothing RISC-V point lines. but FPGA. what many as to did point they is FPGA with first report evaluated implementation that we the beyond have introduce of possibilities really SoC product The And within this and are on noted. are there's done being we There

Harlan Sur

you. Thank

Operator

And Craig and our from Hettenbach Morgan take we'll with go go next ahead Please question ahead. Stanley.

Craig Hettenbach

company Hey organically the Steve that few decades thank to just M&A. through the the and evolved, quite you. in last Certainly see journey

including where stand of update sales with you force. point you last some driving things kind efforts think some just you're the context I the total of maybe of system that's give the been with through one On or is that and the M&A, solutions, focused now of can

Steve Sanghi

control when increased. over it. years, I has components system, a look of system So the number components think at microcontroller-based around an have number the embedded large And it of a you

flash converters, will reference Now even years some back around it devices ago nonvolatile It memory goes kind of over - some have some things. memory memory. XX, it But has study usually management, substantially some that grams, maybe those power have the discrete increased of years will XX, amount go connectivity. that microcontroller the A devices, substantially and XX to increased D with sort

USB, need Bluetooth, driver, and you today functionality Ethernet, Wi-Fi, display so others. touch a high-voltage sensors So just

have really acquisition analog a a we as resources that, the available we drum beginning in go telecom them a And into or for kit, we Microchip, multiplied about that of added it, to did XXXX. small of started products have our buy XXXX. at Bluetooth, components can But now began of them now years. buy roll XXXX, been really didn't And have number if look XX in our separately. those start until from adding design really able selling we board, to those microcontroller take XXXX find and the acquisitions XXX.XX of so an everything last and has a industry, around very doing have building franchise can that we all with But you control about the place well now and semiconductor in any then and years and in sensors, drivers, reference results franchise open journey system of an now powerful and that analog anything you some sell we entire you training challenge Ethernet, it. else things can then, to look market in and So a our embedded solution. circuit an to a have at application printed they're analog, doing to the in car opt-ins, power Microcontroller, of management, connectivity, memory, feel almost Microchip appliance And a message all embedded we and couple in to on that you be really force last Wi-Fi home, kind any and that essentially we be the been application, that control its from done have converters, sales able the in at today.

at we're really burning have clearly time, And signaled high, feel have valuations not of use acquisition. that flow we're desire The debt. in do two, set this do free acquisitions. have paying down, we likely buyback So new taste. large amount the another Street sky of stock never meet to the leverage we number to a and to will not of that, cash still we a cash and leverage increasing that our point producing high is down And flow, of the when dividend and then more goes a still free and our all

business the we grow completed So are feel And scale and we I organically. we we with have enormous have scale because we are, the think disadvantage anymore. where an that, that's to solution, going the do not have

Craig Hettenbach

Got that. for all it. Thanks

Steve Sanghi

Thank you.

Operator

with go ahead question next Securities. from Please and take Truist we'll William ahead. And go our Stein

William Stein

congratulations quite transition. been run. question. the my taking add on I'll for Thanks a It's my

that I backlog more like around very term. the or lot can of do under is more question conditions, book-to-bill now two on the as very made give comments it's this And of is from have in So you But and lot up think book-to-bill either there typically about of not to congrats that. in filled? positive they one customers form to other concept driving into think the able when of and opposed way. it happen in was us is their wonder, the or around suddenly customers get I a Steve. want dig you with ask business, those you of deliverable to maybe near duration backlog think if supply. then the a comment behaviors you the duration what's going optimism backlog? of sounds the confidence concurrent March, can the the you've could the Is around Backlog what strong. those It which be as improved coming they're to that, to is around but that of metric duration I maybe, is portion any

Steve Sanghi

of having all it customers it's lead a from and often the and were out great. think on that's case, know samples I need and the is can really an we're them, our to place the action and in is large supplier combination batch ahead on the to but we really purchasing managers efficiently in order don't that, and from as and on you thinking We advised the build process orders make whether have short-term these lead a interaction going largely broad virtual. customer March so industry, the experience specifically thank base the orders longer-term quarter And often talk time or how a we we constraints orders, Obviously, short-term customers of are getting say, largely so it, also ahead more them not. orders to customer suppliers back suppliers, parts needed being visit But the we your let's we our extremely component, letter, you is of customers the a and a strengthening when them. backlog And wrote well. forth. go secure have seen a mean, one to exactly I of particular hearing. are placed quarter I large letters other times to such and would the even until And customer so is at really So, And the customers they not times following the we of later, you that, always you have and have combination ages And the visiting of it's our able well. a not the after I of customers days reading responded into place it's quarter. components, our about acquire what what think, that customers quarter it. they one in responded have extremely XXX,XXX-plus amount is the get that say

Eric Bjornholt

record. but to know want there. for said what just that's He mentioned, the to Steve meant clarify said, in It to I the Maybe just one thing was he in letter customers July. March. actually

Steve Sanghi

thought, yeah, I I X, the early somewhere meant July -- July. date was

William Stein

Thanks, guys.

Operator

ahead Capital. with And Harrison and we'll go question take go next our Shawn Please from Loop ahead.

Shawn Harrison

then Hi, afternoon and hopefully my question, An on distribution. and wishes. best question a more easy

that in channel or tightness supply inventory days out are there? I any pressure the them of With distributors in December business tightening to of here see the are the in there the aerospace quarter? supply still assume you that the the with volatility low Microchip but reacting we FPGA for to know highlighted normalization more is second, you of stock? add associated Steve, kind should, how And then more a

Steve Sanghi

the I'll -- the first the was part question? take of What was what the distribution. So

Eric Bjornholt

I don't trends. FPGA that take Why the Steve. On one

Steve Sanghi

ahead. Go

Eric Bjornholt

up continue FPGA for you'll ahead, and delayed times, will business up So look going see. that XX many be as whatever to you eight, it over Go if FPGA that's to that find plot depending overall is last it coming right. you'll you lumpy right have there if and are as an the Trajectory-wise it more us. said Quarter-to-quarter which to for is or But to the we business reason you nine, is the changes a many quarters see business. is Steve. and quarters, is what through lumpy on at

Steve Sanghi

from as getting just front we getting well distribution customers. So we're orders huge on from are direct distribution the it as

the September large getting the are to distribution actually the the quarter. December but getting behavior make the fill make aging June number really quarter we're of the largely and in well channel. both, got to and quarter in up similar in as very we're bookings a strong were bookings our -- even good into where the bookings some So March as quarter the bookings is And we direct channel, in to bookings

are impacted that the if the so going not and lead times already push also further, the in next they're they're backlog into out layering distributors quarter. placing So backlog the

also kind. has wrote customers same distributors the the So just for was only our not low was to the some when we direct been quite message it responded to letter the in inventory letter and And have overall time. they

then I think it XX-year from hit two. up only low. And or that come has it a day

distributor the inventory in XX-year my my coming it's a are growth, we that the sense significant year is really to sense have So the to consider at increase but as distribution and low. expecting up is will

Shawn Harrison

Okay. Thank you.

Operator

next Raymond our James. from take and ahead go we'll And with Chris question Caso

Chris Caso

a been with working The pleasure down is your of and seasonality, congratulations to both. Yes. you It's Thank December X% question And you And regarding you. you both. mentioned Steve normal Ganesh, view seasonality. sequentially. to there the acquisition, environment I because know that hasn't a X% in hesitated a Microsemi call since on acquisition past been since normal much really to closed. seasonality make you've of the

an on March, you the seasonality to updated June Given that view consider be view that do quarters? you've for and normal what for have you'd September December, a offered or

Steve Sanghi

don't. really We

of start I and it. think to at have look normal run whole a to kind we're to going year

of I would X.X%. Microsemi then be got you If although year, March say X.X%, March quarter This I late back we of to the prior go more. couple crisis. it from was been X%, Despite back up a part the up will think could usually percent the sequentially a couple the percent up have COVID-XX with March all and that of China at impacted coming not were acquisition

there So it is I on March the otherwise. be with are think I points acquisition seasonality X%, X.X%. think somewhere would than less the around But data

the of Microsemi points. we take have you with in X.X% don't If couple comfortable feel data enough Microsemi X%, I the add out, a

Chris Caso

Right.

Understood. Okay.

this you. Eric Just regard of repayment a as with the for follow-up is debt. to

which Again of give degree to what that getting as more cash. some generating Just be on should will you a expectations there affect could that be sense does your next you assuming over us is how is you net believe quarters? debt your target the three? timing the say, recovery few And of I

Eric Bjornholt

we Obviously, that generating paydown positives Yes. $XXX to operating quarter. is more talked trying I margin to specifically and revenue more current There's throw if bunch and debt mean We about. indicated cash of we've in a as each we're million growing some the going capital been in about invest a we expect are negatives. we bit a off quarter.

and our So of million-plus would improves in here December a in extremely March, was CapEx to I be But an range. and June it's and expect quarters going And offset. as $XXX that's business bit going the so only environment September to both the up. low go higher

that's company. an on So times looking investment-grade for three And rated we're to continue. and what debt we're be we to over progress get the paydown will good you And absolutely or looking that less mentioned really making expect time and there.

Chris Caso

Thank it. Got you.

Operator

next We'll take Janet [Operator Please ahead. question from Instructions] our go Ramkissoon.

Janet Ramkissoon

license? in Congratulations you we little give been two side for feel along your Hi. happening And demand When became autos very years a can And or since on a how real had little Steve, I what Do up? to quick. you thanks guys. you CEO. a best can be license? pleasure us did you can you you a what's what again Can the is give secular you fast because Huawei? much. when It's for the it scenario for case secondly to that color if the on the change color and in apply last some your more you -- you there were really to get actually And And of might is get be on congratulations -- business? safety? going COVID XX all. auto ramp provide

Steve Sanghi

first you. Well, thank of all,

visit earlier to years and I to And this a think with Conference as in us company remember so that you for Long or our probably thank booth association, I year. you the entire prior you. even. or came XX at XX so Vegas years public the been CES Las

September September quarter. started bring quarter. and quarter, were June because in quarter Regarding then on any the were is the not the And up many market quarter largest from business full end back out September up automotive, of quarter, factories saw the is the beginning. the They in shutdown. during the the decline they the downright so -- from Huawei and automotive factories was ramping business June specific factories your But many, to of back question to

quarter to growth substantial us automotive September as So in from to the ramp. at there is for quarter the least quite segment a December factories continue

from of their the lots customers so automotive lots is selling the low looks Cars are rebuilding normal. and investments inventory kind So point are inventory we electric now making vehicles business they're in of significant automotive, a forward regular this where vehicles, business going vehicle And here. in than the actually so content content good the should from higher electric automotive have into on is content. look

Huawei question your we when apply. license of The did other part is

hand me to Ganesh to answer that it off Let question.

Ganesh Moorthy

Yes.

the a month. navigates is commerce of and was would It through it. it have department our in last application to within of So else how uncertain very whoever on process weigh

think one and it through. each application products give single with I licenses process to estimate might what and business we not and have has a through impossible when need separate has going an would multiple happen The a with is a you'd it. And go Huawei and just license prioritized you it's of we're to what mean. we have that many would

to we we the uncertainty on we trying sense. still believe to any And to to of the once of we made need what to not when need what provide the guidance revenue would on on they license, mean it be kind Huawei did would with to have ship business. count of our process, work able line sight would to does able the product any be Given

Janet Ramkissoon

Thanks very much,. you. Thank

Ganesh Moorthy

Janet. you, Thank

Steve Sanghi

Thanks.

You’re welcome.

Operator

take with ahead Please Ramsay next go Cowen. we'll go question our And and from Matt ahead.

Matt Ramsay

I congrats question. investments noticed some opportunities. ask some over been afternoon wanted Thank you. of the to that private of last tuck-ins both. and Good you've a few the making regarding quarters I company the to and you edge the Ganesh,

cloud. little FPGA team has opportunities. you. out how quite out for for a done required be you opportunity you if years Microchip might some as emerging edge need both and next of as context if on your Thank on a that approach of on I of might of an heavier-handed edge this guys a to and of three you And franchise over to being give work lot Our wonder clients franchise of compute as it's there's the sort bit might if something evolve microcontroller edge an or think your might big edge five that guys market these or about

Ganesh Moorthy

switches third part a We that things with how predominantly in from people using looking of buckets it happens the in as the exceptionally the many of learning the do speak. and that of microcontroller. introduced vision machine and factory vision element cloud processor the at our embedded large the taking domain is PCIe of and part And known learning second the of around end the medical and of we're go needed security, intelligence. few And what to the of can process. microcontrollers, in things depending that When of many we're are other can using is we they into talk. edge products the for where think is There's spoken so think machine of end that of security the many which analog, products The for exactly role a extent different standard what which we vision is you all factories, is way And is best edge edge is our other that is on edge it much looking that important learning standard because at the the at the part sensing needed intensive of about. to application. other FPGA people a number there the that have megatrend is compute. and piece our and industrial companies do highly some have that And who products intelligence at at too. the GPUs as microcontrollers machine for which is very IoT and in CPUs, cloud. to a the but cloud, solutions, artificial the is an compute that surrounding the factory one place is nodes But that have of lesser are comes where going of associated place. but think I all to be intelligence machine again play physical taking end inferencing standard artificial the these automation one learning and smart three platforms application as we There how we artificial is of needs then It around

edge intend interest. that. a the much certainly part just than a how our the FPGA terms we in at to So prior it's prosecute key of field But bigger edge alone of is

Matt Ramsay

for the Thanks it. prospective. Well appreciate

Operator

ahead. take BNP and Paribas. from question with ahead go go Exane we'll David our And next O'Connor Please

David O'Connor

you going more of Great. Thanks products question And maybe. related. reshuffling Ganesh and on for as prepared taking of some chain Maybe about refresh seems and category well It in my about congratulations mobile which your back talked remarks my Huawei, share exact you in there? capacity talked results. impacted short-term the phone the question a are side the on to supply constraints,

these So the here gross March Are the constraints us to I some And on with the stay for think question do a is time? they you have margin. from quarter? follow-up dissipate

Ganesh Moorthy

supply other be people supply chain be be and who product, the general bonding packaging would chain can -- lead it of can it that does frames, comment various are that equipment be which affects the can their So substrates, things.

well. involved we of chain capacity directly chain it may that supply are with and but their and so in, not consumes as then we both it bandwidth be things directly deal supply And what the

that in the and either cases these bringing of lot a compete many of through are is second these materials manage we more do as that some the we would to some it. have of all out them using, have mentioned, lot cases for then of go for some they're in sources a to accelerating internal as do for equipment be We capacity We've we -- find able otherwise use so been that there package capability. we and things And constrained. or the Eric of internal we And types. capacity

that that what happens situation. providing that normally take to advantage capacity when constraints, is the business these of respond you or what the that in So with business are in do material can they have companies

there And come they capacity that so a with. is response

a then surge be in possible demand also and March well. is. there it any they're constrained possible going begins that really think of where sight the will that all Some we to constraints have when can't over that that all that of predict But it's quarter of will dissipate. spill don't into to dissipate. could it's But be as some line the exactly through quarter the I into December We

David O'Connor

that additional helpful. the -- it hit -- CapEx Eric. that comes initially about headwind And to Thanks. a utilization in on as that on seems Eric headwind How you come have March could the capacity My we quarter. higher the just very and the budgeted gross that come the in you XXXX? for a going into the calendar you that much to maybe quick of as margin is gross a follow-on quarter XXXX? slowly That's the gross that XX% talked question factor that year that strength March and XXXX. margin from through for is into is online? margin Does Or

Eric Bjornholt

the it's in So test. it or online fab, comes of when whether assembly terms depends capacity wafer

we And factory. in have needs qualification so go depends what to the done through and that just work on it our be to

sort over and out can get we and view all to installed of matter So it gross I don't at door. product a just It's as on time. running headwind comes up gradually of it and margin. any get it the

March comment gross shape. So specific gross a for I didn't is good the think I in margin margin quarter. make on

of the our lots because revenue getting quarter, a good into is to current want we business things about to going better environment were evaluate for do XXXX least model things but as our look we and there into I So we clear of that's very we're in close. speaking that make gross and the the get we're forward are not continue if margin to it just doing which long-term we'll

David O'Connor

Thank you.

Steve Sanghi

clarify one like thing. I'd to

the Oregon. it various and Gresham, and quarter capacity it of becomes Fab a and the really our others it gross then X gross incrementally fab comes never or lower believe to a product CapEx because million a somehow build the when You at product that. not to the to and than assembly It's billion it accretive margin probably fab the we in you $X meanwhile $X.X up providing kind CapEx you're that in added is greenfield margin that's comment headwind the has And spend average up productive produces, the diffusion in when depreciating the headwind be margin margin. XXXX entirely The qualified we equipment capacity adds we're gross experience. the said And the has talking of will the gross headwind after the always capacity. you I about made slowly the of and produces process is is tubes about. kind it from without pieces large to factory talking the to the gross of we headwind margin what incremental It's cost that. of and were test that's the to bringing it $XXX,XXX back opposite and experienced of to ramped,

So gross margin. gross the There's attrition headwind no to only the there to is margin.

Operator

next and go take our ahead. Rakesh we'll Please Mizuho. And question with Vijay from go ahead

Vijay Rakesh

I'll congratulations add for and Ganesh here. my Steve

half combine year also auto recovery strength I'll know some in my Just in back I industrial questions. and two nice looking the at a you're seeing China.

I'm auto And have into lastly, Just impact and are wondering China? impressive that they some what the your revenue COVID gross exposure industrial very or even in though rebounded. margin especially was -- sure where margins there's line, on

have wondering of away kind into should that That's you or impact COVID sized go so? what that that if it. -- resume next Just and Thanks. year

Steve Sanghi

if know that. got don't I I all

the think first industrial mix I of was Ganesh asking part automotive, and really the

Vijay Rakesh

China. And

Steve Sanghi

I year. don't last provided once only that. we think a The we have quarter

Ganesh Moorthy

quarter-to-quarter. move revenue. shown of of industrial headwinds was end quarters have itself. into Obviously, are number. it have a the our then for automotive of at that the I our in those we June quarter December all markets, went publicly the quarter And there What the and in but year those was two reversing as the revenue, end more September don't into dramatically was And really prior March was XX% measured we XX% Yeah. doesn't

on the don't time. pass us question. of it dramatically market percentages end other I'll those for then usually over the And change So that back part

Steve Sanghi

I restate that? you margin Can can't understand question. the gross

Vijay Rakesh

logistics in assume there's terms a COVID I on impact. was operational I wondering of and basis, would some

that wondering gross would year? was was just a reverse be assume next I impact COVID it I So would the to what the tailwind margin, and would so

Eric Bjornholt

It's small. very

Steve Sanghi

and because COVID of was quarter. that when facility gross others was living the there ran and no at living a people the Philippines next slipping to you the there of impact in meals quarter The is impact year of September in COVID in and June impact margin now. all people like mean quarter had but no minor in we the no who there's really in people in capacity. working because lower and our There there meaningful was there, impact September more much capacity recovery the factory at and and providing no we XXX are factory's couldn't I XX% get

Eric Bjornholt

amount The million results. that see September but to was we Right. was broke in June the was in and it release, you'll nothing out quarter the $X.X our immaterial press there quarter separately that because

Vijay Rakesh

Thanks. All right.

Operator

from And we'll Please last go Mark ahead our with and go Lipacis question ahead. take Jefferies.

Mark Lipacis

an Great. The that's last quite question on honor. Steve's last call

will for for lot Steve. you thanks the strategic I miss had just question for great So them. I insights you kind all saved a guys. taking Ganesh that a And a thank congratulations. of the question Steve

You kind slows of the where described a M&A scenario down.

that then should And capital of that there's Microchip a under away different the say in deleveraging Thank customers? mean next requirements set the about You're what to a you. Microchip specifically? what mean -- there it capital -- from a see we expect you to that has Microchip Does from industry? investors does is equation for if a cycle. Microchip necessarily away semiconductor ultimately what X.X Or regearing means of of that for be should will? What what and return does kind X.X their perfect or that it to take should How cycle take and -- Microchip investors semis that? a

Steve Sanghi

you either analog business complete largely a they amount couldn't think ago, providing products, customer business we was Well if a but which remaining plus were some XX% was look was or small predominantly products of Microchip years I solution. and at memory XX our microcontroller, it of of

so stuff customer, customer they on microcontroller coming will called an other many from buy when Ethernet story. with we from some little of our others bit USB in. want Cyprus, we So from ADI, -- who analog the so microcontroller there provided TI, largely old a or Wi-Fi forth. Ethernet people made maybe connectivity And Maxim, is and on times surround a would Intersil maybe from company and And maybe we

microcontroller give Maxim in Maxim if expenses analog them will think keep I a It have tell old. both around you with was to have where it add used We the half when a our to shared many of a and the the of will the partnership with and them partnership. we went microcontroller. ago. of Maxim public, room customers couple where Maxim, have back we minutes, we for and take the years. five how front Maxim analog get Back seminars rooms of benefited, And have Gifford we tell didn't who will the products hotel years XX-years that take XXXX And at day. about died invite and We'll to timeframe, the I'll Jack you. of our And we half we It will front the story day time. the jointly. will and design is great lasted was will half -- take

customers has broke We pay he greedy benefiting it. So Microchip Jack something, Why and many him you selling But are he Maxim, we're partnership? microcontrollers. analog. sold bringing I because Gifford and you're disturbing And you then, got sold said people the this five partnership said wouldn't that wanted the been And microcontroller, to this partnership. for years. a from great know all a them

billion, years, analog in Wi-Fi, have go doing flash fast Bluetooth, our the gram, $X.X around and Ethernet, So now, USB, all we attaching And we built analog billion study process, to And analog acquired we're or own decided into memory, business. in the $X.X microcontrollers. others. the XX forward

perspective, So perspective, a is a from customer's required when complete M&A And at we customer's can really complete the you because is solution today. from customer a it look from a available us getting solution now. not future

area building more can acquire design more you a solutions. have depth acquire more at number of something, we Wi-Fi, any always analog, further an Now acquisition and acquire but have of also those teams completing large in are or that

So XXx the for sales Xilinx. consolidation, bought sales. sky is valuation that run late Xx at And of said really at the just what paid have we we industry stage Microsemi AMD high,

going way are acquisitions. sense? solutions our believe We very, our that. complete make customers we valuations well too Does are So And that pay to the high. by going already. be not very We're to served need don't other

Mark Lipacis

helpful. appreciate very Really That's Thank Steve. you, it.

Steve Sanghi

you. Thank

Operator

And turn any I'd to back Mr. session. call that the additional Sanghi to question-and-answer for today's over concludes and closing remarks. like

Steve Sanghi

early February. up, Suisse December investor you X, and thank see I in conference but for with Chair, the with have to not going others. calls think our here. long still a next want call coming have on certainly me I'll investor I'm investors become conference who still And Executive the circuit earnings then Credit been then conferences and us a I and long, in you. will still I away. all and We relationship a be March conference I have of and at great career

involved and very So continue away. with be I'll going you to not still Thank much. Microchip

Operator

does Once We do today's your participation. conference. again conclude that appreciate

lines. now disconnect phone may your You

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