MCHP - Earnings call transcript Q4 2021 | Microchip Technology Incorporated

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Operator

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

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

Eric Bjornholt

afternoon, good and you, everyone. Thank

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

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

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

march now some the net margin our on and a Other than of is and our basis, summary which to including our quarterly when quarter activities, in of site -- were on and on press We X.X% through described sales, leverage non-GAAP GAAP have above our which our net Web we a other metrics of were up investor will release. be www.microchip.com, share and at posted We've find and Web results I outstanding the X.XX our compensation comparing or our a operating results. expenses full page in results sequentially which guidance. as useful Net billion, gross GAAP sales, you effects to prior our acquisition of debt based adjustments leverage or to the operating X non-GAAP reconciliation the based will and relations sales certain these site. midpoint on posted the also believe non-GAAP will referring I expenses. go

$XX.X a a by We our have our as geography were line total well on XX.X%. XX.X%, non-GAAP guidance. was posted our margins gross were net was record of end expenses our a operating and the demand above income non-GAAP per market earnings On were operating in net of of Non-GAAP $X.X for debt special $XXX.X a a summary site GAAP our sales $X.XX, a as Web reference. margins record net million at other $XXX.X a million, and record quarter, of debt costs basis income product was were On or associated million, midpoint of acquisition million million. million compensation acquisition by adversely based GAAP diluted income refinancing include and gross $X.XX share expenses GAAP was was loss million, of with The and at share $XX.X million income per related activities. convertible $X.X march total XX.X%, impacted and $XXX the on $XXX.X basis, share your operating and XX.X% $X.XX a settlements record intangible record diluted amortization of

notably tax the the variety period. on benefit of was factors, tax convertible expense occurring by GAAP the Our impacted debt during transactions exchange recorded March quarter a

were net was On basis, sales. billion. billion For a diluted expenses of were sales $X.XX record margins record gross a and diluted XXXX, record non-GAAP was a margins Non-GAAP $XXX.X fiscal were expenses a XX.X% per a and of a record $X.XX XX.X%, was gross EPS a of were sales operating were and sales was income of share. On income basis, operating year income $X.XXX GAAP was and million share. of was a XX.X% XX.X%, $X.XXX Net sales. operating XX.X% XX.X% per EPS net income record record operating

tax X.X% The for refund had receipt and was to factors, X.X% forecasted be a cash lower a forecasted was year been in the variety tax a until the quarter rate cash that in March non-GAAP received later non-GAAP than March date. to not Our due quarter XXXX. including the of originally rate fiscal tax of

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

Our the were Inventory was at distributors which end XX of inventory at million. the days, $XXX the at eight the quarter, XX at XXX We days our inventory of end prior the March days level. at the prior from which of of balance end quarter's record at was low had March from quarter. the days down level quarter and XX, March down a is XXXX

ship In stock. We we we as are March factories shares as external the our can and ramping possible quarter, notes for cash to and $XXX.X of million XXXX our exchanged products subordinated XXXX capacity our much support internal XXXX, convertible of so in common and customer requirements.

overall XXXX, long sheet year on our to in beginning putting position. structure significantly fiscal convertible our term end the billion The overtime. $X.XXX stockholders balance not extent the the of these these principal compared amount level sheet, exchanges While $X.XXX convertible debt price benefit our much calendar count share the of believe impact did is billion that better of balance appreciates overall at dilution on by reducing our capital will XXXX debt at to stock a of we transactions year

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

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

this to so, debt of all have cash down our last quarters Microsemi aggressively continue bring which our period, ongoing despite our down of as acquisition as debt. we the we a do accomplished feel to allocate most $X.XX Over billion paid business, of well beyond to over substantially and was to operating full excess XX and $X cash during billion the since we this the capabilities dividends closed this macro debt the discipline. of market and adverse incurred generation We've testimony in conditions

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

$X.XXX was EBITDA EBITDA adjusted quarter adjusted the Our record March XX billion. in months and our also million record trailing a at was a $XXX.X

X.XX of our to convertible XXXX, XX, that net Please adjusted December XX, XXXX. net debt X.XX was EBITDA reduced will and as million like nature lower. from without in Our March in $XXX XXXX long been the debt very equity to matures amount would the as have the at outstanding financing transaction, that our part more during our bond XXXX And dated EBITDA this debt excluding note of transaction. at down by quarter March

$XXX.X payment quarter XXXX. was Capital $XX.X in dividend March in were the for Our million fiscal XX $XX.X March year million. the expenditures and million quarter

XXXX in Our deliveries equipment pushing lower originally to expenditures fiscal industry than to longer due planned, lead out overall conditions. came year capital due times and

million. $XXX expected XXXX to expenditures for $XXX and million between fiscal Our are be capital

expenditures Our forecast $XX is between million. XXXX June for $XX and capital quarter’s the million

maintain, operations of the to equipment to capital and business. growth internal our grow support add to continue operate We our manufacturing

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

Ganesh Moorthy

Thank you, Eric and good afternoon, everyone.

margins we utilization from December on gross XXX a March $X.XXX mark. Our an record March record was growing was metric, also margin have XX.X%, quarter tumultuous the at and at otherwise positive product Non-GAAP fiscal the at very broken operating the note, X.X% which time up by Non-GAAP billion, factory basis sequentially. dominated is another XX.X%, benefited by the every of also mix. XX% record by COVID-XX key as pandemic. from were through all we strong quarter closing effects revenue a the was time year quarter a first points improved

business of long work of and operating but us XX% our start, towards gross achieve. to of journey is margin model a hard Our good still ahead term lot a off to XX% margin has

set all sequentially years results but in results, tireless was our EPS the a a a and our XXXnd fiscal margin our the was with our partners whose $X.XX. be non-GAAP a robust XX.X%, demonstrate $X.XXX us quarterly above a our high up a thank Microcontrollers revenue chain and all, margin of records also XX.X%, a through stakeholders on microcontroller supply EPS solutions truly XX.X%. record operating in our March marked a fiscal achieved record fiscal our year was to year thank record march enabled business December at the at the EBITDA XXXX billion, year worldwide up beneficiary of only to term. year-over-year cash build we in deliver this non-GAAP number The and end XX.X% customers year. business record continuing between seamless results, our March guidance long to and to fortunate like revenue and new business, long very our team record creative for new strong microcontroller results Steve at as difficult our Taking March quarter at was especially March consecutive million, achieved the on perspective, in fine take to a record financial represented marks quarter was Revenue the of at the last phase quarter was XX.X% efforts not Reflecting roles the in XXXX supported record who ending the environment was our managing who capabilities March consolidated these Microchip's a revenue non-GAAP to gross was I success. worked to occasion line of All basis, strong $XXX.X product quarter and profitability non-GAAP a and navigate and would transition I'm $X.XX. as records. our quarter. at On of we outstanding achieve constrained results to the quarter, and Microchip next highlights the profitability. from the find embark environment. each constructively also of quarter hyper and Microchip and of non-GAAP cycles. a to I of look another compared term Our generation the Steve's record at record

the sequentially as revenue analog December up in the march Our to of quarter. was compared XX.X% represented Analog XX.X% revenue quarter. our

publicly the to other microcontrollers represented share have reported revenue, for report sequentially of revenue calendar month, pleased XX.X% revenue, revenue category. to our to compared of X.X% December of the XX Gartner Gartner predominantly to that continues report quarter. Our revenue are microcontroller XXXX. to for march number spot. XXXX for for we billion overall year of microcontroller microcontroller in all our the market large actual in the tune as Last down the quarter their bit remain were use and discrepancy released a $XXX versus number we the three revenue understatement microcontroller Adjusting our Gartner

we gap and two XXXX, ahead us in between the us. the substantially However, of closed players

just of of within are bit us distance the of two share bit are microcontroller markets. XX relentless as bit, market of X.X% XX ahead revenue and striking gained spot. in in We the We the each number each continue our march towards one now X players we who

business. was do our X business our bit continue businesses fastest microcontroller to XX bit bit XX well, While microcontroller microcontroller and growing our

a microcontroller Our geographic further the X.X% continue the performing customer the up was to quarter. and in strongest We engagement perspective, roadmap up XXXX share sequentially, franchise gain new been industry. to was the than Americas microcontroller XX.X% sequentially. look in have believe has momentum we a is normally portfolio at stronger business from Taking product what build Europe best seasonally and our never stronger. as we

least and priority was exchange customers and market exceptionally Asia X% where The down over beginning markets, to capacity the with defense demand we the tend Supply remain the the expectations has and implement, years end and the of outpaced only to holidays. from now of strongest and a in exceeded industrial be cannot or for quarter has able up the datacenter market provide product remain quarters. while continuing with were communications out. look is be sequentially in strong Program to an In Year between strong and In backlog category. flat Customer Lunar normally due bookings markets. supply end the after the a markets imbalance is consumer The automotive, market were non-cancellable was improvements semiconductor our conditions with a perspective, at aerospace quarter the Demand shipped little. through acute. was markets XX% to their time resulting that lead in end we response the business recall end order Taking the our About multiple response, my computing extend months the been for industry, New to weak. business times lumpy customers I to in Preferred up record distributors which was Business to PSP orders. launched program XX our at backlog six months to alike. in PSP supply direct and the XX more our

the capacity in of backlog Although, it most XXX% some is of almost our constrained corridors.

capacity acquire factory constrained week. and gives employees every materials, us PSP foundation ramps. continues to enable in prudently our us support to hire invest solid a come Additional expanding to factory raw to This backlog in

demand external factories September, our internal internal in of their as manufacturing as the internal started capacity. experiencing expand well chains. in With constraints related additions We and strong to our our factories investing and supply we're all ramping in capital

We strength backlog, of in non-cancelable is backlog, capital the making our our possible year our incremental $XXX which of our based to 'XX decisions internal fiscal reflected million capacity for million. forecast factories on are $XXX where PSP especially

test will calendar supply foundry, additional overall taken, We quarter capacity internal to in grow and combination we've year also every partners Through to expect provide secure XXXX. assembly, wherever our chain wafer capacity with external we actions the and work closely capacity who our continue of possible. materials

capacity our as XXXX. into will to quite believe through grow well fab, continue every we quarter, as assembly persist and and that also test will While constraints wafer XXXX likely

quarter. Now let’s June get into the the guidance for

very June for strong. backlog the Our is quarter

on despite we we backlog because not remains sequentially. chain considerable supply the is can requested be quarters X.X% in capacity from call addition, quarter last net between the us This until the In into by the for the factors later fulfilled growing that all the today semiconductor customer Taking constrained. consideration, quarter currently have and our quarter. have June entire we up be sales discussed to expect X.X% June

quarter over range the operational of worked work through Our we during assumes and some will carry quarters. that be which guidance continued in to others constraints, future will

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

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

between quarter And profit mind our We expect non-GAAP to and expect $X.XX be per March between XX.X% share sales. non-GAAP in XXX tax operating rate percentage $X.XX. forecast non-GAAP be quarter. to the the keep XX.X% and we of basis point June EPS earnings includes higher Please assumption in that our for

quarter. We $XXX into expect down pay debt to of approximately million also another June our

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

on this as strategy, our call, informs Steve thought cycles our February Steve? has this received Finally, we down as on cycles, provide details our generation conference the thinking more and long characteristics a the to strong our which business, pivot as in strategy, of very on allocation announced up feedback. in positive we that cash will return term investor cash regard. to well process have capital modified actions based

Steve Sanghi

I to to proud quarter I I have But operating to records and in Today, our everyone. that, gross do of a further afternoon, on very would non-GAAP that good many Microchip before margin you would like continue respects: and Ganesh non-GAAP return be new say, making like record delivered of cash employees provide all record and sales, margin flawless Namely, I EBITDA. record net you, how percentage record percentage, strategy. updates Thank

are equity return free Around completed nature. XXXX stock updating more ratio dividends also buybacks. substantial to decrease of to flow of year there. down March amount leverage our leverage rating a we the to grade we continue paying of expect quarter that with turn we will break but X.XX, in investment of cash investors begin achieve we cash the in time, I on rating, from debt the debt converts will that expect the form excluding exact and to depend distributing like and to within to to on strategy. ratio would a long that the of an are of debt rate, agencies. At timing Now, expect X our more the At the maturity net you day the net We analysis time,

Regarding substantial share is because the debt, buybacks. price as essentially have we Through as amount future. stock price a converts dilution the of Buying exceeds the our convertible our various conversion count. stock rises. rises convertible prevents bought back from debt and future the back dilutes This debt price stock exchanges, the of

convert of stock five buyback we transactions, price these face buyback we transactions was $XX. done various various was buyback $X.XXX have first have a in bonds. other when of at convertible stock billion prices. then in March By total Our of our value Microchip XXXX purchased Since about doing

our share. dilution an assumed so bonds. money that the value a was to transactions assumed yet common until it our to XXXX, been XXXX million transaction, of savings per Thus, issued million executed share, the $XX.X to at not $X.XXX remained investors is we impact from worth stock would had price $XXX per million about $X.X the stock of our of shares, not December, bonds these in February calculation and XX.X total share, per recent accretive. of for does $XXX.XX March XXXX repurchases shares include savings price If had the which our very For of of about about there at a have of the This creating shares. $XXX investors billion outstanding

While buybacks or transaction market we in the a have our X.X not done shares. stock approximately of million buyback shares impact of our open about convert had the last in year, X% of outstanding

expect agency. dividends to we initiated dividend so did higher within a for a achieved starting dividend stock want to market after from leverage year announcement we given the X% wait an grade the on buybacks a XXXX dividends our rating, not rating start investment with we reaches which until to open We Meanwhile, have our increase. depending ratio we path February higher number, in expect

on path We the are announced that to from this $XX.X continuing $X.XX increase of have approved as a of up per X.X% Board we today Directors sequentially previously. share, dividend

We will With quarterly poll you our questions? operator, strategy. expect for to increase to part dividends of that, continue as retention cash please

Operator

[Operator with Jefferies. question Instructions] our Mark from take Lipacis We'll first

Mark Lipacis

Steve, a I you question the had PSP for about program.

customers anyway. the But a to of you part on may led this this becomes do like program, surface, a I now seems drivers program -- you tactical On think you standard permanent you it you that wonder help believe do there are it have more your to more PSP if instituted secular forward? of ultimately program think basis. And kind model have you that going operating

Steve Sanghi

the this back never seen kind we mine, revisit program, in mentioned career program industry. XX as history. Well, so semiconductor backlog shortage his we of and as widespread we in year the XX and Ganesh kind careers, going year were let's in constraints implemented The the have strong that plus and of so constraints to was implemented why

the design in that for backlog, segments, them and the Preferred nonreschedulable can program and of could benefit in tremendous make capital automotive with in noncancelable, and nonscheduleable really it months you of could something all month take give and something we of and customer six customers asked what months six and and and that it's us. we a and we data our gets hire the it them mechanism in these do very, get supplies very to things became of Microchip, preferred of that because months, how six this communications first us. capacity centers to allow want more key do we And we there if only months. is XX but noncancelable solid, could period to Supply us a is Program could for period, supply there a don't churn investment, that's And ahead, which where parts, So and we industrial large, was in could backlog, we create after we availability buy question lot some they PCs benefit did the all a assurity not the people, various after of became six

will that the they shortage will supply. in a non preferred gives is there any So point be the that time, we spread anybody at time, get backlog, customers. said And if who among PSP PSP at it

absolutely really long the the came be So what not just answer, about, that's acceptance the knowing results but would and tremendous. been how program have

billions the We of dollars total is corridors of capacity. constrained supply of have some PSP most equal of backlog, backlog to of the XXX% XX% almost PSP the on backlog

the see or buy ahead, can you investments go So make equipment. additional we those where could advantage

leading question, this a landscape. your to Now then become permanent could

think lot customers the a depend that may of make year ends largely the the our there customers cycle as not capacity when be I and will cycle, When year together is nonchangeable. a available, commitment other experience in is long the progress. Microchip to on of willing we on it

what that's thinking, would come and the back So forth. customers environments but go the be

because customers they our them PSP had are So continue intent and comment it's if well program what -- forward. we really manage on serve I show it let think that that, And would benefits the with Ganesh going how they going forward. be to the we going to how be

Ganesh Moorthy

of early the couple in of launched extremely PSP. just So it. innings a well. going my It's view months. It's We've is we're

And tell too we the be. term of how to continue it it's early will tuning think long I fine to program. make

inventory or customers impact business. they've for think low in running can on have many, extreme low on visibility many this I their learned cycle on backlog that

how it few see more looks. months, a give let's it And so

Steve Sanghi

time develops very a buzzwords, them programs last last period period long for some in them and so, of some industry of lot short a or time. A a of cycle the of of

the I they the that large end think have than word, more industry they all to our by constraints of customers the so the decade benefit the And long. than a industry more, better very long could for that times XX% GIT. come term just and of where seeing losses give be money The lost from on save GIT. me plans money does rather due time beginning are in the where lead you're are it in

Operator

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

Vivek Arya

or look or level a be demand When perspective, create When Ganesh the extreme of surely this an balanced way? a into that customers? Steve, like, you your orderly hard to soft And had situation get there supply to normal this is environment? I'm the back end that is Just reaction to to inventory back What do your investors a in go landing. landing does resolved look when is will get imbalance that that get industry your at their will hard curious and visibility we or what more at through? normal does

Ganesh Moorthy

sight when get normal. We be have line to do of things a not for

come between As to in be the take quarter of to will cycle number place. we get soften quite change how I a will and large. ahead that whatever taken landing of supply But grew have demand mentioned, cycle steps to and continues March in the gap

the whenever gives for XX spot capacity plan of noncancelable us to that to us term change to on making, steps enable and and that not just we we capacity off apparent us backlog, a improvements months detail we taper longer a discussed that we're of continuous trying one solve and making additions So plans The entire all in consistent backlog. build will quarters. the PSP see every and quite becomes additions the bit quarter over gap that. and the change, measured multiple will quarter. we're to And with in We're extent

Third upcycle of otherwise. inventory. whatever as cycle inventory because us to channel on us and look be. that the that have an on underabsorption And ability minimize that to cycle where for some the well. and capitalize it pretty is to push that is at look us down that might hard our at inventory. will at is will And continue and there's low subsequent perspective next positions happened help going and is to replenish channel to whatever are have you to if any we historic you requirements landing. lows going if finally soft actually well gives that up when to happens, that inventories from time where It And be. will out landing our we be there There when replenished next capital And or

more way to flexibility operating expenses in item are For us, in landing. what we a amount getting bonus soft through give us [ability] which doing that that other fair cycles, us go seen in our as programs, is terms to one as helps prior mitigate is you've and programs of and variable our of expenses compensation a go we cycles, the

Operator

from hear Gary Mobley We'll Securities. next Fargo from Wells

Gary Mobley

respectively. Congrats the and that on manufacturing target I strong to would with finish wanted year seem conditions makes. difference you're margin revenue year, achievement the to the a what see optimal It margin, me to XX% to XX% operating on goal of in mix most your of and and the gross a those about utilization. goals ask respect of to

it my what to you are target those that targets? so or is achieve over level you best revenue sustainable a case the is, to looking for term? long question scenario, is And And

Steve Sanghi

sometimes progress be will to slower quarter, We're making make little quarter that. towards obviously, a from that. and beyond rapid progress can We it good

forward. every take introduced apply I December. and So wouldn't to that quarter just this We quarter new last as be model going how going it's in

growth are are also need a and made the to executing There investors expenses, that other we we've investments costs working And make the strong achieve profitability for many can as areas gross are have pressures so we're the not then will the be of of different we at. that as we we operating we're here. long. There And We're business been to in realized. materials in So it's good outlined for start some Conditions pressures. term the the margins. to continue well how through. cost and long input well that where

we to business we about working place go of operating to between profitability. this. expenses more But think through units in So the term growth our we get have things to well good operationally targets, continue on feel right quarters combination have let's we're the several and balance our good a as as other as where and these we long and

Operator

from Harsh Kumar next hear Piper Sandler. with We'll

Harsh Kumar

kind this near With the question. in of to up. have then I supply the seasonality philosophical out a had I a midterm? a door is follow And environment, demand

Ganesh Moorthy

So us quarters. through hasn't seasonality through which contribution, environment we went an issue. has Clearly, a which is this growth issue. a Then was demand environment. overriding and on for that. hard in normal many overriding for trade tariff, went We're significant been underlying much There a quite We while. been an higher was driving that multiplier there but externalities seasonality has an COVID, for now these are

the be. for we they to bearings don't clear will directional seasonality than where So moment, on as statements other have

Harsh Kumar

Ganesh, more And you. for one

to risk you also for bad able that that Is guys not place that supply kind mostly ones of success. program, is customers that commit PSP for sourced of lose program, mostly the seeing you these that the to are the seeing may Are tremendous that no are are the some or items a there of very With constrained? PSP there's you're go? the simply amount sole backlog in

Ganesh Moorthy

just products. much source we everything proprietary is about pretty do sole So

this So line that's big a thing. product of have a commodity piece we don't

even memory in there, often products come may of sockets those Some in closest. we’re protected very our highly And as positions well. the

today. exactly is can to, get is another answer to said. people what capacity short There the not place think I go you

more lot as some provide of fact, suppliers capacity able not help a which find trying coming the to environment. ways in In to them they in to we support flee us, today's other are who can there's them

Steve Sanghi

is an requirement. PSP not absolute

a not and only us not orders So not noncancelable And normal orders business backlog to just be and have much from they doesn't days won't a are really preferred. those get to then give can have with and if that that demand of harshly. months their If is would people would visibility may that, does customer XX any own it. with more months there be they among similarly who they over constrained go can was somebody could allocated difference not other and they really somebody mean get them. noncancelable into PSP change strong place part The after help and PSP But go program they the XX want does they else. XX customers else, should

the gaining there is So environment, from loss in people no I business where business. get coming they have We're of for companies think other cannot support. actually this reason

Operator

Chris from with Raymond next hear James. We'll Caso

Chris Caso

two you I've on the that spoke got of a some capacity of. question part additions

First, if year, timing you know give the we there's us some sense in but these some CapEx all through of additions, constraints of you're growing getting the capacity tools.

just wouldn't if through So your why And I capacity are constrained you? there sequentially year as go calendar expecting with, when program. year? revenue to you then remain available guess, capacity adding visibility the this and you're from any become to secondly, we the reason does end the some of through continue the grow Is supply to PSP

Ganesh Moorthy

not single they happening. So There's happening. every firstly, it's capacity when event the discrete happening It's month, a quarter. on are every additions,

on equipment have We order.

We are going of hiring all a that to have be people. activities it. There's able We're number do in materials order. to place on

year. So through it more be a continuous will process the

Sometimes we equipment. get on delays

get the we equipment time the we Sometimes on are have. able to

see have quarter, us way which quarter] [this that's this to half are expecting go to of for the rest we as we into the capacity the growth should prior year of give continued the it have And we we the that second be therefore, the higher ability year. will than So

Operator

our take from from BMO. Srivastava question We'll Ambrish next

Ambrish Srivastava

actually, had capital on, allocation. comments follow-up the on I on a question Steve, a

-- on divi couple are understand you up So follow-up us quick share And What's How until seeing as last the on any targeting? get are that your on substantial a over you're for could you it versus buybacks? that help the this, cost when Ganesh. what you side hedge set of is had I how PSP, hedge unplanned? do the when just factor goes pricing do well. committing So quarters. that a pretty longer the that's increase on on divi could term, assuming of leverage for, then And color to then So the net would helpful. customers that rate cost we're to you or thoughts be earlier any you thoughts

Steve Sanghi

of take then take backlog. on allocation and me the part that, Ganesh the will let pricing capital the So PSP

that investment discussions does into stock we regarding internally well dividend, now have get and happens mix. into not we the had start how So as what until Board it future happens all and buyback, after with buyback prepared you we're stock the and But what that. for grade much how and to rating much bring we when dollarize the the

the then mix. buyback to add it's mix time depending stock change we and what continue the to all and to that be conditions could I time quarter. And So directionally price is every from increase market the rating, the investment And stock also into think committed would then grade dividend Board to as that. get on

all decisions. we figured but quarter There we will the further think for make discussions years. have I next advise five not you really it's So been as to every out some continue

Ambrish Srivastava

I I percent wasn't thinking of cash, of thinking Steve, that's free but We'll wait… dollars, in terms fine. was more

Steve Sanghi

we leverage give stop decrease desire number when not they're and well cash the a we XXX% would we the We future still and will free cash into a still would of is -- the willing to we want to give books have investment So investors flow percentage of continue grade get further. back. X, back. leverage to to to what X our about an not where rating, it is on that disclose

as go So the cash to back. that leverage the which at down continue give start to go we leverage more But could change will rate down.

Ganesh Moorthy

And making PSP changes It question. PSP reasons. a price. for not your on price just not of is without a capacity. will is we priority guarantee be good Ambrish,

input are nothing point that to increases. are time. price if that need price PSP that cost significant anticipating in not unexpected there in PSP that needs adjustments at if costs can to. We're it precludes receive are backlog there But So backlog be on, changes passed

Operator

next Harlan We'll Instructions] from [Operator hear Sur with JPMorgan.

Harlan Sur

With current paints on pretty demand, your for a based How the and is higher? partners immediately the seems you it is like strong current trends, demand far current higher, supply And products that trending, trends. overall backlog that building given -- XX% and your and it and are PSP it demand shipping out. picture XX% them above with distribution is and it capabilities booking combine good then buying backlog, your

guys So given days disti in and do increases, June inventories and the despite you that your quarter? anticipate inventory of declining your again capacity

Ganesh Moorthy

a quarter look you to is firstly, give unsupported of what given like. in sense our So a

had shipping. have we that could we to ship, has we we be hey, number since over be could more what we XX% a think ago, I that quarter grown said, that are planning than shipping and XX% to

that's So demand in earlier capacity, meant what -- as we grows faster. add even as even we

significant into and ship quarters. some And unsupported part of every happens a second we question? is little subsequent we a of demand There is quarter, there quarter. what out So amount the squeeze into Was it each of more a

Eric Bjornholt

we're record their out Yes, he What demand. our inventory is at That's four right what expectations It to forecast. quarter. inventory. customers’ about very Distribution distribution down was to shipping they're went lows. meet difficult last asking were thing for shipping a away in, days

very at don't I anticipate historic it anticipate a but so don't very, going levels, So change. large it's I low up,

Operator

our next with question We'll Pitzer from John Credit Suisse. take

John Pitzer

part in that Steve side, both the Ganesh, significant over on of speaks decade. the two just we've and I've that seen amount you've a the question of about. curious, last got kind to demand I'm a consolidation talked supply industry supply semi imbalance the

firing Ganesh, on You or I'm to have comment supply? side, I'm you yet which just we're of described as demand economic -- that. can an that's have Steve wondering, still of that's then demand when been under yours economy impacting on backdrop, and is both grow actually your a potential. curious, in And best And is how the on the we're typically, guys kind probably industry's strong, an big this usually all if driver cylinders. ability

risk more if of a further shortages the see is when the year, to and why go so of into even even Steve, actually get CapEx? And we recovery, we ahead real a accelerate back that macro not supply there with half start that

Ganesh Moorthy

let me the on start So side. supply

from to the period foundry done our we built look our capacity at If has a of that of XX% than a standpoint, house fabs. consolidations in have the foundries. we changed. in build, percentage shorter it of it we in to a fab XX in the have down and is influence time, down to higher now our versus We used the to from of the house, years internal obviously about a is from the do higher perspective, ability of have you what We're house standpoint. percentage external, a We and acquisitions we of in balance eight, that particularly degree control

been something large imbalance over And of as not foundry foundry also edge has be do does we've and the to capacity of been where capacity high would edge, XXs we've that a of And house, been this percentage mid so in that the able into. issue leading Microchip a have. foundry sense, testing, that And that making the has this never now We're consider has into They're the period where of of not It through the and until but the is from to majority changed an in so cycle what Packaging some the of low increases. as gone. our that response has more been is time. in is which has been have a the where instantaneous they have packaging all and reported difficult. trailing what lot percentage XXs requirements investments are high as been their in investments our XXs that low been percentage. on as had a

going can. we're fast and can, as there, we when So we as as

change We stepping right on between to at we for that yet go we perhaps high PSP could is us and doing should do is. confidence. second what year every where finding if risk you it have be. to the capital want that bit are And our being have month, posture having looking always a mix some and how need more investments and as more? accelerator that's a and then we with what -- capital imbalance confidence. be of half in the place add this the the have lot continues backlog, this our And we at of demand persists we and level thoughtful example, that capital absorbed gives into Steve, posture every and under high little and putting increased capital of of capacity call. quarter where make judgment a We a

Steve Sanghi

Well, let question. little me macro his to add of side economic a

do of distancing restaurants, So what the on got last side not because last The really service happened the courses. the year where side John industry really XX%. that well. Most demand quarter, golf I quarter manufacturing really single travel, industry went destruction for social that. hospitality, companies decimated all technology the of and too but reasonably airlines, a not Automotive our that Basically, revenue overall, there even down manufacturing the the bad didn't hotels, biggest was was year was mean, service bad. and was did side, one the of bad. industry in

cruise a coming is hotels, and that got back. travel, take and vacationers, and it, when all on lines to now service restaurants and airlines, of to recovery get fair and side you So place recovery likely decimated, of the which so amount side, and the

our demand come have jobs, they things money these is goes, their will get service not other can't the surge certainly part and with where of so from Having said of more is we flow add it. Well, part I more long. big and is money why as now. some your Now and really to lead very the be get all more product mean, even But it. much now. will was, of possible. people cars pocket it's other and capital job, side. hardware, mentioned, to in question further going steam is have The And the think that order back, economy people on heated. you that, on the electronics that upcoming the I definitely we benefit But picks we strong the all to and really on capital the it could answer back time with when as coming more up

also a of the delayed a is gets supplier short notice with month by the capital because some constrained. scheduled And

It's get We question we willing to a you not more. it's We're can order. get. of can't So what you of a everything question what order want. can

Operator

from question with next Toshiya our take Hari Sachs. Goldman We'll

Toshiya Hari

in Ganesh, utilization able perspective you December. talked business little gross to margins curious I'm and relative a your March rates basis. were sequential analog to what on I in about a you saw quarter. rates fast pricing microcontroller the was from surprised you utilization how grow higher a business

And I'm a today then have you if today? that, pricing that would internal guessing played exiting helpful. you your So for planned you see role fiscal of But to there. to separately, that where the kind speak year be can execute capacity the CapEx versus super you is guys the assuming year, on it managed do where

Ganesh Moorthy

supply quarter. same was entire that So quarter. a place for product price first prices our There on but things, go the not these wasn't of we that it costs with coming With different increases are continue all to the for through were chain. and contractual amount And at in offset we in and but the have that, pricing prices to prices front, go also time. we It place different increases, all good lines we quarter, had we March announced changed up and the did up. in requirements, raise trying in

want you second the but March what to in major not the Eric? think Do increases the the of we really So some was price part contributed our growth part, drove quarter. take

Eric Bjornholt

capacity entering. the So which finished, just mix expect of I can year fiscal I expect the 'XX, we're we fab mix don't part our internally. our Last And be that did don't do we much just internal what fab to to XX% year, in the different. on second was change. our,

to going by I end we more on For have don't then test up XX% the as environment quickly percentages and what XX% continuing fiscal capacity specific respond CapEx. a 'XX, of is house. our the how our assembly and number that's of to Those and in did some should demand the we're invest of But we can the go with depend year bring internal.

Ganesh Moorthy

may year. it impact an ongoing time we the the as capacity comes into fiscal And takes next some of internal through as have go and it

Toshiya Hari

assuming guys XX%, $XXX XX%? do super be that XX so mix asking year. for and all the in wasn't to the question capacity it internal be you the number But again, rough helpful. manage is exiting get How you My spend A higher tools your million. ballpark would much you're could much months, on

Eric Bjornholt

I think that's a don't disclose. number to we're willing

time As to that board Ganesh come says, different takes it for at stages. capacity on

current test, longer assembly of or to it and giving than outside revenue in Something obviously in is we're the fab not take going might guidance quarter…

Steve Sanghi

size, capacity, many by by and internally are externally, both There process, by wafer of complexity. corridors technology too

can goes And being can not And capacity internally is when terms into know roll all what X capital adding. from get. are the that the foundries really percentage our to being other somewhere, not is in we capacity we're sure capacity we number, We added. just of added, we do the of what general

willing I not share. So that a to think number is one complex I'm

Operator

We'll question take next from our Vijay Mizuho. Rakesh from

Vijay Rakesh

you things So where are starting more us you're mentioned kind just in of of -- briefly, you I normalize an seeing which know to give lead Could highest time? and segment the getting of shortages. terms more idea shortages or

Ganesh Moorthy

to are not clearly, varying you segment to starting of And equilibrium I been they've think form some place Shortages think the the degrees. would think media, automotive and taking it back is. you place to any if do are is segment only are to where vocal. we that that come shortages most single listen in where there see the I every

every shortages in. market segment there we're and growing So are in imbalances

Vijay Rakesh

of know I out, June strong half given the do you QX expecting into back and better on well? quarter you up outlook very as Wondering in the and look the look as are is pretty here. backlog you strong than orders how you PSP at calendar you mentioned sign -- seasonal as demand And side strong the think terms a

Ganesh Moorthy

on Right demand where often, of the the not come demand revenue And talked limited seasonality at the We that. all about and that seasonality is does equation. by is how earlier now, about. side to our speaks and

that's deck how growth Our is hands and point this all we can at are. manufacture much limited and on by where ship,

not environment. current meaningful the is as itself by seasonality in So

Operator

next from from Morgan our question Craig take We'll Hettenbach Stanley.

Craig Hettenbach

area that's data a comm, an I I for on of number center and quarters. been consolidating had mean, that's a question been

Just year. there's visibility go through want to the of and as it trend think in seeing get we market that to a as sense if any you're how you what will

Ganesh Moorthy

guidance to provide year. we're to segment we those as So market on not trying through going are do by the how go

seems up, I the think that indicated quarter to we way to clearly, ended of a slight December be the bottomed came have March out. quarter, you from in the That it bit to there. improvement

'XX. quite then level track And we're we're So look fiscal the are we set about much rollouts the We specificity numbers. infrastructure particular, optimistic that the don't has exact of place. taking to center about its But able that's into in sector as at as of as with own data provide. really segment, communication year

more have included directional we've statement, We a is in notes. kind conference of what of which our call

Operator

question from with Company. & Needham take We'll our Gill next Raji

Denis Pyatchanin

front far you maybe about speak as in could was constraints the supply of having And This also, component which these doing inventory best of go is Denis as these end wondering, question back on is asking here Raji. of available? proportion a end the I end? markets constraints kind of currently what kind up, or are terms for some the

Ganesh Moorthy

better is said there supply any to earlier that's there They're or constrained there end degrees. as question, market varying in So no all no not. is which -- the I is in available

an And so to there's end market nothing from think.

in constrained, As end end, on the front corridor internal capacity and in there depending far combination, in factories, constraints we in, be back have constraints and you're maybe And end both the exact constrained. what external the and end, chain. as less all back front in might material they're but and more supply what

Operator

Paribas. our O'Connor question from David next from take We'll BNP

David O'Connor

the around industry great. mentioned going mean, I to follow would hold? that, that, foot foresee is how just that that, inventory, in the the to supply the chain going to What more see is inventories? you tying be talk for if that's level on a of you up who Maybe case Steve, these bill could and earlier. who forced that If you higher inventories do the you to changes that be carry and needs

Ganesh Moorthy

may to that, a and take to at me as Let well. want add Steve this shot

$XX,XXX you in very by from So product to product is car to semiconductor you're have building OEMs. I determined decision I think lines. may $XXX content, when there an manufacturers, could going market consumer different what carry equipment the to build of and the ultimate you end different think When by it be be you And inventory you're $XX constrained arrive people the be need have. that different can

the profitability each themselves decide industry, of of depending are creating, the the on So value they that level on is assure ship. those has to industry, trying product need based different. to of the the their to to product experience, that they're answers value what going of that they're the be inventory And

of is to comes suspect want the as extent what than inventory, can. here. the customer end three value to will orders it. than choice two, answer if that got of is far be do on more manufacturer, product bill many will But But them is time, as that us. to have sense original a terms Steve, in I magnitude creating, some that manufacturer, they burned their and less for likely ultimately, rethink pass that they're think who badly. quite they in equation the that I have want equipment foots of And to add not the there makes the kind to you what they're the that? that do of will the of, in building ones to of the single with the to just foot bill, to invest that most the

Steve Sanghi

to their add. the if lesson whole and of lot all the this they that. you and tsunami, learned during manufacturers at say shut have Japanese and would some factories and really renaissance around, lot down other radiations to did when were don't look a because earthquake But that a much due time better car of the I I

all that with current were level JIT the built structure So relying on and would on they a way, semiconductors is cycle and need thinking don't and learn. getting parts, different just standoff, same reach the where But bent time much manufacturers they doorknob that as have it's really they than the start lot a And the time to auto is the or we when building lost they And Right metal know. US something. for better. tell a lesson frame, did semiconductor and and the a the bend from my about just goes learned simple, it's not metal comments just are not other sometimes laughable, make we that that to get parts, of big time and lead now, and it really building semiconductors. deal some the inventory European what's the that's

don't lot of needs learning ship think I happen. manufacturers. parts So a to the to we directly the And car

We GenTechs, Contis, Hella and all Aptiv, and and and in the these people. have the between. like They're people between in

I that. the But car the And So the need we really bull and to manufacturer of have know to really don't know take will, a buffer. process horn whether don't drive I by the they get JIT. out

Ganesh Moorthy

program towards to of embracing many is can how a level now, from at and we're the or step trying and the least they assures positive year for highly drive persist PSP of build the valuable products. a forefront that [participant]. a their see been very expensive of very Tier we don't that requiring have or them know, a inventory to How two having end years the will know. can carmakers program You moment, Xs At you be PSP

Operator

We'll move Rolland from question on Christopher Susquehanna. from to our next

Christopher Rolland

analogies guys more an as want here to acute It's you as you well. similar, haven't chime eventually But you that here, are in there And said a was seen such any open here? that in taking can something supply and the most place unwind little but, you that where supply and Ganesh, three, and about did Steve, how number match imbalance maybe that like talk or may And number as demand bit years, DC, demand ended we two one. XX this acute had to something this? in of between time

Ganesh Moorthy

how and And probably would factories our was rebound that say an in In the in in timeframe, the is. of semiconductor to we the Steve, as capacity they were because know prior extremely we come work participants fortunate on you cycles, XXXX. dislocations people where put the did battlefield inventory. All not a in adjust that. companies kept And eventually to cycles that. create grew add XXXX, we things additional in end situation to did building the sharpest and again, all doing what to were did result their building. were time, to our began be and to it to adjust as place began able get And in in interest players how to down running closer my they But that? want they probably self the shut with grow. and we market the the do we I not

Steve Sanghi

So were you goes we therefore, presented into we a to time, now very this the we this Well, we a not continue we're to But memories inventory this very high. reach because the so short. can and factories had not was grew shut our entered choose thought, we in able concern was investor if the build. and internally. leverage, very, up and do time, didn't rotating run And build miss repeat unsuccessful shipping your recall, XXXX, XX%, of we through demand did experience and repeat good money then inventory substantial the that. did I be but At your which to that of what position. down kept all the didn't down factories, inventory cycle it we with challenges, time sometimes the And XXXX we off. some finishing time lot because time running with although, a didn't that, happens to trying as put factory amount We your And high well. and different covenant? had XXXX, And that debt very a really very environment we're this we

proprietary. is word parts don't double point use really other people The because get this make ordering. I wanted double are all We ordering to

from the the buy distributor same way cannot shift it company the You socket. make us product into register impossible and nor part from distributors that into in for and we nondesigning socket economically the another ship to same two socket the can the for

other the we remaining a and little need, a detect. So customer is they which never orders only avenue we than cannot know more what

If by ordering, there you no it call some of can't But of. ordering double fulfillment. want sure there's be is to the thing double one are we we be excess sure customers could

daily customers, car line We manufacturers and number getting others. are phone is is fraction lines are calls, the actual There with a meetings they many down of in fulfillment. double need. of escalation of People threatened downs a -- what for and no everybody

amount fair such of runway with therefore, large a amount is a So demand. of ahead there

trying rest year, head going water. of the it's get above think to the to just be I fiscal the we're our

Ganesh Moorthy

we prior cycles, orders windows in And puts are not other cycles. than have lot that responsibility don't more longer need. have noncancelable have to a we on they customer And unlike and a right, the that significantly had that they orders that need

Operator

Pitzer Credit We'll a from John from Suisse. take follow-up question

John Pitzer

question. another ask me Let

the margins I mark. mean, target is able quarters quarters. put gross been guys six that growth, on margins you've kind Eric, over around to the I'm Just, incremental just impressive on curious been been XX% on up had I where think to have it, model, the sequential have margin last, right eight of call really gross line. incremental What's you the

that think unusual that And forward? so high to eight last and kind there we about incremental should about quarters of gross such the something six was where margins, going drove

Eric Bjornholt

of a Well, I away. there's things. couple gone think we underutilization recent the more which have significant In quarters, now had charges,

are time capitalized and or more over Those to inventory. gone to on large point acquired finding running We're margins full, improve anything integrating acquisition then too, And else? the So things factories those business. two in costs Ganesh, would so a that that the ways I are Microsemi had we away. Steve the that’s to. frame, we now were being that

Ganesh Moorthy

more makes which them and The products. into of hardware valuable, valuable on it we and thing add products up And the all what to average many, then to in we to only have are shows of a would of improved gross margin. those products get aggregate the doing many you margins through combination weighted these add a is them make as we value gross continue software, as I more other our

Operator

to over And closing any question Mr. answer session. conclude like conference back turn Ganesh for that today's the additional or does to Moorthy and I'd remarks.

Ganesh Moorthy

join are for We want taking investor coming and of that meeting look more up have forward everyone thank to talking But good have to meetings we us. afternoon. you. the you. We time that to Thank a to do

Operator

conclude for That conference. does your do all thank you you. today's Thank participation. We

You now disconnect. may

Microchip Technology (MCHP) 7 May 212021 Q4 Earnings call transcript