MCHP - Earnings call transcript Q3 2022 | Microchip Technology Incorporated

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Operator

Good day, everyone and welcome to Microchip’s Third Quarter Fiscal 2022 Financial Results.

As a reminder, today’s call is being recorded. At this time, I’d 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

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

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

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

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

acquisition the including sales, based and X.X% summary billion, than operating fiscal be will these go quarter press compared leverage on expenses up net effects in and referring I described to adjustments metrics the other to I was Net as on also results, expenses. of on now up posted non-GAAP and our sequentially December release. which share-based net will a December of were some in sales, of $X.XX our a our prior We and quarter basis, our of results activities, compensation margin Other sales certain debt which outstanding have to gross through the website. is operating the XX% XXXX.

posted our operating as market our our reference. record of end income sales demand and a as website record summary basis, and well net was income have record a GAAP On by product was total geography for gross on line $XXX.X non-GAAP We a at margins were million. a Non-GAAP XX.X%. XX.X% a your net

our at rate cash and quarter. exchanges Total high of we of end the million, the share-based were December included or and $XXX.X by our was at costs, $X.X amortization were operating was million. convertible of intangible share-based compensation executed was million of per and gross and million $X.X Our $XX.X margins on $XXX.X basis a the expense. GAAP special were and debt include record income other On in the the negatively earnings $X.XX. the in $XX.X loss which income acquisition was million, non-GAAP guidance December compensation quarter, share, the XX.X% of expenses million a million Non-GAAP record diluted X.X% GAAP and was tax impact per $X.X net share GAAP not impacted include guidance. of diluted quarter, $X.XX in acquisition-related of in a

actual returns tax from factors, taxes was notably, to most amounts December of on based filed truing Our during quarter. the by variety estimated tax tax quarter expense up GAAP a recorded the impacted expense

end inventory XX, at quarter, was the Our level. million. of XXX up inventory from days $XXX.X prior had balance days at quarter’s December X which of was XXXX the the We

X times. or for which factories increased position our are The and our buffer shortages balance against progress inventory up each in us days in rising gross improvement days our Our helps go with margin of XXX our inventory be in gross quarter, approximately increased due into of and translating our internal margin costs us levels cost The will increasing improvement helps lead material sheet supply has of points X expecting been input unexpected of balance raw from materials increased we and to of sheet. on to our production basis work the carrying with inventory on from changes chain.

factories in quarter to is our the a to at internal are ramp record support XX was as at much days, in possible prior quarter. the level customer with was at We we distributors where can it continuing requirements. of capacity end so line product the in December and as ship Inventory which low and external our

million been a December $X.XXX of our the in of and the reducing us to these to our convertible will structure detailed in by it total stockholders Microsemi calendar believe December amount sheet we we XX grade is XXXX capital an of at goal price amount investment company. common position. the XXXX our the compared $XXX milestone count and long-term for of overall During we the appreciates of quarter that putting debt value pursuing at The investors in XXXX benefit May extent XXXX, exchanges stock convertible have to stock. a the a We since the much principal share strategy our transactions principal notes we and million debt acquired XXXX cash our of better beginning balance November. significantly that used quarter, cash positions fund billion return and back generation over quarter, time. becoming for during dilution Day was of Analyst on of achieved convertible for we $XX.X and well exchanged a our at principal rated capital This subordinated we Investor December shares XXXX, of In

refinanced facility decrease we the $X.XX investment quarter, in also billion. be December credit and our to to with the of revolving $X.X line During our grade billion that from size rating of line

flow cash million record $XXX.X activities operating Our from quarter. December the a was in

XX.X% net and $XXX.X a free sales. million record of Our cash was flow

do acquisition paid of total and million December total As the our debt was million. consolidated We December the $XXX.X last XX and billion so, $X $X.X excess in stock the since down we we $XXX.X And the to over over debt bring Microsemi of XX, dividends to of cash and in quarter. paid down buyback cash continue our down to quarters of billion beyond debt. this incurred all almost closed and position allocate substantially full have investment debt

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

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

net $XXX.X XX.X% was of quarter million Our and sales. adjusted EBITDA in record the December a

adjusted record XX.X% $X a Our also was billion sales. XX-month trailing EBITDA and at of net

September to XX, Our at X.XX net EBITDA X.XX from debt adjusted down XXXX, XX, XXXX. was December at

in December million payment were was quarter. September dividend million in $XXX.X Our and the repurchased million $XXX $XX.X we of stock the the quarter Capital expenditures quarter. during

quarter’s the Our expenditures $XXX for million and XXXX March expectation capital between million. $XXX is

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

overall year As planned expenditures pushing of came lead XXXX reminder, result due deliveries as originally our to capital a than lower out in conditions. a fiscal equipment times industry longer and

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

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

Ganesh Moorthy

you, everyone. and good Great. afternoon Eric Thank

also well to we are expenses, in Non-GAAP the midpoint The breaking model quarters, registering growth additional with low increase the it strong we well quarter helped growth quarter and growth cost the thus year-over-year record of margin operating rising On of results internal ramp to at of of all-time the revenue of in margin in time up quarter rate. percentage the quarter operating the basis a and long-term through end another below the annualized fixed XX.X%, revenue from basis gross employees, new quarter achieve delaying XX.X% a basis above another to in revenue points was record XX%, in XX.X% above taking $X.XX billion from our points December year-over-year guidance as our strength hire absorption XX.X% fifth XX.X% at is billion, guidance. was product continued operating and changes. benefit improved points our revenue basis, December at large September the by September from our the up Non-GAAP margin up rapid XXX continue XX.X%, $X operating expenses. was At factories consecutive and operating XX as as XX.X% XXX our Our sequentially was expenses. to high-end of X.X% growing the mix revenue milestone. record expected

actions will continue Our enable growth profitability to the our our business long-term long-term business. and model guide to of

our despite November. up perspective, on for quarter, September our $X and of shares revenue down Coming December basis, XXXth million revenue On rating was net setting as generation us in million microcontroller after was $X.XX over quarter. microcontroller record achieved strong, represented quarter. billion XX-bit EBITDA revenue December highest quarter, buyback record in our off our was debt. annualized milestones. basis, our to of in our ratio brought our the capabilities about was a On worldwide our investment in revenue in microcontrollers, quarter, to through I whose cash at the XX.X%. first EPS microcontrollers per in us year the same our revenue initiated of increased revenue. diluted This the a at December our net quarter revenue, quarter. of debt line On The thank we in which net our compared XX% by high robust growth leverage the these of made quarter at team X-bit both XX.X% On XX-bit Microcontrollers down X.X% growth. basis, same driving strong XX.X% results analog year-over-year also all down revenue having soon the achieved billion a leverage microcontroller XX% in our $X.X are outstanding back December non-GAAP in record December at a our analog analog December quarter XX-bit Analog marked the ago consolidated debt December year-over-year enabled revenue X.X% especially all-time and microcontroller quarter had share broke and enabled quarter This of annualized continuing another our the grade a achieve December record. And December year-over-year It’s stock with ratio pay debt revenue which achieved from size our X.XX% XX.X%, product under a million, our the in time. year-over-year of as net year-over-year cash and revenue billion for another in $XXX.X consecutive and like we represented our reduction the are lines, guidance the flow almost to basis, what growth also an $XXX $XXX.X our sequential and was of the of mark thank product rate process. to efforts record buying the program, XX-bit business. these quarter. each would closing All XX.X% XX.X% microcontrollers an turn X-bit, results end and and profitability. Taking our possible. up the look who microcontroller Adjusted revenue both strong growth our to revenue quarter the from up quarter billion. revenue non-GAAP the $X at in up tireless December is to $X free revenue sequentially were Our very was the Microchip an demonstrate stakeholders September in

all revenue revenue, breakout and also a record. Americas longer exceptionally revenue sequentially, was Europe through up were typical continue quarter; end no from an both a for licensing our a significantly to In is remain which and a Asia strong at FPGA we markets look end Business performance or all-time for wide X.X% up royalty market geographic all-time X.X% was an revenue than hit the focus growth. December key While strong Microchip’s and XX% quarter. they seasonal the and licensing margin quarter, our Taking was our long-term our up the December supply hit conditions sequentially; by perspective, FPGA sequentially; be constrained. record better

and Demand increased supply to program, far PSP and the aggregate improvements outpaced and preferred grow the areas. or XXX% our quarter. the most constrained shipments capacity over is backlog well Our of backlog, backlog product of in XX% in continues we capacity our achieved

December quarter, our quarter. not To them exited in to backlog exiting compared the deliver quarter the the unsupported December result, as wanted to but despite backlog significantly we September demand quarter, we unsupported highest represents to the compared of to revenue, illustrate continued as shipped in the having a the As December backlog, backlog our which grown which imbalance, December unsupported the ago could customers, the the ever. quarter, with quarter supply XX% magnitude year climb

to constraints continue experience all related chains. and and We external internal in supply our their manufacturing factories

We the the COVID-XX experiencing Omicron the some virus. from are rapid also in adverse impact of variant cases rise

We partners and provide factories and possible as to internal additional continue our closely foundry, our ramp test materials we supply wherever assembly, chain as to with working fast secure possible. are capacity who wafer

backlog believe the backlog invest imbalance, size the to is support us bring and expect new on possibly PSP that position, at demand expanding of a hire factory factory supply raw especially giving capacity, and rate in of proportion constrained constrained we beyond to non-cancelable capacity and we our that. remain able prudently We XXXX are our magnitude throughout our acquire at continue materials, of ramps. foundation the employees Looking supply will to the to we which backlog, solid the

but to made trailing Our in opportunities rise in manufacturing to spending by investments they level continues our growth in response being our well in In come. quarter, have our manufacturing fill business December we for which planned partners as to as near for Philippines definitive capital shell we purchase to gaps technologies factory us of to test consider workhorse the to outsourced edge, technologies be already years assembly signed an a in the believe we agreement the many will be where facilities. operate capacity

our on destiny, we growth to capacity control As facilitize and especially build back-end we be opportunities, increase our in technologies. grow enable able our improve us to gross our trailing shell will years with believe share more capital internal our market come. many and capitalize spending for increase out will us this edge for margins, equipment, We give over to

will We by don’t from less to our is they priorities course available capacity needs. our areas partners. business investment to continue utilize with be align But their goal of constrained outsourced in the our where

Now, let’s quarter. into March guidance get the the for

have effect. Our more backlog the improvements for coming and into March capacity strong quarter very we is

Omicron adversely However, expected factory quarter the of March by absentees. increased variant, the our impacted has supply which is workforce level in be to the COVID-XX

on We rate into Taking also quarter at X% to between March for in our of challenges be staffing, several sales factors the have expect factories these consideration, have our sequentially. all the to. today call X% discussed we up and would we we the net like

a would capacity range March XX%. capacity strong quarters. revenue continued guidance during others the year-over-year and our we as midpoint assumes some the constraints, growth work to Our be of of quarter guidance, will some for future as that the additions well expect quarter our carryover we to which At

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

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

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

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

on cash model. and strategy and foundation Increased industry and strategy, by were to revenue solid net to year, increase to that of free XXX X% breadth our cash X% over flow To every employing solutions six as free over improving target quarter sustainability. decade, Investor to flow to total focusing X.X on key Microchip margin XX% our and operating XX%, of last shareholders organic this essential capital significantly gross the the to our return X.X builds XXX% to XX% strong scale and non-GAAP successfully CapEx Microchip of solutions, Xx leverage while November in a elements target growth we cash target we Long-term to our of to the drops megatrends. margin built culture to X.Xx. X on us announced of executed the further system return business XX% to XXX of market our And a unveiled serial of Finally, operating Microchip to which of give shareholders summarize, cycles. inventory growth investment last we at an acquisitions company and X.X the Day increased build free foundation invest flow maintain of finally, on days and

from quarter quarter strategy. you see and the our are December executing As we guidance, our March results can X.X on laser-focused Microchip

more now pass to baton me Steve? Let Steve the about to capital shareholders. return to our talk

Steve Sanghi

Board and our we that Today, an very and you non-GAAP to quarter, Thank Moody’s respects, our continue Last results, today increase return percentage, receiving enhanced further and on capital share. November I sales, quarter we investment-grade quarter rating, operating records proud margin record operations from Reflecting Investor After that rating capital from and adjusted financial increase of such good of EBITDA. results afternoon, exceptional record announced an Day strategy. our on provide we you, X, percentage, flow is our described received I delivered XXXX. at would Fitch. strategy to in Directors both like reflect X.X% Analyst of on from from everyone. financial quarter. our return margin EPS This initiated the be announced to ago of $X.XXX in on cash last and Ganesh, a new year per record and all record The another employees non-GAAP in XX.X% have net non-GAAP many an record gross namely Microchip making record dividend updates of

the During stock million in our last of quarter, purchased we the open $XXX market.

$XXX of our million total We totaled of return flow the us our quarter at targeting cash $XXX paid XX% with was million, free Thus, consistent of start the to as This XX.X% cash of a dividends. flow out return also $XXX in million. projection investors. cash free the

gross quarter However, forecast. final our above very record month linear of shipping our a due well strong EBITDA quarter the non-GAAP the adjusted cash in were operating and exceptional being record margins collections and to and and

free last million, than was Our higher flow $XXX cash $XXX actual was our quarter projection. which million

of end already the the Towards stock quarter, closed. window had the buyback

we as use well extra cash to X.XX September. at So extra of flow free the down This net record drove X.XX further down pay-down towards the end of adjusted EBITDA paying from December as our the debt leverage debt.

Our the to execute process. the simplifying to cash the the shareholders strategy the then was and it of in unpredictability quarter. true on are for based we flow, cash free following Because of return up forecast

Going will flow the quarter. forward, the that percentage of current target return use free cash to our prior cash we quarter the in shareholders for actual flow and free

on our this flow process, quarter’s last $XXX use we will revised based So million. actual of free cash

credit Moody’s stock that prior plan million XX, BAAX+ buyback debt we to quarter, be unsecured the expected further on Microchip’s be million, the also $XXX like I’d $XXX current dividend $XXX to rating This which from BAAX+. and is this XXXX, to is Out expected million this $XXX million, the January to of of approximately the to shareholders. return XX.X% to $XXX is million. approximately raised note

that, BAAX will Fitch. of you operator, questions. to the for rating poll rating on equivalent Moody’s please know, BBB S&P you With scale and As is

Operator

Pitzer our John Credit Suisse. We you. Thank with Instructions] [Operator take question from will first

John Pitzer

me ask Yes. Thanks question. guys. Good afternoon, let for

grow that quantify the March relative calendar you And to in year, that quarter, visibility the the balance of and any as scheduled in quarter supply about the have make should think you’re way you seeing you sequentially to every issues that? ‘XX? year of be backlog to argument the do able growth enough to the Just supply

Ganesh Moorthy

quarter March comprehended in the So are supply our the in issues guidance.

There and so are working say happened with some are nothing that of through the it. come is that just more than natural issues with disruptions it. COVID there to And other we

mentioned, Our strong. backlog I as position, extremely is

that we in is already leave drive happened We every have it’s will continue the bringing much on continue backlog five of the no of of backlog supply on XXXX that books. the And has demand shortage And growth. we’re working row. is to more There a expect quarters quarter, unsupported to on. that really, we

non-cancelable on backlog, So if look throughout be bringing of which XXXX. the constrained imbalance, expect to we’re the size at the rate at capacity, you the the we new size we’re going of

John Pitzer

you. Thank

Operator

Thank you.

from next Pradeep Ramani We UBS. will our with take question

Pradeep Ramani

I of Hi, of and In of comments now, made question. question. on thanks for talked solid sequential being have your in the prior both you four my we interpret for How that you just demand wanted that follow-up terms visibility taking in about sort to of supply? growth. whether past, the you visibility terms do just quarters

Ganesh Moorthy

We have quarters. four visibility in terms of demand that exceeds

We single supply quarter. on have coming every

concern guide But quarter all no for our makes backlog PSP any is at We’re of non-cancelable. that backlog. high a The a you point, very It’s trying it percentage a has time. us. demand at signal to this there

the PSP of beyond well months at backlog is time. this XX point Some in going

supply-driven a of equation likely really and into it’s XXXX. at least XXXX for all So

Pradeep Ramani

you. Thank

Operator

you. Thank

Gary, are you. Please we check from Gary your take Fargo to with will Wells next Mobley hear unable Securities. function. our We question mute

Gary Mobley

Thanks guys. question, for my taking

we’re long-term going backlog? lost? or term, temporarily constrained quarter, strategy the deferred are of of sort backlog to that in? for product and the in from unsupported lower-margin terms maximizing that with whatnot. – continues the having mix products you’re supporting What environment mix tough Longer to I’m or what every respect does to perhaps contribution your some the that supporting As presuming of to make sort in permanently decisions considerations and the each shipment supply it grow Is not

Ganesh Moorthy

an opportunity be use But richen environment just capacity and to you the we gives can’t constrained a the mix clearly Well, oriented that. us short-term have. in

prospects with customers them. the they are are, in, what that what look You the who have long-term to markets at go are

coming the most quarter Anything we’re any quarter, some backlog the on it Capacity And the days But out following is non-cancelable without be the demand into the eventually at respond already after or some some that. that. squeeze some do backlog. non-cancelable. what in to XX point a into remains, with on, that they unfulfilled in majority goes we time. for PSP is to vast as the we could is part, fringes, just demand does As the stays non-cancelable backlog with materialize. of of but in And and able it of not serviced later quarters,

Eric Bjornholt

decision now PSP And in is based and in the the biggest maker terms in of place. place what we’re we’ve long on been that how had it’s shipping backlog

Steve Sanghi

Yes.

I like think backlog, margin. more to a is ship a we when we are your was shipping question gross negative that not low-margin eventually and

don’t operations allocate. think is. the they units backlog and and look at what gross in margin dollars ship and They I know

is the non-PSP accounts there we’re the who is, ship the So is, strategic low-margin who what backlog not segment to lower market to level much the much the are more a backlog. constraining backlog. shipping the emphasis PSP It’s of do with and customer

So I really is concern think your placed there. not well

Gary Mobley

Steve. Alright. you, Thank

Operator

Thank you.

We will next Hari Sachs. Goldman from with Toshiya hear

Toshiya Hari

going do seeing taking you you. question. you ‘XX? the that it ‘XX. about likely pretty you be you’re how for time, rest see Is into industry yourselves, online the about wanted most say, your brakes ‘XX CapEx to to your most capacity need of you the thank tight. stay think supply/demand same guys concerned year, Or And too definitely way of from today Clearly, get internally? you in to pump the peers what and players, to into early would with much on kind Thank CapEx coming decisions? for late I significant so increases and as of Hi, thoughts supply/demand. At including as for very on things my

Ganesh Moorthy

After line five really some and into there form sixth to quarter, back now no coming of is having equilibrium. quarters into the sight of demand/supply

be know I between to continues time. Demand but supply, is expresses many to in every of a customer We to continues business. to and not at something point Every non-cancelable fact, – factor, they wanting ‘XX to speak ‘XX, into permanent into despite supply adding see to, So more strength CEO that that’s as it the continue we their in their gap this in strong. continues needs It’s, see grow. many their into of many, in them nature go business. cases, demand

how there So balance the with we’ve it place. short-term that digitization ‘XX is numbers secular point. point, many, see will We many talked There with this that supply/demand. we our for are are that At beyond semiconductor see it supply/demand factors in see We some at occur. have the driving does don’t in ‘XX. about taking a growth factors megatrends, it don’t

Toshiya Hari

Thank you.

Ganesh Moorthy

welcome. are You

Operator

you. Thank

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

Vivek Arya

Thanks my for taking question.

growing quarters, be So not sales that part or an demand, Ganesh, equation, issues? the quarter supply-demand barring four three should I way. different I right, every supply next the obviously, you it’s what every increase wanted question issue, then of missing? quarter you any and in or to Can doable, a ask supply if for right macro increase Because can am

Ganesh Moorthy

increasing We every quarter. are absolutely capacity single

You’re that of not part equation. any missing

Vivek Arya

it. Got

some confirm every wanted quarter, are improving because I to else what equal? was that’s for So revenue with being you sticking still confusion there I potential that – the all thought

Ganesh Moorthy

in capacity of issue, is. got direction. is driving plenty The demand. We’re that We’ve not demand the side

throughout are We capacity to and that building will continue XXXX into grow XXXX.

We’re supply bringing where we we’re many make equation, to demand on, the trying quarters to this are trying of we trying is provide do. driven legs. the to Clearly, have the by of But this more you without the we going are continues we are quarter specifically what have, direction providing demand-supply for every quarter. general to guidance

Vivek Arya

Got it. Thank you, Ganesh.

Operator

Thank you.

We with JPMorgan. will take our next from Harlan Sur question

Harlan Sur

and solid on execution. congratulations the Good afternoon results and

have bit being semi expect been their they past suppliers year. their all based well, labor of earnings they the requirements, season, slightly availability, all because equipment under and the shift at short large customers issues, Over and to by of constrained manufacturing up on and component through three half U.S. shipments this customers’ the logistics a coming to are first least

wafer So maybe front-end is little partners fab capacity improve to slowing XX, your or days a what your ago? plans outsourced internal capacity this your ability maybe expected, you XX I’m even versus wondering bit just wafer by maybe if

Ganesh Moorthy

been is well, been general, calls prior true equipment that So it as we’ve and on stretching. lead in times saying have this

of the part equipment that between demand. manufacturers’ imbalance just is Some supply and

Some is manufacturers. is that shortages semiconductor into built the equipment of it feed for semiconductor that

times So stretch. to receiving equipment yes, lead have continued our for

Harlan Sur

Ganesh. Thanks,

Ganesh Moorthy

You are welcome.

Operator

Thank you.

next from our question Kumar take with will Harsh Sandler. Piper We

Harsh Kumar

people to lot Hi, about asked question A wanted guys. a demand. have I of about supply. ask

going over the you fundamentally Ganesh, particular have But time So a this mind? Steve And worth mismatch. is the continues or you us plus don’t is that, on sixth strengthen? demand. of so understand help if there of some help year’s with what years – can at now the with fifth are understand this markets orders, beginning the at non-cancelable quarter, that worth looking exceptional the end you and of I us frame, to was demand

Ganesh Moorthy

there as that tried shortages it and And was all think right? all some driving consumption times, a cars shortages. And as richening I automotive, solve strong. geographies, So in demand different in of they mix content by are of be is have is markets, If semiconductors. to of end the at and driven take different they continues then the requirements to some of you

to home return from to returning work be at the now and You of automation. – to and was is take office needs office amount there some first done. There the the what

they trends find to are willing people some still of extremely or strong reflected the of to backlog percentage the willing some people that segment backlog in place. see, time which we is put place catch-up demand segment segment the by talked are mega drivers, Demand and that that, be you bookings as the trying when So we have the that what the non-cancelable. is to of demand into we have continues is go are have by that period those we about, in to over

Harsh Kumar

Appreciate guys. it, Thanks.

Operator

Thank you.

hear from will next Stifel. We Tore with Svanberg

Tore Svanberg

Yes. Thank and on you the congratulations results.

‘XX. next And the you. the measured. more years, over additions it for number capacity your CapEx sound are also like philosophically, few bit of then wondering, fiscal competitors plans CapEx had and the about One call are regardless of big you just this basically economic pretty your I’m as talking climate. numbers, morning, think just about the a other Thank a does they some

Ganesh Moorthy

don’t was CapEx we So fiscal your a question. for if have ‘XX, that

itself. a some when by want does we decisions. as to like. of that call look It’s the share time about a we look window are serve X, at not just to are be will long-term XX-year that decisions next have we year driven calendar decisions They able what May of capacity CapEx We it.

And more last we what been bringing have we capacity over so been online, aggressive have be are and we perhaps, what want and thoughtful but to in the year. we measured, do also capital

the in of long-term that that we put have CapEx into As some the believe to you level good the we have to we normalization targets raising of some customers, in expenses Microchip in, both capacity be the come have we that had inventory seen but as think be serve also capital replenish to able of demand is capacity supply of need to in and to able level we to have for about.

Tore Svanberg

you. Thank

Eric Bjornholt

‘XX As Ganesh said, a plan we’re not to you going give today. capital fiscal

process increase plan of manufacturing of quarter. part do internally, that number to on give on we of as long-term I that our the a and the through we we quarter. we go year, seeing, a will have intention firm our kind environment that end be we the expect basis that given But are together next will to you that guidance investors percentage operating next think put CapEx should given that more annual our continue will We of this high

Tore Svanberg

Okay. you. Thank

Operator

you. Thank

Truist hear will Securities. from Stein We next William with

William Stein

strong is Microchip going constrained. There understand. in whole on discussion, demand capacity strong. don’t touched know the will is, don’t very is, comment is Great. during the to quite we understand certainly industry I have Thanks you quarter. question. press my my up execution. this for that taking Revenue add very I a are release I is congratulations I the if next

is think I that versus it noted in are just that? to that has product you understand Can WIP finished goods? be you future inventory you. building the building you that’s has demand – be Thank product press delivered QX, quarters, quarter. Is or required demand to me help for expect increase that happened during not release inventory to that next for for days

Eric Bjornholt

Yes. mean ramping I are we factories. our

inventory seeing Day and want things Investor we the our our in input in customers. And chain and support costs. those balance to we the to are are costs sheet of to to Analyst days that better supply demonstrated able the increase We all impacting increase be

rise. continue to absolutely costs to work process is grow ourselves up. before. to we the Input going materials, in to positioning So described has able are raw And continue Ganesh be business, as

Ganesh Moorthy

If we can build it, we are shipping it.

to There we we more that are there hold materials build more going need. is back. in is and inventory Clearly, So, to are WIP, not trying progress. shipments work

in We growing environment. are a

not what to to forward-looking able feed demand. to internally is we have So, be just backward-looking demand, have

Eric Bjornholt

prepared kind Right. math the essentially of the margin way mentioned also, is as days inventory in the on gross my improves, the It’s there. that balance works And just sheet. increases of I as remarks

William Stein

Thanks Great. understand. I guys. Yes.

Operator

Thank you.

next our take with will from Chris question Danely Citi. We

Chris Danely

Thanks guys. Hi.

So, revenue a hiring little growth easy some and Omicron there is slowing issues. bit sequential is other that issues down

to backlog, that in that June Assuming maybe should accelerate the be revenue unsupported quarter? this up and does that you try that reduce March the quarter, start And in if gets mean able fixed will and happens? growth to catch

Ganesh Moorthy

So Chris, It’s on supply not the side. on the demand the limitation is side.

are the December it address built no an on supply into not factor knew to heck our the COVID was until one we We Obviously, had about constraints. extra timeframe. that plans. working

some will challenge. We Earlier people a on, there that about also been Hiring going this has has talked equipment clear challenge. But are hopefully on. been a we getting through time through on quarter. challenges in of

running are like we So, heck.

any We will might unknowns June more in expect capabilities where we the terms go. barring favorable have that quarter of

Chris Danely

Ganesh. Okay. Thanks

Ganesh Moorthy

You’re welcome.

Operator

you. Thank

We will Chris hear James. next Caso Raymond from with

Chris Caso

three – or has that do is costs on? just pass have increases input Yes. One, increases. you are sub know I on goes price quick price My Thank questions those – to believe behind higher that. to And the you kind now, were anniversary gone year, question I year into baked rising input of what am is go increases pricing Are that increases? kind along at results us were as And you last to longer no for is you factor the fully to that point in price the the what up. guiding for not these now are quarterly the we now magnitude are a price of much But going want guess March how as those does to year-on-year of those guessing pricing. price well, you. at start the us quarter? I potential to there comps? point do give then And

Ganesh Moorthy

let try it. how So, three see to your best answer parse and questions me and

from continue are up. different with time at different go different prices costs in input firstly, for suppliers points to They us, So happening our magnitude.

But place built go So, continue in see that what all what we that taking our XXXX. reflected COGS, will and days quarter. an as year is of up fact, you our the of going our our to is in structured costs are go into up every as inventory and through cost aggregation increases

price incurred we pass have a them to time increases That specific try them cost us. collect increases as a on not and there and have is also that as – pricing, some For done every on cost we customer. at a price continue have we increase increase points will to at

that taken we does is inflationary have hard be the an capital are incurred, have that on. are inflation that gone have building It’s that as up we have The to to There But to the passing It’s that mechanisms pass environment. And us. And I know don’t we are in passed suppliers costs quite current when significantly. inflation standpoint. year The intention labor that that environment as in the to from make are from the large are cost is us, into inflation. cover large They We to now, Our we costs up on price there increase cost yet. of to stopped. on that we facing will are they adjustment our significantly. know an capital costs as know able material might a able and if quite them structure. inflationary incurring stemmed have be that on times we increases increases. hasn’t that costs are gone better long sure as

Chris Caso

Great. all. Thank you. That’s

Ganesh Moorthy

Chris. Alright. Thanks

Operator

[Operator Instructions] will from Joe Morgan Stanley. hear with We next Moore

Joe Moore

but level shortage with other the kitting you I like situations, I yours. you. maybe in component people’s looks? have are of as you And if where feel in that for Thank confident talk pretty any could sense you is inventory of about customer you the of inventory know wonder have Great. lean as cases seems we we dealing the waiting incomplete that? the it components are these Do bottleneck enough it into for that get your you past, inventory.

Ganesh Moorthy

get personally, To report it’s might through they able up involved. their that something means customer’s we get backed that our of holding as order Every be intensity rest visibility The we – And complete doing. not us. specific ability don’t provides a has that OEM that involved higher in than We more Microchip the off. has sheets they customers, customer see what really to company single them escalations where that dozen them basis what places or am magnitudes a those are the are on because and not of or balance to don’t that is all they inventory an look I So, regular which two day, report really the half are happen. to through report channel, really they But our to us. us. to

we standard non-cancelable PSP at a well. customers more of significant of for us of this, as the customers that terms to while our we minimum believe has there Now where It’s shipments been than what inventory the Screw need assume be that XX-day to non-cancelable course, need. is for bill meaningfully some off that, given to backlog disincentives on are, await part they may shipments the of are of can building aware what termed they XX our product, of they Golden complete syndrome, backlog, But there of materials. apply product would get for reasonable they to order months

Joe Moore

Great. very you Thank much.

Ganesh Moorthy

You’re welcome.

Operator

Thank you.

We from with BMO. Srivastava Ambrish will our next take question

Ambrish Srivastava

Ganesh, a OpEx. you. I on Thank question Hi. had

are as next expect you target few to that that to XX.X%. then the end, to mentioned OpEx Should lower least we of the through the below go long-term XX.X% end lower of range we quarters? range catch You at up to the

Ganesh Moorthy

slowly. go will It

to do in a up Eric, about this more would which maybe rate it bit how quarter. that? tapped you the little we see of can at You kind talk want we

Eric Bjornholt

Yes.

think throughout need hard I that now, make our company. are success, much hiring the our right. with the we happen. are to HR challenged in just working getting on we I it’s It’s right dependent we very teams that the labor mean and market

be think to XX.X% a I within and our we gradual we it’s is this which are XX.X%, long-term below way quarter. that is going want modeling to So, model, but you long-term increase, the

Ganesh Moorthy

which for as some is expect inflation And than that we well, higher continue there wage is time. will historical and

Ambrish Srivastava

Thank you.

Operator

you. Thank

will from our Rolland SIG. question hear next We with Christopher

Christopher Rolland

question. the or Ganesh Steve. for for Thanks guys. one And Hey

between which the of off going coming do they you is somewhere eight have fabs, fabs. are and the TI are update, pretty adding only XXX-millimeter were are they not XXX-millimeter five and we to to But So, unbelievable. guys –

change XXX-millimeter So, your do super thinking analog a all. your And kind market embedded about the efficient does you own compete? of product to worry about of hitting flood I of first eventually and guys this guess, Thanks. secondly, here, fab getting

Ganesh Moorthy

It will concern we well are what growth. and isn’t are in-house, industry’s to want over might our we and our build to those and just technology, it that customers points part partners up analog are in we Steve? not to lined technologies XX-inch the point that enough participate growth, in actually we equipment. going And is products one analog you time, capacity come feeling at our in XX-inch. situation looking At what If in might is A be a do mean makes own I our about XX-inch look some at We future. capacity are do through today. has that sense. foundry time, particular business. this not And different industry. evaluate point the have to Microchip’s where we at at fab we in some limit product growth of the There end which that, capacity that large well. add to help lines sure make trailing-edge that have the really the on to work you to that as But in our else not Do a investment our limitation, anything want today, we we just doing focused but that is ensure build on

Steve Sanghi

going the you underutilization underperformance company and a there I on added based significant all we and by to margin substantial what would period delivered cost by gross that the add that know, that that fabs absorb. to have substantial number be named, the of being of they is a just to headwind

you very low think about I are So, cost talking capacity.

think look it I I at just opposite. the

significant is cost be all I not gross making having for capacity, problem them. a margins. going think to XX-inch And enormous there we are that

almost already, right? are margins operating Our long-term than higher target our

Eric Bjornholt

getting It’s close to it.

Steve Sanghi

getting last Yes, further And which quarter, we bringing to make licensed technology close we to inside. The it. with we inside. test continue will improvements be producing

and the required to got So, on concerned for I in. buttons investment would on else’s years. capacity edge of I ourselves Why, are we trailing bring X leading is really the edge. somebody because push, capacity. online billion about am The plenty much that no edge. They recently $XXX putting is there of only capacity additional of that short is not report putting trailing trailing coming to learned edge be capacity a the foundry that next

trailing put has into years. edge done being is whoever. it not coming billion So be in trailing, the to $XXX And that, technology given of capital by there X

this So, we be right see short capacity see can always as I I now. think to as far

Christopher Rolland

Thanks Steve.

Operator

Thank you.

Todorov our take with Nik will next from Research. question Longbow We

Nik Todorov

philosophical you the Do the channel? more question. is and impact kind chain been suppliers, giving I of question. think the that Yes. the given Thanks bit of level characterize disruptions supply potentially you there for And what a have customers, all having? the has opportunity ask in would trust damage between sustained? to the little How

Ganesh Moorthy

many, over months of is short I do. you that how managing gain It and communication, and all work as. expectations, And last is with And our Trust time, we with or trust customers which years. either isn’t suppliers is with a to a function XX period what lose work respect. with other X of are the our something refer of of those built what treating we would we course months, consistent each the many in

think trust don’t I no, So has been thing. a

is grow are there People to points. think stress more. clearly looking I

more. are We We to want grow looking more.

looking share can constraints are want are the And an that path can within But we as I constraints how some forward. within realistic are the have, on that But just we either don’t to best doing issues issue. responsibility they suppliers the have. more. sense see as that we a going as that in side the side customers manage the we both working Our or so that’s customers they there is best they trust grow suppliers any we more, the our

Steve Sanghi

relative all be than needs, problem anybody our more they a that’s our It’s the equation. the us success actually told trust it it’s their were we designed the despite obvious from If products competitors they Customer-after-customer, but not that else. we customer in because years, for are them the are opposite. whenever letting being were the problem, have. constraints, a competitors, we losing others bigger last But would the down more case. everything with shipping just a and also then a Well, we X enabled not have are year, than getting

who is at the the Microchip, them Our even you. nothing escalation shoulders cry call. for we That’s won’t bother say, can, numerous we day, we on competitors There improving giving customers. are are calls but is constraints us. don’t empathy call, – shoulder customers a all all And we giving explaining week, can And day to on of the every there give where would taking helpful. are – do. that take They situation, can many and an

in So, I building in trust. general, relative trust are we competitors our destroying to think

Nik Todorov

Thanks guys.

Operator

you. Thank

Harsh question our final from take Sandler. will Kumar We with Piper

Harsh Kumar

if guys. A these how the give March? can analog a provided you kind what’s the segments vision may when to you second microcontroller one Hey on expect in to us color in believe you Ganesh, I you curious you to perform how was take would here. just not business have of tactical commentary Yes. you gave quarter. the the and I March whatever any perform expect

Ganesh Moorthy

many All line don’t supply Right we of limited. fight quarters, and is all capacity the need product bring determines some how through supply what It’s least And them an is can guidance. are product markets on, in So, there all issues of to break work really really or what the effectively end lines, as out product at – market. of we limited. end end the all that. do. quarter the are for demand it. COVID that’s our what terms for more all we in each markets They the seen the strength for now, together And for in all in on line of

Eric Bjornholt

for I think to it’s They outperformed line with year-over-year each the performed probably had few look helpful other really last gave at that each in But growth. numbers. other. right a year, microcontroller year as analog quarters overall, where Ganesh the calendar

Ganesh Moorthy

the exactly same. It’s

Harsh Kumar

Got it.

Thanks I it. Fair Okay. guys. enough. Congrats. appreciate

Ganesh Moorthy

you. Thank

Operator

Thank conference for does conclude like would question-and-answer today’s And to additional closing you. any over or that Mr. the turn Moorthy to I back remarks. session.

Ganesh Moorthy

at you that Well, weeks, and to We soon. next meetings in thank everybody, do look forward coming speaking and up attending. several have you, to for conferences the and all we

afternoon. Good So, you. thank

Operator

And you. conference. participation. your does We thank for conclude Thank today’s all do that you

You may now disconnect.

Microchip Technology (MCHP) 4 Feb 222022 Q3 Earnings call transcript