MCHP - Earnings call transcript Q4 2022 | Microchip Technology Incorporated

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Operator

Good day, everyone, and welcome to Microchip's Fourth 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 Erin, everyone. Thanks,

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

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

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

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

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

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

Going GAAP net forward, sales product be we peer by the with practice companies. will providing geography, and line standard by only consistent our

share-based settlement impacted a compensation events on adversely non-GAAP each continue and by to was an million charges million operating margins of million, and gross gross GAAP on costs, in income activities. acquisition record intangible $XXX.X share, were was changes were $X.X special diluted midpoint income was Operating the debt $XXX.X was earnings acquisition-related and Non-GAAP cash the income net favorable of GAAP benefiting expenses loss a which quarter of were per XX.X%, was at and of basis, or levels. quarter, in our a We $X.XX, record was the amortization included margins $X.XX $X.X XX.X%. other $X.XX provide convertible a in million. refinancing of driven On debt $XXX.X will with expenses record per information million. Non-GAAP XX.X%. March of operating a a $XX.X $XX by distribution inventory a our at Total XX.X%. our net quarter, record March above $XXX.X expense. tax diluted On million, were $X.XX million, guidance, record and million basis, share associated

in recorded notably benefit as tax unrecognized of due the audit of by variety benefits a GAAP the factors, Our tax closing tax to releasing an March impacted quarter result expense a was of the Europe.

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

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

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

than capitalization operating of as higher Our of credits, tax as variety net tax tax expenses well tax and rules current the 'XX for purposes. including losses fiscal fiscal of cash availability the rate R&D factors, rate requiring as impact for tax 'XX our a cash lower of such attributes, is tax

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

our which from costs supply materials of position and and or raw increased factories our unexpected work we helps inventory increased rising for due us and the The buffer production lead internal to has chain. changes quarter, times. in carrying will against expecting be are material the progress from the cost in us our helps in been of levels increasing shortages Our input

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

stock. heels stockholders November had of the franchise. convertible XXXX, amount bonds XXXX on that the the on at will transactions $XX.X strength dilution these with of our the quarter, was financial and million. during place of of our calendar our dilution share believe extent the XXXX exchanges, sheet quarter, for these the of of amount in we upgrade our we by in $XXX.X Moody's during were convertible the to significantly principal exchanged upgraded the sheet, in offsets the and by or from of quarter, $XXX.XX. our stock and outstanding. potential March stock December and common call March quarter minus investment used of the Microchip option to year balance debt balance cash of the maturing cash BBB convertible includes $X.XXX principal price subordinated convertible a grade both we results principal Fitch, of In count in reflecting total Following BBB generation The our that reducing bonds of convertible our convertibles March At time. debt billion appreciates to beginning benefit any XXXX fund cap million prices shares to This We over XXXX million to of value notes of XX the up equivalent $XXX.X

is today, So in long-term structure better capital our much position. overall a

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

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

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

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

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

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

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

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

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

quarter, million payment in dividend Our our our suppliers. for stock fiscal capital capital were in quarter had million, XXX.X We and the and of March in during $XXX of we $XXX.X quarter. the of Capital forecasted expenditures March and repurchased the $XXX.X delays experienced we receiving quarter the about our was from XXXX. $XXX.X equipment year March million in some million expenditures originally million

to actions $XXX between million, and for our manufacturing to ramp year $XXX expectation Our support of take continue is capital expenditures as fiscal the our for operations. million business we and growth XXXX

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

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

Ganesh Moorthy

Thank everyone. you, and afternoon, good Eric,

we December at high revenue to our of benefit internal was basis and new China, gross another X.X% the guidance, and the Russia, several factories from records the fifth records. Omicron XX XX.X% margin record from efficiencies This of our the the also an XX.X%, ramp achieve quarter, At to to shutdowns of end in our of basis including low cities sequentially Non-GAAP Non-GAAP improved across as operational guidance. our XX.X% of XX and all-time number several of revenue end COVID was and continue Revenue of quarter close billion. XX.X%. as very year-over-year set were end March process. points well Our basis $X.XX up as the spread strong results quarter finished high are in to Despite a of to rapid of model operating the our long-term just XX.X% challenges, a operational expenses, guidance. operating end factories, our XX.X%, board, below several was mix changes. consecutive grew the product of suspension the we shy affected of of a of very the shipments and record record of points margin on our high the we virus, in which

business. actions invest for Our long-term and expense guide will model to operating to our long-term growth profitability continue our of the

of revenue XX.X% flow to $XXX.X and cash our and were Our cash net in received, continuing EPS record our at to of March ratio consolidated benefit from non-GAAP March our leverage driving EBITDA business. $X.XX, excluding after guidance net diluted down our we high the the tax per down we the very leverage. the relentlessly Even $X.XX to was million, of X.XX of of continue XX.X% revenue, the was our diluted quarter. guidance. at end strong high Adjusted up declined at year quarter, capabilities at free non-GAAP over demonstrate the Net ago XX.X% end quarter, drive in EPS a March as quarter share, well our robust both by generation debt the

representing the to was one and shareholders, continues reduction, share, dramatic revenue the capital leverage XXXX, Reflecting November of and programmatic books, all net 'XX return margins, ever. and increased March progress on return years not to through capital a we Investor quarter, During best cash of it made the every dividend year Day drop. debt increases share cash as gross in per initiation We generation, one quarter, shareholders but growth, increase results, program. and outlined earnings our flow. of At free we prior our and the significantly free operating million last the to least, on plan fronts, the quarter's we our $XXX.X leverage fiscal returned for flow record shareholders to our to buyback our XX.X%

look microcontroller especially net our to thank making We the all never-give-up stakeholders, deliver was all-time their product for revenue another effort to quarter up support revenue microcontroller lines, in annualized was and quarter, a meaningful in All and our towards and to and microcontroller worldwide line microcontroller our between enabled XX.X%. December like experienced historic results to revenue consistently XX.X% to our quarter microcontroller XX.X% at the outstanding revenue. now to compared through of face achieved profusely for strong Microchip the product XX-bit opportunity progress supply are March XX-bit us achieve an as growth a basis, March was team at X.X% up imbalance On product line revenue On who our results the customers, our perspective, $X time. quarter. this these of a growth X-bit, every would broke the billion microcontroller attitude record. first basis, our year-over-year leverage consistent Taking our and us revenue March thank microcontrollers XX-bit, the is a the strong revenue record for the largest milestones. take had and quarter. a represented and sequentially I from and and growth persistent of concerted our demand. Microcontrollers mark highest

year Europe quarter. Our analog end year-over-year revenue prior up analog revenue basis, Taking quarter, perspective, a increased a Analog our Americas the market XX.X% March process. strong was over the quarter. in On record March XX% X% the at revenue the of up geographic our a the another sequentially was represented setting quarter. from a quarter XX.X%. year and our up over XX.X% look was prior in March in revenue

up was conditions supply year exceptionally through to quarter. strong be and quarter. prior the Business All the strong XX.X% constrained. markets remained Asia end over continue were

Our Demand XX% preferred aggregate have in constrained of areas. be supply the product despite to backlog, we capacity our our far. continued program, well insatiable, to continued and of the our significant most grow XXX% backlog backlog over and PSP capacity so implemented increases, remained

backlog our our backlog March ship want to customers deliver substantially customer March the March could unsupported a unsupported again -- highest the quarter, that exited As which in quarter with climbed backlog ever. to them represents the quarter, we we in which as but not result, backlog,

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

capacity We reasonably chain possible. we possible. supply And fast are wherever our internal ramping factories as additional with closely to working as our are secure partners

well and partners as adversely April into which lockdowns Our some during were March, of in supply the our impacted chain China as customers continued May. by

to wherever are operations our possible sourcing manufacturing to down. team locations redirect other worked locked Our activities that not and

the to the bring Looking constrained supply which new at into of in, size the able remain we backlog, throughout to rate rate we non-cancelable will which new magnitude of backlog our expect at XXXX. XXXX the demand come supply continues the inbound, and we're on that and at capacity,

compounded demand. can how we to bring predominantly Our this fiscal capacity reiterate To XXXX growth annual we you by we is using baseline, X-year to year first growth what additional our limited quickly rate, as with in support XX%. March on shared year, XX% to expect a be

business to gross growth will many our and We respond more edge, of they manufacturing margins, be control by technologies. with believe capital our increase on gaps opportunities, spending in trailing consider specialized to specialized serve which years being we over made growth our the partners as increase We in be our high fill in capitalize but year have customers at the of our range capital end for especially us us investments 'XX improve expect market technologies trailing-edge fiscal well shared the come. will for to our workhorse capacity we our technologies, be we our you, believe as outsourced in as for calibrated opportunities to share, destiny, spending us in better, to enable level give

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

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

the improvements sales Our into coming and have we very the to X% the X% up backlog for net more strong, and June quarter into we for today the all call discussed June be expect consideration, factors we quarter sequentially. have is Taking our on capacity between effect.

additions, expect others work quarter, materials through to in over -- work some challenges, the be carry well of will as range and during will capacity assumes as to which guidance capacity worked future that continued Our quarters.

supply We XX.X%. June anticipated be quarter chain guidance, as of the midpoint the our well included our our as effects would have in for strong At customers. lockdowns the year-over-year our also the growth partners a China on of revenue

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

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

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

our that expect with and the Eric you. per earnings We between higher to diluted comprehending per share shared $X.XX be $X.XX rate share, after per non-GAAP share tax

summarize CapEx you firing of June focusing and ‘XX-time XX% and guidance, to the net XX%, industry. year over element to return an XXX% high our see results of to by growth least, solutions quarter consistently improve essential rate in strategy as key free XX% by on margin shareholders net culture sustainability. believe March non-GAAP as cycles. defensible, target XX%, the leverage on we in megatrends. cash margin, high frame, to cash the growth, to X% inventory To what elements quarter high to all is built last system of of Finally, returned continue business can Microchip businesses not is of diversified, we free that a time investment X.Xx, on semiconductor and operating the and leverage XXX 'XX And our flow of as of but of fiscal the XX% to the cash market X.X target X.X, our every generating from most are, days a XXX of company Microchip Long-term foundation capital strong of one drops such to flow cylinders, and they drops and investment increasing build to X% revenue, the total is organic shareholders

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

Steve Sanghi

our margin net all last cash and our afternoon, employees record EBITDA, making and challenging fiscal XX.X% announced Ganesh, non-GAAP of to supply non-GAAP you, in financial of have you record the year delivered percentage, continue today dividend to year, quarter. everyone. record announced in from is increase on our I X.X% further reflect results and while very results, of sales, that quarter that quarter record exceptional non-GAAP adjusted Microchip ago new environment. margin share. percentage, records I another proud Board and to respects, an provide from return per good all be of Directors strategy. EPS, on increase record of on of many like financial would Thank a an very The Reflecting updates a and gross operating $X.XXX in This namely

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

We also amount the was dividends. of was actual This during of total Thus, quarter. million. $XXX.X paid $XXX.X cash XX% million million our out the return $XXX.X cash in free December flow XXXX

down this and to million. expect quarter, amount poll expected pay to dividend which as to adjusted million, well of debt of quarter's $XXX.X stock that, we With return $XXX.X expected end be leverage $XXX XXXX to of questions? net record the EBITDA, current quarter December. X.XX at the the cash XX% June of as that use will last Our for at our from million the approximately shareholders. X.XX down free $XXX.X operator, actual flow of In of you $XXX.X million drove will and end million, is our Out is to be the please approximately is March buyback

Operator

we from take And Joe Morgan Moore will with question Instructions] [Operator Stanley. first our

Joe Moore

free at light be weaker, you you end seeing places. to Wonder just supply your seeing for foundry situation if other in kite my don't the the you a should if serve showing the supply Thank smartphones Great. that you're up a into you tunnel guys visibility you no? talk of in in markets or remaining see that the of bit capacity taking little feel Do context questions. could

Ganesh Moorthy

industry something what happening. don't a smartphones, not described result direct end not happen what that the capacity There the markets So, to some this is And time, market do be reports market relief at perceived as at like other in That to We of facing. major not visibility may delay they're be the in when read do might weak. into when see the point. filters sometimes supply point between to this you it because is actually we're the chains. is into in as time, in same in any but end we have a we

Joe Moore

Thank very much. you

Operator

question from Securities. next Our Wells Mobley with will Gary Fargo come

Gary Mobley

a Let me year. extend strong my to congratulations to finish the fiscal

impact guidance customers' you the that hoping including a that mentioned first what guide we're quarter split can between in customer-specific may inability supply chain contemplates I your down issues chain was break quarter the total maybe you that of all supply and issues have your issues lot your issues? first embedded different dealing to that with, You quantify and be own the manufacture.

Ganesh Moorthy

aggregate a all but a have upsides guidance. way and it's very different There downsides, up difficult good are at the way applied for. that quantify a have you're that built we looking with. It's that look risk and the into to and that we risks the is to question dealing What we're question, with come of an

so helpful a we supply at don't we're specific Russia, built is to built all they're or about, China or I what have that twist on know different guidance come a customer have. us to than all breakdown going with And we've that to you provided. the in be we And It's and China slightly into would cetera. thinking what et that

Gary Mobley

if ask I Eric, follow-up question. Okay. a can

that of quarters divergence But sell than in into you've difference. fairly the out, X sequentially. had X sell reason a there? distribution for What's maybe a channel mentioned minor albeit an down greater low record now the I row the at all-time inventory think You is distribution days

Eric Bjornholt

view I Well, small. the just difference is really

million fiscal and I If difference $XX was channels. think you through GAAP between look our at sell-through there's an distribution what year, revenue

And the that have customers supply percentage as earlier that stronger of direct shipping typically the support on it's almost their So backlog today And have PSP, has support availability customers. have I of are or to into PSP supply. customers product a also are generally need they lower out to customers. presence their what We're Distributors getting impacted in that a seeing PSP in them like got of the to of we're some is that is they priority that get just their that terms into their immediately program. minor. shipping think challenged,

Ganesh Moorthy

able is by more into it prepare indicator a would in to what they're also how I business of function a of is more growth. be that needs grows, as what normalizing what getting shipped tells that them distribution -- The Gary, shipping you add inventory days to is that them for that, products as definition, for through. they're almost, is order

So there is the And going despite that things. no to mentioned, I in in XX. meaningful Eric the the scheme indicator pretty think as in Despite quite XX more distribution. more. fact slightly declining And grand that the concern days what's shipping with significantly, is it's of small growth, and are we of are that a inventory going from as on

Gary Mobley

guys. Thanks

Operator

Vivek next our Arya come of question will And America. with Bank from

Vivek Arya

lot questions. my Thanks the whether it's late about downturn possible year. concern next taking this for or year There's a of

kind you're were gross give seeing margins? happen? let's back there wanted Because I there decline gross and happens your one, So get to decline could XX% margins? happens then to next a to meaningful of was about your history, downturn, the what anything. on margins XXXX sales in on reality hypothetically, if scenario perception. say, time in of if year if Microchip that X Ganesh, And last X% that decline a was declined so. go to thoughts in And Is potential or for potentially points thoughts us So gross what I be just a versus a were to the or sales

Ganesh Moorthy

to running hypothetical, at than of we that days inventory that inventory, the days, XX kind distribution in sometimes are to of I run change I look be when some the in of but about distribution talking if high at mean cushions higher And where fumes. healthy, happens, a on is question slightly right? they and think hard let's just right? It's to that. were take XXs need So

at first is distribution I cycle we if that to would run think is need business. what with the utilize So some point of it a to do replenish this for opportunity part healthy to normal is the down

inventory that us -- inventory, you the right, really, die for Second fumes products. are still is But in up are few all given at our on the our at when those finished is our in at the in look look a we days. points bank, goods, you really of mix running inventory when

a finally, down think most internal inventory we cycle, intend the et have products, We have because done. that such capacity a cetera, that we long-lasting replenishment, effective be inventory products I is to are can CapEx build those we have to amount to while significant of that go in in And comes conveyed had get we that the given constraints. last up to doing when trying when We have rather cash have. the constraints in up were about. constrained next don't than cycle, that debt cycle more We we the same

our capacity we XX, so XX, our last products expect cycle more And we utilize that years, and and capital will happens. the be XX fully efficient through cycle, whenever that

Steve Sanghi

to a crisis. it X-month your if when a financial then Microchip with, Vivek, compared to of XX%, X%, goes over and and middle Microchip's industry that, revenue to period, global X% you question down the down in add to like began I'd was XXXX,

for I percentage. the that that So kind don't year, where next goes much think last looking -- is of revenue down anybody downturn

at X% if even a scary. expecting gross X% the will I are we were restock take And drop year next everything really inventory, pointed healthy. out, for us the least sales environment year, XXXX get think is don't kind period think I rebuild distribution own in elements a to it to So and drop our of that margin Ganesh that

gross really don't I much. about there margin dropping think that concern much that is So

Operator

question. our has with Svanberg Stifel Tore And next

Tore Svanberg

on A the CapEx. record And numbers. congrats question all on

get you didn't number You quite wanted the to this quarter.

constrained things is improvement the You are just quarter, wondering improving the situation last cited there were some quarter-over-quarter, or any delays but in not, you sales. I seeing at there if equipment, all? get clearly, to because was just still equipment pretty

Ganesh Moorthy

X, equipment get quarters, to X on in No, challenge the a it's time. to challenging it's last equipment. I think become And still get more over

delays of delays Those in equipment, Many caused ability semiconductor of there. the a to in bit which solve components. are shortages delay It's a So that the turn, by are vicious problem. cycle. the delays

initiative the and it the others doing to worse, the well. that ourselves not lead semiconductor help in taken are to at and We our many doing prioritize times equipment better. have, supply the manufacturers, we are But part equipment as both moment, help do of I believe industry getting so fact, in for that, the

Operator

next Chris with And our from Caso comes Raymond James. question

Chris Caso

some additions we Your could online. and more specifically, substantial about when come of the capacity capacity timing expect the to question of

have of start I does into think an revenue previously more once the point fairly 'XX, capacity? supply. bit said you even in on of on some to ability your jump that turns as what would there your therefore, that come impact? is is With to and that fashion, you'd linear CapEx And fiscal capacity a when have actual you've inflection brought in that into a supply an then CapEx

Ganesh Moorthy

So which there's there change single our point function is step Chris, capacity. in a no at

getting quarter. are capacity We increases every

qualified, it production. in, comes equipment As gets run and installed begins to

is that fabs. in front-end our of Some

rather a we equipment. we Some more in quarter, in In we that us the factories at to every room is more capacity is it's function clean it certain time, continuous all that put continuum space given every cases, just place it's run of And quarter of In people are other really allows cases, not are some a And than expanding equipment. equipment quarter. step on and process a any requires hiring might which place. cases, in comes the increasing taking capacity. of have. point of that kind But certain as be. a is room increases In that case to back-end the more clean that of

Chris Caso

Got it.

earnings some demand areas you are changes could anything some markets. from elsewhere to increase I of As a your very where seen decrease? on your about? substantially you that follow-up, much mean, interesting, other largely PC. if some give don't of end there if or note participate And reports, in, I are any color wonder areas wish seen But handset you've where and seen within markets end we've you you've talk

Ganesh Moorthy

end the are market. the of would seeing end aviation all mentioned, is in one I of strength more the be, coming As are aerospace we note back. strong. Commercial markets Maybe defense,

some that of through. to not what's small starting overall building defense-related our the some part going And build of will come are geopolitically that's given going on a folks so that more. some be to business. There But items of were are

significant strength that we're X it's markets the other So still end got in in.

Operator

comes Danely Citi. Chris question next with from Our

Chris Danely

bit A a longer-term question. of

I -- acquisitions. recent in you additional past you've the the in past, So guess, about asked

has Has been anything to that out that Do given will seems as that. upturn you, as just sold thought closed, there there's of your things I'm stocks all, are and thought the process than avenue pretty you there's, this You the much much expensive. be changed said the at far has and because premium think if not sort have process that, sustainable paraphrase out extra goes? off it's changed in like a at more there? past that wondering capacity

Ganesh Moorthy

Not really.

met is those more we we The to objectives, and what the path. portfolio had be organically and we at best ones think acquisition XX reached had on years what focusing there objectives scale both have. to in one the Having what to said we build we big two was it think getting major is to that harnessing of we other time the have when be ago. out had able I to build what multiyear our went we broader and than was be the

in large is or that that specific technology, intended acquisitions is course, focused where we put are acquisitions. market pinpoint So small there time, with think, organic substantially of do growth, opportunity for at strategies a time and acquisitions growth also to place where tuck-ins still we time. limited, available acquisitions. the organic is have augment as And point doing available. organic, the with higher that was when and our were customers from growth most We many we we the we're believe we growth a for the to wanted cost-effective that more we're And in

Chris Danely

Thanks guys.

Ganesh Moorthy

Welcome.

Steve Sanghi

couldn't In benefit new get today's a you capacity. no environment, the because of on cross-selling there's acquisition,

would there acquiree. opportunities organic any of if cross-selling an constrained our you You the for revenue, we're challenges be shipping to growth. have won't simply capacity just because are inheriting it, capacity And grow even

Operator

with Stein William [Operator Instructions] hear Securities. Truist now from We'll

William Stein

customers? clarity you lower-cost through Any use for year-over-year would questions. Thank I'm the really having flowing to you so also have course, FIFO pricing? much Congrats by I'm inventory, or products on margins, on taking and dissect on pretty my of gross units higher-priced you. growth versus if that's the P&L Thanks products on the so effect results hoping comment And either guys the you you those that because, sure on help? sequentially might could outlook.

Ganesh Moorthy

margin growth able a customers. batch inventory from time of of incurred, to I maybe not The up boost through we but timing predominantly look we to address increase all the coming to which units, that So the from as that, when of changes pass the not directionally, increases price, be margins is and is about year-over-year, we're that target go our we making. before, get. cost for us price growth gross are price I'll speak at FIFO yes. really and The and to component majority it from have we're price, that trying let the comes of on have largely, to that talked Eric is something to gross we time to benefits the the

Eric Bjornholt

Yes.

to as So be to through a Again, process, to a try P&L. Ganesh would pass trying what not batch these try starting increases, do. flow from as percentage and perspective, but said, earn but customers. call the cost it's we we that, pricing I margin a the that's enhancer. along gouge are what things And gross perfect not on to we're standard not trying a margin We're timing to

process, and think but that portfolio, good the I fair of perfect job a doing customers. our in a not SKUs it's being XXX,XXX again, done with we've So with

Operator

from next with question come will Harsh our Piper And Kumar Sandler.

Harsh Kumar

variety us First a in that a congratulations, guide. question of results, different of to been trying ways. have lot ask Steve, all, of great great the

of not you for this, you your and industry business that rate, chip growth when know I Why of the on that so a I up on such I and have questions business revenue great at lot still the and associated try that the with a the you that some but benefiting just the overall, curious what gap end content thoughts buy growth think wide? with was which with in compare are degree get Microchip, the it's industry the growth the very is if overall, strong, amount gains, might when most we I auto side. account and autos rate the look the semiconductor happening? gap. at is to area And that's you of probably is the look

Ganesh Moorthy

So take that. let me

at I is they Every at And record a industry, X available look available. OEM probably try really think quarters, a if at automotive Tier them. semiconductor the done X is them richest the not the that of to dealer ways, happened level and product the buy last or shortage to they results, that in whether has best think build the they a to the look utilized their X or one over some build. you go profitability, level. results I you I to record why? that try to have semiconductor have the supply today What car, can And de-featured it's if is and line

can year's is. it whenever they or a in time get it You you tell

a has in car perhaps up, becoming per has grown were content number of because before, the smaller mix semiconductor become available are on or because richer. Things average standard, that the more so not And optional much are they smaller semiconductors an secondly, want they to available have the no are that available. richest discounts automotive has to cars become And cars utilizing of for as there standpoint, from number product many line. sell,

guys. tailwind the a gross for of is that So place automotive margin took all discounting the

the abated we're really that year. So industry, the still automotive significant you and the We about just customers specific chips we with automotive our selling but by automotive that. with in working and the but hasn't way, with, escalations issues deal asked have that every last just we're with, not since shortages --

with automotive that exactly make. to the they order fighting through getting that are still They indication to the shortages and to all is in that So, the no product be product need. cars mix there respect they the able is quiet front build to of on want

Harsh Kumar

Thank Very guys. helpful so you much.

Operator

Our next question from Rolland come Christopher with Susquehanna. will

Christopher Rolland

there, some you tailwind XX-bit kind Microcontrollers, Also I rates to and between for that love XX-bit know gross X-bit on how you would is congrats. growth becoming a as had for interesting of revelations maybe guys guys accelerates, XX-bit longer-term the margin? you majority I see and there. guess,

Ganesh Moorthy

So XX-bit first, and still parse maybe records. new are All to XX-bit out, three, right? X-bit, setting

all rate are higher grew now approaching almost So the Clearly, which most, revenue. microcontroller why XX-bit, of is growing. is on it it's half and the the growth there a

a the of tailwind microcontrollers trend our and that secular Now embedding we of intelligence critical of has continue to expect in that the lots and is usage applications lots for end a those in and and megatrends, end that kind applications represented of us. end for and shown drives we kind market do how in We've growth what fits the overall. of business X or

question to and between margin second business microcontroller gross of margin, different gross the XXs. on is Now dramatically not your Xs, XXs the

on And bring customer any of so we to pricing go that approach allows what our to we value situation, in that products is market into an to application. with the the appropriate is the that be most depending one utilized, and

general don't of believe we the so and XX-bit. affected by the gross XXs And is margin, Xs, mix

Christopher Rolland

for pricing Would might your and kind not? that's over a potential thing the And in about on X you, either 'XX. you Ganesh. capacity And then its Thank industry of of 'XX think love or for on whether to views effect what Great. Steve. talked get have A people lot be? industry or you

Ganesh Moorthy

then Steve you So as view add and I'll will give it to maybe my well.

example, is smaller, talk it's is million CapEx overcapacity of that bit what XXX-millimeter, 'XX, capacity is all done, on XX, is the nothing So XX, On is 'XX required, These and which being been help medium the investment of is really for little edge, you is coming the look and edge are cetera, and nodes. anything XX-nanometer that. through the a very The fighting far nodes X-inch wafers, when that specialty doing CapEx, about industry industry, majority constraints some IDMs still X, is online spent and that in a by being CapEx all outside at from spent. spent of last that being or spent is you of that are are the XX% the misnomer have short, where being technologies. at term, to vast of XXX-millimeter, larger On these to $XXX where, when where what there's of being long a and cry be trailing the invested almost year. rates so capacity it, in XX-nanometer needed. Where able typically over which X, over not that is size, are the X, the on industry that is of bleeding in et

amount, it? 'XX still there CapEx bleeding spent that don't some add trailing easing while do is on So and to constraints specialty you see to want is place it significant are technologies significant into Steve, edge we more 'XX. disproportionately up and there left of technologies, quite taking spending the being the on edge,

Steve Sanghi

Yes. I would. Yes,

of as that's how the So to available. the guys foundries over built happened mixed-signal, and leading-edge and fully And a to connectivity when fab the what providing over depreciated it that historically took the of next became has a years, leading-edge capacity, and likes is a fab, Qualcomm microcontroller, moved then depreciated many, those AMD years, leading-edge X that capacity node, chips products. And trailing and they it repurposed for kind many others.

gone link X, has functionality is to X-nanometer, The microcontrollers and because that happened still now XX-nanometer, of X to has and in broken. are even XX-nanometer, the needed, of analog, leading-edge is the range what XXX-nanometer. Now while XX-nanometer lithography

available, becomes And the because the moved node. easily so longer therefore, next no trailing capacity edge to somebody

at than Secondly, compatible copper X-inches wafers XX aluminum largely largely one XX other. back nanometer, less the is end the XX-nanometer, back XX-inch, X-inch. and and became the with not starting inches at And wafer's end,

easily So XX-inch. to doesn't a XX-inch for fab an available, product becoming the X-inch capacity move give to

to that attempts trailing fact thing. aggressive is that's edge, growth forever making do and and why trailing the provide you're the add of same almost our our customers, possible to are to capacity no are business on quite internally that capacity of and our some seeing to constrained. that edge And we the combination those capacity So competitors is foundries the the factors it adding

Operator

will Harlan JPMorgan. We a question from take with Sur now

Harlan Sur

Good you afternoon. want not sales, strongly. is Currently, a percent overall where Congratulations quite business be as on your but and on to execution. growing the strong OpEx margins of you're

business revenue pace than of guys So it's your same personnel to faster have challenge won't hard new long-term at CAGR XX% to your a the you term, bring is XX%. longer given on growing. But

kept accelerated can scale, the by the points revenue billion to targets revenue OpEx I target? with and my $X going that scale, when grow OpEx margin I really growth leverage maintain stronger driving something? model operating targets your unchanged Am margin implies, you CAGR. your operating seem be missing it revenue rate because forward double-digit would its is, Given of percentage point revenue team guess than your increased on you'll your X-year the what you your

Steve Sanghi

I'll give a… you

Ganesh Moorthy

I as want add to well. it to will

operating other property. place, that we has development investments think There's clearly not there's takes that, expense and are got in large research and the in work this we've beyond I have one the work just people make. investments to wafers alone. to do. of That But which we to an things intellectual is have do

They today's competitive and gross where thought of a strong are believe sure environment that be to that won't for and and is don't products and continue that continued to there margin marketing bit availability associated while that we technologies, and keep I the activities and think new make we will gross strong build growth the And also, world, to do high a that we're where the growth and in of do, forever. executed. And margins out other ensures we be in able be challenging keep in to those through, because strong future today's high invested need need people at. rates is gross they're need So sky. the of margins the we to that fall at, businesses

So that a that's do some add people, cetera, of we will solve we business. margin et get those gross in it? time, to we sustainable hire to creates range And to shortages and have back into need you the do being Do expect able provided. that of high want to what

Eric Bjornholt

growth another CAGR expecting We're fiscal that question, are fiscal of your XX% revenue a right? or just that's 'XX, but on to model I is very baseline, that Harlan, time, a you want I statement your We on is We'll a as I basis other only year, CAGR think just this a out would off that is as but forward. completed a necessarily investors the how point fiscal don't 'XX just targeting 'XX add in have to to thing put strong year. baseline. XX% X-year to XX% over XX% clarification on growth see made plays of based strong the we based on in you perpetual going which the

Operator

with Our next UBS. comes Ramani question from Pradeep

Pradeep Ramani

with it how duration maybe it it of and your maybe And the you your in March. you the that? the sort speak to even us versus respect help backlog with about from address grew to quarter-over-quarter? Or Can PSP. is PSP backlog, how perspective June stretching same? largely unsupported Is of Can trends

Ganesh Moorthy

percentage is program months backlog non-cancelable is is. that go And we a So continuous in We grow. continuing months. to make have really And than we the of have backlog. track But to what than above is compliance longer backlog more PSP don't overall what it sure choose do XX PSP the we that is with amount -- below customers meaningful that of of Many program. that. everybody do XX that requires the or where

And part quite how that sixth or versus So of no And of that's have or quarter, giving to capacity seventh it the the expansion the demand. sense continuing the March much exiting of matter -- is incremental other quarter consecutive be we backlog of just falling the unsupported brought question. some we of behind significantly. intensity of how on, one continue you our again part the is, grew unsupported,

just online. multiple is supply outgrowing between just it's demand. it's -- supply It's not that expanding demand gap coming So supplies and and and quarters

Eric Bjornholt

points. of said backlog backlog I and Ganesh one grew backlog already, would grew. but PSP add two grew, unsupported in total think just the quarter, I these

were quarter-on-quarter. So of them up all

Operator

now with question we'll a Srivastava Ambrish take from And BMO.

Ambrish Srivastava

I Have been lead adding which had translate times folks into lead alleviation. stabilized? should times. on capacity, You have a question some

reaction have on programs in And has then, relates the just you price to lead a times. PSP, about increase. it place? question what that the Ganesh, as So price the increase you talked And been the to

Ganesh Moorthy

long. are wouldn't times they're say stabilized. I lead that So

demand grow Some constraints to to times. supply, the only continues And acute. that on of quite extent the still faster is the way to are than solve lead

So on more out lead other been than products, so stretching perhaps where have they're and products, some at. times

to our a And small if refuse the if increase any have to so cancel have price, we opportunity done. which they On that window we wish, the the time course What that the backlog have we PSP, have scheme they of backlog amount increase so is of so customers the almost in and have. price have we the not cancel we to increase, and customers opportunity the have they adjust have which in pricing prices, what wish. immeasurable the price grand chosen the so we in it's done, small, of increase the

final PSP there has impact no in the backlog. our so And price of been increase

Ambrish Srivastava

because down -- and forget, just sorry, was What brought of I times I is considerably Just you've clarification. to to basis? online a up increase that year-over-year has go the continuing rate ask the what or lead slowed capacity on lead a meant our times the that on

Ganesh Moorthy

which There's you so our have to function materials cetera. no capacity, give substrates, of industry answer in constraints et the some like -- on external a is what internal easy capacity, packages, specific our capacity

we be alleviating much So In may it's quite constraints in in pushing well get a lead others year out as at any given package them product not to can or least combination, and we there. over stabilizing are where the can large time. as be

grows have grow. and our would demand constraints solves aggregate, imbalance that that stabilized in every say I So it quarter, And times the to as -- lead time. but and not on continue between supply

Operator

will with Danely come from next Our question Chris Citi.

Chris Danely

maybe you one. COVID how ask or affect it. Steve saying you stage managing take it less China a peers? your on have just I the guys from insights are semiconductor, shutdowns quick for you quantify as Did any a to little bit some will than impact come me Let business? then shot of guess at a also, follow-up, the you your of a Ganesh And to the

Ganesh Moorthy

China where business partners the affected, shut the what and what and impacts are are is. supply chains that break are are have we in impact from there are not there we conduct customers, Clearly, doing. manufacturing supply, unable to that regions who both in down So and they're did COVID out

not that. that, and trying from we into impact both the that any comprehended side the demand it have break have We down the we're to provided. supply beyond than further the guidance And

I the done As and and far how their do have function customer we know, in affected that is a all or what what very because it's base manufacturing as is for not of other of knowable people think, honestly don't percent us. area,

insight So that their is into I presume the right. has the each provide guidance they to think business company

Steve Sanghi

So let me that. add to

I of think amount comes customers China when chain the have back is amount exposure, of as of tariffs China When as moved them well the China. chain, to in of chain outside for supply put we fair lot supply we different of were China left A companies. XXXX. on it there a different supply out on both

one. had substantially be we That exposure chain. lowered the So could our for supply

on of on supply we Shanghai, it able Chinese were but in In because to terms yes, of we elsewhere, customers have larger the finite having we're delinquencies. ship take impact the impact and that that,

the impact because not to wanting of closed. the accept were customers mitigate we to product, largely So able were they

Operator

question from will with David next Paribas. O'Connor come BNP Our

David O'Connor

guys. silicon Thanks afternoon, Ganesh, taking question on Good question. my a carbide. for Maybe,

announcements And to in maybe high on Can just carbide? and industrial voltage that application? next you within CapEx the for that really side. question. silicon carbide and headwind new ramps to You had Is about gross strategy on on as very particular the around related quarter, talk a -- just much silicon positioning silicon just is then as carbon well, That's margin? first some a a product that up, And focused the charging year. pretty and stations follow-up Microchip's the on my there

the what that versus at you of the high is maintenance give range. mentioned any portion Could expansion? capacity sense You of us end of

Ganesh Moorthy

Sure.

us robustness reliability came DNA to around So has substantial in where therefore, silicon aerospace and a Microsemi built started that and defense from a acquisition, and our is for technology, the at. heritage carbide has it's

interest that Microchip's since continued automotive, to focus time it's technology interest because to faster higher more characteristics also a margin it industrial its where and in with market, that far but because are expand have industrial, has at. and out gross We build with align into a

And have catalog we continue that's what we, the of High robustness voltage silicon have point, an voltage the is that in its out operate we higher indication have is to in these new larger one so products done out of ability product bring market. to I categories, capabilities. of And harsh more environments. carbide products probably in at are this prosecuting Bring think these and applications EV automotive. a a of just you range broad degree design Industrial, key in customers, of is finding for many with of And industrial for high total the a chargers example one silicon obviously great that cited, is some reference success solution that us in solutions, just we're carbide, other for but parts for system bring in. our not we which that

Eric Bjornholt

majority always say CapEx, versus The and our going be second on was would I of There's to it capital was maintenance. And piece expansion. some is of your expansion. question the maintenance

down some million, the at factories our $XX seen $XX now. look maintenance can that And million, be with required $XX million, the also industry has has You in very hard we've minimal. is CapEx running but years there to or relatively we're and It happen. is that past, seen our that, might a

have percentage capital. for the don't you, expansion I of a specific will it So but largest be portion

Operator

will Longbow Our with from come Todorov Research. next Nik question

Nik Todorov

back the illuminating in. I squeezing results. not of into of Steve, given comments to on one wanted about edge of and great is think lagging capacity wonder me for tons explaining visibility the as as to lagging are edge amount constrained, on I the just are why much Yes, that But question your ahead. peers thanks you And seeing why orders substantial reasons think congrats is go you capacity. backlog, and I unsupported and historically. other years remain for going do probably fact very

an So it all-time lagging capacity out peers seems profitability high. like edge that also And that there's there. definitely operating in for is you demand and are

why maybe X not investments edge or the investments So of up? lagging can going is other lagging you factors talk edge

Ganesh Moorthy

you the edge in compared of that trailing opportunity edge. So high their foundry companies, cost is in investing to same as talk making leading to when investment

put of cost investing product edge and it. the is what is, they the way And cetera. decide et are they negative so sometimes is And right it, they're in have trailing performance, markets, bandwidth, at. see a and to tell also of not There which for CapEx, finite we leading leading where the part leading to going need certain of to always in where how types, edge is very small us certain finite of now, they a that that they to critical where resources, particularly to sufficient edge take going their go terms it's are understanding and at what the mostly edge is of benefits

smaller a will the manufacturing And among is understand ones be closer their are companies. they understanding what that and own that typically, it of to set So takes.

And capacity so the bandwidth. and but given constrained we their just by for CapEx their their foundries of market, a investment external both also in environment capacity their people trailing don't see priority knowledge edge their in broad-based a

Operator

from Craig with Securities. Riley question take We'll a B. Ellis

Craig Ellis

as and not up commentary Yes, few external and Can on thanks of around of very question. supply? us like that you your Congratulations about the that get talk is understand commitments got margins, gives investing capacity-related wanted points. can't with you the the question that company the part the intensively, the that feel help you to foundries I external supply can real on supply. really about growth you've to feels you longer-term partners, if some But to XX%? of my And for last recently supplies the with do, need? takes XX% given will just a strong get point how follow taking you the external the team. that, XX% Or to to supply what XX% just supply rate? contribution that around to Do

Ganesh Moorthy

Yes.

some will a that the through with new confidence So actions, our we partners. that with existing support external cases, we we growth, of will to have combination will internal to In work need capacity there. we work partners. and every And continue be

cases, to the it at internally we to, can ways where on And be ensure That's be we where partner right? that CapEx that bit to are continue do about need doing capacity that to cost the quite aimed new will, many ensure whole in is We internal we also effectively. high-growth long-term unique talked a capacity, -- and can in in there. the we business have is high-margin, to order done our where

Operator

at further have time. questions we this And queued no

Moorthy So I'll turn things any or to back for Ganesh remarks. over closing additional

Ganesh Moorthy

the to everyone, us of months, look We on thank for next circuit you, out couple of Thank we're different Well, Great. conferences. many seeing forward as over Bye-bye. afternoon. you you. of the joining this

Operator

call. And for joining again, that does conference Once thanks, conclude today's everyone, us.

now may You disconnect.

Microchip Technology (MCHP) 10 May 222022 Q4 Earnings call transcript