MCHP - Earnings call transcript Q1 2023 | Microchip Technology Incorporated

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Operator

Good day, everyone, and welcome to Microchip's First Quarter Fiscal 2023 Financial Results.

As a reminder, today's call is being recorded. At this time, I'd like to turn the call over to Mr. Eric Bjornholt, our CFO. Please go ahead, sir.

Eric Bjornholt

afternoon, good and you, everyone. Thank

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

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

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

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

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

have non-GAAP record $XX.X was record share $XXX.X and tangible income a $X.XX diluted operating was adjustment. in of special million by a product record in net We a loss was gross associated per and at margins $X.X end our million $XXX.X net On GAAP XX.X%. a record basis GAAP above million, settlement a quarter, compensation activities line high per acquisition by impacted were of other million basis, income $XX a range. On Non-GAAP diluted and website refinancing and with $X.X GAAP million litigation $X.XX on the convertible debt record Non-GAAP share income resulting costs and income XX.X%, a of our and on a your gross impacted and XX.X% million. million, and included the record earnings our accrual was at by positively XX.X%. share-based our for operating reference. expenses was a of Total of posted geography June $XX.X were $X.XX adversely guidance debt amortization $XXX.X operating at and related a were were sales million; expenses margins acquisition of net $XXX.X a million. summary

the notably loss impacted the debt of a was expense tax GAAP on quarter, by tax result variety as benefits June the recorded a Our of factors, settlement.

June with up tax in quarter in rate was cash guidance. fiscal in June basis XXX from the was was year tax The non-GAAP quarter our points and X.X% rate rates Our approximately the line XXXX.

settlements structure our with X.X% restructuring a XX.X% associated we any of related the attributes, prior operations rate global fiscal the the tax higher XXXX as accrued last reminder operating tax to is for rate exclusive fiscal to purposes. for and A as XXXX any impact what between rate taxes fiscal losses of availability cash tax tax with into tax communicated Microsemi R&D tax requiring such of audit tax years. as XXXX potential for Microchip cash credits, non-GAAP quarter, net factors, our expenses tax, expect in of well a fiscal rules and the transition our We than be current including tax variety lower and tax capitalization of

inventory of basis at up two XXXX June margin. June of in point was inventory quarter, increase driven increase XX, sequential the which A XXX from at inventory major million. of part days the by balance end had $XXX.X We the quarter’s of Our days was in level. days was XX the prior the gross

progress of from been against costs raw restructuring buffer input supply for in from as will position are due as work increasing we material has in make capacity increased to some last and materials buys, us cost of levels internal to expecting the lead caring shortages changes helps which factories because we being unexpected our and taken our the are helps by in to well The be degree, times. increased inventory our quarter, our time several production a forced or and actions chain, of rising suppliers. Our

above cap of by amount. internal June we price the quarter the fund quarter to the of the million beginning our We at our the days, believe our which November notes of the debt $XXX.X XX value XXXX time. products to amount place of also a June convertible offsets principal dilution XX June cash ramp we was stock reducing subordinated value at billion used quarter’s that the with cash. at sheet transactions in And two XXXX continuing ship a and principal during these price the We convertibles stockholders customer generation million. was the for $XX.X potential in principal convertible are external to convertible convertible This XXXX, that Inventory for share At convertible $XXX.XX. In can paid support up capacity over level. stock up cash days these of prior call quarter, factories, and $X.XXX repurchased repurchases. from count a $XXX.X of more of bonds XXXX we bonds requirements. on calendar our from in debt distributors in bonds dilution will was year our balance of to to amount And benefit of any appreciates extent, Microchip had outstanding. option The these million of we includes so maturing

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

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

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

paid position debt total million. quarter. million. was in million We cash net the of was debt As reduced $XXX.X down of $XXX.X June XX, investment our consolidated in June $XXX.X our total by And

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

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

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

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

XX-month adjusted a was record Our trailing at also EBITDA $X.XXX billion.

and expenditures XX, June March XX, $XXX.X at EBITDA XXXX, debt-to-adjusted June the from X.XX quarter. X.XX million Capital down XXXX. down at XX, from XXXX, at net Our X.XX June in were was

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

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

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

Ganesh Moorthy

good you, Eric, everyone. and Thank afternoon,

across achieve setting all-time This a results mark. achieved records record at Board, on where revenue the be X.X% basis XX.X% June in seventh another and $X.XX several the billion. we continue Our sequentially was a a year-over-year Revenue quarter process. consecutive to quarter strong grew record to

quarter, achieving operational in and points from basis the efficiencies but XX.X%. well the from COVID-related our including, customers low our up Due from Non-GAAP affected XX.X% the chain not a record our which we from of model product XX.X%, from quarter expenses quarter, to points revenue, XX.X% range operating benefiting year XX end ago Shanghai, at the XX.X%, up rapid in basis quarter, as margin below March worked points operational gross XXX increase of also challenges, our of and through and another partners. Non-GAAP the of basis operating several mix basis long-term end year points our XX of XXX shutdowns record limited During the March quarter guidance. changes. basis to was as improved high points or XXX was to, supply ago the the margin up up

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

of how we the June to since were share, aggressively both end the very net drive far at almost million, at Our the satisfying in ratio down Adjusted the and quarter record cash demonstrate acquisition. Xx of leverage bring full June ago business. generation diluted year quarter from of as down just net was to high net EPS It our XX.X% free our continuing robust is after come guidance. Microsemi end that leverage consolidated X.XX driving our have of net up declined to Recalling non-GAAP our flow above XX.X% Net to revenue exiting $X.XX June at strong right XXXX down cash capabilities we XX.X% continue per quarter, so the in was leverage the year significantly. a of and the $XXX.X see quarter by debt the EBITDA the our revenue to our leverage.

set June compared represented our revenue March microcontroller from for repurchases, the and I a prior demand. dividends imbalance million was revenue product opportunity in customers our look our deliver of stakeholders XX.X% thank achieve a was Taking On their at up like would X.X% of During our concerted all returned and who give to worldwide Microchip thank attitude up to profusely to cash the for team the June and quarter, representing we especially us of the to to quarter perspective, record. quarter take free June year-over-year up outstanding quarter. revenue these the $XXX.X basis, results our another enabled never XX.X%. and flow. quarter’s microcontroller shareholders XX% our all-time this and to in Microcontrollers sequentially share line a between and historic supply effort results despite as persistent revenue

analog XX.X% a in quarter. sequentially Our part quarter setting represented up in are record we the predominantly increased XX.X% a constrained past June and XX.X%, less process. growth analog on year-over-year part differences basis, seen June between our another On analog in rate revenue and produced through are in in based quarter, the we revenue of analog revenue in strong microcontrollers is the internal on was difference June in and quarter-to-quarter factories. The quarter which competitively analog the the June in as because have products, our

new a was quarter. Europe break June technology licensing records. achieved in Taking XX.X% over as look and Americas year both prior the were over year longer as royalty the end was prior revenue the our notable up our we strongly a FPGA them well from up revenue XX% was no that out, our market and Although, at up revenue quarter. it quarter, geographic perspective.

over up XX.X% quarter. was year prior Asia the

of into markets end supply implemented we indicators, strong be our constrained. the conditions major XXXX. continued the have rest as far. viewed through continue be to expect and were remain constrained to to Demand Our and through so insatiable Business despite we strong increases supply internal capacity remain XXXX

We quarter a our but unsupported deliver to could with exited actual coming June backlog backlog again. the which customers unsupported in quarter revenue the highest quarter, in not with As result, unsupported the ever, them we the ship June June represents in backlog, well want we achieve. above to backlog which our climbed

from resulting by We the conditions being actions banks response. inflation and taken are cognizant macro and of the weakening central rising

and some our can buffer sheet, there believe is customers build which seen also builds is their due kits some effect. the inventory be incomplete at to is we to balance that or aware We’re in as of of which strategic infamous screw golden inventory some due

that multiple very and At a of While and many material and to same large quarters with we our not has self-identify inventory customer time, experiencing inventory to the escalations unsupported the order demand have we’re utilize had we these abated, reduced level to requests a impact style the who to our situations. the and from remain fraction positions distress best supply builds, backlog have customer we of business. seen future expedites thoughtfully on push over backlog, In reallocate imbalanced requests indicating customer line not supply continue situations. hence, sporadic are from small imminent available supply customers in have customers

Given swiftly the business deliberate and we range have early internal leading should uncertainty the indicators, some appropriate. crosscurrents actions of a in are to our take and environment, monitoring enable strong indicators scenarios which of when us modeled potential and macro

with catches deliver landing our to for or soft a up Our environment the if business goal when macro softer it. is

it. here’s how so about we’re And thinking

strong XX have to XX% our total well comprises continue which over is which at backlog, non-cancelable months, for backlog. least PSP of We

the agreements in last we giving reserved entered have supply of years. number over in five purchases with six long-term over capacity for them into addition, guaranteed typically effect, large a months, multi-year In customers, exchange

We of absorb us serve will depleted customers. well XXX% and can push the channel XX to backlog than to the cancellations. channel demand as channel effectively. position better supported business which inventory replenish give is inventory any to low customers weakness business required to as growth our is respond cushion much has historically Any with serve partners and compared opportunity at unsupported outs Distribution when significant have days what backlog greater a to that readily and

us bank our internal customers. the inventory this business been to depleted will position Our for outstripped inventory has and finished supply last weakness us seven as substantially quarters. to die goods Any demand enable to support replenish better

we We and our system growth – secular total megatrends. focus expect on continue continued solutions trends, above-average resulting from

our in and concentrated is expect business expenses end seen cycles. infrastructure finally, we guidance intensity defense, center of cycles, our cash our lower will In industrial, capital our CapEx that’s we to have protect the free exposure of all aerospace or much liberating durability of prior end market the markets, model. even programs as With automotive, demonstrated operating any variable below And to the X% you’ve end and in communications compensation expect of addition, in data buffer which operating higher revenue, and low to shift prior flow. weakness, X% our our

and execute a margin to market when gross to we again will may strategy short-term us whatever slowdown robust business, generation, today the is once the results. demonstrate speak help last be. through and Microchip you growth will study that our generation, consistent you consistency or cash performance If impacts challenges Microchip expect macro resiliency. continue to and presentation cycles. details there through and the trust margin on XX years, business margin IR If operating operating cycles gross our observe about our our website our posted from they X.X over provides performance and long-term business margin insulated cash The This investor our to

manufacturing chain secure our factories constraints closely external and chains, the factories internal We additional continue possible. working to our related ramping and we partners are internal supply and expect capacity our with to supply wherever in

technologies. customers trailing increase over better, on margin destiny, our our to in We in We calibrated believe us improve have in fiscal spending of you capital above specialized serve capitalize opportunities the increase be gross our edge control we XXXX to expect respond spending modestly to share, more and will especially we X% our revenue our year growth growth enable as range business. to opportunities, shared capital us market for with X% give our our

security. bipartisan and is semiconductor the into will national companies This strategically We’re to and expect critical support also it for see economic our enables it field as will America for President imminently. important playing the the by law sign for global which Congress U.S. and bill with Act good Science approved while the even and CHIPS pleased for investments, industry being

to the and of economic this U.S. our the we expect well the as investment tax in security. as We credit ensuring grants national eligible benefit be invest from to under part provisions bill as legislation, to do

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

sequentially, between we quarter XX%. up have is into a effect. the strong the in the into backlog would expect sales and X% our have the we be discussed today for we our improvements the At consideration, our September we September X% again capacity growth factors revenue quarter. more Our quarter expect strong, and all for and to revenue on the coming sequential Taking net September quarter growth the be midpoint December of guidance, year-over-year call

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

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

operating sales, guidance, for and earnings our non-GAAP the be strong between $X.XX We and growth to per share. $X.XX midpoint the per our our share share diluted we quarter per of to of non-GAAP profit between a would XX.X% be XX.X% expect At XX.X%. and EPS be year-over-year September expect

as of our our and element improve firing to summarize growth businesses to semiconductor of to quarter rate all organic we and cash believe of continue high strategy essential margin, frame X.X, growth Microchip one guidance, Microchip high the results XXXX elements time we September year XXXX high on the every most XX% quarter are defensible, growth, XX% can X.X diversified, June what as they the see is industry. in revenue generating To by Finally, XXX% organic XXX six – you key in free cash to from after is to the fiscal build a of margin strong free company X.Xx. of of megatrends. of and revenue and target as and consistently X% capital foundation on market increasing non-GAAP Long-term over and operating investment that leverage business returned investment cycles, to total flow XX%, shareholders to CapEx is return focusing leverage of culture to in drops to net XX% that drops solutions of XXX built XX% on system inventory X% days our is of sustainability. such net shareholders flow cash target cylinders

Now shareholders. to about to let me return Steve baton our pass talk more cash the Steve? to

Steve Sanghi

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

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

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

be to as returned debt billion dividends capital to end XX, through of net the March investment-grade for flow actual in our combination is stock Out Our of record share for $XXX.X $X.XX increasing to rating have approximately operator, of that, will In Ever XXXX June and June return cash will XXXX, achieved shareholders. of With is of free $XXX.X and to million, questions? pivoted million shareholders buyback please leverage plan use X.XX this drove approximately our end dividend amount September or November you to shareholders, June a of by we our from at to our of $XXX.X million XX.X% poll quarter. quarter, at that we million quarter’s million. debt be and EBITDA to paydown expected down the the the the to as return expected buybacks. since and of we well adjusted XXXX $XXX.X the $XXX.X X.XX quarter

Operator

from first from Fargo. will Instructions] Wells [Operator Gary Mobley question the sir. you Thank We take

open. is Please ahead. line Your go

Gary Mobley

solid Hi some guys. my congrats taking on and Thanks for questions results.

have base just a passed. start and lot of the CHIPS business. oriented inevitability not Act to of manufacturing know a relatively Let’s you high with military footprint U.S. mention U.S.-centric employee guys the I out being

may And if so there? perspective, us from I’m you anything the a a more benefit subsidization R&D tax wondering Act from CapEx give in you how can you can credit add perspective maybe or an CHIPS little color

Ganesh Moorthy

Act different. So be out the will and of how are they to rules of there various engagement be of are components the going handed CHIPS

on obvious credit. the of are So have But of effect, it’s of of most yet credit. There And first that. will both year in for R&D. are any that capital that’s that are both then built, terms probably of or the we in investment and tax a plans too and the And that are clear next that with is XX% grants one that R&D we have the beginning honestly, that manufacturing into are the some cetera, et that for expenses the expansion thing how think programs it’s and those the and pursuing. the tax effect, requirements quite investment take we those for factories we because will not be opportunities is end the comes before year and early

aligned course, the give of interests we with in of the been understanding Commerce sees months, have, are many what natural of are with Department Defense what interested doing do, as are them planning to what imperatives. between and and Department of security an both government for We engaged to

time. that not we in rolls we’ll so this that share, as And at out, but point to expect have more

Gary Mobley

Ganesh. you, Appreciated. Thank

Operator

the take Company. next Raji will from Gil, Needham & We question

line Your ahead. go is Please open.

Raji Gil

very on very Yes, this congrats, great again a time thank results. volatile you with of period on and managing through

a unsupported on your backlog. question Just

maybe where absorb? you kind your order could you if some I’m if us do volatility. you maybe if decline there potential to And maybe climbed you is could scenario it you well? describe significant How and cancelations. mentioned you And any above indications help a actual understand end demand of you be can are as And order in again, some it’s revenue absorb push-outs that think there in elaborate or part seeing mentioned wondering the further that able much You order analysis as of Thank well of that mentioned of you’ll achieved. you. it? are kind of you markets. these Wondering

Ganesh Moorthy

on It’s substitutable and well, have, we sporadic. the we volatility order unsupported well that have your the it shipping. we they unsupported very and other So is last is easily with orders we excess we that are is have. question, small, of below in see the orders And what are indicated

by just And have So, activity you backlog is can the a get half taking that’s see to to more than be today’s would far, cut from to at. where where we’re cry place. far

Raji Gil

you. Thank

Operator

the We Cowen. next Matt will from from take Ramsay question

is Your ahead. line open. Please go

John Buchalter

results. to Hey revenue any guys, And wondering, CapEx understand there was the line by taking can was Buchalter flowing Matt. model on help how this margins of John are away are is themselves. speak pricing the upside my for on solid metrics already, on behalf to much how you still of through come? us as capacity for driven gross much Thanks and questions. the congrats your provide versus the to we But square investments and on what’s Thanks The the I units try guys.

Ganesh Moorthy

an So number for pricing of that both have it. break of easy increased Obviously, component we the a out units. us into go it’s not way versus to

partners. own unexpected what factories doing we from the are and do a On component, we our have then factories, comes units, coming from can from things us. we our what that have have measure what is components have is get are least we partners of can plans our help at and what upside from trying sometimes and our we which we we to that And that are

is to offset shipping we parts. – there are price increases experienced. have increases cost included that price component So it is made more we’re And is very of clear, we a have that the

primary by And driver grow the price. to so units, growing for by not is us growing

We question. to the move Okay. should next

Operator

from from Securities. is question William next The Stein Truist

is open. line ahead. Please Your go

William Stein

over December having, growth the example, next to regard expecting? to think in of that feeling for – will a let's to the willing the Thanks Could the say my capacity expecting that you’re that like in taken increase few be at guidance, provide into Great. strong not question. an It relative be up quarters. some strength for to Would the least, but backlog and perhaps us continue sounds revenue about With quarters? think way about you having we subsequent that quarter? quarter relatively you’re

Ganesh Moorthy

subsequent in my we the if I historical you provide seasonality. So declining historically, is measure guidance did December any obviously grow say prepared will look quarter we in quarter. don't of for remarks, but from quarters, And at December a

And grow confident question so your we that are we will Does into the quarter. answer Will? December quite

Operator

the now. not He’s right line on

Ganesh Moorthy

ahead. go right, All

Operator

will [Operator next Chris Instructions] In we the the meantime take from from questionnaire Danely Citi.

Your line go is open. ahead. Please

Chris Danely

guess just shortages. and a the on I capacity question

able a give shortage out hunt balance up little bit you find supply squeeze externally been and trying situation, around few both talk on over you've gone seeing are more color months maybe you a us parts little the situation? to So a any improvement about bit just last a that the there and to few maybe in and capacity capacity little more demand or as projected internally and has your more

Ganesh Moorthy

Yeah.

investing CapEx for in We internal shorter a quarters. been have because first it easier cycle time progress made and factories in our to bring So on. factories, for backend we many was our

making have can get We to bring think our and equipment. been are progress quarters factories many able as we that we still on on capacity front-end of have we

better the terms And been but needed getting positions some people. being as been And able some being has in prior quarters, we're able delayed in it the has harder equipment to of in of that our factories, have to fill hire we et cetera.

support backlog that time. we're of clearly point in unable some helping and internal the at is growing to this So us capacity support

I partners, in we capacity constructive in things more the think segments that perhaps incrementally be and small some help are be that. had between fact still have other freed in an some of us. but will free We weaknesses of out we hopeful things very there's incrementally we need that constructive where getting may although from exact that in grand of are terms up need, positive improvements what we scheme require, not although of the and external up mix it there where our is are will the for it And capacity

Chris Danely

it. Got

Okay. Thanks Ganesh.

Ganesh Moorthy

Thank you.

Operator

question The from Morgan. J.P. Sur Harlan from next

is ahead. open, please Your line go

Harlan Sur

afternoon and Good Yep. congratulations strong on the execution.

your to so customer's a strong, down reflection backlog near broader the market continues to just view times about many giving their look order funnel going, on given keep next PSP but month unsupported for concern that they the right? this think I orders maybe business you month. to funnel talked XX they're for slow add visibility, your year, year, they're your as single because be every your the to next to customers, You've – of business, right? So not to back-end year, a XX mix PSP Your maybe but midterm at worthwhile the of it's of being months continuing PSP strong, much have to continues continue

into booking concerns sequential you order, or as that combined reflection they're on basis given year? on next seen slowdown, true-ups on a macro customer sort of So guys year, sort a next PSP demand of the with have well a a concerns in deceleration the decline

Ganesh Moorthy

Nothing perceptively changing.

time. last about of one If it's XX, rock you look at within our XX backlog, pretty of percentage PSP steady point through as weeks much a the total percentage pretty

that So indicator. where is attention to We watching we are certainly a it's good and going. pay

by who driven exposed are and I segments. concerns to. today strength you many where driven consumer our predominantly And see in we're of of out there weakness, think the seeing is what people it's is also markets business the end the

very we consumer have whether PC mobile so electronics, do enterprise strong. et is exposure. consumer And PCs, exposure. PC consumer no We have phone, consumer that And It's cetera.

We have almost exposure. phone no

they appliances – piece speak, but we a home overall so could small of don't of are be have appliances thing. consumer our we part do have a consumer such electronics it, it's and Our to

very So durable our end have very market comment think to exposure, I we're add markets to fortunate and wants it as a well. to Eric

Eric Bjornholt

Yeah, PSP of June of end amount it at so the that on we was than backlog mean, was higher dollars I March. leaving had the specifically, PSP

quite effective. are orders So, and I mean participating the program is adding in out it time. Customers still in

Harlan Sur

the insights. for you thank Well,

Operator

next Stifel. We'll from take Svanberg question the Tore from

Your line go ahead. open. is Please

Tore Svanberg

the record on Yes. And congratulations quarter.

some as soft into levers you Would a especially of variable PSP to and manage able gross be add financial, being you to landing you of bit program. structure, any you've your the operating macro strong them got the in about and put about talk talked so continues deteriorate, case have, margin, that You've cost a know other you have color more great? very, because maybe margin would perspective you very could of a obviously

Ganesh Moorthy

that So help with a us landing. points I outlined had multiple soft

mentioned of which you part cycle. one clearly the So is demand PSP,

shorter-term. against of months downs about to even we long-term the six and with just farther some in supply We've continues there been how ups did. a be demand that bolster side in equation, the is think large buffer the agreements, PSP have I provide which last any what talked and the than to that also adding that unsupported how may

been goods substantially We running any might inventories down that We as see will, we right? die have our chain supply fumes, banks rebuild with slowing to that a use depleted. an finished on what and opportunity that is internal have

bit able really end-of-life of need a you perhaps be from be little our and raw of ongoing our more change and inventory with the some While we our an and see product factories. in moving that days to a we're gross healthy, inventory, with margin of both materials to buying. On that run channel has come to lot partners basis, up, internal

during coming then help. continue that which generation our expenses the in will large range, cycles. operating margin, different to a about of our we that whatever cash out the in large do landing elements those a OpEx protection think always element how generation. to and standpoint, or is provide gives that And cycle. us the in through I in cash on soft the that that from gross compensation will able to margin, of had a remain coming All margin happens what strong is. cash absorption that are gross all we've give ensure down, again, whatever we're preservation terms talked finally, for our can variable our side, requirement standpoint, a the have And comfort And soft come capital we've landing, the then below buffer All us intensity on

Tore Svanberg

Thank All good perspective. you.

Operator

is The from next Chris Susquehanna. from question Rolland

open. is go line Please Your ahead.

Chris Rolland

Thanks for question. the Hi guys.

have hear pumping love Thanks. of for a any know business? to have see the that. of industry may guys little if would And overall? capacity on view you talked or But coming either I effect don't capacity XXXX guys about Steve, kind sort would in to maybe additions your that's how guys analog you you now that opinion equipment have as well. We're about starting longer analog push term, for it of the You industry and the the stuff beyond. And and like Ganesh brakes, potentially outs

Ganesh Moorthy

and it. take a then can maybe Let answer me Steve shot quick to

what to doing is for want have people the and and different plans what I different they're because doing. So overall thoughts don't industry speak

important the for that be analog And are to those complete drive trailing out from have yet I of leading-edge edge are technology we that to that you and the critically even nodes underinvested. that, the more very in being that think to see are so able technology can be there, that solutions. tends what tend nodes the is specialized growth are technology,

be sense, that solutions, requires getting solutions, capital believe attention, So is know whole more? signal we is that I else want analog going of that in actions but constrained doing, we some it. for don't cetera, it to you think do what taking market, end mixed for is add et are come. the to a we insufficient to while and quite Steve, everybody that,

Steve Sanghi

prepared microcontrollers the business comes do. than we the business of of more analog And comments the much business. the described Certainly, analog his described the microcontroller Ganesh about internal of growth in production – earlier from versus growth our

outside that for really runs, more we also easier hence, where capacity inside bit it a edge make analog inside get large production partners. available trailing much our add we been outside and near-term able than in with stronger doing analog large have it growth And then production we are We is inside, having to capacity microcontrollers capacity analog, have of to better component seen. having to doing a outside. capacity increase on of are The technologies

where about XX a was January, Ganesh after talked to believe it push own growth, is push in that in to suppliers You equipment February, it's of we to COVID-XX equipment kind to growth hire the here equipment last to supposed September push push our the produce production dealing substantial in December months. contribute We're we as continue has the phenomena outs. the but before. the mentioned the in a come shutdowns of are out the based now, push now I and a and line. I XX as And brand-new been in will something out, lot ability a happened continuous equipment arrived of mean out. have in with contributing to quarter, that, outs and not new their they hitting on up is mean some coming all

This December think add quarter, in grow some line some will continue to capacity internal our and which last to came come quarter, will online to in we quarter, business.

Eric Bjornholt

And Yes. equipment capital this clearly anything need still can are out. coming as not soon our suppliers get We we we push in it. to instructing equipment as

Ganesh Moorthy

that the providing that extent helps helping our helps by just them equipment I've they of to capital building. but If it semiconductor as suppliers preferentially complete mentioned not the constrained, all anything, so in calls, we industry solutions equipment they're the are are us other

Steve Sanghi

that, I and phones. extent PCs partners to test I So where wanted reemphasize, said Ganesh and are slowdown and foundry cell some assembly the to in the the other coming point seeing business and consumer think our from

been next advantage the in on assembly/test the the by about upside. quarter. again And of X% this to talking that take we will that we're where both because slack guided business, to hopefully, of it quarter and we're That's we to that in able OSAT midpoint and the have say growth are able a to capitalize guys, growth capacity. again advantage and our incremental taking continue addition the We taking at output we foundries increase

Chris Rolland

That’s That’s great. always insightful. Thanks guys.

Ganesh Moorthy

Great. Thank you.

Operator

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

Ganesh Moorthy

We be of we to thank taking conferences seeing this you at. you all call. as time in for speaking your as day forward we'll the at well some to many of to of And from you some attending and look be

So you, everyone. afternoon, thank good and

Operator

This concludes today's conference.

You may now disconnect.

Microchip Technology (MCHP) 3 Aug 222023 Q1 Earnings call transcript