Earnings call transcript Q3 2023

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

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

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

James Eric Bjornholt

afternoon, good and you everyone. Thank

Microchip's of of During such be or statements call, wish performance will are predictions conference projections the the caution and that financial events course making materially. future that results that other we and recent to filings business regarding I the refer SEC that this forward-looking you our may well press events or We as our company, actual releases the important as factors risk identify and future to impact may differ operations. of you of statements today results with

In Steve are Sanghi, today Daudi, Ganesh CEO; Chair; Executive President and Sajid and Investor attendance with Microchip's Of Microchip's Moorthy, me Head Microchip's Relations.

financial on environment provide our will update quarter I guidance. cash performance. as Ganesh our an strategy. and business current will Steve commentary comment as the well And on return discuss our then our provide results on will third

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

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

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

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

our the other some adjustments these press in acquisition prior operating the Other including results of certain share-based our on website. net release reconciliations activities, compensation results our expenses through non-GAAP margin referring based and described is on of to sales, than net which and in basis, that expenses. go and effects I gross on now operating will will I sales, be a to

quarter Net were which up the sales December X.X% sequentially. $X.XXX was in billion,

our expenses XX.X% record your margins income of XX.X%, and sales non-GAAP was operating a geography our and on On a product net were reference. at gross were website We have a for record by XX.X%. line summary a GAAP posted basis, operating

$XXX.X diluted in share the $XXX.X million. our gross at the special acquisition net expenses included record charges Non-GAAP basis was record acquisition were at a guidance income of total a million, of a was operating non-GAAP amortization earnings a range. GAAP and On December quarter, $X.X $X.XX per were margins and of of $XXX.X and $X.X intangible million compensation million, related share-based costs other record $XX.X of million XX.X%, million and and high-end

resulting $X.X net earnings GAAP income million, a per $XXX.X record in at a share. was diluted

our notably was quarter, quarter variety of impacted expense As the for of capitalization expenses expense a recorded result a compared ago a GAAP tax of to R&D by purposes. December factors, year the tax tax as

the transition non-GAAP 'XX related the quarters. to about taxes for cash past tax the accrued we be quarter. in We tax over now XX.X% any December audit to rate Our cash fiscal non-GAAP fiscal and reminder what tax couple rate of communicated was years. our A of exclusive XX% tax expect in prior settlements

would If to factors including losses rules Our current net will basis adjustment favorable XXX happen, requiring than is still tax companies credits, We're availability expenses expenses a of tax future for as out periods. we R&D tax pushed of capitalize to tax as non-GAAP anticipate the tax be lower this purposes. as hopeful 'XX rate a for higher 'XX were about the tax rules fiscal fiscal the repealed. requiring to operating in that rate of rate variety of tax Microchips or R&D tax points well such attributes capitalization impact our cash and

raw prior at days quarter, which the to days increased quarters December $X.XXX We end help XX lines. was had was manufacturing our supply the our at balance inventory of internal December up XXX inventory protect inventory the Our billion. materials level. from XXXX We've of XX,

as progress ourselves carrying constraint in higher the to new utilization well as equipment, are of really which work to maximize position equipment take bottlenecks. installations, to help should We advantage of

in products in investing of that backward long indicator. whose need and for inventory is to of building supply reported help being inventory take XXXX XXXX partners. end beyond high capacity is a margin lived our March and we growth what manufacturing our quarters chain can lines to actions are life We supply our June We ensure by expect feed days the looking

rise, X And margin three our days gross gross days, which growth inventory. inventory approximately the prior up days same from quarter rises. effective incremental was at of physical margins quarters creates days level. inventory of in for was December the at it basis every the of Inventory As with points the XXX distributors XX

Our December $XXX million of was flow Included was from in a cash flow assurance record $X.XXX operating from receipts. quarter. billion activities cash our in operating activities the supply long-term

flow We out are adjusted of we to flow refundable will that as to going time determine adjust commitments items free will the purchase shareholders these cash as payments are fulfilled. to cash our free return be these over

$XXX.X adjusted December net and flow was of free million XX.X% quarter. Our cash the sales in

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

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

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

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

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

Capital quarter. expenditures December were the million $XXX.X in

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

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

will constraints. the in and margin our production business December gross of capital our quarter to improvements was expect us expense investments bring We million. control Depreciation $XX.X increased give industry over during periods these wide

it I and will quarter Ganesh? for comments December business well quarter. the performance over our now the the on as March us Ganesh to guidance give to as of turn the

Ganesh Moorthy

and Thank afternoon, good you, Eric, everyone.

December our consecutive to resilient The results XX.X% time X.X% quarter growth. year-over-year quarter execution and were sales well Our record disciplined grew by above of markets. midpoint guidance are another of the marked our $X.XX revenue Net a ninth all also marked December sequentially well on basis achieve quarter our as billion. our as end

at a XX basis September ago quarter. guidance points basis our from XX.X%, operating margin above of in the up gross the quarter. basis the from came Non-GAAP and ago quarter up quarter from points record year high-end a XX up the record and up above margins points the XX.X%, high-end came also guidance XXX year in XXX September the from of Non-GAAP our points at basis

years, at basis XX.X%. of Due below to were a rapid end points the increase our XXX last of long-term low in operating net to XX.X% the expenses range sales XX.XX% X over model

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

up our of per diluted ago share year non-GAAP share, XX% quarter. at consolidated at from high-end earnings the record a the guidance per Our was $X.XX

the generation the XX.X% at net of of flow cash December very EBITDA sales and to in our demonstrate continuing of sales Adjusted adjusted strong for quarter, robust business. net XX% free at capabilities both cash

net their Eric fulfill million these supply to customers purchase refundable payments by customers our long-term $XXX.X are leverage when commitments. cash excluded flow assurance we Since the have debt down quarter. As adjusted by mentioned, X.XXx, $XXX exiting December ratio payments made Net declined our of driving free from million, calculation.

returned repurchases, cash XX% the flow. million shareholders quarters free to prior During dividends the December and quarter, we share of $XXX.X representing in

has rate to later, expect Steve capital be which decided June share get the below end And to March quarter. the the starting leverage of Microchip quarter. by the to increase the shareholders will in We you X.Xx at will returned with net as Board

our whose of enabled outstanding the especially My what midst strong ownership us these to results achieve efforts Microchip of and sense enabled stakeholders to in to all us the effectively times. heartfelt tireless are team turbulent and who navigate to worldwide gratitude

at December net look represented basis, time our and up sales quarter, microcontroller XX.X%. the December Taking from our year-over-year a our sales product microcontroller quarter Microcontrollers On our XX.X% in sequentially all record. were perspective, net sales a line sales net quarter. another were set December X.X% up of the a net in

were basis, our of sales sequentially On set analog our X.X% net quarter. net quarter analog Analog up and December the sales December Our net XX% XX.X%. an year-over-year quarter, were sales the time December on all also represented a up record. in

record. our net sales In achieved FPGA the quarter, a December new also

overall our December the and business as While appliance quarter, business was weak the our in market consumer in overall was remains China. strong

rapid COVID were China our the initially December distributors in during impacted when of inventory transmission customers quarter, and higher impacted and the lifted. lockdowns adversely being COVID customers was then subsequently than Our resulting business lockdowns Both operations many by of impacted actions normal. by

in on shipments the in but near-term. and some small action environment or requested customer will push of our of more reduce In This increase sheet other quarter the and and increasing March inventory and China, a balance have redirect to but weaker response took same who designed do channel inventory delay the inventory we business the number to to also quarter. overbuilt, plan the customers December to in in outs, the is

term, expect will this stronger to better environment respond achieve landing well a us the as to medium we macro chance to and give the a growth us position In a soft improves. demand

backlog books, have most as macro result we a is the down environment, quarters our As multiple uncertain cancelable, our a expected. of on slowed and of with which the bookings non

of view gets preserve as new that which we the slowdown the quality positive will serve circumstances the a to backlog bookings placed. Given

Our wanted quarter not well December net in which shipped actual the them represents sales quarter, of customers we backlog December which in deliver the to we but unsupported the achieved. remain in excess backlog could

unsupported And did the hard first our quarters. declined more continuing well our as to time lead levels. work as times to backlog slightly in nine further reduce we for Unsupported manageable are backlog, to

to fraction quarters, business. over they our or cancel effect a remain not the of these very an backlog, on While requests increase in we had a we material have multiple small have have large requests seen hence out backlog push and

gradually we to Despite have constraints improving, supply much from expect of XXXX. supply

are down sustainable driving the this a of achieve shortly. to will and less in we And get half lead bring to XX be letter healthy environment, we times publishing we However, order weeks to to customer time XXXX. by second the more or business average to a effect

demonstrating believe the are weakness there resilience the seen more business is some companies. in other by three why We semiconductor Microchip's midst reasons of

which market, automotive, approximately markets, of which sales some the our dominated consumer more resilient. end infrastructure and industrial, is weakness, solid. are appliances is on net and XX% The up demand First, about net the sales but home make experiencing data of communications end which aerospace center side, defense, XX% remain comparatively it's by our

data in There end are see center could some XXXX. market some that headwinds the signs

our on quite gains we mix Although remains business the strong, the have of the And gravitated over we have our market share had. durable, overall consciously towards because demand years. end remains based market

supply over capacity constrained that has majority trailing ship specialized our on less and vast X to was still remains requiring Second, built last This there side, consumption. opportunity of edge been where are most to on the technologies the the capacity. over years, a [ph] which constrained products is

us share not but in giving farther higher increased growth trends for tailwind. growth through on focus And laser solutions and years total a last design result revenue momentum, and multiple system gains mega organic least, is our

performance If cash posted on of The you the generation, gross our years, a the results. over performance business through to observe margin details trough peak margin investor IR has and plus robust website through last and cycles will XX presentation Microchip's consistent business the cycle. review you our operating

edge gross quarter, cautiously building our navigating U.S We considering consistency XXX once business soft trailing of about to Microchip margin was through stages millimeter cycle. the in our specialized Last the a and expect generation landing fab margin early we and and mentioned remain based technologies. resiliency for again for operating demonstrate a optimistic to cash that

have And not forward risk, invested that likely relationships business our concluded with After return objectives lower achieved better foundry better execution analysis, a to a our our and detailed on project. suppliers be capital. through with would this we with move

with And The and tax several X. capacity the impact semiconductor we will Act positive which U.S seeking business on already that credit, making through January our expansion CHIPS a on started impending grants our investment with is being of factories. be is national American it security. semiconductor CHIPS strategically good global the investments, for We will for economic important Act America, field help believe while and enables industry that playing as even critical the which for

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

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

inventory taking their to However, selectively customers help steps active we are with of to push also some backlog. out positions

discussed into sales between in on to quarter we and March call sequential our expect again for all a our Taking the quarter. the we Further, the growth for expect today guidance, of the sales have March would factors net the XX.X%. growth X% be consideration, be net net X% quarter At we up strong year-over-year our June the sequentially. midpoint sales

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

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

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

strong for tax per a March quarter. be despite midpoint we higher a At of than to And expect XX% year share guidance, earnings year-over-year the $X.XX share growth share the the between our rate per would per much $X.XX quarter and share. earnings be per non-GAAP a diluted our ago

our you generating defensible, months can diversified, all and businesses we we semiconductor what is which March guidance, most growth, from believe of continue December as high build high one on margin, Microchip our our firing high quarter in is X.X ago, cash we and results the launched see improve the Finally, cylinders to strategy, quarter XX as industry.

people, in and leadership sustainability of Board would the thoughtfully investments making Directors key long-term Our of technology, long-term. owners business required as in operate team thrive the to and culture capacity, just the

While and whatever may short-term nimble be being prudent, about pragmatic adjustments required.

challenges we whatever are business XXXX. effectively in We through unfold confident will navigate macro may

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

Stephen Sanghi

Thank financial Microchip continue you to you, I our and of of our reflect financial provide everyone. very results good our to all announced results, on on be and afternoon, percentage, like cash while record return adjusted Ganesh, record respects, non-GAAP updates today employees Reflecting would proud records further percentage, I delivered sales, on EBITDA operating in non-GAAP and record record that and all GAAP net that another environment. a many margin exceptional making have quarter, record new continuing supply challenging non margin in namely gross strategy. EPS

increase from dividend increase ago This an cents announced quarter share. Directors of XX.X of to is the of in Board from year an The the quarter. last X.X% per XX.X%

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

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

a return of as for to our end pivoted the Ever of have EBITDA returned debt down the net investment since billion $X.XXX quarter we of buybacks. XXXX leverage well rating down grade XX, through increasing capital and adjusted pay X.XX XXXX at an Our November a as in X.XX XXXX dividends December our share to December record to drove from September. at end we shareholders achieved combination by shareholders, and debt to of

excludes customers free current to million their adjusted The commitments. December the to cash flow when In December $XXX.X assurance adjusted will returned long-term quarter, These for free amount of flow cash purchase payments. refundable for the customer shareholders. quarter was March adjusted from that $XXX cash the use target we we supply free cash flow fulfill collected payments from are million. The quarter our the

return million. plan that million, $XXX.X amount to stock our $XXX.X shareholders. XX.X% $XXX We be or to of to expected The be to approximately buyback approximately dividend and million the expected

return cash to shareholders for quarter. to planned also a guidance We want this provide beyond

return of than our the March our X.X. quarter We accelerate June at of Directors to decided we debt expect will beginning Board the Therefore, quarter, the net with less to leverage that shareholders. end cash be

in free shareholders flow investor cash out a XX% by analyst to quarter our of X.X prior points day percentage with it an quarter. at We increasing and the returning cash XXXX. every November for of the began and strategy We laid return

With adjusted these increases, cash XX.X% free quarter's we'll flow be returning quarter. to last of this investors

to free quarter, flow expect in flow we which from at cash return quarter, in shareholders. increasing June of our percentage words, In the we in XX.X% double the expect cash we cash June free to from we quarter, quarter. other expect adjusted rate of the September adjusted return Beginning March flow quarter. free to XX.X% to Then June return are

And in free quarter. so cash point this return of we every rate, approach would about flow increase percentage adjusted on, eight quarters. At XXX% X our

We debt in $X.XX currently burden rate debt a realized our that rising some matures, a of debt. on we environment we billion still renewing higher interest such likely than we're interest rate getting of be a paying as will are it at

help over quarters our debt pay service shareholders accelerating of strategy would down Our additional to some several costs. cash debt return lower and us our

you questions? will for operator, call that, With please

Operator

proceed. Hari question Goldman first line Please Our Instructions] comes with from the Toshiya of Sachs. [Operator

Toshiya Hari

good the as business on had Thank the for about taking you calendar and demand margin I hikes your to grew calendar was versus you partners, Hi, play 'XX, foundry the question calendar price ahead do you. pricing think pricing of volume, how afternoon. about profile any so in XX%. see look your percentage What for pricing a from you environment. that 'XX. much In question. and out how implications do considering you backdrop, Thank 'XX. you your and considering pricing potential some of

Ganesh Moorthy

So we different what XXXX, -- price and with various based the customer increases stages, in contractual at them. agreements had we're on

the is XXXX. in cover increases we increases there cost that philosophy price saw to the are Our

versus And breakout don't cost we easy are increases of calendar seeing cost what not intensity -- judgment any were The less XXXX. increases made in driven driven both we yet that increases. nice, they obviously. component have of So year. this price for we're what product And than of XXXX increase is was a really on in have shipment price a

again we increases and are any for philosophy make. it, Our sure a sure intent that the is us in we'll that would strategic some we is that long not increases covered to make make exercise. us Pricing point, the that Thank It or at cost It to price intended that profits tactical to want have in a be look proprietary you. the is to at going that customers price maximize with get comfort it. time. or design, be revenue they're a from to the run being designs able able come for either same to the exercise

Operator

of question proceed. of Our line the America. Bank Arya Vivek next with from comes Please

Vivek Arya

lower your a share taking exposure. and in do have I seeing structural peers. them automotive think Ganesh, They grow when many of that or the industrial, peers Is a up for of have sales again June. and year-on-year sequential also QX in guided that compare consumer your guiding yet March you're that high you have growth curious, it they my Is because in could Thanks question. suggesting that exposure, versus I'm many you're gains thing, your cyclical down, thing? calendar

or So I'm a this it structural had you're gaining a of curious there and share how just available? issue just was maintain kind gain this cyclical Or is where can you advantage you. is Thank something when time? is market over difference of much supply and you more really share

Ganesh Moorthy

as growth a being focus our then huge in it standpoint. off. results, in Those which it, what growth are three be. grow multiple into for from does drivers of Microchip, across takes opportunities what in a work structural and on been growth How is system fact have growth How all come approach believe part unique the the and what pay multiple we a do market megatrends is believe, amount differentiating time we how categories long-term of for years. which total it are of will That's is organically? we on built years to that structural for higher happening mentioned, we is we the is I Yes, company solutions our do done for

Vivek Arya

Thank you.

Ganesh Moorthy

Vivek. Thanks,

Operator

of Our Fargo proceed. next with the Mobley Securities. Wells Gary comes question line from Please

Gary Mobley

got quarters question. many grow for taking continue June you with increase share some quarter, quarter? I realized you out was the into June as of this in you may sequential hoping I to you growth see estimation June may you a of maybe can guys. the Hey, row providing and then Thanks to the that But did sequential future. the comment in business of able since that beyond us my be sequentially the might magnitude perhaps how the on

Ganesh Moorthy

May on And we an grow guide Firstly, you in get have. confident June, conference And we'll But we're guidance we to like anything not top feel providing but a quarter. that June now, we quarters, did get trying giving to the when prior we for for quarter not we have, we in call. the directional absolute in expectation that beyond expectation the we're the that June we're can of to the March quarter.

Gary Mobley

Ganesh. you, Thank you. Thank

Ganesh Moorthy

Thanks, Gary.

Operator

& Our comes Joshua line Please the proceed. Cowen question Company. with of from Buchalter next

Joshua Buchalter

taking I Ramsay. guys. Hey, This is wanted capital return you Buchalter questions. program. ask my behalf Thanks on the about Matt for Josh to of

but think I you're binary leverage you more some hit taking more expected may have when event the gradual the target, approach.

rate us then Thank the repurchases out gradually target I do there walk and would the stop doing why debt take Can repayments to XXX% leverage of called and is decision dividends. also just more And you. you sort environment. you it intermediate through You where up? an guess altogether

James Eric Bjornholt

be So we has comes rate is still and the will an billion were over we renewing debt, think $X that And be owing of that bps. what have that from X%. some when debt I will up today, it decided on If least it. below of debt, maturity, interest at renewing $X.XX billion XXX that of given Board it

and we today. that of go at return, were rate XX.X%, what we quarter. said to XX%, go And are now to bps will kind we to over interest going is up rates going right the the increasing like Board have XXX of in to which are cash we it We cash the So XX%. increasing do eight not still They to rising, that decided current XXX% decided away double quarters. the environment return

next be At think to quarters quarter in then XX.X% I will XX.X%, XX.X%. then so seven or and So XX.X% current quarter, and XXX%. rate, XX.X%, that go

the more next along a reasonable eight think that's to debt quarters. I pay in more approach down some

Ganesh Moorthy

rates had the go decided and today was different its have we what when about, are, We're committed given glide to adjust we're But think interest slope, Joshua, the were is forward. going we what I is we available of money know to we're And to going if low, said. to circumstances it, as freely circumstances I how think, we very have circumstances from what deliberation into Board and add to the in change. that's where XXXX in changed to that today. absolutely terms will

Joshua Buchalter

Thanks on color the and for results. the congrats

Ganesh Moorthy

you. Thank

Operator

question next line Raji from Our comes & the Needham Please proceed. of with Gill Company.

Raji Gill

view edge in Wanted Yes, on companies thank as XXX that you, congrats edge How CapEx trailing chatter millimeter. trailing and capacity. to other are on the get projects well. capacity a with do investments future you see forward major significantly. There's going increasing

obviously So the adjusting sense the on is the think just view supply of industry of how constraints, wanted edge to that's to dynamic? that get industry and with the capacity do lagging issue a been you

Ganesh Moorthy

time. perhaps we concluded business partners with the And millimeter and next our capacity results communication analysis. we From being are able them. overall of the best requirements over have our which in business satisfy validate the analysis, that reasonable high changing our that years a don't assumptions but that and prep XXX with to And confidence that the trailing best have had, know necessarily, edge met the we to is know to were us have partnership us, our that with in partners requires. assumptions, we the which in investments did perspective, making, industry were do we that we of X doing we process our And to assumptions about had X

Raji Gill

some follow-up, lead half that on mention customers is And a XX Ganesh. come if second in, further could their my respect your lead push did goal elaborate and see times wondering for I'm the year. with Thank times, order to the the to to just you, starting bit kind by you're you weeks to as get calendar of of little backlog. outs, you

you lead more you as that? volatility, or order -- supply long do Thanks. online, do how you start orders they time manage comes anticipate more to reduce As as

Ganesh Moorthy

us. uncertainty Long good farther out customer the for time for you or never lead either times a in thing more go. the There's are

what customer And interest expect shorter time working getting for. reflect the and out providing for backlog it us of time. need that plan we change is lead times in lead and So they and bookings best and our in plan for in need to to what will and the that towards we

Now we're not there today.

side We're the year year. that the an second to of of unknown, still which get what this time, we through back year there in because has much we over years, on supply, single quarters. increased not if the times the supply expecting constraints. And bring been could out quarter because than about lead will half to demand X every have of It you take driven the it's get have increase last remember of this happens through the also the it equation. is the demand faster half for we eight And in didn't

bring into we of manageable a the to lead bring that second year. line may supply a more situation or times backlog it as of the hard manageable into go And not timeframe. get then be so effect more side the into working to demand we're half improvement may to equation And able the to farther

Raji Gill

you. Thank

Ganesh Moorthy

welcome. You’re

Operator

line from the Stifel. Svanberg comes of proceed. Our Please question with next Tore

Tore Svanberg

Yes, both question you. had on and internal I thank a channel inventory.

in want build even just you give sounds to was some the near-term to it numbers the externally hoping inventory to are I channel. how internal those the what versus you going But it quarters, I intend manage So perhaps more channel like do couple for or internally inventory. mean, you kind on know where targets go. view could of for next you channel. of us the the manage days I your targets

Ganesh Moorthy

do with consistent I on it likely from of where what working their to where in more it go the know, level customer So a requirements point for is. channel to The want Eric, will if is inventory for support that. hands their of capital, to all run inventory them at don’t internal decide they we of precise up get will. the time that our add It to want a to I it you channel have that. would don't really and when is inventory expect reverse will course,

James Eric Bjornholt

be guided days Yes, to ending release so March XXX days. specifically we our and for inventory today between XXX in

really suppliers haven't be continue manufacturing from that, we our we'll our purchases to operations Beyond and manage our in given color. customers. to But right any spot our to support the

Ganesh Moorthy

to inventory and is way the requirements. product up customers them. a cycle the in are it no running respond half inventory long think in us this of to If is lifetimes. is do start their that. the obsolescence be a to year, on gets very There is positioned there stronger the is It to go that risk Now able second of to well about

So inventory we seeing we being for has issue see levels predicting that this don't for an to us. are and quarter close anywhere today the

Tore Svanberg

Thank you. color. Great,

Ganesh Moorthy

Thank you.

Operator

from with Our next Sachs. of question Hari the comes proceed. Please again Goldman Toshiya line

Toshiya Hari

the Thank least you. I the but It's on couple Maybe for toward philosophy that curious what's Steve, over tied the you the what's with adamant that, lot the about a the guess one if months. product win-win, past that, a soft you guess like for PSP. PSP, were you business of impression or pretty approach under personally kind just for was sounds It follow-up. I I at completely customers Thank taking was the to landing, being agree more a of internally you. changed and go around you're philosophy I there. flexible changed with -- that

Stephen Sanghi

answer Toshi, Ganesh that. have let me

Ganesh Moorthy

PSP customers on So non-cancelability go able we or out where really The we the working redeploy and and It's something who the two being to to inventory make we it on one backlog, ability customers product, hasn't that we quality is it other What have we from have -- that where would like to push action set negotiate. get that a who non-cancelable backlog of the and hasn't have to said sense do. high see non-reschedulability backlog And one books, sure philosophy take we always to customers the and not of with would are other, we don't willing of helping are. way of part really of have that's that our are to changed. changed. is being common the PSP

I out to we in a long-term people boundaries quarter customer that was from These to to some case non-cancelability. always placing we'll need our of customer because that non-cancelability, commitments reliability chain the as chain. we where are see And What on On be hand, meet us might inventory commitments who and the honor the to terms other on be, supply you backlog think some wanted want customers the have. on relationships them. with potential able responsibility make we've we work have in PSP pushing that who the help got based to make in responsibility

Toshiya Hari

Thank Makes you. sense.

Ganesh Moorthy

you. Thank

Operator

Please of The proceed. next the with William question Securities. comes Truist from Stein line

William Stein

question. taking Thanks my Great. for

percentage You trend and noted or this expect where can your that longer is you we now. should should expectations year help I'm right give through long-term below OpEx And target us some the as to that to tracking hoping term, increase? us maybe understand where then

James Eric Bjornholt

Analyst would Yes, that -- Day. we expect range, with so we model within the last which XXXX percentage over will long-term shared to November our that increase November, at street time our be

and had of up today. people. keep We've the today. we're well that of fantastic some to below with that it's so years, span, particularly difficult free and been a seeing we're And up hiring growth And couple

are still that. the systems teams long-term we with the business and to processes we people place and growth drive are to continuing sure people having So, of the hire add in supporting to to and our make

will its that something not So you inch it's way time up, over expect gradually happens should but that overnight. it

with of growth. that up now the seeing just rate we've haven't been expense significantly investing dollars and been revenue in increased over many You've keep able operating quarters that been to

And slightly percentage last midpoint is our in we actually higher what quarter, just achieved in the terms quarter. guidance of the current than actually

continuing XX.X% quarter hiring progress it's Again, on and front. the we invest the XX.XX%. this to net, are think versus making it's but I

Ganesh Moorthy

investments. the I is future Will growth investment philosophically also And to delivering are about innovation and operating it the investments OpEx is lead the also investments that way good think the that -- customers. margin improvements, we company our making future profitability dependent operating expense gross drive of whole make critical for on

important why with but to profitability. investments that's long-term growth growth consistent keep for so is, the And it's where and

William Stein

Great. you. Thank

Ganesh Moorthy

Will. Thanks,

Operator

line the BMO with question Our Ambrish Capital Please next of from Markets. Srivastava comes proceed.

Ambrish Srivastava

very I it'd much. Ganesh. you have you be. Thank me Steve, And speak thought, proven wrong. Hi. I'll myself, for okay, guys

"soft this never kind have of landing". We seen

you in guidance shown have quarters quarter. you're beyond given and two a So row, the

in to So little a drill kudos But that. made to a into just you I Ganesh. wanted bit for you point

lead to your you weeks the back sort XX comments baked of understood, you weeks, what and XX as half in It of sure some that as the get the is coming down your comments You are after I made second lead on well. said half. times PSP times kind make the for assumptions demand into can that

Ganesh Moorthy

We're specific growth guidance second not on be. it's to and going half where into getting

as to judging with be lines, based improve well to are our I own continue partners. our think able we're supply both on as doing the we we're what to what doing

to it. any but around judging out are have we time, expect be where demand certainty we in We don't

-- roaring in those closer of you to thinking that to certain could And could We year it's demand multivariable and that come the the wrong. that equation, time. certain you 'XX second as begin XXXX circumstances, lead in half in we're back project make we did the half assumptions XXXX. if it XX can week out are be not about under that -- get a The that second

strong business. our But get a not have And run reasonable we we get but customers on what modeling can need to think us that's where internally and basis think and that to. of we're under which plan set as a in can we this we that's communicating, to, are for it kind to way expectations we together business externally of a consistent

Stephen Sanghi

Let me to that a add bit.

the to a Let bit answer. me add

seen, guiding sequentially quarters, March couple them for are you of of go industry many actually competitors most have and quarter. last As down the and of down the our for in the others semiconductor

mentioned And that end mix, do We mega solutions, Ganesh on been have focus growing on system earlier, total with share. has focus been our trends, to quarter. gaining market every and we've

wind two half the that last while gone half, the up second possible still the pick and guiding will March as of had as looking half others we saying having the quarter. not are quarters in When to forward never So again, well couple get you down quarters. gone growth demand this quite it's that and on second the down second June back in all get in the time,

go that's far, in thesis the and just So where again the down so wind we we second pick landing didn't soft up half. of

that how the way, differentiating are So we looking ourselves. at

Ganesh Moorthy

can had the the strong that go first way, in look fourth back the performance second by the half. growth you and quarter in and we you a And will barely at XXXX in in half see XXXX and ripple

Ambrish Srivastava

Appreciate you, Thank guys. Right. it.

Operator

proceed. the JPMorgan. Sur next Harlan of line from question with Our Please comes

Harlan Sur

question. Thanks taking my afternoon. Good for

Does the sequentially? are demand customers easing this driven you commentary given and that inventory this like region on that in by into China of the higher quarter some of And just policy, channels your On you out the China COVID due guys of decreasing zero-COVID revenues waves some that March of within region. guidance, be helping proactively demand levels your that see to pushing are by starting first China is imply the quarter, looks dislocations in will here down shipments, through improvement? signs maybe the supply the to sell-in here it

Ganesh Moorthy

will Year, business to I and about a Chinese the XX has optimistic this had COVID give it's December to back more now, economy post that any go a of break March are well. holidays don't to approach out you different. And end in going cautiously Year. of can't therefore, where come their don't -- China always and our behind that which that guidance as worst is we will the What right X Greater happen. we New as the quarter, Chinese is while days year January expect an and go There market, constructive is So are absolute for China New decline. have time frame, by with in China we

normal something back post-Chinese how modeling on could depending happen business quarter more this a And quarter China comes Year. so are for we New and

Harlan Sur

Ganesh. Thanks,

Stephen Sanghi

In get in vast majority carrying Europe, when not to we're help of cases, demand or that huge so they of much cases customer we inventory, the we customers had number unsupported because or product in because for amount backlog. other China product distributor other still and the of had the U.S.

that we somebody most in where a cases, customer, product accommodated else. ship So we to

Harlan Sur

Thanks, Steve. Thanks, Ganesh.

Ganesh Moorthy

Thanks, Harlan.

Operator

Susquehanna. with Christopher the of next line Our from Rolland proceed. comes Please question

Matthew Myers

PSP is on where your non-PSP This versus backlog? for guys. PSP of I PSP is just Matt Hey, backlog. was well now, and have over to was I for the I differences that because Myers circle guys the said in curious on is back between your that curious past what you XX% second. your Chris. a wanted just are

Ganesh Moorthy

day. XX% remains It over well to this

Matthew Myers

what have updates and they've are Got your in it. any and the That's going changed on utilizations of helpful. do kind you And expectations then how quarter ahead?

James Eric Bjornholt

The facilities hard. manufacturing no running really, really change. So are

been that bringing So a bringing in we've equipment and online. lot of

to change So real report no there.

Matthew Myers

All right. you. Thank

Stephen Sanghi

is XXX%, utilization mean I right? essentially

Matthew Myers

Yes.

Stephen Sanghi

can can Every wafer it. every to the and we unit move move factory, moving we we're

Matthew Myers

Great. Thank you.

Operator

line the Vijay Securities. Rakesh Mizuho from with comes question next Our Please of proceed.

Vijay Rakesh

quarter and Yes. Hi, here. Good guys. guide

look at on Just were orders? was give color I if at a side, inventory [indiscernible] the quick segments, question customer on to could the or look industrial the on you what levels. different -- like you wondering if some

James Eric Bjornholt

information share. customer Vijay. to that just We don't have really We information individual conversations, have anecdotal from

any that, I we customers. and up remarks, get the inventory in would Xdays know the by distribution being through any distribution, get inventory don't the my of reporting to else sort of say. of end Outside Steve that We quarter. if shared anything. in on add don't we So anything held have I that Ganesh was don't prepared or

Ganesh Moorthy

I our inventory or that The is would that don't business is only a we that customer so large change business thing materially. say have their would their

way corridors they channel don't don't are don't many any where what and constrained report legacy can don't they much carry. the And as And excess do distribution believe that customers our do our same of take honestly, You But we don't capacity. can is have you product shipping is. know the an We as but us. we what from cases they the technologies inventories we in if from are know inventory of that we carrying. inventory analysis report that, companies, and partners public they're what are to

Vijay Rakesh

how market would supply of Or a more we it. lead And it? right, thing it demand? reflection parse the different But you if coming obviously, on I Or that may Got then they markets, is industry a times, at broad guess, that especially in. of every a different? good improving? the is look be are function

Ganesh Moorthy

of of has both our incrementally us. need improving. the are industry sides The supply down, capacity have that right? opened equation, you slowed fact that lines Well, parts So up to

a is into a And -- next Our by XX we that And range. long. one, we're times amount weeks to of tremendous back still an time. kind work do there's the over expecting lead one by to it's have get months one of are still really the it XX lead X, average X,

our But and some We that we go. to than want are for constructive are go. we plan that some are where serve shorter makes what for them to better It's us it it's customers have to longer, directionally, where going to better.

Vijay Rakesh

it. Got Thanks.

Ganesh Moorthy

you. Thank

Operator

Our next question proceed. with comes Danely from Please the Citi. Chris line of

Chris Danely

guess guys. I clarification a thanks and Hey, one question.

QX. in to normal some seem just weakness think indicate was but you're that China or you Ganesh a quarter mentioned China, You for Steve, there planning in I in that

out "other Thanks. just some over place? inventory. And customers" all any is the mentioned the for or rhyme Or then between geographies? there markets there? it end sort of question, too there? delineation any commonality So Is Any much you reason have that or spread

Ganesh Moorthy

one take them me Let one. by

So quarter, and were that China in from different said December weakness was had the events. two what COVID they I

caused was at. the of of and First, havoc COVID and then lockdowns, where place. that And the it reopening many, customers our the spread many took at that

are We information and quarter, early that's this behind are expecting the what signs we are. us and have that the have in those we

quarter a gone Year. of this through the days so And just Chinese us. were used New ahead for still of that good is chunk almost of January, XX We've

And so of have March. of and all all we February

the China we last they quarter. in issues incremental where weakness compared largely in were COVID There's no this behind think in fact, to last quarter. context, And normal so that quarter. are be And will

if well in self-identifies customers have product later, use as position, the that as they that will and the is who match mentioned where there's customer's like customers grievance, this et that to and not us information product that cetera. but having new. it's location of able something are a extent giving someone so find do get where quarters terms we to inventory is that would we we it prior to And imbalance, We've other end can today particular is market In that who there it. take short can supply-demand no to be in is

to Clearly, any is But can some customers. the appliance there's market weakness be the other relative to in end than to be to able extent one of for others there And will, going ask who the market always we where to who help more we that. is whole customers relief can. be

Chris Danely

Got it. Thanks, Ganesh.

Ganesh Moorthy

You’re welcome.

Operator

Suisse. comes the Caso Our next proceed. question from Credit with Chris Please of line

Chris Caso

Good wafers driving with do that that third-party competitive I question confident decision one, for going the going afternoon. following that, Microchip go Yes, think means in to ability possibility And forward at investment. Are then any forward? decision? competitively? your get guess internal not you the have thank capacity you. a your XXX-millimeter your expansion about growth I given to manufacturing to what And that just prices what's plan, of for does support forward? remove you

Ganesh Moorthy

Yes.

me parse let your question. So

in we Far existing So number U.S., in et continuing facilities expand have. are Those the the facilities the our one, test to and assembly cetera. fabs the three East, we are

is there we capacity backing forward. believe we no on go will that capacity bring from So effective where off can cost

We Now don't step right? that for have XXX-millimeter was large fairly infrastructure. us, a

are you it cost was effective wafer have to and important one enough per all and is that load most to or going not. be the we cost at the have things have. do And wafers That a times. because there to you else, fab had at get government We how a that. help on the whatever a can we you to are do But to and of would funding, do day, lot still, fab the of get the several knew the challenge to a absorption the end build thinking important load can

our said, our at we the And unlike to partners, we that supportive majority of in second, would were we technologies able was technologies, we and own from XXX-millimeters, need all of highest at able have plans our license greenfield looked the need balance, to business our what achieve vast In very model could needed being derisk technology confident we substantially the conversations we to our the be with business in how with because completely and have work the on partners That license away that support to for as the execution we where in able a that to XXX-millimeter XXX-millimeter commitments partners. we to fab. of business was today our felt our of we levels objectives. came

Chris Caso

Okay. Thank you.

PSP industry it be? of to do discussion for reaction on And in was there's backlog naturally customers and of least the Do something follow-up, wean right been sounds wanted Microchip a expect the at getting expect lead we in ahead obviously come generally. put context you program. off goals as down, so the the bookings that of achieve I themselves ask PSP you a PSP you like PSP program of the happening not the hadn't about typically seen far your in if a it, your As or smaller Obviously, to that's And part now. what times would customers' of lead times down? clearly, lot

Ganesh Moorthy

a me us of approaching in predominantly out. time. It's for have all we customers jury is the in supply agreements, long-term to you But middle are of continue supply of long-term still agreements right the let X-year this, tell -- window that

aerospace many to think of of the cetera, if most of customers equipment. have commercial they many, medical, valuable planning critical what defense, build mean of for. they end automotive, assurance supply are many you as large equipment, our are trying of substantially So industrial et element the I aviation,

for. many supply their signing high an number agenda up a value many, the and supply and continuing it to supply PSP of the be backlog, to with long-term decision that customers many, they're want why the on they risk up need to with it are can do to extremely that for program that how to that is reason PSP rewards of for assurance a make But the them, increasing we're backlog, is signing I go. agreements really long-term standard tell business the is they you of want on where the Now dealing whether participant they be they is or in us, agreements

Stephen Sanghi

agreement. in long-term said we quarter supply prepared a million customers $XXX up collected We our remarks just for that last from signed who

down still signing and The So see are capacity they're that of the our shutting capacity off people excess use to capacity money customers largely not is us partners. place customers nodes still up in that are environment supply has ourselves and laying giving our factories do people. constrained about capacity, long-term for with or us agreements and long-term and concerned lots to on sign the we put that getting foundry up and

Ganesh Moorthy

Yes, Chris, cycle at be high taking customers or the view. lot place much two at I conversations these. CPO looking levels thoughtful think not quarter. long-term about And They're a are a CEO, a these for growth happens build of worried very, supply is They're more that resilient thought. The may as reliable, slower are one what happens much what and what on than very and XXXX XXXX and equipment. do and enables their in we about how chain a valued they in

Chris Caso

Thank Got you. it.

Ganesh Moorthy

Thanks, Chris.

Operator

of the Morgan Stanley. Our next proceed. Joe comes question Moore with from line Please

Joe Moore

I Great. guess, of the you. progression Thank how wonder here. see bookings I you just

You've got backlog. elevated this

But it's below the times, an times go not I coming in. pretty the really guess, that point, It pockets but should of just it's X, book-to-bill lead then seems You air a probably historically, far lot the have air been at math like end. there's we -- end. there's at pocket at that

these have you a of I seen guys as of know -- lot So environments. types

how protect you of earnings are you means to you've thinking action that if the how will need you Just already actions power? take kind more know And -- about it? lead to your reduction discussed time to

Ganesh Moorthy

been business sentiment anybody proprietary from products, indicator. the It is going our buy prepare indicator in of customer has the book-to-bill else. is are they going the customer meaningful doesn't never We're a kind to about times but have lead making always and where to for. what Joe, has what an been business of

their back pull which of clearly, said doesn't right? as needs And I well. are in that bookings. -- going change, to how will lead mean changed. want patterns that in an actually to with that mean my remarks start It environment It's I prepared come will customers to times us. on their usage the work doesn't they in some It have in, So just

hold where on couple have kind customers been burned of trying to of badly years optimize X% the also of Now inventory, going last pretty to they're over et the cetera. last

quarters this if And out are that do four of know quarter in more about bookings strategic or that back they tactical. seeing bookings world. trying so quarter of where I placed And is to was business we bookings are going not our come. we expected the But ago, didn't were being They're And the to double they that how were were they're low, have an high, out after mean next approach that. that were And levels think we They go things. incredible. bookings to time. be in going

is. where And backlog still have We quarters backlog. our still so feel multiple we good of about

have they're coming at expecting they're think are they in but because bookings with. place are beyond point bookings to high-quality that where we're comfortable a rate, getting lower not still we We that a backlog

but point it's and okay. at that's low, a I So are good bookings think environment this

Joe Moore

you. Thank Great.

Operator

comes of Please with Our next line Arya proceed. from America. Vivek question the Bank of

Vivek Arya

this go I gross on gross to when margins I'm follow-up. sure to Thanks question. but your of I you But have for sales XX% comment outlook. of for of XX% think Comment, grow kind wanted Actually, guiding that kind you margin. you question growth to the the higher giving. just gross know the a the is annualize also and margin. March, end year, sales, quarter suggests and are it for annual nitpicking, you're grow your gross a at just that, somewhere been My message somewhat in I are if make guidance, March and I just Usually, down able is to margin you

XX.X% So to are or going Why And gross kind of there that more leverage margins? in what's model? destination happening the final is is down? they

James Eric Bjornholt

Okay.

I it. questions Steve Ganesh or and So will to both add can on the take

going guidance other a will make grow March next year, what than the does for comment no the quarter. quarter XX% made We've So again you're in beyond June asking we to grow sense. the XX% in are we or

at guiding really we non-GAAP non-GAAP GAAP gross gross and So margins margin, provide margin. if maybe saying I actually color you wrong at On the there, Last at any just in up both And up modestly the guidance be the looking column you're what on GAAP the XX.X% quarter. a of can't are one, there. to but table and were in in There's look XX.X%. we is you're quarter, release, our midpoint a should the margins and non-GAAP guidance in quarter. be gross

Vivek Arya

XX.X%, And any Eric? leverage beyond the

James Eric Bjornholt

we aren't So XX.X% yet. at

to We are guiding XX.X%.

done a we at those range XX.X% of well. model just announced are always long-term Analyst XX.X%. November are got continuously XXXX. Our targets Day is our to in quickly. We to And we've extremely looking where very We And we to of improve.

would grows, So over the efficient. top time, say I that line will as we think we be

that introducing changed have highly at drive gross products this that be value-added point. target we but We margins, not can higher will

Ganesh Moorthy

right? We growth and balancing both. always we're gross Vivek, want margin, And

that careful affects be to high so up take one got we it so And other. we don't the that

we also we rate So growth want. to that improve, want but continue the we will at

Vivek Arya

Understood. Thank you.

Ganesh Moorthy

Thank you.

Operator

from again of comes with Please the question line Harlan Sur JPMorgan. Next proceed.

Harlan Sur

follow-up. you the Yes, for thank

'XX you from dollar substantially increasing are in TSS? do reference ago. any us So wondering How content helping if behind And solution us two for Microchip, major websites share your effective few these for with that's they of reference designs update metrics almost system you engagement? fiscal your have over to a designs total listed to with X,XXX strategy. think up us, an I have for drive you I on on can customer went distributors' and and years

Ganesh Moorthy

that able working are in needed how our to solutions, for create But their hardware, to the are provide be a and our partners design just go we designs, our and we've businesses reference taken customers ourselves, software to solutions. reference with the our together portion and element how we a key both large that of go parallel it of products. at designs and to from stage conceiving we clearly, products total adopt together So how create really, products system how the services are design

And it's that processes set we so a of working complex are on.

equation you is benefits for okay, going. at with which not But an You're There results I you've differential ensure come easy all the tells with in see the results of the seeing how development it's designs some total does of from is rate total you, can seen sticky us. and solutions. from we this Microchip to that the to company, do that and in terms that of the can plug aspects into go-to-market it to the the stay those years solutions stay sales of honing in system

Harlan Sur

Thank you.

Ganesh Moorthy

Harlan. Thanks,

Operator

the Ambrish live. with from Markets. is again of now Our Please BMO line next proceed. your comes Srivastava question line Capital Ambrish,

Ambrish Srivastava

now how compelling Sorry Steve. investing of Thank it, is doing accommodating we're in look, make many when that me just enough comfortable why had that hasn't isn't in and the be very about here Thank there started argument with why you of a talk made capacity. Ganesh, hey, understand made, again you XXX-millimeters, again know comment compelling would partners, follow-up. thought on there I won't and feel they I I about argument we back been you. you not sitting don't you a from be sure to then quarters ROIC a your that you question -- I a saying, that a to wanted it. and to I very for that. capacity, enough

because commitment comfortable of right Is feel that from forward partners. your the takeaway? So enough we to the go not

Ganesh Moorthy

Yes.

met. So of we've had a need, and our options key partners' what that extensive And partners ROIC. discussions that to we what our far be about highest we’ve said, had those options forward, as with which can chain supply need in are a management. able exercised it confident were could I lower supply partners support at levels by to chain And we be partnership the does at move -- we we our our better risk it far and

Ambrish Srivastava

Thank it. got you. Okay,

Operator

to like closing are at time. you no further Moorthy, There you. Thank I'd this Mr. back remarks. for the questions to call turn

Ganesh Moorthy

us are on and seeing and Great. good events will this up you quarter, a who some coming of of on thank evening. you, the you everyone the many be we Thank but that call Bye-bye. have today, joined to

Operator

This concludes today's conference.

lines. now disconnect your may You

Microchip Technology (MCHP) 2 Feb 232023 Q3 Earnings call transcript