MCHP - Earnings call transcript Q3 2025 | Microchip Technology Incorporated

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Operator

Greetings and welcome to the Microchip's Q3 Fiscal '25 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Steve Sanghi, CEO. Thank you, Steve.

You may begin.

Steve Sanghi

good and operator, you, afternoon, everyone. Thank

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

will year our performance, then COO; me financial year Bjornholt, of third quarter over an In are and comment my as attendance with updates. will fiscal go in today I Eric our returning Relations. some and XXXX Rich on review Head Simoncic, of Daudi, then quarter since environment Microchip's fourth will restructuring and overview business I Microchip provide line observations product Eric fiscal Sajid our guidance. will CFO; current Rich to the XXXX Investor CEO.

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

previous the X, Since company aspects significant plan spent a Microchip's conference evaluating amount time status the on and needed November as performance. premium key CEO its to I of December course make UBS described At Microchip XXXX, a a set I evaluate of business. on Microchip's I XX, to where to returned have of on X-point achieve changes

interim aspects plan. Today, I'll to We that plan. update you you comprehensive call the an with on setting on morning of are an provide report March of X, investor up analyst several and X-point that on give a

to this is of the to we Tempe our After at the XX% analysis, transfer of close X known process these material our other Fab the provide already we are processes was product manufacturing to as before building and resize required we other have The Currently, fabs. first X. our to buffer action qualified fabs. in Fab footprint. decided products

managing Fab the X rotating schedules. short position facilities fabs and the in demand plant shutdown based by specific other Fab Our on leave plant. there taking in fabs, Thailand needed the of very Springs our in Philippines, on rest notice. each number namely This for when we're X Colorado off capacity back-end plan In and in plants is Gresham, Oregon of capacity capacity reduces but smaller work. a the in a are and employee ramp the reducing to our working days In days X hours a of worldwide, on each in time

them are of running weeks. are Some others while shortened at working capacity

The was reduce second inventory. to our action

at at of XXX end days, end inventory of XXX XXXX. from the the XXXX up Our was December days September

to I project you inventory March XXX inventory is days. plan. On to target X, will Our the reduction XXX

from As end December year XX, the March an XXXX to XXXX. of example, fiscal is 'XX, which

expected We limit balance currently reduce to $XXX from be cash our are this reduction. able which will by inventory inventory million, approximately to

this a and greater reorganize and underway, a reviewed I topic together. groups efficiency In we our business strategy channel fifth unit have of I few we an units strategy, know The that channel have was I business and X we on some dive. any changes. changes. business will provide process, review was third but The on already will a of for X. still action will is action megatrends update deep TSS our of review was fourth combine This March and The our unit recommend the Microchip's made synergy. by action

creation kept design socket, a forever. to we historically a when that demand give we distributor First, demand flag a have registration creation and

to incentivize the competitors. customers flag number instead margin of new Going sitting products a to years. of a to that present fulfillment demand forward, will to on socket given change This and we our higher will exposing distributor

distributors. is for range been fulfillment high have second industry margins providing The we

fulfillment We it competitors of our level end point margins, bring customer evaluation The was have relationships. sixth provide. lowered higher to which what to still will the of a our on that the strengthen is

with We and focus have targeted or on already the visited have of customers the customers. top Many X,XXX XXX been an customers urgent them approached the visited us.

care customers engaging then them new candidly on showing to their support We communicate giving us are chance them and to the with with empty designs. and

on opportunities and win their and is operating X goal our care. customers our we long-term support business chip's provide put were will activity. administration the I office, area on reengage Our design then intent right. March model expenses, with topics these time technologies, will The an final are waiting currently for products, hearts paused, to to restaff the and Point X we chipset X. update first new and and when was our is the the

pass will I it to that, With Eric? Eric Bjornholt.

J. Bjornholt

Steve, afternoon, Thanks, and good everyone.

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

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

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

to of XX.X%, non-GAAP on basis, charges adjust to net summary $XX.X are for our of by business managing production we million product a a posted have conditions. utilization challenging your geography margins and capacity We website line reference. and were including aggressively gross activities as On sales our

and net sales due share XX.X%. December The non-GAAP seen and XXXX to quarter the diluted cut had on Operating coming employees will margin per the increased quarter. million, months early expense increase in $XXX.X quarter first expenses X income March full December expenses frame. of net our in of XX.X% guidance further time our our portion quarterly impact that note were $X.XX. November, for and Please was ] in about reflected off a Non-GAAP was earnings a this was for operating operating that [ the operating predominant the late in we of is

$X.X million compensation million of basis in net amortization $X.XX. charges expenses. share margins GAAP of loss ] The $X.X were December million included and [ acquisition gross XX.X%, were of operating resulting a On the of million intangible and a share-based GAAP was $XX.X $XX million, expenses in million, special $XXX.X of of and and quarter, loss total other $XXX.X

the XX% calculating tax our Our we tax be expected non-GAAP the tax overpayments jurisdictions, for tax approximately cash rate XX.X% X our larger a non-GAAP a fiscal which rate. fiscal impact XXXX of of tax are rate our forecasted rate as quarter cash than year in XX.X% expect currently cash previously this in was to higher basis. of on is reducing XXXX, year which our is result This will have of December the quarter. fourth We modestly

in and exclusive of settlements rate prior non-GAAP years. audit cash tax tax the taxes tax fiscal related transition Our is accrued any to

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

the quarterly December XXXX March inventory our of expect inventory guidance, midpoint XXXX the XX, both levels. and dollars At decrease we to from would days

to days distributors and in. buys was long-lived, whose inventory our XX XX holdings distribution continue of these Inventory [indiscernible] December took the of last supply time higher quarter's in high-margin in represented and also days Distribution inventory sell was We is level. inventory of X partners, building was down sell-through end invest the at their for being manufacturing the from prior than quarter days $XXX chain million as our in quarter distribution by at the down life end products December. capacity

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

free $XXX.X adjusted Our quarter. December flow was million cash for

million our normal retired pay to down some is our of consolidated of did which of $XXX of bonds of of not also We $X cash loan $X total the of used issued and November the million, position investment-grade in portion than in dates maturing $XXX used pay a XX, occur paper investment-grade balance. to a offerings debt billion retire bonds maturity XXXX X.X% that the to December these commercial papers February coupon proceeds matured timing was and end March in maturing X.X% was bond As commercial in a the convertible higher We and with due which that December quarter. bonds in until with of billion coupon after down quarter, a in In investment XXXX. December $XXX.X January, the we our early XXXX. million the term

maturity quarter September us commercial line our debt our past will to or XXXX issuance programs. is room paper give maturing next in with The a billion debt this September $X.X XXXX. Our of retire bond ample bond credit

for taken have the the off risk As result, the billion a maturity. table refinancing we $X.X

in Our December net quarter. the by debt $XX.X million increased

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

adjusted $X.XX was trailing XX-month billion. Our EBITDA

expenditures ] X.XX up at ] December to quarter. debt XXXX, [ XXXX. net Capital in Our at [ were $XX million was X.XX XX, adjusted December the EBITDA December from XX,

purchased a expect in as $XX.X to not that Our we XXXX capacity capital December in well than million. have expectation that was capital million, expenditures quarter been to placed during back cycle 'XX we of that year is year for about capital be lower Depreciation $XXX and yet. we service fiscal for fiscal grow as expenditures as the into up the has lot

on to turn provide the December line I now some commentary Rich, it innovations quarter. product over our will Rich? who in will

Richard Simoncic

afternoon, good and everyone. Eric, you, Thank

critical. communication been to spanning real-time modules, across XX-bit new microcontroller to promising sectors. with deliver investments customer for strategic markets. where market. new defense continue our aerospace our of response Wi-Fi portfolio time RISC-V business, secure a exceptional momentum capabilities, secure XX integrated we and reliability key networking processors and processing helping next-generation plug-and-play with simplify applications, factory and products, is across and and connectivity AI position microcontrollers introduced In strong featuring We robust security. has generation customers growth design data time-sensitive These core wireless win industrial particularly Our advanced strengthen and accelerate Initial expanded and process automation our

it a Smart make with implement also Touch solutions touch an in to new standard industry products. controller introduced interface, simpler for their manufacturers We tolerant water

we exchange connectivity, between our automotive systems. software-defined next-generation Motion strengthening with high-speed enabling high-speed with For vehicles networking technology, continue ASA wired Link data portfolio

Our by manufacturers. innovative automotive several technology leading global is evaluated currently being

strengthening and comprehensive our We portfolio certification our in implementation medical for new missions imaging space FPGA and notable a their to earned providing for achieved target AI These it technological solution critical making of industrial customers Holoscan X space our position simplify level to released connectivity chips our enabling in reinforce customers. Our while sensor highest commitment automation. in for implement hard our demonstrating markets applications radiation capabilities advanced and NVIDIA's milestones. solutions platform, across the easier advanced products. developments our ability for next-generation and to

about With comments business for that, I will Steve? forward. guidance pass the and going call Steve to our

Steve Sanghi

you, Thank Rich.

in a As post remarks, conned following billion, in quarter correction XX.X% cycle. to sequentially continue $X.XXX from a December down weakness net ago sales inventory his saw through we quarter COVID year We a large very described broad-based super as navigate quarter. and Eric were December our the prepared down XX.X%

sequentially. microcontroller, our was major Our our revenue all all down Europe of in and Americas, down other Geographically, from FPGA and businesses were sequentially business analog, Asia. geographies

destocking our call has March for our as quarter into last the their customers. get substantial customers, would and occurred guidance downstream inventory a quarter. me We to let's Everyone bottom. channel Now at like partners the believe

our customers partners in inventory has not yet. downstream customers, the channel corrected at However, view, their our and

low rate bookings remain are bookings although a quarter. the current December Our than running higher in the quarter at

of the Our backlog December out quarter. started start lower was at it quarter the for than March the

expect March factors turns be to of billion. the for quarter quarter the and Taking into March lot net we remains to these a $XXX for sales our million visibility account, have we the low. between take and all $X So

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

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

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

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

growth well then in pulling and We that focused designs the our entails the at the above-market megatrends plan provide We funnel aggressively believe plan. customer The our consumed X-point at our that remaining portion are and through to are as excess generate growth. net and we later winning positioned inventory of customers customers is distributors, on them to sales.

our shareholders. me provide an return for let capital update Now on program

our our free have in currently certain made to depressed payments. And free cash dividend. right We than flow are tax cash sales, quarters, less are payments Due investors adjusted and higher in net interest to payments of to is every now. dividends essentially our make XXX% Bond returning bond flow we months. had interest X adjusted

quarter, flow. other exceeding impacts cash adjusted in and cash a this every So results free dividend free our adjusted flow our

begin were we levels our inventory, to cash our adjusted our borrowings cash free they to coupled quarters, bring very down cash capital As bring the flow we before we exceeded back in low to least with dividend above cash the to dividend our liberate to from expect excess intend future the expenditures, use the flow. at free at

questions. for operator, that, With poll you will please

Operator

of with comes Securities. from line first of Arya Bank Vivek Our America Instructions] [Operator the question

Vivek Arya

limited. appreciate Could with market Because I do kind you at hot cetera? worse and of channel specific do indicating? them remains product? microcontrollers, inventory by than the also? to you those Microchip? the elevated of Or of inventory from channel comment But is concern us Steve, And kind of have lower the inventory share spots that end to Is a think et customers industrial or mentioned you indicating excess this or visibility partners. by level and are your realized like you in customers it are seem partners think where is your be you issue competitors many

Steve Sanghi

by is end markets by which or first is So different your not the board, inventory high the by What part is across question, is it the of answer much slightly pretty product line, direct and to markets. by it's end I your distribution. think different

getting lower report on revenue is out last revenue of million inventory historically sell-in our sell-through been GAAP, quarter if than sell-in, customers' $XXX we lot and in more, they the $XXX closer -- quarters. distribution the kind And to this doing but million would Our just a where past, for was sold they've on few our distribution number be.

is reason large tight, really inventory part the still we preferentially distribution was at customers closer the the is of inventory distribution broadest the sometimes corrected. direct high is lot customers. getting our were So over when and But a supply to direct getting customers that serving

level competitors is so later called that So higher we PSP, and the reason quarters #X for dismantled our having non-cancer X our customers or inventory our did. program than

our continue So had that Hopefully, when And therefore, competitors. business than at for the to eventually potentially quarters. ship question. fell X customers, more answers had we our they products higher inventory your our of

Vivek Arya

imagine assuming the a Even power over the over year? guidance, Microchip $X the of or say year, Even should cash fab you quarters, flow just as and this what the I low we need Because back seasonal with will for term keep -- earnings for a last company? what $X, level, get fiscal influence. about the in In to over would the justifiably utilization next $X, so. then would right, it you point March also reasonable if are probably level fiscal and of OpEx to it's thinking follow-up, you be we start is medium some power the some several next the in kind prioritizing earnings rebound

year Just earnings about the or you so? do company power over next think years X the to how for

Steve Sanghi

on if have something it But numbers I add. out. have to We that, that. guide it. that on see don't far putting Well, right to on and pass all you you're But don't Eric really I'll

J. Bjornholt

a Well, We quarter Steve's at a time. right. got

and long-term the share talked we've in doing X-point March some that, on and be we're got Steve's about do he's And the still on lot We with that are to work business details model, working manufacturing. in set, is and to community more more X. a we'll through plan. OpEx obviously, investor what analyst

the need growth. I think, we But perspective, and Steve's a this perspective business margin we've when above-market start benefits And So we in not and it's you drive yet. for through think we out correction get an flow to of you asked that. hard to to positioned operating of it. cash confidence can it quite from answer got question, prepared that of said And our this what know, remarks inventory we're but are as lot long-term as seeing

Operator

comes the with question Curtis next Blayne of line from Our Jefferies.

Blayne Curtis

to before want may you you with down -- this reference I some how down come and to But inventory. the there it back maybe us to Obviously, want revenue but get you through is Two I us to give questions. dollars because some just days don't ask forecast think know bit the to depressed be long margin would step as said flow I gross it level in back, you to, that revenue? walk want can a comes more.

Steve Sanghi

So may and and and inventory depletion on with model I don't all some But think current be Vivek like for X, questions you don't gross asked of the I give of that competitors to we'll in the many the rightsizing data our guiding quarter, on times. is, would that, factories you XX% to March asked margin question even highlight have we're you which what do of it good we able really today. a our midpoint

by expense keeps Operating today So what compared to was good just is we quite lot the top the going. and of XX.X%, of was people the about gross when assumption guided the high midpoint really that's historical a extremely at adding of that's at driven cycle a it margin. business

been, should gross I'll peak had gross not able X. able at have Not March historical do target a reason and And historically long-term you increases again you utilization you a margin a a beautiful leaving correcting gross do, price P&L, a was the But numbers. frame factory all where with really margins. that which that XX% gross absolutely why are and high, return the as And historical give running I'll have is cycle of talk to low we correction that expedite which time margins expenses, historical there's in. and March on we the margins with out, And charges to our to operating we very today. to no of very, do to the it really and X. So have should it be be on to there about more

Blayne Curtis

of the debate kind company. wanted always to here the And coming That's been perspective then, you growth back. ask just your on for I'm renewed side. a curious,

with demand creation. would kind can mentioned You is kind Do to the market? that? progress? of moves think going to and moves add of you Is these that you the work distribution do be incentivize the what in Or company it think that's outgrow some a to

Steve Sanghi

I those don't can know if separate I X.

I think win. than non design higher a are wins megatrend our megatrend design

I about you. Xx think the have in with the some shared normal. we past They're data

we're we alternate doing an COVID customers all So trying environment parts available also went into design them. their super is of engineers fit or during whatever product we to them cycle really through where had qualifying find for

much of not couple happen a designs new of years. for kind So

full have inventory the any just buying new don't at get really go funnel. that increase they will channels. through from the customers is customers doing revenue. And then both to production, we've Combine then long-term And that parts other their show business concerns got those future. grows It's about will when together, the consumption that customers are we that. the X rate, when and Our this. inventory a various And They of our are the start depletes, then reengaged designs. in to thing that model really

about a industry close, has close getting I for year. getting seeing but think we're been the

out quite to So getting but the I quarter really spell don't close. bottom, are any be we to want

Operator

Kumar comes line the with Harsh Sandler. Our next Piper question from of

Harsh Kumar

clarification year. some environment quick dollars. or come from if have, on the you in the good that some on from year you at some keeping your just absolute point in a a think time. are question to back. like time see then, just the sounds environment going things gave to will this in down you recovery assumption Steve, had X-point will the at baking OpEx. current question. you answer And Or back the the It's baking that of that that Blayne, in into assuming program stay assumption? fair come I you point said you I level It that That's same? to OpEx But are same. my next the or curious level I'm in you're Is

Steve Sanghi

We our into many result had in of depleted designs, a or growth business them in but many them new the the return are have with significant on are assumption last the them efforts all breaking designs be inventory. a of customers introduced -- products on it of will they they we inventories some our new of environment years, launch the X plus X, in lot didn't an sitting when complete winning

Harsh Kumar

another curious could had correct of I maybe inventory level Understood. process organization environment around, of are lot. take about how the answer try to the in not through even understand so how to to your to right the try more get you me dynamic. you channel kind where They're around question, here. direct things but process would would an easy, moving moving still this mostly or the down, gauge of inventory I'm going a but

Steve Sanghi

is what think one it was we Microsemi to X. happens They then that of the a we X.X Microsemi soon aggressively very and would they And about been ship So the in XX out on really XX, X.X that which our it have years, their an the was when numbers, customers average and window have inventory X.Xx stayed to inventory, closer brought after over given of when down. I that, higher X worldwide to quarter. channels inventory acquisition, much few historically, in lower than the kind to occasions consolidated was

change. So to back come see would below And But why in we distributor it in reason no is X. general, down can that. inventory it

J. Bjornholt

inventory the are you're And that, quarter, months of saying when in X.Xx X mentioned you on they ship I based what out. it's really shipping Steve, to think what X.X

Steve Sanghi

sorry. months, X to X.X

Operator

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

Toshiya Hari

like of with threads? if return. over you've customers bit company? responding plan you your will? any months time regain since spending the the common feedback you sounds What has to been the the X a past do what I'm need on and asks forward? some customer to going Any quite And lost been to of do trust, how you it curious you do to Steve,

Steve Sanghi

question to He going but I basic Simoncic. customers come of that to Rich customers factories business and answer. hand lot the the has I talked have. to spending I'm So when to more ahead, a also than on but Rich. been the him time Go us, let they units I've and something, may add give

Richard Simoncic

So dealing front time customers. digest with the we've lot been mainly they of trying the inventory And spending in are to a in markets. that of customers is weaker what with today, have dealing

we've or But customer in think our about have that the distributors, customer increases not during place where pretty program they're from lot of losing, spending PSP are inventory So price I other on we losing catalog of some a upset and or COVID bit from relationships shape sitting our semiconductor where that, suffered time took our with a but where period. suppliers. houses, good we're from the quite been tough some relationships customers of

going don't where going can then forward. see us So than magic with -- work good and is them, do win-wins here there's on what I they're forward. do of those upset anything working we some other together to we're to understand customers think find trying and

went to relationships, some our happier degraded. that us were of and we we degraded relationship twice we've -- have, our that at customer And the had we And degraded on had relationship that highlighted. those as relationship. with many improved, out accounts that XXX those think where we abundance we worst we had the degraded they those customers Steve where as found our going and I XXX we're that have of where through was then work

Steve Sanghi

you us, horrible a telling anything that. like is go customer No away, had

our think are products I good.

good. Our tools are

support world relationship. these class has the over many we multi-decade been have Our years. a customers, of in service and

got lot hurt. they're just kind So they a it's -- of --

too got heals feelings one be us. just during pricing And those them and the super and have cycle to Some and customers other, of or back inventory. with product designing and or getting time we're much hurt largely either the discussion and hurt have or way getting product getting enough not sued talk deals, with

Toshiya Hari

about as land should think 'XX, the then And and where sort maybe pricing, a roughly? Great. how did for forward blended all ASPs follow-up, path. quick on And of calendar you we

think many peers expect said of to we lines single digits. different which be about along is have something the Are your you you down for a could of patterns, to way? pricing it the guys? low pricing bit little revert I Or same pre-pandemic thinking

Steve Sanghi

that price and others, every back got up my short it efficiency the gains and -- year-over-year improvements cost giving wasn't and you down sure So price decrease, go correct. a costs get not sense is term, the Microchip margin. yes, I'm to our could prepandemic, -- what go year don't returns a to yield year-over-year. But doing Many is competitors are your to because the of through drop

I digits think and So term some think X was of past. quite low reduction year term, the increased the over past years prices in near mid-single appropriate. to a bit the every really drops price But X, short price the is we

Operator

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

Vijay Rakesh

Just a quick question.

look at how different they've is As your autos, you segments, to way is year-on-year? the split consumer, done there what us industrial, a and

Steve Sanghi

Eric?

J. Bjornholt

a Vijay. in once out do We the our that end will end fiscal year, year, end March. at which of We break markets the

May on year-end release So time our early we probably of in frame provide when color more earnings. we'll the kind that

right? of today. We and what this change that's of been and don't have period stronger weak, time not hearing to Really, weak. you're automotive share But with from markets have I else. a everybody there, over that been all it played have end So been overall, consistent whole industrial lot things have a few

Vijay Rakesh

obsolescence some seeing of the with disintermediation risk And I is guess? All solutions, other given you're inventory right. then any or inventory there on write-down side,

Steve Sanghi

Eric?

J. Bjornholt

we've reserve inventory been So taking pretty significant charges.

has And the sitting so those falling been been and this of our got gross We've margin has for have gross revenue a margin in the expectation balance on lot and inventory backlog falling. been quarter. and reflected sheet

visibility So dollars revenue that we're reduce of level But place that. in inventory to days. and plan high about the and And we've Steve's taking with just place to right that's we're in a and good in a low the do actions now. inventory, lower I think got talked

as quarter saying those balance and But is our the better is not inventory we necessarily a down. reduce so move gross guidance And as as forward, hopefully, forward, revenue should this we margin we comes environment. charges move down, see there,

Operator

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

Christopher Danely

as you/Rich, is for been feel Steve/Rich. not and that time years of fixable? for is there on is, gone assessment spend you could ago? you competitive guess then see that, months X And let's you anything a Microchip's say, Steve, couple of there positioning that's some versus that you've your how if question I a wrong now,

Steve Sanghi

I flexible. anything haven't that found is not

fixable high so. factories doing so. the doing the rightsizing think I of is inventory and is of within and process the fixable, we're the in process

move in resources, As business around and others away units to business unit performing to we take of these and we're things high-performing atrophied, the doing various need have business the them business put some some lower business them by unit. and put reviews, our flourish units have some from

be to So some needs optimization done.

center, are that feature. will we compete that. else has that or And product any automotive, There it. or We lot find defense don't all So yet, market, -- a this is different you a have in But same data analog, should features found business end somebody it how hole. we and can product that any businesses, of microcontrollers, No. aerospace have any X this you fixable. in But would not gap. haven't anything time, But does that is to plug no, with discussion differentiating time we flexible. that we plug take development internal be have of competitors the at and hole our find it don't. years that some products I And

I takes general, problem I some of think these flexible, So really not is owned but major that in time anyway fix things. haven't to any it

Christopher Danely

go question Okay. I'll away. And positioning then the competitive and

Steve Sanghi

Rich, you do want that? answer to

Richard Simoncic

Yes.

-- we're that still that analysis our that feedback getting, It's our through positioning. the distributors, discussions in our our own in of we're think our I working still in predominantly it. competitive in we're with of holding surveys

of in I lose Microchip of think confusing of has inventory, what's customers. large it are have you you when swath of about a terms some XXX,XXX customers visibility customers. now right those where because

ones can't relationships but And customers we focus and working So still ones And are that dedicated are still that we're have. obviously, the XXX,XXX, and strong. have all us. the we touching touch with through we of coming

customers how customer So I broken. work relationships, We customers most earlier, I about were that went and said see on may think anything we they but front. Like the there's fundamentally XX that don't just how they which COVID same whole built broken nothing unhappy customers, I smaller majorly period on was months, buying material was have or year find, them. did available medium quite and when of bought fascinating X up XX smaller to instead are inventory months. finally

bit So extra they bought a little and medium on smaller customers. the

did And so and market it customer the -- the . base. really on it depending varies

Operator

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

Joseph Moore

of fabs. much how you inventory, of can about the Of talk from internal days the that is XXX

you number it's a think I XXX had had that I a past? the in over on that. follow-up then And given

Steve Sanghi

do XXX Eric, fabs internal I think were something. have the breakdown? you or So

J. Bjornholt

internal It's in to pull what that a side it the of up The on that it than the higher are and I'd range. at in range. foundry have business. is but it's look systems to fabs spreadsheet

Joseph Moore

lingering the talked Like forward? there kind does the inventory lower around that's reserve cost about inventory taking we are utilization. that is Okay. kind you a then utilization? utilization of lower higher an lower XX%, that fully that -- of Or going of of And because reflect

J. Bjornholt

you're when costs you charges. underutilization less the Well, these are though even inventory -- at you're capitalizing higher efficiently, there and levels, taking running factories

through some to cost right? higher work margin would gross -- to We've I to reserve charges takes see but go we get of some time benefit improvement that it expect inventory to So will point, because lot reserve also. inventory, a that from down, sell-through charges taken build before these at that

you just probably guidance give the how and hard the and will that inventory quarterly and see are So exactly give margin taken up, But a out to largest as we'll charges going help factories that's get predict go gross it's in that that we we we'll taking us not faster to if unutilization factory obviously, reflecting build long-term Fab up corrected charges our in the And target. today, will those stat. X had than down. we're weigh third back

Operator

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

Unknown Analyst

Tore. Jeremy and for you different cycles midpoint compares that back and that how need terms to the bit historically? and little us get going just you historical to points I on cycle the the might calling in the versus is help maybe just size This guess at question. Can quantify or terms a

Steve Sanghi

Did lot a was get you there Rich, that? noise. of

Richard Simoncic

I think... No,

J. Bjornholt

I've it. got

real what the when So how I'll at current is repeat to turns to the get the it historically. seen question we've to the quickly looking quarter we're compared do look is, midpoint

and to so Rich Steve I'll if it add that, and they to. to can want And an answer give

think today, turns. on given are demand times able So given historically guidance And is we and to normal the when a outside matter level environment. just they what short been there that quarter a be range meet to obviously very guidance of are short, We've for time required turns in the lead a a lead fill our not reasonable based it's the respond would to which to what and customer are is high of of business in. has that

Unknown Analyst

Very helpful. And maybe...

Richard Simoncic

that to and well. expedites because as add turns one as come Just continuing piece more and and we're And expedite pull-ins the pull-ins. in to then see

J. Bjornholt

in that's have the And instead say, place backlog then pull-in of is and in March, comes April, quarter needing the that?" already now by to pull-in. a I and we support you can need outside Right? it what is in "Hey, be customer product us And means a sits would Rich that of that what

Unknown Analyst

you quick product and a maybe on X maybe us question you And helpful. us processor. the the very help the term in give near to side. new That's risk both Can on Can the hear opportunity Maybe look out the how to how could X X you term, term, the be could as revenue we big contribution. near longer initial potentially when term? in what this -- And in long see the years?

Richard Simoncic

Yes.

forecasted impact many and portfolio. is development revenue overall we with building of and So environments a What we're software to for that product Microchip. understanding great asking help seeing haven't customers

now build applications. and starting out this start to design around customers design platform products and to development to of seen different so them groups And groups in

wins we is but yet, so And high. level of quite announced activity haven't those the any design of

Operator

question with next line Riley comes B. Our of from Craig Ellis Securities. the

Craig Ellis

that Steve, I question. wanted and terms qualitative you the realign capacity to are more to specific go capacity operating in right the back correct to that help are identifying back-end and the be the things needed team at in understand level plans, and of us new capacity front-end where a you you you Can the first where that point on steps assessing of is production allow and that to ask the determine?

Steve Sanghi

far very to down rightsize and to along, on steps factories identifying need to is other disclosing taken you Fab beyond team be that The closing the X, X. we'll March what be

Craig Ellis

follow of if Got be you March And it. me the would understand I'll up well It you're correct not, you And deal maturity Eric, debt XXXX? then, would September. made maturity in the in next that just when it to be? Is help that. point the like sounds that on can that positioned beyond with

J. Bjornholt

Yes.

Steve Sanghi

to at look trying his is computer. Eric

J. Bjornholt

I make to Yes. I'm misspeak out don't just it. sure to pulling it

of in laying The tranche billion then in the some how credit after do we we'll And XXXX. we of have next to $X.X a That's are progress September $X.X standard the not redo pretty out point tranches right March it's have now. about of that until of So go $X that, talked The billion 'XX. through. time. in at billion we our due line 'XX one. is But that's another

Operator

of comes Our question Chris Wolfe from Research. the line Caso next with

Christopher Caso

and first Could to at and about the your talk I such through of as that point, cash level better? to flow to dividend with the regard the not to And we're that flow starts recovery dividend. generating free plan free we're guess you of I foreseeable dividend. future as in the committed sort know dividend still to this question going you're commitment cash get fully this support the

Steve Sanghi

Yes.

years. So that a as increase for did not you may we probably and we been the doing have it have years mission dividend noticed, by

not raise are the X its they're reason it ugly it. payment take And it to sorry, this the cash down, reason flow not of quarter, the bond dividend kind add keep there's other X months I'm and no is to So but enough up. to very flat, because months, there dividend head bond -- one pops is and due. every quarter payments generating and no every payment problem, short-term we'll a there

quarters but have dividend, should this pretty go other pay think some away the the really quarter, to So every borrow I to coming rapidly. we in money problem

short-term cutting do a by the because no it's damage a to reason So issue, there's long-term dividend.

J. Bjornholt

June the cash in cash our is what our is And March Yes. quarter's we will be what we flow flow. pay lower Maybe on based the equal based free essentially example, free our in capital flow then adjusted in cash the quarter the just return prior adjusted March, quarter cover as an quarter. in to and won't program but have dividend payment would always December our free

as as management profitability working help reduction business is not going to us levels the doing high in but returning obviously it's getting we now, that. right anyway, capital and inventory well So back with as we're with as be, it the confidence would like to higher to the

Christopher Caso

Understood.

capacity. be, One doesn't is more of For fab a I XXX-millimeter some going and network manufacturing I you're provide pursue. But internally, you in don't second going internal that's still March. details something And would you it about like access X you're it's question, guess, competitive have parts manufacturing that. to feel How kind that other then know a to some market on that customers want Do does to manufacturing you've strategy seen the manufacturing is move sound footprint that? how some secondly, Microchip that? to China. that to of Chinese rest China expand competitors Microchip because responding XXX-millimeter, the some you China of start tensions, the the for of others see feeling to as respond And of to the with inside geopolitical to

Steve Sanghi

So take let those. me

we The first a foundry. use at XXX-millimeter, XXX-millimeter on our capacity substantial one

and well-known many all think business and of today underutilization it XXX-millimeter the no ownership make yields experience at a than takes business to to of cost with And the you who technology develop total high foundries. with it's very amount cost their in the fair XXX, is running our us the our rent various When the will cost is not look all you I external. So total is time It a it professional technology. at and of better buying tell that just units internal. competitors of the on ownership, really I

investments So going us, I telling point trailing were edge adding they was X, happy pretty capacity when a advanced There all to were the wouldn't with think technology. the ago X we're be foundries that. years into more go

we for fab U.S. do point, our to about be X the XX, those enough specifically that time, sac XXX-millimeter were building for concerned getting will and whether in engaging business And government that at full. is full then and pursuing is all technologies. a that at were as XX-nanometer chip there we and XX-nanometer, capacity some to and And that, do with foundries money from we so. business were So the

XX us additional then the in this And for as XX-nanometer, no told and future. you a in XX-nanometer investing much fact, XX buy would Now of XX XX, today, factories And are be can want. them you some as problem. that the longer and

in spend probably the billion a us to for XXX-millimeter to which utilization build decade therefore, low beginning. multibillion take dollars, $X factory, billion a to you'll plus to fill and a investment will So $X it, have

of I just China part equation And does think ownership your on that of strategy. question China the second work. not cost for was

about strategy a that also and . talk have China also for X. -- We China March I'll on

Operator

time. Thank the for would call Steve at you. pass like closing remarks. questions this There any are no further over I back to to

Steve Sanghi

and analysts to gotten many back going to many, We over just was support call, improve I the all who your thank and and have things thanks investors are the the when and for CEO attended years rapidly. want

for thank So please patient, you I and your support. Bye. be

Operator

concludes This teleconference. today's

at time. your You Thank for participation. lines your may this disconnect you

Microchip Technology (MCHP) 6 Feb 252025 Q3 Earnings call transcript