Microchip Technology (MCHP) 4 Nov 222023 Q2 Earnings call transcript

[Technical Difficulty] Is a record $814.4 million. Non-GAAP earnings per diluted share was a record $1.46, and at the high-end of our guidance range. On a GAAP basis in the September quarter, gross margins were a record at 67.4%. Total operating expenses were $642.8 million and included acquisition intangible amortization of $167.5 million, special charges of $4.3 million, $3.2 million of acquisition-related and other costs and share-based compensation of $34.8 million. GAAP net income was a record $546.2 million resulting in a record $0.98 in earnings per diluted share and was adversely impacted by a $2.1 million loss on debt settlement associated with our convertible debt refinancing activities.

expenses tax the impacted a tax the of GAAP of a result quarter capitalization notably purposes. factors, expense R&D September expense by was variety of Our tax for recorded as

Microchip rate pushed rate lower the as There be variety fiscal losses this the anticipate R&D tax higher to the R&D appears 'XX a as expenses well XXX requiring tax current our any associated non-GAAP to of than in momentum refined operations basis accrued as tax of repealed. now and a communicated the our impact were such 'XX about related the any structure to audit or is quarter, We we rules global tax for taxes to what transition for have companies tax to tax year expenses September adjustment attributes for last X.X% into between in requiring cash some to to settlements of for tax tax as of tax Microchip's rate expect This was in year. tax, including tax non-GAAP our XX.X% years. tax modestly factors, for happen, net tax of credits Our the with we of 'XX A cash our rules fiscal calculations prior and our previous would capitalization and be Microsemi quarter. be out fiscal is tax If higher rate the cash restructuring purposes. reminder the capitalize we favorable point fiscal rate than operating XX.X%, availability potential forecast exclusive XXXX. fiscal

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

to increased have lines. our supply manufacturing our We protect internal raw materials inventory

constrained relieve progress equipment to in take utilization new will to ourselves as to of work maximize of advantage bottlenecks. as position the which higher carrying are We well installations equipment

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

the million of the effective being low, With of billion offsets place balance had the XXXX, over dilution carrying beginning customers rise, during higher margins X year our we and This from to prices principal convertible $XX.X creates will same with $XXX.X in our still transactions of September XX and approximately outstanding. September it which that above inventory $XXX.X our for $XX XXXX calendar prior distribution includes at stockholders quarter, call principal be the option our growth, inventory. of will of of gross was we for these million convertibles ensure with any additional at also repurchased principal debt in days amount quarter of appreciates days cash debt In reducing quarter fund to benefit bonds XX amount price bonds used of notes $XXX.XX. in of million. rises that XXXX Microchip incremental paid at served. to the $X.XXX Microchip As up The the points of bonds value was dilution potential September convertible these the by XXXX can and an subordinated was be cash time. the inventory believe value we to cap stock which maturing for these was November cash and sheet physical quarter's convertible Inventory inventory gross convertible days every distributors repurchases our XXX generation the at of We level. share inventory At million. we on margin the basis the the of convertible of flat days count extent stock amount the to

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

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

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

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

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

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

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

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

Our operations expected XXXX as We expectation for is our million our actions support manufacturing growth prudently to to continue growth $XXX our add business. continue of take our million the $XXX grow for and business operate capital year to between to of the and operations, expenditures and capital support to of fiscal internal long-term equipment the maintain, manufacturing we ramp

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

everyone. good afternoon, you, and Eric Thank

another by billion. September markets. execution continued Net XX.X% our resilient disciplined grew achieve sequentially record our quarter to basis a all-time end at to and and strong, results Our $X.XX be driven sales year-over-year X.X% on

of give sales September about market the this grew rate some a While market we end which basis investors GAAP to sequentially normally net end into providing we net the recognition. sales ever a distribution billion as at our to where quarter operating consumption. basis basis up was the gross from information which points above a at guidance increase XX quarter. Non-GAAP we long-term last in points same provide XX.X%, in and our guidance we the are the mark. first a came don't from expenses net quarter. The up sell-in have the margin XXX end XXX demand achieved as on from well high high sales is our margin of the June record time September at rapid were sell-through basis points crossed refer years, we record our $X end on quarter over and model came year insight June annualized XXX record up from up our about points Non-GAAP eighth XX.X%, based demand, ago the quarter basis in and information ago to quarter quarter the of of net sales consecutive XX.X% Due XXX to low a basis year X operating range at below XX.X%. XX.X% the the points end quarter at

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

year a quarter, at our generation strong XX.X% sales record ago continuing to very million, cash down from were in of at $XXX.X our capabilities of robust EBITDA $X.XX to sales Net by net debt September demonstrate the per net driving September the leverage cash X.XXx, exiting business. our the ratio both declined quarter. consolidated XX.X% net XX.X% non-GAAP was share, of guidance. of diluted Our flow the end the quarter Adjusted high and EPS and at up free

worldwide the for imbalance During quarter's net quarter and to were quarter, a supply another in thank net as thank persistent XX.X% June sales prior quarter demand. continued results sequentially during their I XX% and and who microcontrollers to all-time the On our stakeholders and net September Taking sales we XX.X% between and us a team XX.X% would up free dividends our representing from $XXX.X and were represented microcontroller challenging deliver line sales our our outstanding up enabled net sales results quarter. our flow. Microchip cash September to achieve million for take like all opportunity to the despite of our these shareholders returned year-over-year times to compared look customers product efforts of a basis, record. at set in Microcontroller perspective, a the this large September share especially repurchases, the to

the analog net net analog decreased On the sequentially quarter. sales were sales analog in quarter. quarter represented in Our and September a X.X% our September sales our September net XX.X% year-over-year XX.X% of up basis,

quarter, in sales net we by which cause there product quarter-to-quarter are differences can constraints supply last mentioned in line. differences growth As

strong In product rates the you our sales the strong lines, versus licensing analog are as continue a growth exactly the implementing record. we quarter, the internal Demand the almost Business same. new to have now. prior conditions be microcontroller viewed our the been some technology net trailing through performance our net time If be X-quarter growth X capacity despite indicators. for increases for September quarters achieved compare and sales to continued

exited backlog our unsupported And September quarter could our achieved. but ever, well wanted which them customers unsupported we backlog September net backlog which deliver represents we highest the unsupported quarter quarter, a to again. result, September the in with climbed the not above with As sales ship actual we in the backlog

remain the levels and but through constrained supply coming unsupported more the XXXX. so of hard and are to manageable reduce We do to XXXX our working well backlog expect to in to into quarters rest also expect

inflation of resulting in customers We be macro sheets. conditions as that such the and monitoring some at rising course, rates aware build We're and our also are, inventory from are is of weakening their conditions balance there cognizant closely. interest can seen

inventory of the due due of of years is is to incomplete last screw believe, from we Some learnings kits and the the builds effect. arising infamous of X golden some the buffer to strategic this this,

large cancel hence, we we not While resilience reasons of to had fraction very in semiconductor the companies. remain midst of requests an business a backlog, small other requests material seen in over business. by multiple or they and our the very the impact have more quarters Microchip's these out believe demonstrating We have are have X backlog seen push the some there a is weakness of why on increase

XX% on infrastructure sales, about experiencing make for over resilient gravitated up consumer sales the appliances. demand a we of as end our years. First, consciously home have replacements the demand markets quite XX% which because which be broken automotive, communications end comes from of Hence, center some is home the end is defense, our high down consumer durable is industrial, appliances mix our And percentage more by market towards is aerospace markets weakness are demand replaced. market net other The dominated and appliances must data and remain strong. of which have side, than of the but net and

last products our where the most of built majority vast still on remains capacity a increased least has design momentum opportunity megatrends laser revenue organic total years the technologies not growth to side, that a overship are supply last giving the for capacity. X there consumption. is edge multiple trailing the us And and but focus system over years constrained least, on was solutions higher-growth is specialized resultant This tailwind. and on Second, requiring through which win and been our constrained

internal indicators strong we in it's us of modeled are enable when closely appropriate. indicators the scenarios some should feel crosscurrents business we have the potential action take macro deliberate of environment, monitoring to a uncertainty various and and which range Given

The environment or catches landing macro the deal unchanged. is last with goal a remains you quarter how we deliver with up to playbook will if is for our for macro slowdown we business, a when Our it. softer soft with there shared

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

chain, constrained. supply external While have we in internal several remain corridors continue that and are some seeing very to our loosening of constraints capacity we

specialized over us trailing capacity consumption to spending believe our to edge long-term a We in are for serve enable especially we increases our customers opportunities, are share, with calibrated us our believe our what on seeking control increase that destiny, growth is growth. serve calibrated capital technologies. gross more We carefully our increase market margins our give capitalize and will improve continuing

will and being As economic the that for the view industry you good for national has investments which global for is Microchip may for enables approved have expressed important critical America field strategically semiconductor that Act recently seen, U.S. while its security. the playing CHIPS companies and our even

high project, as long substantial including geographic portion business our important determine wafer grants, specialized tax very fab and grants capacity important of we the strategy in credit strategy help will well will being control us The one maintain Microchip all component be U.S. intended fab edge CHIPS subsidies lowest-cost potential In in funding been of and in local a and is stages and subsidies. strategy of and to to level a fab. would This has decide in to and provide diversification. in operate well it, geopolitical pursue considerations an a of manufacturing to manufacturing for as Act, For other and of U.S.-based as time, facilities for considering light resources, early also fabrication incentives timing resulting the of availability embedded if control, the from technologies. the our this state the own us as analysis the of growth enables XXX-millimeter provision our the location a investment trailing producers industry. grant This be competitive and the

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

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

midpoint XX.X%. net We our sales growth our the for we growth in demand as year-over-year the expect the end would quarter. guidance, about be March grow GAAP quarter sales. And also sales net based sequential market growth at our net on strong further, At the to net again December expect same of our sales a

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

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

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

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

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

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

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

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

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

question. BMO Srivastava has [Operator first our of Instructions] Ambrish

that and investor about question is Many of your the help the rampant. appreciated this just can’t everywhere. have because diversified put where about about scenarios playbook. the the very slide you talked talked ask It’s and It’s But playbook deck you’ve weakness. you peers weakness I talk

big help lead stressed have higher out, harder Just of the the the possibility the longer the understand, of concern stays kind us a time I is landing.

us please. addressed soft the So to you managing just kind help just understand, could, issue, you wanted you that a readdress if but times of few I how landing are that have

Sure.

where We're customers It specific not long are lead areas, side out starts with visibility trying improve. time. it a that backlog. into the high over you making It a feel put going total into huge right? a markets looking end focused and that in outperforming design-in down model and where thought there. of with in standpoint starts long-term. short high-quality is that is at not it. helps then satisfy system all that Most we a and time noncancelable. goes these reasons, the are the pursued. in more markets who what are and demand activity They're put to And all our percentage terms supply backlog. the from to to started have calibrated customers They're that XX%, making trends more commitment be times these And with in they've highest-quality every PSP can in go our we have far also at and is we have well the to we those is order. for the customers is investments on end for solutions It's we of us, market durable. but So quarter. And always in who out that's have is have have having up ourselves volatile done noncancelable And being to the backlog, also, of And have that go far demand looking things mega exposure market another we're standpoint, that benefit together and supply and we

Okay.

a diverse quick very know the lead times staying have Just Where product lead are follow-up. a I percent but you -- now characterize weeks? the times -- in versus the way on are at XX-plus what is it, come line of and

The place. over all lead are times the

We as X have lead low weeks. some times which X as to are

XX at still the We lot improves, XX day work where them are long that. have And Demand it. We by It's of able are, constraints improve we're weeks. do corridor, a as to strong. as product to every remains which right? to product, by to supply corridor trying go

in right? it’s demand end lead see you there’s can this So information you GAAP on is can is to growth importantly, say, lead strong times on is. at.” not the how the a basis. I a But we single growth, also keeping market single most shipping market number with pace what it’s “Hey, not the provide a the just data I are the we’re The the -- that And times, or that give what of you some percentage end can with

of Arya Vivek from America of Bank Securities. hear we'll Next,

bring company? giving you of mean it some appreciate stages a is you’re what or CapEx does one, on fab. philosophy? on more back Just of impact you’re require? I the the still any probably external What foundries discussion. color any interesting decision? XXX-millimeter Will dividend buyback to I very in have And of it’s driving For it fab. what will will that early your it’s it wondering first inside considering the was kind XXX-millimeter

Yes.

what think should It fab look thought It's us. Not unlike a ago, it process we a very was will investment as do for strategic So right? you about something made. us. XX-year-plus long-term it a we time when years about for it's how decision frame XX bought over we of at that Gresham our and just

that We have are at candidates. processes millimeters XXX many our that

places happen in. necessarily look We some where buyback have that over have as much would inside grow. years. on bringing at can as it will investment of or provided that would not wouldn't have CapEx with dividend we the as, or either ones expect I all This impact as look But as grow, it be at. to the additional we it within ones where specific do we the bring our else we will at just we largely early It stuff the we anything and multiple range share an our have we're

quarters? it And seeing how process? trying conditions is to this competitors to you signal outer one one you're as the some what that their does in everyone follow-up, they that prior think for from think, in I the Because for saying sense reason not that is weakening, your strength Microchip yet just was of you the most are that some that I'm far buffer forward weakened when one macro along are be you Ganesh, a every inventory. time do my And mentioned it. first is conditions demand might seeing downturns, pull get building are curious always customers think I

the your different industrial what consumer understand peers also peers? has [Technical who but the part Are automotive analog Difficulty] versus type markets. you So to industrial your I exposed there? can are versus same changed what’s

reconnect Please while the line we remain presenters. our on

You may proceed.

your repeat back. We're please? get if you're on, question. of didn't Would Vivek, your still question, entirety the you we

Yes.

was you see you’re it Microchip right, when first the company that always the they general, had that contrast are building along not I the was now. prior how customers in was but products, mentioned similar So in And buffer basically, today, downturns, you process. I are a inventory. if seeing wondering versus somewhat downturn asked, in to just of Ganesh, you mix what far

versus new I difference curious Microchip the between is what was So old Microchip. the the

Sure.

So let answer me first. second the one

a Microchip, you If to volatile, we at right? didn't and infrastructure. more the the aerospace We are back the same those XX more weren't as have that markets right? or We exposure high center had crisis And in more far defense, if data much are consumer industrial financial years higher look durable, old and exposure time that perhaps in go automotive. you had We frame.

So changed durable customer where question being demand see their today far end in we that about has to the can it and was as than more about buffer. first market what history. the On your

of I there is that's to backlog unsupported. amount mean being think sure right? of constrained it's built is product to they're mostly, small anecdotally, value are customers the carrying.. to there's to because OEMs But a it we in that. I very all small. not still our that is markets Yes, able But we're who the semiconductors end building some ship, the are service the in be compared that think some ability multiplier going there where as for we're in? is And large we're this the

Rolland, Christopher Susquehanna.

or I first for guess Ganesh. Steve one my either is

versus out others something inventories channel difference doing here Is you’re had into your to or there there there? of think some your perhaps it tough kind confidence and that other this Is pretty tight? on environment. Is operationally confidence those growth this enough visibility -- which to and provide So in Is different? you incredible you you kind your of is have keeping do this this looking policy? confidence March stance of you’re because affects NCNR

alone we perspective, of changed we're the both again pushout and would of have side to quarter firstly, if we September accepted and our supply factor would making. remain the well guidance put we December noncancelable our as XXX% So this grow right? Even have cancellation on improving demand me quarter all But in results, March. confidence requests it that backlog, let not the in poised as sequentially

that us that assume So the it's is non-cancelability somehow don't up. propping

forward. Great. as not talked moving before having enough tight you’ve for industry us -- being capacity about and an Steve, industry

how I what strong probably belief? even but and you stuff underpins some think in about equipment that terms as like you in Are here, XXX-millimeter there's you that well? an cancellations been the is more that? would of update -- love feel And thought process that

Right.

X.X are computers edge, edge high-end the So last few being consumers it significant processors in began is the of nodes, mostly has very at edge of and happened of bleeding with on the and semiconductor constrained way. leading quarters What all chips ago the with the capacity years semiconductors trailing middle cellular which the phones and in personal and technology cell the phone.

production in really market, is bleeding constrained. edge longer capacity With the leading now the no -- that

of guidance downside dramatic seen have leading-edge very by You lot a the people.

you So constrained. their equipment get all get by out supplier pushed many because wanted. be able need. today, was if we some to we parts. built many be able XX-nanometer trailing-edge sometimes constrained inside have the foundries the to capacity we everything you Inside, we and equipment bought can both. edge, scheduled Most wanted On But a got wasn’t the to quarters that X-nanometer, XX-nanometer you capacity, we to and continues even haven’t trailing are on delivered extremely also for some the from equipment been months, semiconductors

products trailing outside we’ve buy will on constrained is remain the very into the constrained that really XXXX. constrained different many done currently edge So inside capacity inside and believe corridors. we remain we capacity similar. well And The remains

XXX-millimeter, we X-plus that starting ramp. it's think is a thing, on one fab to -- tomorrow, away before started if where I I would years add right? fab on more

be across in capabilities growth is what a on to our out time. through a We these cycle. secular and in think we So long-term make these want position decisions not single and basis our cycles are what we

resilient cycle see we and be prior so why it talking the one on question, we're we first are that backlog the today. And seeing to and this the we why were and used about not prior in to

PSP very mentioned more manager a I of And there backlog commit comment and today in the goes Ganesh in emphasizing has mine. is it. places junior to the for the a XX that think to is market used XX end high-quality into -- who goes which the think a secondly, we non-reschedulable months some not that a canary noncancelable, months we you comments. lot purchasing I mix a customer approval. to is want cases, I call it's to dramatically and And different longer that a add backlog. backlog, When coal up couple backlog. wanted One It have thought than when keep

And it let would then order backlog. They So it's it's double just would they cancel a thinking much, them it it. Microchip much them it because thinking double rules, that order noncancelable. higher-quality the we'll that don't cancel people change don't let

really harder. because quality. backlog So our mentioned, of means be if of that all analysts it so not or heard would sort change fall as It just there. gotten and it We've It December wouldn't March. is would is and here to are into from that and nothing not cancel take the Ganesh It's think requests percentage. anything. people very take cancellation, even a and We've minuscule September, we for PSP some were of happen account. lot accident And inventory that them investors number small letting almost; high them change a scattered to very of we're building

thinking that not think is correct. I

Arcuri UBS. Next, we'll hear Timothy from of

still small. on customers XX I requests changes degree, inside committed guess double it just because know can need you to made pretty than you mean, can but like click of you talk ago. much more X that some I demand. And to to they’re change not about maybe, certain you You some of you really made mentioned doesn’t how It months they is PSP the product a to But moving PSP just PSP. put for comments within I might just it comment is the just because also of September half revenue about sounds PSP? Steve, backlog that

talk you and So through can just maybe inside about revenue kind question then is answer of that the much PSP. moving of how

what an So what That's we receive time, by that percentage them. place in the for quarter, firstly, it, quarter, who that of get back give customers what time in ship expect. to a given we we that's And quarter. priority overwhelming in backlog is

out. being December, it PSP going new in it is what in like percentage happened And further to in is come near more is is very backlog can what But term, a so and just of has out very, that happen or September backlog fulfilled. there high fill in time, and space that

try Let highest-quality on. backlog We commitments a commitment the earlier make me is a financial noncancelable don't scrutiny is is our is to to that have enough point to in suppliers backlog commitments. Steve so little can bit from trying which capacity undershoot Similarly, order it. the required don't to customers significant there. reiterate because fact, have when that make to hit get lightly there our They and scrutiny. excess made actually make PSP them we I will made they us. They, try and they're

highest-quality PSP this from want I take the to is you backlog that So backlog.

high We have quality. cancellations but non-PSP on very backlog PSP far more is and request

outside note even cancellation I that And days. to PSP, want XX our window is standard

So books when everything on noncancelable, it's or really, we not. enter that's quarter is the for a quarter, whether PSP

X.X a last the extreme ship and PSP customers. the made the PSP that non-PSP of think and we to for also are the backlog to ship non-PSP should All when low-quality not not to customers the customers customers. years, the middle in choice we constraints, You took

are they them a so of customers but little were cannot their commitment, X-year got make Some non-PSP customers. such They product. very they that business is very good

other prioritize somewhere get a get to So let giving PSP not we and product, made customers the else. it go, choice to customers

then and have really and So be And they bargain. flexible our part have the the best PSP benefited X.X now not last in of of our attention meet best them years. the customers their from can the of

We when give we any them. for customers product. did them. have lost prioritize not the other We We capacity added

So this… I think

our I don't it. best It's fixated our demand. customer. say best This is be would on

just Got then it. And follow-up. as my Got it.

your you you customers? When on of the customers? of sort is end about called you end of the Does that that consumption some gave at it inventory and the inclusive So view inventory demand, your customers? demand. your market that that's at Or build at inventory building build net include market talk is

than distribution, sell-through and service for we exactly end We the not of into possible other market speak that which business distributors' then we goes that no GAAP of distribution is inventory. our our we're difference track. to customers direct in revenue. what is ship it their roughly And through the demand, of is represents to So selling it everything when XX% that different kind we data to rather terms have or than that just do customers is of that’s customers the view XXX,XXX are We any channel. have not what our doing with us customers

about level But high, customer escalations expedites you can we the we can I report. customer that and supplier see talk inventory many situations. the all potential we're tell demand indicating publicly customers, for of do experiencing remain imbalance When is at Yes. they what

from Our William Securities. of comes Truist next question Stein

bit and target. a anticipate will little highlighted your spending your sort below range continues of question should OpEx that you’re percent First, to of think time follow-up. your it’s we OpEx, as frame revenue? of you grow target Over I a as not as approaching normally then and target much off-the-run I an have revenue would what you

It will be over many quarters.

happening hiring guidance better do the You which Perhaps not we has as XXXX. will can we see our been in environment in the is December go difficult. quarter. into

be anything? you it to Eric, want will slow. say So do

being Yes. I looks for nice comments out what the for time. about a on December. us. depends March has somewhat growth mean again Ganesh made growth like we're curve guiding it quarter in Obviously, in revenue

time So to it's up, Will. to some going take catch us

I different linger Okay. that backlog. it way. on many to ask a want sort And same the I want have topic I of very people so the high-quality hit then on is but PSP other understand to

PSP so the doing a mechanism still you you’re on terms if PSP What much decision a economic if The you’d thing going of changed or customers a request Steve, say, is to stuffing talk -- that use the operates. you to for question fact, to to customer and really in never business. the in come take lot impact remarkably company in move stuffing happen many in seeing that Even doesn't your it When where or pushout. let’s in on to, of all about might make or you'd decision NCNR, have moment. has not cancellation this took as more a at if good to an March. cancel couple is the you have sort and you wind comments the let’s how whether decision. address what the one And otherwise, is call the regular it’s up as stuff cancels, make You're how way distribution you customers, similar but the channel of least this force requests. the quarters either guidance how maybe model more you come -- whether is channel this to to in up a wondering it backlog, a that a position I’m in that to cancel, you not

want to the you to up hand, those I make because commitments all reasons. On live their one highlighted them

On you do that, know a and you damaging the demand pushing on balancing dynamics? painful you out if two that, those hand, other managing plan situation. How you’re future do

if we the got you It Well, work has the with ever, no backlog that first an time they that no they're much is to We make deal than for will us. win; is have part there their why place this percentage reason right? is are just commitments. can't responsibility, higher wouldn't we've of you where heads, requirements backlog, to make what had that us there has and that that our basically backlog are moderate business If give much, with they at. sure on on You right? not a a they they agreement is noncancelable with customers tails, This lose, asymmetric understanding they sure where why but placing have just backlog. grown. is responsibility an of there been that then It's there the

in it goes Outside But responsibility with in the risk because all the risk-free situation by situation of all the in the customer, in it. that back we're again, So we're we quality with it's that to not to I from think, to else way, of And pushing large, want going this mean be go customers backlog, how has is this different business. it or say on should side something on comes by had what and and have “Hey, our well. it. They’re that didn’t be to we expected this not what by thing now the PSP say, agreed with to. I us as we that’s it

don’t of situation see have. And didn’t I that have we and we higher way, bigger far by the backlog from fall issue. PSP, is So high backlog far as if a that far, an the have we big of

Yes.

that put us, A Will, They quarters thing by, several right? XX could they're that of in decision has because what time. before. I could month think talking beyond customer on one point you're in out, terms with they week of in They other put out goes PSP month backlog. XXX% that's of and put or make time to I'd backlog out months could March, it a backlog on XX%. like every put every next going what us They was the X the to

have for very And but I still customer of as it’s But has of time. We and several been not a believe new our fears when of large this adjust recession, I Microchip. a happening is over backlog. for has PSP not well, still woke these up is And Ganesh now only tons percentage worked the for today. rising rates that so that months. And we program been This think interest said, unsupported. customers gradually has

lots I the is PSP them behavior lots quarter. customers The in think not the wanting to not small want now PSP customers your inundated that's is canceling PSP that want it. and backlog cancel about. happening around. and letting the mean, to you're time, and see is any the cancel of talking gist And not It's quarter not to things we're negligible going to backlog with And We're next not after. move we're of amount. customers happening it. that a that question do have at There is just I you that case. not point

the when backlog start customers that's that face assumption pedal high that adjust we think gas quality That's We the issue. they think easily place don’t will the out. I and is can foot happen. because PSP very your off months XX taking order to it by the the it every would month

a making big data. of me We're give one more of me cancellations. deal piece Let

cancellation be If our of business, have, you will is guys. total It and negligible PSP, aggregate part by that a of X.X% dominated we non-PSP. includes it's and all non-PSP the backlog requests the it

Next, of we'll hear Danely from Citigroup. Chris

define about how earlier you lead -- said they and gone how gone up really asked someone you or you think couldn't I times, down that. or So much

is also have could you business what business still talk percentage so Is track you about are quite any, the constrained X months could, of percentage be in of now, we bit products months that's versus give us metrics or I products I that or X that guess, of a that? like, progress there to just guess, You and of constrained. guess, that said you or your that some, expect I from constrained would ago shortage now

be The going many, it substantial it best us And what is and to tell to metric improve quarters you, constraints not we're will unsupported through probably is experience them. with to that is to customer we probably the quarters. high. improve and the customer healthy service and still work But work to have it. there many exiting I'm we will that. backlog it's It's And the take working through

quarter earlier unsupported leaving September another that our all-time high. backlog but was I if know don't Ganesh said

the customer June couldn't more be quarter wanted record. quarter, and September in another over parts the to we ship shipped that quarter the unsupported during grew So the to

in from got way everywhere. the mean we that are mean daily calls day. I I we've constrained feeling times are almost in. mean any doesn't escalation every So customers multiple coming broadly lead that that are customers

peak. it hasn't the is and reached So the started hasn't still unsupported growing. The even It even peak reached dropping.

through you better any worse And and guys continues, then and recession better I where competitors and taking the what you for backlog make follow-up, ability Microchip’s it and or have. quarter you I about through it, other numbers that it’s worse worse unsupported to keep my your down or business to what a than global you That’s through gets If made the was Yes. it recession unscathed? more anything downturn even any the relatively do feel unscathed did mean see Steve, a do like. you’ve been I this at. And that? or felt so gets and this getting That’s than for think gets during better cycles possible

you unscaled what Well, define to meant. have

what saying remarks about we And macro us, step talked per we're because As we're ever will see in to is are and been. all went what say soft we're create keep of unscaled, place like soft saying. a over. plane we if then growing But not other macro XX% you seeing anything to it but seeing Ganesh weakening going attributes today lending. the to we in have land the his are we forever catches not When we companies up all Ganesh have that year the the

Toshiya hear we'll next, Goldman Sachs. Hari from then And of

from I was bit hoping about can a a little you seeing what pricing across talk you're perspective microcontroller your businesses. analog and

were part that given of have early you I’m anything the having well you was X.X in XX% our then, then. I changed hinted And our much ago, months of And -- as should be you September pricing Steve, year-over-year. How then quarter at conference a plus conversations ‘XX curious revenue foundry with your that tailwind had was some a were if Your has when up suppliers. pricing? that quick of follow-up. at the since

it's and beginning that made are I into adjustment early of year in the So part that's did year. have There being results price are stable. adjustments think at that any are pricing XXXX is offering. affecting quarterly price adjustment are. of the We this at. the are no make the that plans we don't an this where where or

we we're executing, new And designs of are where of in in we so factor what of a in our business. pricing terms going and where our not today. terms terms are is really

or business And call, it. in as a you’ve visibility that but I so range the then this everything given you that the Got or hypothetical far my your you are flat gaining Or given and share businesses? say, is, would undergrow ‘XX recovery most in that participate guess in your or XXXX, down and recovery? it of said is in fair perhaps say X% a your have the up somewhere follow-up, calendar peers across structural to onto permanent don’t analog that in XX%, peers you in and your phase are be if you guys

is We 'XX It's we are we know a but share. don't gaining believe hypothetical. what

the solutions executing strategy total are We system have. we

We us. substantial and on are that are tailwinds creating we focused are the fastest-growing wins seeing the for markets

Sur comes question JPMorgan. from next Our of Harlan

Channel XX% or just still the below pre-pandemic inventories, levels.

inventories range. the of are end at target own low Your kind of your

that obviously, demand strong. So clear remains signs

customers X range the with anticipate Given on profile it, expansion demand your at and backlog, call inventories your quarters? you own towards your capacity next, increasing your over guys to midpoint moving of the do and X your plans, looking inventories

prepared our September So grow of on some balance expecting and of just quite went the for is you'll release. is quarter. to see grew future of And We're company why again through in table quarter we I bit our sheet that inventory remarks, this reasons in happening that guidance actually the we're positioning below my a press growth. kind in our the

support of distribution terms at the feel channel. business. That's need of distribution, And In low, distribution inventory there quarter-on-quarter more balance the -- think some the our end level some in point going at will be have we stayed their what to distributor time, being days. flat XX to manage sheet relatively inventory the But in vary to needs. and restocking they meantime, we that we how by customer inventory with on in

inventory range are that in that's Street days we're of doing. to we so the now back really, our what our Analyst we And within provided November Day. target But

environment, it. would managing in it I we're a call supply appropriately So challenged

know end products, such portfolio broad end of Yes. markets. And got different I always a you’ve many to demand to because you’re somewhat is market complex trends it’s serving

one rad-hard about kind high specific market I they higher is all where defense not like and constellations, look but believe are of that end to it’s your It our there because of for products mix segment that’s are very that’s aerospace new space programs, satellite products spending However, business. the seems defense easily activity XX% several roll just your tracked more revenues strong peers. years. next year versus XX% your much commercial around next to

in space, macroeconomic of sustainability growth A&D, understand this visibility next backdrop in us guys Like weaker strong help segment and You the a term year. into trends one are potentially defense. number

Sure.

is think, and of defense, reasons. X%, aviation It And I aerospace for missed Commercial aviation. So revenue. a commercial you going strong is is performing well about our through XX% extremely resurgence. many

doing the current shorter-term macroeconomic are and generally defense aviation influenced And environment. so less commercial space, are X strongly And elements in by they all all conditions.

Next, Cowen. of we'll Ramsay from hear Matt

question probably ballpark I I that off ask think process It's you consideration head, there's you as like to all consider so that in ASP but earlier X were don’t your from decision something fab. the do funding like it. which top on second, a just need just, this And focus fund then question. that, the Toshi XXX-millimeter it you my really the anyway. of of guys going until took nodes mix of the investing got would parts reaction to guess what passed in governments? is assumptions, to around and you if one. CHIPS I you needed I'll be know, that’s of consider Ganesh, a facility felt that a could to Act was didn’t you feel potential this now Or make the to

with is come our the And that XX not are and we has level grown. you many of the of XX, neighborhood. investment just XX-year this the from on way are funding investment with points to had look full The at today -- of as as we is that the the for also general we if the be do tax -- we foundries those size. to our still have Again, when grown, are the that a local with firstly, in that wouldn't absorption has we in And scale trailing to would tend needed fab we is XXX-millimeter portion -- limit that. a being business technologies takes build, in the a technologies, fab. in. has But ourselves to certain but and which in process it government at whatever those So want there. and have But you get there XX, use workhorse business this to part the it you And been technologies for XX-year, XXX-millimeter technologies different XXX-millimeter can XXX-millimeter our what wanted. foundries breakeven I credits our with do fab come think built largely, reasoning edge trailing on process there the boat of edge things about at points XX-nanometer be and worked. that And a smaller that

only So does reason it constraints us as changed sense think that's a financially. clearly, time make and that to to portion come the XXX-millimeter the for has being Microchip is would to when markets. equation We technology trailing-edge going to But of why. allow better a those not that serve have within long

next Moore Stanley. question of from Our comes Joe Morgan

type you do much to kind know go of than of how back cycles. you on Could at primarily about like I target trough sort seen how when the think margins margins of your you’ve seems have see weaker look environment? Like revenue scenarios, landing margin do lot now, is we leverage that about do a we a higher operating you’ve level. of to of historically? your margin in sort troughs? prior you decline competitors like a gross prior some these you’re secular. Just soft you your talked If -- a in obviously -- But It expect been of contemplate should

that's you basis frozen on and quarter at manage processes. the it cycles. the trough will how XX cycle, ago. best described the in soft do way peak Eric, I systems you DNA. metrics, across give the about that performed you more last add It's points. is in way that into It's I'll to and more XXX, And margin want the through the decline built look operating to Well, basis It's XXX answer into then built quick the to landing years plus that it? built we which the range, Again, might our Eric it. see into our a minus we over the those elaborate from to business. And points have is XXX a to on or want

playing, allow to set obviously, us different had integrate of comp We mean, macro the margin the that need continued up if has mix grown feel variable I side. margin Street as time. we've than we're with today bonuses Because acquisitions. it to our we've that business the bit the us out on you that will so comfortable mentioned, on well, got operating with with point would I cushion. We've got historically. we've in which a are Yes. a for call if we above the product today, really quite targets adjust level at OpEx of the some catches be, we've

want inventory. our rebuild we in build and the think -- own to So distributors factories. inventory We will

long-term give operating don’t the we we specific to think a basis, we’ve number. that. And we’re today. again, range within want that that But so a provided we obviously, And can on operate above it

of systems, bring and in are we that has end it's what they And margin business And durable more how products gross have perform the we command. far to the these solutions and prone silicon, of are not mix that terms and able These very, of mobile markets just market perhaps may are consumer what services. markets sticky phone type it's a to It's silicon. it's not are software, applications it's or pure have. very

Stifel. Tore Svanberg of

on of to and different all metrics. more a it’s kind sort Congrats pricing angle the the a record have of related ASPs. I on question

year-over-year solutions? at type value of you much total XX.X% more form this how higher ASPs, that in system of quarter, that you meaning is look coming growth from the reporting So if your the are selling

We're shipping that directing will highest-value easy been producing. Clearly, the constrained direct them we're have not products way and units. with it we break There's that capacity, up. to more an to

that it. the and in capacity out additions So made we that's what I units there's certainly a growth coming to good from don't have comes and a what But lot way comes pricing versus mix from of have from parse alone.

That’s question then internal had the I a or on inventory, fair. whether And it’s channel.

which that secular of the you’re So inventories is own the where days number like sort to a right even there channel basically, going maybe range XX inventory channel, exceed it [ph]. maybe constrained actually is high around keep and here obviously, X-XX forward. little But is bit going your a end trend could of maybe sounds of the then the

done or what the mix XX is them to dictate be We of channel No. are product, they We And end to what shipping don't history they're support to does they expectations the they has terms what XX some don't at and we be what channel inventory make. of going not be the cases, In in able XX of them really do may it a and constrained inventory they needs do be. XX what want in decides whether it or The that are to inventory. channel take or to of need. low get at customer to may we decision a but have tell they're what historically to going there. to

customers right Ultimately, they becomes as find today. to constrained need need that the is supply stock the their less it to level appropriate they’ll inventory than of support and to level of

lot backlog we need that We distributors to catch on. unsupported of to our today up have a

will available do. choice. someday, has last choice -- don't have distribution, it really doesn't to what have time, not we they start that Right matter what the the there's We a them, at at. want think parts in XXXX. But to when product now, And it into for matter a it we point don't well doesn't so for start been distributor to there Well, just year, wanted.

so Yes. I maybe have guess a was than better my point more they do, fair. sell-through you that’s read on

& Next one from of Raji Company. Gill Needham

on Congratulations in environment. very uncertain this results good

how drivers drivers continue I’m kind far? the Just think the are They into one kind margins. those do record at the gross margin have about on next -- we going through of wondering levels. what question of been year? of And to so be

to Yes. in more at mean time. going be with I Well, factory what to I do know right? think are the biggest point drivers backlog utilization, we we than have this

produce piece as running are every we before, of factories they've than we the so have been equipment can. product And ever to as that harder much

batch and planning much And to can. so they operations as with schedule things are team that, product able produce as our and try runs and to

that’s we the talked has big changed enhance time is gross thing just that’s I how some in thing. think about to mix the questions that to And other then continued our of response a and the earlier the over margin. So product

Mizuho. of from here we Vijay Next, Rakesh

Just a here. quick question

and to cetera? caution see rates, some worries with of about like of then could As China on this about if follow-up. look slowing wondering morning inventories some starting you the I give the have macro sales own you what you like. talk And a inventory. OEMs down think I I and at your about color the BMW et Stellantis you’re us was about and Because look talked inventory just -- a

replenish right? OEMs gauge an are with issues inventory to what are see to tell what rental So carry, their abatement also is inventory out we they're And don't how trying on they They're what what working? don't only do. we they business, in trying needs us see needs dealers demand. Now we how not many still the to to replenish they're to us to requirement trying escalation how also terms what -- there. they be interacting sell to a can of And dealers and inventory their the car have OEMs how be

and we go an them. it we're strong they're shortages more and don't inventory still our issue is solve. running bringing for to constraints see anything, working demand us that products So for with If to

know but And question pricing on obviously, long-life last on different the of the talked Got it. I pretty many products a you there. the microcontrollers side. products quick about lot are

So took over X at guys change looked of that XXXX trended you how here you you a if have, years? ‘XX has or and pricing exit just as the last products long-life some step that wondering the for back ‘XX

on proprietary the pricing The is us. pricing to way is for in adjustment that. year a cost for over exercise covering we is strategic sole-sourced increases that when X.X product increases Microchip were from made that's the over passed history the a up to subject that of margin we So a been with broad-based, last cost had we time years, towards the view when a we only have

take that constraints So of something are when up advantage there extra pricing give on outside to supply. nor of try is that, not is pricing when there something we is we

any have to our time. additional at to call further presenters appears turn it I'll or And over back this questions closing the comments. for

in the to appreciate of to calls look there coming Great. seeing many everybody up. the to we hanging you in and want questions and for thank of talking some forward of many conferences and I and phone we We despite you technical the challenges. have

you. thank So

does your today's call. for you participation. all conclude That Thank

You disconnect. may now