Microchip Technology (MCHP) 1 Feb 242024 Q3 Earnings call transcript

Greetings, and welcome to the Microchip's Third Quarter Fiscal Year 2024 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, CFO, Mr. Eric Bjornholt. Thank you.

begin. may You

operator. you, everyone. Okay. Good Thank afternoon,

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

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

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

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

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

was incurred a notice summary GAAP favorably provider million We the diluted geography $XXX.X and product net per million, GAAP the website a million, of expenses. compensation non-GAAP $XXX.X in Non-GAAP income and XX.X%. we by and operating line from XX.X%. your that earnings charges a gross XX.X%, quarter. were basis, the and tangible share net research resulting net and reference. released $X.X acquisition posted an for impacted for on of operating in GAAP share. XX.X% that of non-GAAP accrual by tax our sales rate was quarter, under IRS clarified million, $X.XX special margins The basis, our margins was Total treatment were share-based had $X.X December income and have in per million a income expenses was of included was and of that accruing other amortization $XXX.X $XXX.X earnings were been costs contract million expenses million was diluted $XX.X were of gross $X.XX. On in operating On

was rate non-GAAP XX.X% December Our cash tax the quarter. in

any to related is expected tax exclusive and be of tax Our settlements to audit taxes rate accrued prior in years. the fiscal transition just XX%, XXXX non-GAAP tax under is cash year fiscal for which

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

pushed that to R&D achieve and capitalize hopeful rules the still be XXX the were this, periods. expenses will repealed. companies the that last this through are to Senate. The requiring or see tax If rate House anticipate out would about in non-GAAP bill We night tax actually favorable we happen, would points how this basis will we tax Microchip's progresses a adjustment future passed to

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

March quarter of to of to XXXX range inventory reduction sold. the we inventory days modestly up Although be able accommodate delivery the products midpoint goods in liked, manufacturing to not be to guidance, dollars to we and to cost the to we very have as XXX process. requests out far inventory make through would expect would of much continue by revenue the our customers for significant were dollars At were XXX due we reduced as of push the we that quarter, as in progress schedules days in and

We long-lived, the which XX supply life also were time our end chain quarter XX up buys of inventory of days days to at X in December. continue distributors in the building December for by prior products is and level. manufacturing our partners from whose inventory being of Inventory days, represented at capacity the was quarter's invest last end high-margin these

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

these share over of determine these items that payments shareholders repurchases, fulfilled. are as assurance purchase to time cash cash free out free We flow we have commitments adjusted as be dividends to flow adjusted will refundable return supply the our will through and

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

investment was December our consolidated XX, million. cash total and position of As $XXX

in our million in total Our by the the debt debt $XXX million by decreased decreased $XXX.X quarter. net quarter, December

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

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

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

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

Our $XXX million million is with shared year certain given we million and expectation capital from XXXX fiscal we $XXX the for is last between as $XXX quarter $XXX capital economic to more expenditures down backdrop. which are delaying for the million challenging investors

December investments to quarter. on will provide will expect now performance We for comments turn of the us was as $XX.X over production our control constraints. the guidance the December to the Ganesh? capital during give in industry-wide of as the to us increased in our continue March Depreciation quarter million. I expense over Ganesh business well it quarter periods that our

Eric, you, everyone. and Thank afternoon, good

operating December quarter. the below and and quarter the Non-GAAP somewhat were in recent gross at with year XX.X%, performance, results decline significant came and our our XX.X% net expectations XX.X% sequential revenue. strong from Our XX.X% despite from respectively, and resilient ago sales in disappointing down down margins but sequentially down

the Our XX.X% consolidated demonstrate quarter. Adjusted $X.XX at resiliency. EBITDA to non-GAAP from year sales diluted EPS net XX.X% came was down some quarter, in continuing December the per of in ago share,

EBITDA generated, reduction in As adjusted down had the X.XXx. leverage ticked lower net December despite our good we debt to a we quarter the and result,

ones. a quarters, stronger replacing we EBITDA weaker adjusted few as drops prior trailing However, when quarters XX-month our expect rise to with net year for leverage ratio

and shareholders down to Microcontroller Our will adjusted Analog net And March in we capital XX.X% free diligence at on are that calendar and to our quarter year-over-year down our our sales the return on long down quarter to a to sales XXXX. My could XX.X% control our cash on cash line and of perspective, of as basis. XX.X% quarter from positioned in what our work net a of year-over-year and sales December to by focus our December year the flow free XXX% thrive basis. difficult their path look increase flow term. Taking quarter March continue our to a shareholders well down sequentially the adjusted on a we environment we for product net as so were navigated we a worldwide team support, hard XX.X% Mixed-Signal thanks return were XX% sequentially

Now quarter were world on the markets our weak. and most of for general end of the regions All environment. and the business December some color

customers activity and economic weaker was expected respond to inventory. we in a increasing slowing business Our our to as continue resultant their the than uncertainty, increase effects business of

end their In many they the addition, customers implemented shutdowns closures of of at as the quarter operational activities. extended December manage

be a strong the from of sought our But to and or out conditions. our program. times case", environment. The able backlog and lead short build customers X-years and to time," optimistic was at cancel business requests they at continue to their sought is to by customers' of or on customers light or customers approach in And ended believe too their our with levels very uncertainty customers in slowed, of many of backlog. An our as cases, these business And with coupled macro with to help constraints, to levels to update their expectations our some we as supply backlog in drove these conditions cancel on us, supply destocking conditions customers found an customers. The major strong upcycle the inventory be we high through environment used no to We distributors of underway were to uncertain term, capitalize inventory to and many positions. With in our business result, express experiencing. environment, who order a distributors rebalance that able in very to we're weaker as X buy the buy inventory in of to and who "just inventory. push reschedule macro last PSP instead inventory many increased to customers push our up multiple "just the customers weak direct indirect there cancel out receive

participated us and XXXX the hyper-constrained the as the their commitments growth customers well achieve PSP backlog and in aimed During extremely demand priority program exchange supply program in as and discourage launched The early customers future non-cancelable XXXX of for supply for a our The all requiring supporting our to of speculative upcycle, part was in mutual for strong worked early program between of many demand. we well who XXXX, environment. stages during businesses.

be the the adapted end we program have, the However, led of discontinue at days to the of as initiate the compared will, our decided to at program days the environment, XX distribution at to business to some today. similar quarter, therefore, may end grew to that relevant, PSP XX have warranted, December situation quarter. requires. Reflecting of September future, conditions the program, which the to we longer course, and whatever macro creation If point the effective are challenges, a inventory business the no of slowing in which

to partners their be of inventory distribution our their cash the requirements serve with flow to find the customers, working manage conditions. of for right eventual are strengthening We balance required and business positioned

expansion actions remain Our internal capacity paused.

the the be Given to in quarters down factories each of cycle, March at order X lower the our up utilization running also growth control June world the taking will rates of to around in inventory. weeks and shutdown and severity of the help

years. investments growth the long-term low expect 'XX Commerce are business. To as fiscal multiple and be diligence X year of U.S. we year of we end, well These capital existing grants for even We our investments the in in targeted office for a for Department as grants by of CHIPS terms the that fabs. capacity projects will of preliminary as memorandum with $XXX our 'XX Microchip at reached million to by fiscal over subject prepare our

our XXXX times X roughly of to from lead on have roughly down the weeks lead average the reduced of times start driving and been end weeks at have by average. XXXX We XX

placed as macro and improve more environment help uncertainty, and best are of period During it our engage with backlog lead and effectiveness. to quality customers of navigate environment us a short the successfully customers enables weakness believe way agility Microchip times to the we uncertain business the an and with

business. We're near-term and reduce However, steps a for significant expenses. also our to reduction reduced in lower bookings in also visibility lead our taking resulting times is

automatic provide implementing be and reductions broad-based of to we addition will a normal down the cycle reductions. discretionary expenses, variable during compensation which In pay programs, containment

and Our cycles. our team take the of who members will not with team pay culture practice, long take customers factory will which for in periods non-manufacturing We and term. rewards us sacrifices team with XXXX a That's long-standing COVID our business actions our XXXX manufacturing in in and high global shutdowns of XXXX, the such and members team uncertainty largest up are cuts as a quite are crisis for and manufacturing executive prior capability consistent navigate well important were we to and the such thrive reduction to members layoffs, financial protecting XX% as for the And the consistent as priority believe actions our part in took cycles with and normal XX% a effective business. and of down process shared shared in shutdowns projects, avoiding the the pandemic pay-cut. and are pay-cut. The similar

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

backlog. adjust As and continuing we uncertain of their backlog and channel are some in our reducing times result weakening will inventory lead to customers short customers in increased support a business recognize take with actions further conditions, We customers could to environment out partners position to push cancel inventory that or and our result to that degree with aggressively, flexibility and overcorrection. this macro

as to as absorb consideration, into much uncertainty and to at sales is guidance time. Taking the have expect the between resultant this visibility. discussed are we conditions, for today larger in and business all reflect $X.XXX work the to our be range billion. can low with we on to $X.XXX call we the to net However, The quarter the than our macro March normal customers billion factors correction we the of these inventory response continuing

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

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

sales profit a be diluted non-GAAP XX.X% between and quarters, correction while significantly between as last degraded things and larger-than-normal of out. X our share operating in keep inventory have and expect over perspective, $X.XX. To has expect non-GAAP to our We results earnings the $X.XX played XX.X% business be per to we

Our experienced. the roughly 'XX have is revenue to of quarter midpoint year with the full March favorably be at expected weakness that fiscal comparing decline industry guidance X.X%, players other

our among fiscal to operating 'XX other is March the year be XX.X% margin across results our companies the continuing expected full to and be best Our industry. midpoint in quarter non-GAAP at for of guidance

believe While business the how up fundamental the know of we when we don't characteristics and cycle our will intact. inevitable play out, remain

and any near-term innovation our confident notwithstanding of are engine macro markets serve. that we end weakness, applications remain the we Finally, the solutions for

Our win which key to pass strong design growth. With me Steve that, continue baton focus above-market cash return we expect our and will to Steve? long-term on more total solutions talk momentum, megatrends drive to market shareholders. let fuel system the about to

provide from increase on of Directors the Thank quarter cash you you, and a Ganesh, further like XX.X% The update of good return with would afternoon, year dividend strategy. I to the Board per to our ago an share. in everyone. announced $X.XX

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

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

share dividends to we combination November achieved shareholders of capital buybacks. we Our pivoted XX, at to leverage billion our quarter X.XXx. Ever to a end XXXX XXXX and an and XXXX the rating through returned investment-grade by since $X.X December net debt in was of increasing December for shareholders, our return have

for back to the amount assurance December this our with representing cash new payments of X.X% stock the cash enhanced March be These will $XXX.X shares $XXX.X to our approximately fulfilled. cash $XX.X XX for a of from return our we customers approximately amount December capital be to current shares flow million or approximately the of adjusted from We the commitments to returned million a that excludes buyback approximately free quarter shareholders. shareholders open are supply we purchase long-term expected was The free million. our dividend collected for $XXX since from payments. net we million flow cash refundable time, outstanding. In the adjusted During quarterly record million $XXX.X return the the market, we common have which stock use The of quarter, to bought million, that the free are initiated stock strategy. buyback flow adjusted when our XX.X% plan expected to will and be quarter target

free returned cash and we we quarters expect please quarter to continue you basis X flow adjusted our increase until take will that, over represent poll our by That returned we to of will of cash approximately returned. With shareholders questions? plan XX% shareholders. free reach time every XXX% that to more for points to will forward, adjusted Going XXX flow dividends operator, cash

from Arcuri [Operator of comes line our question UBS. Instructions] Timothy first the And with

that inside ask headwind [ much are having I inventory distribution hard saying your disty's distribution still still about than working into wanted some time to how yet the XX%, of of a inventory. And well, is? a of largest Shipments actually ] down about more they're down were that.

down guidance March than like guidance be So can more corporate was provide assume lot shipments that into any it again, guidance what will a does the just December? you in distribution like is, the

that are the drain will we quarter. distribution We in expecting March inventory in

then, where talk And Eric, Great. sort some a things for you Okay. of We you haven't that? and you down, write-downs? write about about been utilization the potential rates at can can but talk yet level would

Sure.

That been we basis shutdowns charges of change the quarter X of as under-utilization and we've from we we kind fabs. factories. not of us those those through will taking where walked large all in this have large Ganesh quarter, our X And So situation fabs, put to in as an attrit. that attrition scheduled have December a employee X X-week on working kind were did got through, continued in

the a demand our current gross out but being our break change and of margins we've still utilization in inventory that is absolutely top impacting to on And with going the aren't in we quarter. seen So percentage under-utilization business, that, high.

guidance margin that to reserves for our all policies on into relatively really things We place. Street. And large accounting that we've inventory in have those we the the taking based have been factored charges are given

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

customer any pushout cancellation year? last in September is of what pretty in and you a on you're the so seeing terms relative of far stabilization, to of signs Are or the question perspective. and seeing cancellation rates first Ganesh, from much same rates My December quarter

a that don't We have have numerical We have tracking customers still asked for process. help.

into if of into done have rates? view, have I you built cancellation on it guidance. don't what know and a a we We lot that our better have Eric,

they backlog have would as if they inventory. feeling at backlog. are there's I they and to And push products, those to in placing for if we they about distributors out. looking place, not kind if with for talked see excess have ability either like an place them customers of Right. least are backlog in that, say, But that have they're

So ongoing those we're And that relatively at say high rating. having I'd discussions. they're still a

over it. it And is The I price erode more and level, between Got couple my you're was like follow-up, as your pricing. to mostly or quarters. well got to are several quarters, It headwinds hoping comments Microcontroller coming business volume driven get the online as Analog business? at of the seems starting today, you next your seeing supply you've see on industry

seeing you're curious pricing and as 'XX. -- you're you're what So how how we calendar about progress today through thinking

All stable. declines to contributing they're really declines, revenue the in pricing is are that It Pricing volume not is revenue change not related. the Yes. is our guidance.

price, that is for X, But to many that et short-term design-ins adjustments, we It's adjustments years. price business downward production requires. price X an of stable. Our what design the substitution takes takes on will not new price cetera. many, place done of not where are years happening are before Clearly, which X, today's at because revenue is competitive is based designs be one are place taking on new easy that point the and place,

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

these I rates address make you inventories of expect difficult get -- could is the little visibility to where end aggregate for but to indirect are some in your question and about lower revenue and you shipment customers, much over how that's customers, inventory down levels where and target we'll are it a time. with progress that the channel answer those over question from and difficult your distribution a know perhaps sort you getting have levels My inventory you where time? more of it's where think

inventory some is said, you us. in to cases obscure As

to taken where But much layers a very on in under-shipping people we're customers placing is is to number expect. to feedback is are take cases, on this carry and of just low might that put We point of all inventory customers. are there normally they been inventory giving to even they have to goes be. is to would to estimate at know historically of going said, is orders, it as because some customers, they're it's to to cases, as as if inventory, hard us. And where what kind But We getting to to they be do plentiful. Not reduction our are an end you the substantially where it the and inventory their the what that supply OEM, going based some of I as out. multiple of what especially willing perhaps to be going less how levels in it OEM well. And multiple have has is consumption that

a have number to way put So we a what don't you're for. asking on good

Okay. Fair enough.

also of you've quarters you've downturns prior obviously things kind much you're achieve now, the typically, was seen although you now. magnitude in down than that a a September bottom, at of before One quarter smaller X is said

could this ones that holds? been are still the you you Given think of now, through? characterize prior where downturn And perhaps right that do we you've some against

about comparison to downturn. there's this that And Well, good nothing I history. a is don't typical think

the You crisis. financial in we magnitude, in could say seen what it global of the have on order is

I down think that at so or we were time. in XX% point

today's have visibility in We limited very market conditions.

or guidance difficult quarter. we exactly any to I this to significantly are is to believe under-shipping and forecast beyond say where as but kind end demand, this provide we we're it's of mentioned, unable so And

comes with the Our next of SIG. Christopher Rolland line from question

So question found through like do you I'm if occasionally, -- lead here. but would is are inventory your last? this going products, long is, are like times how And weeks your long even times. dynamic cycle But expect distribution, we're big you this lead times, times when weeks, times dynamic when they that something guess something again? think you inventory and to of have that that my lead are particularly I we or we times see expecting think versus your how X X cycle times have like around below some going some have that. I assuming times corrections have phenomenon cycle cycle Obviously, and those again? last? you this you to through, maybe an we're actually talk -- maybe might might expand lead through about rise that

Chris, let me just define X terms and then we'll walk through it.

So time cycle semiconductors, on it longer, finished from when depending to material from X get specialty. That time time takes the and goods. process on be with is which cycle what X raw to depending months, and you sometimes the begin can for anywhere product

that's the time. cycle typical So production

well. XX% We to pre-pandemic. of from where we was that unusual been we an a in as back historically a have places can be it which we shorter can come cases, that. And get sooner have less a order, than places some our as able where ship to an not number those have define X order it line when lead on to items. lot lead That are they XX%, is always us, an X finished to in on in than a average goods, customer weeks. they And product times if times, can when much for Where get we weeks, X -- than to customer manage them, was the

times not good good And a So a thing. have I'm I out. that's sure when back view do of go lead don't

the I think consistent ran to, reasonably a that demand we work for is to going. But weeks manage have with supply as and in where we obviously, X years, demand to X now, in be to of at some we're time. in increases quite time decreases lead going for lead outside we or stable demand low times marketplace. think And the right major any

to of We to into position with advantage inventory to be and And that March quickly need cycles to able quarter. growing take is as that going position the able that that and we orders we're be is short in comes high, to visibility low, inventory have because come we'll as in. be it and take

placed as shorter -- are geared lead times, we quickly are being as orders all that So lead our the of of having take and to systems towards short able times with can.

just Maybe one thing.

Chris, in have turn that so staged think, the at weeks what test you through is many X in to talking it's that wafer we that die maybe you're bank, that in product through X getting fab, about. I assembly can is when cases, were the and we

And it's so in staging die the But finished if quite would our that the case, we're high the that across board. if banks short lead goods today, bank, in we've so be the that's are are times case. die got runners products

where stuff good gross sake, I some is but how basis not were things is various below quarter of versus to There while contribute. XXX model roughly under-utilization previously. simplicity there. I write-down? for those It for kind pricing kind can like-for-like, my next here. Eric, would an know sounds you of if have that, issue versus mix you, kind margin, I points was just like know of walk like what's inventory us through love don't

Yes.

top then quarter. of off weeks the that. rates biggest the and X shutdown we're of we're that's factories weekly be production than back-end say having continued which lower in the change basis, on and combination larger I going and utilization, So factory having these the And a what in steady-state quarter-to-quarter is time attrition to a too, some our would on of is previous

to I utilization. expect is impacted, biggest going those last to So this it, on is and but we that, charges but significant what of we're quarter. all be wouldn't relatively the be inventory They'll part on say, I'd reserve the quarter had more a probably things significantly piece piece those be larger, doing

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

March to the in year. trough the guidance, than revenue XX%, peak at a terms same all of quarter more fiscal that's Looking within basically

here, extreme your and overcorrection rate in so experience inventory remarks, some terms your hinted -- calling a prepared to in through And customer's on given depletion. of part clearly, I'm lot you've that decay of in been you all the has been maybe the on and your cycles past the of

would just we Or how you the your this recovery one? say a correction? going experience, as Is your on calling look to saw of slope it see lead rebound gradual times? terms may given in are So we of the sharper

Ganesh So or Steve can add and to I'll start this.

sitting I their point beyond business in backlog asking think a look We it is really visibility unknown customers and as at beyond limited time, out necessary short are this we think of about for in inventory certain is today. right? this you're have level quarter, are lead which they what times time, on

we backlog hard getting that times short-term start for what do. to orders going of So really start until us we to and imagine see kind to our build. at lead it's It's

with As quarter clearly us products the is, before, for what we we think, But giving consumption are that's and at to this any guidance, slope Ganesh I below recovery what for in end our terms the the in of you our relatively shipping guidance revenue it's do point. think of said material. this are, hard

have X doing, at, variables et quarters, give out And all and will the I over don't insight to in people any it, say, is recovery you that we're we and depends at point, think rate does Then enough and is also have recovery today. not is flat some the the to X, assume get happens shape able right? next to time. think inventory are as And that just many One to look. you plug things, what what consumption. is I consumption us is to and our into many back the on least the drains, components is in do flat visibility the to actual where GDP the And interest macro this at order has just will, if what business of cetera. can't, there those backlog which

I was I us lot but the I a color. know asking there, appreciate for

OpEx like this based so communicated some your metrics? done sounds to what it XX% more a of versus employees And performance recent when terms reduction, you've So that structural. of asked on them in to management this might recouped you've is when or take pay revenue round In the sort variable was obviously past. in be

all them I before the on been let morning. we not what a speak to them entire market until write and doing. after I Microchip call that today to to I message have the able community were Monday this do know did closed

is I that give that. our to new employees all us. them first details to prefer to are those this speak So of would But not and

We have times. done multiple this

and for hand understand sacrifice rewards excellent the how in outcomes for Our go and hand people creates the company to in and shared doing of that. culture allows that process how individuals shared the

our us, else help as it so especially us team will the team, cycles it, I'm everybody that been has with will and along confident through And with see pull many well. that

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

that. in not in do you're for planning I beyond the down right? to wanted already flat, are some appreciate because shutdowns directional I June quarter, have of get some but you getting some be or up Ganesh, help whether You could still going sense June,

So a then data also June that's But for not great up point. tends be you seasonally to historically.

kind what about if of think our absolute us true an So now? you June sitting down, have where out? might of you right up, color, check in being demand you even just some shoes, And would sense more June don't give flat, is if were

we on where steps to closed June not are days at end we of shutdowns that going take. required the Those we business to inventory be at. are the an going indicated are to communicated I indication based of necessarily have think March trying the is December we and be need provide to the that what of

the think real falling I is fact, In I not don't know. answer the world And apart. is

how done drain. We're the business levels gauge We needs consumption drain. market, place. we for think asking happen you're the taking is environment to empirical But know back, right? will any which It come precision, say, level cycle, have the at inventory to is I a inventory don't trying we when. know data to yes, between that. has multiple know We and all what of going this previous will able this and So in that that every is what's that be -- in to to

maintaining contrast times CapEx, CapEx lead of your X And profitability is trying you To lead to other Ganesh, how your through and keep strategy but has manufacturing hybrid the is change very, right, that future is lower avoid, to do of you of maintain model, times they kind then a in your swings. my competitor they kind make suddenly who high very usually of you these having question, would U.S. strategies? get can low, low, extended, the can contrast have your always you very How strategy right, managed kind about would you're higher could large going what times? say maybe where and high? And your bigger CapEx think lead

what that run the which of effectively I'll front-end into and run our manufacturing back-end. we people Microchip, includes how footprint. consistently many both you described. our are inside fit our describe know we strategy, cost as there That is that well within as products Again, to our

footprint to the and many of margins what strategy that's changes think aggregate, way time. our have that this with sense we've got The been demand barring there. But how very lower lows. over guide make that percentage also grown it. We we we about and it cycles, front-end our any has accreted to higher sense quarter, and roughly products a successful in what footprint time, in the over quarter last makes terms don't been We technologies but how or we've where minus And internal, have is to partners. within over And drives higher plus near-term try time had XX% gross XX% over like or from products and grown external. And go. higher and have it's balance needs market drive that our foundry know highs

themselves. happy very strategy have, the we with I leave strategy with speak to So we're and for others their

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

first I doesn't PSP It we're seeing? try PSP it of cycle, question don't the the volatility nature program and place is pandemic obviously the to avoid that on look program. did you the not like the But buffer was put sort was of So and actually do happened. that volatility Maybe my just why in know. think

It's a great question.

orders program make and to us discouraging making giving speculative confidence the demand then aimed was NCNR by at Although PSP investments on it.

combination that I long and long and lead very demand, were very of over strong of placing I And they and than lot because They backlog more think business was seeing. OEM orders their were up lot there times. a our they for think persistent normally were customers you time and place OEM thought, to a market ended all period customers was shortages together, customers when longer they a what they believe put they stronger that. trying a their than would in

out. take. that risk business risk to good is what noncancelable, think the the confidence, that phenomenally So their was or any the that's to did predict year be. where you were longer the don't someone in program, able XXXX, it for that the your is of in trying the that's assuming out orders get further demand perspective, to it, high was XXXX and times played where But were strong keep in going, those share placing kind timeframe for some in I know the issue out, away day, going people the we at were take And driving. the our a months with business is way them the end How time point lead them demand those to at and XX market yet of thinking X their is as

recognize relatively end markets weak the No, all comment up in Anything as better that of that's sort And then on a relative very holding March little going But my be markets? end I any bit follow-up, quarter. to others? fair. than are the

would strengths at remains it's are aerospace has been The you strong. in our Space commercial in very I market, say lumpy and defense aviation strong. The always defense remains where if at. those. look there Yes.

are a enough move center, strength of that AI platforms, well. see Microchip data we overall, well. Our portion is doing needle certainly of the It's pocket extremely not around as the those which big to but it's

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

just just guess of decline do hitting notably little your the given the here. than than Any the maybe been you decline you more on sense revenue And why a markets competition? your on worst? some end the your of it's also, end more of peers, I clarification think talk demand, about have comments is some that then

Sorry, question? you Why the think your last what was part of do what?

competitors? of is some than Why revenue much more your your declining

Okay.

if at. question, that's you're normal time, second your at outside is on midpoint time, as period is going don't 'XX. our said, you guidance a fiscal year's X-quarter think to I the at X.X% the I over of Within about period from where So down 'XX of that it of look fiscal find of a absolutely. the

just of have were where alone faster at correcting what peak the rate we and We going to for rather at But than are curve terms to think to correcting you're at. trough area look under than in a we revenue at. I look

was of sorry, there -- markets, In end terms we question? a

thanks. said I No,

Okay.

kind enough mentioned, weak In how they're moving. don't of markets, all quarterly the track We end board. as at have terms I it's across But level a anecdotal data. of we

people X among I data and the over earliest automotive did or quarters to -- as weaken starting industrial ago think we is were roll been. center early and and had saying X as

portion point customers this seen stronger all -- for who we might I that provide our servers weaker There be we And Defense to what other nothing have which I than average or And than that time. about, that in some So individual at holding they're but is see, of is solutions still are Aerospace write about, exceptions week. we AI this home spoke and the time, say up. on X to. would the

And the again just a Do they June? utilization quick declining you rates. utilization from flattish then clarification guys anticipate from the stay will on rates March? quarter March Or June to in

yet. We don't know

coming kind We will see the evolves over of the have months. to how business

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

you getting, and or back-end that question. funding between was a CapEx capacity I be Microchip front-end much quick the the I And as I at you was guess? had on would 'XX, the adding wondering how calendar the look

million. out $XXX fiscal for for laid million you, that's $XXX to expenditures capital we 'XX, our So and

for a that not We actually We've have equipment number lower released than this given to I service next have year. be quite that. in year bit for we a fiscal taken of not production in essentially and placed purposes. it expect

that we CapEx facilities got normalized capacity, returns we've in deploy paid and low that's XXXX. capital be So as expect to need but a can level, more quite our I and to that year for fiscal the we our market at

from Vijay, for from growth a we would positioned capacity. it I -- how how here's our think about are

we Our to to as going is ship built utilizing inventory this able and have inventory that have. the being the initial changes response thing be using we

to around response utilization. our next factories full be getting more Our will

are them We this time. point under-utilizing at in

third be more adding have we equipment or production. bottleneck into which would place and case equipment finally, equipment to as might into the that we be. Our begin taking then received response will And already ordered

firepower being of of those combination plenty have to upcycle an we for X things. able believe we a So respond to through

] it. see into Any on start down? second happening, you were in-house of that, mentioned before. I XXs, inventory, And high disty at optimal an you all channel [ if XX guess days little that your that or thoughts start that half? to you actually actually you March. I as versus When starting realign was a a mentioned inventory when guess? combine probably Got to your DOI go goes you up do come or you more to to bit stabilize of Is see that And

on better If give I had a answer. a the demand picture could environment, you I better

can capacity, some the the all which and we for; our the And is which internal will time, first, shutdown we're factors is the it utilization of at taking days, other we're and by which is that we're in that steps producing on and is doing cycle those the we're unknown. and control, lowering stuff by less, point all point, at taking action that what that second, more, is anticipation will market what that us reverse the are So doing. things market in return, consuming

do to margin how of under-utilization -- last to should utilization the up say March you you Or again? it. all see that? June? expect back it and into do And quarter. we Did expect Got continue utilization of Or that because question for you pick was that trajectory on

a and was utilization all say There's impact it reserves large of the things portion of didn't always mix that. it. So that change other is product that inventory driven. There's we and

back week basis, probably quarter dynamics some think we the it up continuing is takes June each then on just an will and running people to that even capacity increase be the utilization ramp difficult just attrition while in for are if as market and a because are I it better. that to leave,

like something we're be so sure the it but down a very we'll make the that ocean, and making tends appropriate battleship it investments slow. And moving to people, closely turns that's that relatively watch in

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

Do the Great. and you've bear and I talked couple address accomplished could I didn't. of what guess PSP I wonder you hear. a it One, that sort more hole that issue flexibility less bad would of why about customer down, deeper, maybe? the made is bit to they now? you cases have that cancellations of the reason started if when part of what sort the it having about think a Is slow little the PSP

we as Perhaps. quarters product pushing would under Monday we're as that there I many we even and what for And exactly right, for driving were and calls June and many, March But quarterback, CEO-level have as know had. many, in retrospect, I again, getting recently morning more quarters, I done. a than think, last were

which of how the couldn't and you If about remember, would what we we ship provide much there. was wanted statistic customers unsupported, is

and we'll learned lessons intended program avoided. are a that do look program outcomes where the foot there how of the that, are we'll all to have knowable some parts of as available it so through it. throes PSP something we unintended that adjust was many went And were again, isn't ever we as it perhaps the our But So of where we taken of at in should we the and off the perhaps. would outcomes those accelerator are if take,

China us you over but being but of significant you few question can Can competition if update thinking obviously And lot capacity. direction talk China think that then see you've about the see I other on of about your could you there. digits, single business much talk trailing from think what kind years? amount direct of you building next I a talked edge today, that maybe get, don't types your competition Great. from the just how sovereign I negative of -- about might that

Sure.

elsewhere we to our just be Mainland About So in it, revenue. percent Mainland today happens XX-ish China. estimate is designed of China of about is and half manufactured

other that is, frankly, of moving people as out of diversify things. China some And

So -- is with doesn't design that. of and it we're China, comfortable the point of outside

systems, of amount that designed the would very about XX% is significant and of that's other interaction in the China China goes designs, it, software have in of these that and with to the another all that. half has So dislodge are our a not knowledge complex hardware software that which easy and the and is that, business are ones

business, And our is a self-help is having that So revenue, fragmentation having But the small that theoretically, it as the Microcontrollers is broad-based It's software Analog for our very, provide tools, that design go offering. market. available. is we if there. you customers having make place. business by of well we could having There's means and a Mainland a there, X% in is those just products. say opportunity our China that about and an and friend. is our help about X/X lot of type easy silicon. somebody of It percentage to business of Any identical way, to not had that about one not having more and silicon, a guides, of about that is lot of fragmented very And

head-to-head we China to And and both So edge, in line cost and is more portion will, that. broad-based Does work to than is product business technologies reduction and the less where business pay that come difficult trailing very yes, the be would to X% innovation, against attention, through help? there capacity. on that they fragmented with about and will is we at. going our go But after is very, that think you it's might of get more and continuing

so Yes, much.

comes of TD Joshua Buchalter question next line the with Cowen. from Our

given ask of keep shut to and X over why to you're the about also making and wanted and start strategic and those decisions fabs June utilization quarters. quarter to utilization will I play the March get the you're and inventory but why I not go X in still where March fabs lower in it the March? trying weeks see much rates for down, sort also out rates are lower down stop utilization guess, up expectations but rates just in things that take then the

in which a place. may might recovery enough balance, utilization But to the which themselves something that we're a quarter. are were that, the prepare have X-week would balance pain lower taking and we as navigate think take and in our of balanced if what call gets for accelerate, play in the us a in this know that out. And a -- to the as don't can could what a where be, to dynamics we place. were X But and on the quarters. of we way we other at in is each includes do in But supply-demand options good best recovery And the is need high to to now, fabs and different decision is going make. there scenarios comfortable It's that our the of inventory June meanwhile, is different, that enough. June the we ahead at if And point that climbed, March ability shutdown right on running -- it the we through to we're the felt at looked high inventories we we on a that had in and we and

and is would cash formula going any than but returning to under period returned where depressed you're above that as outlined, potentially free opportunistically going it follow-up, quarters, you've you've the capital about know or formulaic using sheet balance thought you have approach past through my the go was rates a to as your the also this few then you more the outlined? last I the through return And you've flow talked that digestion program, have versus and been we in the where

maybe So I'll start.

return record again, to healthy actually So that cash quite the from increased going December And that in mean, going are even to quarter, the we buyback right? spoke of I XX.X%. up quarter kind We you share free have quarter flow we on XX.X% high. formula adjusted to. very this cash though dividend in was is have The based a the

commentary that quarter. going be think a this appropriate. can bunch So we Stephen the back Board it's of ask glad we're give if We're to doing think and of buying anything a shares significantly, And as Board. I market kind place think it if the changed program is. and price the but decline that discussion would different, is be it of with in the stock would

that naturally was record with flow it last think our came back buyback stock million. ever out dividend And just shareholders it I that creates record we before, $XXX.X XX.X% returning a have still cash healthy quarter. a in to with extremely done increasing, quarter,

So quarter, very, this quarter. extraordinary it's as valid, But by stock amount wasn't I not question stock a there this very be very, should quarter, as we for healthy flow healthy a If stock case, -- would just buyback the of was formulate were then formula healthy cash if think buyback. weak. to buyback where to cash be the the we the reserved very become is an do last

quarters, as been she For last steady we've goes. many the

and should quarter-to-quarter capital establish Board I Steve that with way program a variations in I the having as of has the we rest continue think to a think major to that consistency of myself thing. program. way this the return And and a that try have doesn't which been see

the next Bolton question comes of with Our from Needham. Quinn line

one for I is first Eric. guess

weeks be time and kind And both much lower longer you just for the flow-through in flows I've something then a charges and utilization of of of you're gross much a How statement? through through You talked utilization, period X inventory in inventory got quick could given wondering March much you lower could about how Then the factories How that have shutting that income June. hits us period? I'm hits follow-up. for if as the you current inventory? of margin those walk that accounting. the down

Yes.

be large without wafer utilization. the running would our fabs attrition normal with even the below what that So we've shutdowns, we X will had, call

X-week be capitalized so costs and will in to period And not these shutdowns quarter inventory. the

than we utilization the lower we at are at Now running were rates peak.

what But period inventory at So inventory. were per impact the be and answers are being full your we capitalized Essentially, the running basis unit a current I costs that are were into shutdowns board. not an question. they think the capitalized X-week to that than when will higher to on

ending And you very, then for That's you're very program. just mentioned the I clear. guess PSP Ganesh,

greater the with happens what folks not canceled I'm mean that backlog? And to just to now PSP? rights that Just that and been existing curious, current PSPs cancel does have so you're existing mean have PSP Does the participants? signing anyone new

The seen capacity that -- what And and are time. backlog has is customers accepted telling been customers available. short, times shrinking for that PSP some we're that more orders are really, no have get lead orders is

that why a fairly here said, natural I exists. they no kicked end and we stopped will -- understand, longer didn't replacing if come we As quickly, to just as anyone may the more it already And it of therefore, PSP. orders off premise taking

Truist. next Our question comes from of the with line Stein William

you have for but a might I March through you of also Is walk out quarter? getting of be it off sort orders, around But prepaid the prepaying think you PSP have of question ask in the at to -- I by and was of financial I for that the you customers how done those think just how these and end been backlog. by do capacity you of financial rearview company were of likewise that of going roll them Can foundry. when answered I of to the activity mechanics it. many rolls believe the the expect mirror? Great. and sort about

Okay.

customer in of not paying typically cash So those with that. any PSP, advance for were

there's to of aren't and element have happening cancellation in Those related them. a long-term had programs nothing to supply the -- place. those still are PSP. that's prepayment those agreements We with cash Those certain

else there's we tend extend we're in and place, those not as looking to contractual suppliers, us I that most So of commitments. still the of with to over can made for we strong answer that, to see agreements, coming with they're on a taken them as their mutually have anticipated. It's something X- and would with originally maybe certain financial X-year on obligations volume what are into where have. some and to be then us, more have working that But maybe in with significant But otherwise. that is there. don't the negotiation time. In to and raw penalize disadvantage those program have any those. cases program We to demand on customers not prepayments That's program. And add from kind agreements, workable they and run out than a are X-year just materials customers' that supplier them longer, we work some those had our thing find programs will side, the same we cases, inventory, the

the with Quadra question Janet of our Ramkissoon will next come Capital. line And from

with you what's real sense know really this as design you on much on us beyond and the of any better you've visibility, Can before? us sense actual terms there the going have on a seen visibility, you Do activity? the of quarter? give to Could cutback outlook sense saying not what's is you're some guys a demand. give I June of long-term a us give of that going shortfall in same less

you. No, Yes. thank

shortages. at customers behind, innovation. And levels. as to back focusing reasons, they in time said as they triage because were number with very were dealing that went it think a for I went remarks, high in So of is design all And for my some I prepared activity, as is on

are technologies in enabling new and innovation many fields. products Our

And seeing many that. high example we design-in so funnel much are measure measures, activity that internally levels some more are where of and both by design of our good what and takes of distributors design very what that seeding who in are particularly, a also partners of the the and wins terms place catalog focused all

and in and come the plays semiconductors pass out role go I that is think the and and being will strong. innovation you noted, products. machine innovation the the So will end long-term will play And inventory overall the correction content how ultimately, business, delivered growth innovation from of how on as this that

a end most supplemental you total I could that a percent markets helpful. in could geography Is That's sort of as any us rate last saw that decline. that of And faster you the color slides. give you a just segment very saw down from of there particular or if sneak or industrial of particular there was the one, I any weakness? of geography it noticed in. terms where just one Is

think you. for can I an you all have period time. China, don't way I weak of that to weak. has for give a been numerical I tell they're example, extended

they with So all geographies I in end weakness hasn't back the and markets a seen -- all recovered from data going we've much focused. the when exception pretty back Defense all all the But Aerospace it way that and the center was bit think really there. to and XXXX of the had of AI shutdowns, and

And on our I the updated. once been end that fiscal year, website a posted full do year. hasn't that and that was still references process believe That's last market data a we

confusing, case. make So the but it's be we'll sure at that's take look what believe not a to slide I the to

Thanks, Appreciate Okay. guys. it.

would There like are closing time. Ganesh to Moorthy for turn floor no the further questions comments. to at back And I over this

during I taking look your some be want And that year. closing Okay. to call. coming forward of up this discussions to further We we note, this this of to and thank having on questions. everyone conferences time the are call the on all for

This teleconference. concludes today's

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