Q1 2021 Microchip Technology Inc Earnings Call

From Oppenheimer.

[music].

Good day, everyone and welcome to Microchips first quarter fiscal Twentytwenty, one financial results Conference call. As a reminder, today's call is being recorded at this time I would like to turn the call over to Microchips, President and Chief excuse me Microchip Chief Financial Officer, Eric Bjornholt. Please go ahead Sir.

Thanks, Brandon and good afternoon, everyone.

During the course, it does conference call, we'll be making projections and other forward looking statements regarding future events for the future financial performance up the company.

I wish the caution you that such statements are predictions and actual events or results may differ materially.

We refer you to our press releases up today, it's walls, our recent filings with the FCC that identify important risk factors that may impact microchips business and results of operations.

In attendance with me today, or Steve Sanghi, Microchips, Chairman and CEO.

Your next from worthy Microchips, President and COO.

I will comment on our first quarter financial performance and Steven didn't ask will then give their comments on the results and discuss the current business environment as well as our guidance.

He will then be available to to respond to specific investor analyst questions.

We are including information in our press release and this conference call on various GAAP and non-GAAP measures, we posted a full GAAP to non-GAAP reconciliation on the Investor Relations page of our website at Www Dot Microchip Dotcom, which we believe you will find useful when comparing our GAAP and non-GAAP results.

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

I will now go through somebody operating results, including net sales gross margin in operating expenses.

Other than that sales I would be referring to these results on a non-GAAP basis, which is based on expenses prior to the effects of acquisition activities share based compensation and certain other adjustments as described in our press release.

Net sales in the June quarter were 1.31 billion, which was down 1.3% sequentially and above the midpoint of <unk> upwardly revised guidance from June 2nd 2021, net sales were expected to be flat to down 6% sequentially.

We have posted a summary of our GAAP net sales as well as end market demand by product line and geography on our website for your reference.

On a non-GAAP basis gross margins were strong at 61.7%.

Operating expenses were at 23.1% and operating income was an outstanding 38.6% all better than the high end of our upwardly revised guidance.

Non-GAAP net income that's 401.9 million.

Non-GAAP earnings per diluted share was $1.56 and three cents above the high end of our upwardly revised guidance from June 2nd.

On a GAAP basis in the June quarter gross margins were 61% and include the impact of 6.4 million of share based compensation and 2.8 million Cobot 19 shelter in place restrictions on manufacturing activities.

Total operating expenses were 580 million and include acquisition intangible amortization of 235.4 million special charges of 23 million 6 million of acquisition related and other costs and share based compensation up 36 million.

The GAAP net income was 123.6 million or 48 cents per diluted share.

Our June quarter, GAAP tax benefit was impacted by a variety of factors, including tax reserve releases associated with the statute of limitations expiring.

Deferred tax adjustments related to intercompany movement of intellectual property rights.

Offset by tax reserve accruals associated with the outcome of the Altira case.

During the period and other matters.

The non-GAAP cash tax rate was 6% in the June quarter, we expect or non-GAAP cash tax rate for fiscal 21 to be about 6% exclusive of the transition tax any potential tax associated with restructuring the microsemi operations in the microchip local structure.

And any tax audit settlements related to taxes accrued and prior fiscal years.

We have many tax attributes and net operating losses and tax credits as well lets you U.S. tax.

Interest deductions that we believe we'll keep our cash tax payments low.

The cash tax payments beyond.

The June 2020 quarter associated with the transition tax are expected to be about 245 million, we paid out over the next six years, including a payment that we made in July 2020 23.2 million.

We have posted a schedule of our projected transition tax payments on the Investor Relations page for web site.

Or inventory balance at June 32020, with 657.2 million.

We had 117 days of inventory at the end of the June quarter, which was down five days from prior quarters levels and late in the middle of our public publicly stated inventory target of 115 to 120 days.

Inventory at our distributors in the June quarter, where 30 days compared to 29 days at the end of March we believe distribution inventory levels for microchip are still low compared to the historical range. We have experienced over the past 10 years, which is between 27 and 47 days.

The cash flow from operating activities was 501.8 million in the June quarter.

As of June Thirtyth, the consolidated cash and total investment position was 380.2 million.

We paid down $394 million, a total debt in the June quarter.

Then over the last eight full quarters since we closed the microsemi acquisition and incurred over $808 billion that to do so we have paid down $2.62 billion and that and continue to allocate substantially all of our excess cash beyond dividends to aggressively bring down et cetera.

Neither accomplish this despite the adverse macro and market conditions. During most of this period, which we feel the testimony to the cash generation capabilities of our business as well as our ongoing operating discipline.

You do expect or debt levels to reduce significantly over the next several years.

Our adjusted EBITDA in the June quarter was $562.2 million.

And our trailing 12 month adjusted EBITDA was 2.154 billion.

Our net debt to adjusted EBITDA, excluding are very long dated convertible debt that matures in 2037, and there's more equity like in nature was 4.24 at the end of June 2020 down from 4.46 at the end of March 2020.

Our dividend payment in the June quarter was 90.4 million.

Capital expenditures were 9.5 main in the June 2020 quarter, we expect about $15 million in capital spending in the September quarter, and overall capital expenditures for fiscal 2021.

To be between 50 and $70 million.

We continue to add capital to maintain and operate or internal manufacturing operations support the production capabilities for new products and technologies as well as to selectively bring in house somebody in Assembly and test operations that are currently outsourced.

We expect these capital investments will bring some gross margin improvement for business, particularly for the outsource Atmel and microsemi manufacturing activities that we are bringing into our own factories.

Depreciation expense in the June quarter was $41.1 million.

I will now turn it over its can ask to give his comments on the performance of the business in the June quarter can ashish.

Great. Thank you, Eric and good afternoon, everyone.

Let's start by taking a closer look at Microcontrollers.

In a weak macro environment, our microcontroller business performed better than we expected on a GAAP basis microcontroller revenue rose sequentially down 1.3% as compared to the March quarter, why from an end market demand standpoint, our microcontroller business, but sequentially down 2.8%.

On a gap year over year basis, our microcontroller business was up 1.2%.

We continue to introduce a steady stream of innovative new microcontroller solutions, including the industry smallest automotive grade maxed out of control or family.

First functional safety right, maybe our microcontroller family with it could also touch controller.

Switched SETAC advance fabric generation generational poor PCIA switch family, which enables complex topic topology, with greater scalability, lower latency and higher performance and traditional PC I you switches.

And last but not lead you adaptec Smartrates 3100, he rate, which stands for redundant array of inexpensive desks adopters designed to provide reliable hardware or rate protection for customer data and cost sensitive and applications that require no power and high performance.

Microcontrollers overall represented 54.9% of our end market demand in the June quarter.

Now moving to analog on a GAAP basis, our analog revenue sequentially up your 0.7%.

For the March quarter, well from an end market standpoint, our analog business sequentially down your 0.7%.

In both scenarios, our analog business performed better than we expected in the midst of a weak macro environment.

On a gap year over year basis, Oh, it analog business is down 4.2%.

During the quarter, we continue to announce an interview a steady stream of innovative analog products.

Including an expanded portfolio well over 25 tracking both the suppressor vertical erased.

And a 32 channel high voltage analog multiplexing further, enabling miniaturization of medical entre off the sound application.

Analog represented 28.1 person a front end market demand in the June quarter.

Oh refugee a revenue on a GAAP basis was down 10.3% sequentially as compared to the March quarter.

From an end market demand standpoint, all refugee.

Sequentially down 6.5%.

All right Yeah, if isn't it in the June quarter had one significant aerospace customer who were shut down hard coded 19 restrictions, but pretty much the entire quarter, resulting in lower than expected at all.

Despite this customer.

Being unlikely to resume production in the September quarter.

We are expecting you happy to your business to sequentially grow meaningfully in the September quarter.

On a GAAP year over year basis, RFP here business was down 4.6%.

During the quarter, we continue to introduce a steady stream of innovative SPG eight products.

Including the effect of block accelerator software development kit, which enables developers to take advantage of microchips qualifier S.P.A. <unk> easily create low power Euro network application.

S.P.J. represented 6.7% a front end market demand in the June quarter.

On licensing memory and other product line, which we refer to it I don't know what flat compared to the March quarter from the end market demand standpoint.

During the quarter, we introduced a new phase noise analyzer design for engineers, and scientists who rely on precise and accurate measurement, but quickly the signal generator for Fiveg networks Datacenters.

Commercial and military aircraft systems.

Used vehicle communications satellite and metrology applications.

Alamo represented 10.4% about end market demand in the June quarter.

And update regarding provider and its impact on operations.

Most of on factory employee base continues to work from home.

Our global teams have been highly engaged collaborative unproductive under the circumstances.

Resulting in strong customer engagement for new designs and effectiveness and our new product development programs.

We would like to thank our teams worldwide were adapting it needed to changing conditions, while continuing to deliver dissolved.

Our manufacturing operation, especially those in the Philippines, and our outsourced partners and Malaysia.

Worked through various constrain throughout the June quarter.

And delivered increased output as reflected in a better than expected results.

By the end of the June quarter, we had dug out most of the delinquencies in our shipments that accumulated in April and May when unpredictable constraints from government mandates won an effect.

Our customers enough supply chain partners also indoor some constraints of the factories and logistic primarily during the month of April and May.

As we progressed to me in June.

We experienced many short lead time orders from customers.

Some of which we could not support in the quarter, primarily due to three factors.

First.

Customers, whose business is strengthened due to colder 19 conditions like from work from home initiative medical devices.

Second the partial recovery in May and June some customers business, which experienced a sharp decline in the March April timeframe, Yeah, no automotive being the biggest example of that at some industrials.

I'm, sorry, and unrealistic expectation from some customers that order slate for short lead times can be supported.

Back in the supply chain.

Our working with our customers to improve the visibility at the backlog so that we may serve them better.

Given the current market dynamics, we are providing some qualitative insights into our principal end markets.

Now before we provide commentary for the June quarter, we would first like to share with you our best estimate for our fiscal year 20 revenue by end market.

With over 120000 customers served by Microchip.

And given the complexity of our customer base. It is laborious to collect that data.

And you only do so every few years.

We remind you that this data is on its only estimated and it is not something we can track that high accuracy.

Based on analysis done a in the June quarter for the fiscal year 20 revenue.

That's still remain our largest end market 28% of revenue.

Computing and data center with NEC that 18% of revenue.

Followed by automotive 15% of revenue.

Communications at 14% of revenue.

Consumer at 13% and finally aerospace and defense a 12% of revenue.

With that backdrop to provide context here are some end market trend insights for the June quarter they'd like to share with you.

Data Center and computing continue show strength from the shift to work from home requirements.

However, we anticipate that these segments made revert to more normal demand patterns in the coming month as a search requirements stock to dissipate.

Automotive incarcerate automotive car sales and production in China recovered nicely to both sequentially and year over year benefiting our China automotive business.

Our automotive business everywhere else had a very poor quarter.

As April and May were adversely impact.

Widespread automotive factory shutdowns.

He began to see recovery in June and believed that the worst for automotive it behind us.

Medical devices necessary to treat cobot patients patients like ventilators respirators oxygen monetary portable ultrasound machines. They were all a strong.

In addition to host of other hospital equipment needed for increased patient clubs.

Medical devices for elective procedures, such as hearing AIDS pacemakers defibrillators some of the large ultrasound and MRI machines those experienced a slowdown as individuals in hospital delayed elective procedures.

Even within the broad based industrial and consumer markets.

For generally weak we didn't see pockets of strength related to covert 19.

In consumer the strengths that related to gaming home improvement and hobbyist project, So people shopping at home.

In industrial the strengths were related to you'd be disinfection system air filtration system infrared temperature scanners, and it generally increasing trend towards touchscreen controllers.

Let me know passes to speak for comments about our business not guidance going forward steep.

Thank you finish.

And your good afternoon, everyone.

Today I would like to first flipped on the results of the fiscal first quarter of 2021.

He will then provide guidance for the fiscal second quarter of 2021.

So Jim corridor demonstrated what's the best stuff Microchip culture and its people represent.

Other global team of operations business units.

Sales and marketing and support groups all came together in the mid lafitte globally and in light of working with it take good and deliver suppose corridor.

Quota how rapidly the microchip team adapted to the new constraints we faced.

Well that that employees would be safe.

Customers to be will serve.

And our supply chain fucking is engaged to help ensure mutual success. Despite the challenges we faced.

Despite the covert 19th endemic challenges we deliver it nets is.

For $1.31 billion that was down only 1.3% sequentially.

Down only one person from the year to go corridor.

But isn't isn't it saves guy who's was to be down 6% sequentially at the midpoint.

At least jublia devices to be down 3% sequentially at the midpoint.

And we ended at down only 1.3% sequentially.

He's had exceptional reserves against the backdrop of simultaneous supply and demand just dislocations.

We also delivered outstanding non-GAAP gross margin of 61.7%.

90 basis points above the midpoint of our original guidance from me 720 20.

And non-GAAP operating margin of 38.6%.

260 basis points above the midpoint of our original guidance and if we did all this while reducing or days of inventory from 122 days to 117 days.

I'm, particularly proud of producing 38.6% operating margin at near the bottom of the business cycle I missed it globally can damage.

Our consolidated non-GAAP EPS was dollar 50, 621 cents above the midpoint of our original guidance and 12 cents above the midpoint of Hardy raise guidance.

Non-GAAP basis. This was also a 119 consecutive profitable quarter.

In the June quarter, we paid down $394 million a for debt.

Brokers debt payments since the end of June 2018 has been about $2.62 billion.

I mean, I wouldn't net leverage ratio down to 4.24.

Pace of debt payment has been strong despite the weak in uncertain business conditions underlying the strong.

Underlying the strong cash generation characteristics of our business.

Active efforts to continue to squeeze the working capital efficiencies.

No.

I will discuss our guidance for the September quarter.

After a strong March and it through other bookings were soft in May and June.

The bookings we received in May and June had a much higher mix of near term requirements.

Good customers and distributors did not have the visibility.

Place longer term orders.

While the near term instant booking.

That's the June corridor.

Lets the September quarter backlog on July 120, 20.

To be down 8% compared to the backlog for June corridor on it to run 2020.

We also left to large amount of backlog unsupported other the June quarter.

Because those requirements gain insight for lead time, and we were not able to ship them. According to customer requested.

This all prompted us to lay the letter to our customers and distributors.

<unk> informing them of the business environment, and our cycle time to their products.

Then we asked them to place at least 12 weeks of backlog for their requirements.

Also informed our customers in distributors.

That if they ask for expediting up an order, we would need to Cios and expedite service fee.

Given the disruptive nature of such orders.

It was a led to we're just trying to encourage customers to give us more visibility.

So that we can better and meet the requirements.

Expedited Ah the expedite charges have never been material in terms of her overall revenue.

With another man unfunded ourselves now to the leather.

Well, we have seen some of the customers and distributors it's fun.

The rate of bookings has increased.

Backlog for the September quarter is still well below the backlog for June corridor, but the same point in time, but we believe that the stronger bookings now compared to weak bookings are for me in June.

We've continued to improve the September quarter backlog compared to June quarter.

I'm in end market standpoint, or do you heard during the initial remarks, we have several crosscurrents contributing strengths and weaknesses at the same time.

The common denominator among them is rather covert 19 or is it tailwind or headwind during the quarter for their given market.

Diversity of front end market exposure, which we consider to be a strain gives us the ability to capitalize on whatever strength there are judy challenging market conditions.

Taking all these factors into consideration we expect over the next is.

At September quarter to be between flat to down 8% sequentially.

He is relatively broad guidance ranges to help account for the lack of visibility.

Uncertainty associated with the evolving corporate banking situation.

Isn't that much better than expected financial results in the June quarter.

We gave out employees half of the June quarter, Olivier sacrifice back into format for bone.

However, we are maintaining their salary cuts in the September quarter due to continued uncertainty.

I would inventory at 117 days is now right in the middle of for 115 to 120 days target.

Also adjusting the fekete schedules and get moving that okay, taking time out.

The September quarter, we expect that wouldn't non-GAAP gross margin to.

To be between 61.2 person and 62.2% of sales.

We expect non-GAAP operating expenses to be between.

23.2 person and 24.2% of food.

We expect to non-GAAP operating profit percentage.

Between 37% and 39% of soon.

We expect over non-GAAP earnings per share to be between $1.30 per share it with other 52 per ship.

We also expect to pay down.

And another approximately $300 million up or debt into September corridor.

We believe that despite the near term pandemic driven challenges, we're confident in the things and diversity of the businesses.

End markets, we aim to achieve long term growth in access of the average semiconductor market growth.

Given all the complications of accounting for or what acquisitions.

Including amortization of intangibles restructuring charges and inventory write up on acquisitions.

Microchip will contribute to provide guidance and track its reserves on non-GAAP basis, except for net sales, which will be and get this is we believe that gas reserves provide more meaningful comparison to prior quarters and due to close to that the analyst.

Continues to support their non-GAAP estimates to first call.

Just operator will you please pull for questions.

Thank you if he would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question now if you would please limit yourself to one question.

Pause for just a moment to allow everyone an opportunity to signal for questions.

The first question will come from the deck Oreo with Bank of America Security. Please go ahead.

Got it thanks for taking my question, Steve I think you mentioned booking somewhat improved in July historically, what due August and September bookings do and what are your assumptions and giving guidance for this quarter. I are you assuming that the bookings trend kind of stays where it is does it get better.

Does it get worse I'm, just trying to frame the guidance versus some historical trends and what your assumptions are for what.

The environment gosh, a in that in many months of the corner.

So weve. It's the first thing I would say is that you shouldn't really be looking at any past friends.

If it's just not abnormal environment.

Our bookings and backlog is then.

Expedite and customer requests that really all driven by end market by end market, what they set that pulls it 19 years in but the visibility of the customers and distributors. So it really just absolutely.

You know it bookings in a quarter would be stronger I think she's going to lead with a weaker backlog and the bookings often wouldn't be a in terms would be lower it. If you have a strong backlog that all depends on lead time and visibility. So we went into the started this quarter.

With their basically.

The medical you decrease visibility about your distributors and customers. Therefore, we started the quarter what does anybody be backlog. If you recall that June corridor.

We started the June quarter on it to one with a very strong backlog.

You know from coming from March and it turned out of China from the new Chinese new year, and all that and end up bookings during the June quarter actually declined it to them in June.

What's the which was a divorce stuff that happens in enormous here because really the very strong corridor and bookings accelerate from it to make a June it was totally different this time. So again in July other from September.

July bookings were up significantly from the June is run rate June was very low.

And Oh. This is just starting back looking at just a couple of days of looking.

Oh for August and also a pretty good at even higher than the delay average. So our expectation is that August and September bookings would be strong.

In a near term turns fill from those bookings.

Ah will be significant.

Which will make up for you know how the corridor looks against the same point in time versus June.

It will improve and that's really what is included in our guidance.

Thank you.

Thank you. The next question will come from John Pitzer with Credit Suisse. Please go ahead.

Hi, Steve Thanks for let me ask the question you said in your prepared comments that backlog heading into September is down about 8% from you know the comparable time period heading into the June quarter, but but if I go back 90 days ago, you didn't believe that backlog at least your initial guidance for June took a fairly significant and hair cut to kind of the backlog in bookings.

I'm just kind of curious can you help us understand you know relative to the normal backlog coverage you have to your guide.

How does sort of the September guiding to look today.

Oh, you know same thing John a you know I think.

And it's been dammit, driven environment through all the older graphs away because you lose reaches one conclusion.

You know if you recall on if there is one that backlog was quite strong and the guidance. We gave I think that backlog.

It was it up 9% going to call it correctly.

I'd have to go back and Jack Meehan or book to Bill was like 1.17 in the March quarter. So we entered with very strong backlog and then we saw a week bookings and billings are very strong backlog into you gave the guidance original guidance, which was actually to be down from 2% to 10% or to the 12%.

So we basically said that the backlog would have deteriorated from being up a year nine person to down 6%.

This is the worst quarter, whereas the backlog started lower.

And it started 8% a little worse then it is one and the midpoint of guidance.

He is really down is down 4%. So this time, we didn't truly we are expecting the backlog to improve in comparison to the last quarter why because last quarter bookings declined during the quarter this quarter bookings the increasing during the quarter and it's all visibility can damage end market driven.

What's happening in automotive, what's happening and get us into what's happening in others and it is really no correlation to what happened in the last five years total was seasonality of the passed away.

That's helpful. But lets you could give departing sat on their you know we've all struggled and I think you guys have internally with all the acquisitions.

Finding what's normal seasonal any update on what you can give us of what do you think a normal seasonal September quarter would look like sequentially.

Well you know first environment have to become northern Ireland, we haven't seen automotive.

In the last couple of years with all the U.S., China trade sanctions and then that Ted if send now globally condemning so once we have to have a stable environment for the year, so to forget our with a new seasonality would be the though the acquisitions right now would be anybody's guess and whatever the seasonality wouldn't be.

In future right now so that aware.

[laughter].

Okay.

Thank you. The next question will come from Ambrish Srivastava with BMO. Please go ahead.

Hi, Thank you, Steve I'm going off for a clarification as well I.

I just want to make sure I understand your comments correctly, so as the last quarter progressed based and what have you assumed it it sounds like okay deteriorated because you had a lot of shortly 10 orders that are not met and now heading into the September quarter is it fair to assume then that.

Ah that those quarters announced could those orders this club.

But then how do you concerns with the fact that Houston had delinquencies that you could not me.

Sure Baby.

Coming up in this quarter.

Then just little bit confused on trying to reconcile all your comments fun on the Oh, So let me tell motors and de booking trends that made sense that as a quarterly progress.

Bookings deteriorated.

But then what about the shouldn't be pay motors that you could not meet in the last quarter.

Well, let me see if they don't give some of the confusion. So no. We started the June quarter, we'll get fairly strong backlog.

The call up 9% or so and you know it isn't that correct.

And then.

We've got a reasonable bookings in if true. So if there was a goodman so we're still looking good.

But booking slowed down significantly may when didnt make up dramatically. So in June so doing was even lower than me and the bookings were so low.

Right if all work.

[noise] orders from those bookings would normally aged in terms of near term and over time the quarter would have been very low.

The percentage of bookings that is going to the quarter looked quite high.

And even though we were not able to meet somebody that booking some of those orders because a short lead time.

We see beat the corridor.

What do you know the Guy do so no minus six at the midpoint. We came in at minus 1.3, which means we didnt meet lot of the orders, but we still left a large among delinquent.

And whatever was deliberately last quarter, we get shipped this quarter.

Since the bookings were sort of near term.

We started the quarter is still very much into whole down 8% from last quarter.

And now the bookings that strengthening bookings have largely the slope of the books would have been higher day after day bookings a increasing all through July.

And therefore, the backlog versus the same point in time.

Has improved somebody but there is lots more to go and we've seen at the rate the bookings have now and continuing to increase.

The you know the shipments will improve.

From being minus eight at the start of afford to the minus four at the midpoint that you're guiding to does that make sense now.

It does Steven just could ask one more clarification does that mean, then that the visibility of used 10 days.

That does then what it was.

At the same point in the Frac water.

I don't think Visibilities any better I think visibilities, what do you know that's why.

You know, it's it's a it's a fool from in June.

But it isn't in food from auction it too like Inking a much when it was very strong bookings.

People have had you know China has just come back from Chinese new year, and everybody was expecting equating to the up in doing so there's a lot of bookings people do when I get caught short.

And the pandemics disciplines longer and longer than longer it I know, there's no end in sight nobody knows whats happening mistakes its a de leveraging some countries I assume going higher it every week.

No.

Though the customers in distributors are not getting long term motors or to slightly better than it wasn't in June.

Despite the bookings are higher and we believe it they continue to improve in August and September.

Okay. That's helpful. Thanks for the patients in the Bakken.

Hi, I'm, just going to add onto what Steve said, there just to confirm that the 9% that he is quoting in terms of our opening backlog entering the June quarter that that'd be accurate number for comparison purposes, compared to minus 8% or down 8% heading into the September quarter.

So that's you know that's a good competitors and where June quarter started.

Up 9%.

In September quarter is starting down 8%.

Got it thank you and the June quarter to cheat is good and I'm, sorry improved from minus nine to minus 1.3.

And we believe that this quarter.

And also improved from this quarter. We go the other way room go from minus it to minus four that regarding too.

Right just to clarify that statements, we answered the June quarter, with Backhauling being up 9% and it deteriorated to the point, where we finished the quarter in down 1.3%.

Correct.

Yeah. Thank you.

Thank you. The next question will come from Craig Hettenbach with Morgan Stanley. Please go ahead.

Yes. Thank you ASCII just a question just from a geographic perspective, the initial growth.

Was driven by China, and as you mentioned come back in China, New year, do you think that China shrank. The sustainable and then also how are you feeling about other geographies like Europe in North America.

Yes, you're going to take that.

Yeah, So China was certainly stronger last quarter than we expected.

No China, but it doesn't live in isolation, China is affected by how other parts of the well do and so as they go into the September quarter.

It is still doing well, but we anticipate that weakness in Europe weakness in America would have some impact I'm trying to that's all baked into the guidance at the end up.

Got it thank you.

Thank you. The next question will come from harsh Kumar with Piper Center. Please go ahead.

Hey, Steve So I'm going to ask about what everybody else talk too much it sounds like there's good demand, but sound like towards the end of last quarter. You saw a short term demand, but now you're seeing the customer pivot completely and they're starting to place orders. So my question to you are you guys talk you guys are great job, we've got lots of.

You know lots of customers you do a good job keeping up with them. What do you think is making the customer slip in this manner.

I think it's all of corporate 19, you know customers I'm not sure.

You know a there is it serves ends up schools it in certain countries in certain states in the United States.

Customers and distributors, a you know distributors have low backlog from did end customers.

And our direct customers are not really sure what's the run rate would be so we're getting good we're getting frequent orders for short term. The liberty that you know they have the demand today and they need to build up out of to deliver to the customer, but they do not know whether that it's sustainable in September and October and November.

So we're getting we're not getting as many longer term orders to the pipeline.

But we're getting in onboard errors.

To have the strong billings as we go as we saw last quarter. There was enough strength in a in a short term motors that the billings was good and be end, it's fairly good.

And for all of you know that could happen this quarter.

Yeah, but we can't say with.

I didn't d. today.

With the backlog being low compared to certain same point last quarter. I'm. You know, we we could get enough turns to fill a corridor.

But that is lack of visibility therefore, we can't guide would that certainty.

Fair enough Stephen for my follow up your revenues are down quite a bit fish in your guidance, but your margin is pretty steady pretty stable sequentially. Just curious if you have any thoughts on that.

Well.

You know so.

You should look at citizen dose and I look at it little bit year over year. So when you look at a year over year.

No it would be kind of much more than the pack overall in the semiconductors and and actually year over year is guidance for September.

Is better than a really most of a microcontroller and analog competitors. So everybody seasonality is different.

Automotive business is only about diminishes the 12 euro.

It's probably 13, 14% after the last quarter.

Yeah. So automotive business is about 13 14, but some of that business and some of our competitors. It's 40 45. So so they took a much larger to hit.

When do you automotive and down automotive was down.

40% or so in the industry last quarter.

And so this team is much larger to cover the business. We're seeing is similar to Cody, but being only 13 14, but some other businesses impacts will be lower.

So we did better last quarter I'm you know this quarter were doing worse sequentially, but if you look at year over year is in orders also better than all of our larger competitors on T., a ITT analysis and others.

Fair enough and then so there's a question on the margin is concerned at all in margins.

There's been lots of moving parts to internalize vision would have been stuff. Its technologies. Some restructuring of hope that piece, we have talked about before so you know lots of things. We have brought to bear is where there's been a tailwind on the margins.

And now this is really the best to gross margin in operating margin performance of any cycle at microchip because driven by all of these self help kind of things we have done.

And when that business because it wasn't goes back to new record on the top line.

I think it would see you know record gross and operating margins.

Thank you. The next question will come from Shawn Harrison with loop capital. Please go ahead.

Hi, Thanks, Thanks for taking my question just a quick clarification and then a follow up what we see any utilization in the charges or charge this quarter.

Oh, the Andrew utilization was about $13.9 million, that's right inline with what it was in the March quarter, So flat flat sequentially.

Then Steve Please turn to beat the dead horse on demand environment like either end markets, where you're seeing you know sharper contractions in demand, we know automotive production will be up sharply in the September quarter, but are you seeing maybe a contraction or more volatility in kind of the bookings rate. If you could get an end market perspective that would be helpful.

Dennis I'll give it to the names.

That's a work in my prepared remarks, I gave you some flavor off by different end markets. How what are we seeing the June quarter, and I think as time goes on you know some of these are going to start reverting to normal which I think for example data center and Oh work from home related items, you don't need to continue to be at a high enough.

Once you've gotten path for several months, so buying what you need and then those up or below in the initial phases like automotive and industrial should be the ones that they can do a couple of we've already seen the automotive parts you know put a bottom in the June quarter, and we're expecting you know september to be couldn't be expecting to somebody because I.

And likewise and somebody on the segment. So yeah. The medical that's another example, where you know some parts of medical did really well because of cobot related items.

Other parks you know the elective parks got pushed out because people are not willing to go out of their homes I go set up consult for what was elected.

And we'll come back you can push it out forever and so that will be in general I think the places that were weaker.

Hi, and goes on will be the ones that have more strength and some other things up a stronger could revert back to normal in coming months.

Thank you. The next question will come from Gary Mobley with Wells Fargo Securities. Please go ahead.

Hey, guys. Thanks for taking my question when it to up so two questions for Eric.

I went to ask about Opex it looks like for your guidance. What you delivered for the first quarter, you're somewhere just south of 300 billion per quarter, that's down I believe more than 10% from last year, how much of that his job is salary cuts in various other opex.

<unk> seems like lower tribal.

I'm just trying to get a sense of what no might look like for you guys on the Opex I once things begin to turned out.

So it would be a the salary cuts when Ah, yes at the levels, we implemented we quantified those last quarter being about a $21 million per order run rate I thought that pull boat.

Yes, Stephen talked about us getting giving some of that back to employees. This last quarter because the so results are really quite good.

Things like travel you know I mean, there we had to quantify them, but they are there they are pretty significant and you know what I would say without like some of that it's probably more permanent then temporary I think as Weve you know adjusted from working from home throughout the organization or in a different functions people will become very effective in doing that and I think overall.

Travel, although it will come back to a higher level on some of that is gonna be permanent savings. So I think we're managing the operating expenses very tightly in an environment that we're in and out of the employees. We've done a good job managing that for would be environment, but the overall, we've taken out a lot costs, but that's a business improved somewhat.

Those costs in terms of salary caps and some of the bonuses returning to a higher level, but those absolutely we'll come back to the piano one more managed appropriately given where top line growth that's.

Okay.

Oh, it's going to ask a bucket that structure you guys restocking interest it extends the maturity of that pretty happy amount it appeared that.

Like as a result, your debt interest expense. The norm you know might be substantially lower <unk> can you speak to what they need to when they look like for debt.

Interest expense and in as well given the low interest rate environment that we're in you know what the additional opportunities might be to draw down your cost of capital.

Sure. So you know we were active and ER and the debt capital markets and in the quarter, we issued $2.2 billion, which senior secured notes on paid off a bridge loan paid off some of our cumbersome and use the remaining problems to have to pay off while I'm outside her line of credit.

The guidance that you'll see in our guidance table in the press release for other expense, which is most most of that as interest expense is about $78 million on a non-GAAP basis fourth quarter and.

That's a pretty good run rates with all these that transactions I'm had occurred last quarter on are factored into that guidance on obviously, we're using a significant amount of the cash it we're generating to pay down debt everything really on the dividend payment. So Steve mentioned in his prepared remarks. It on the current quarter, we expect to pay down another $300 million a bad so.

But that is coming down nicely, we've done some nice things to remove some of the dilution that comes from those convertibles that we've retired from the structure and we're pretty happy with the transactions that we executed built in the March quarter and the June quarter, Yeah, not that I'm going run rate's, probably about $78 million number will reduce every interest expense come down through.

Our debt repayments.

Gotcha, Thanks, guys.

Thank you for the question as a quick reminder, if you have the question at this time that installing want entered the Q. The next question will come from Chris Caso with Raymond James. Please go ahead.

Yes. Thank you.

Just like it but a couple of clarifications here your revenue guidance, if suggesting about a 6% year on year decline with all of that puts and takes that we've talked about do you think that down 6% year is accurate reflection of you know what your customers consumption really is that sort.

As a baseline that we should be using here and as we look forward into the December quarter, you know based on what you're seeing in bookings does that provide you with the with any degree of confidence that we'd see a sequential increase as we go into December or is that just a bit too tough to call given that the short nature when people.

Your city receiving now.

Well take the first part of that question I think Oh.

You know the the revenue based on selling that we report.

We also tell you the end market demand number which is there some sell through they're not that far apart now those two numbers. There comes really fairly close together they were right apart when we were predicting for him and 32 years ago.

So you know if were down 6% in September quarter guidance versus September quarter of last year that basically represents the market demand today.

So that was the first part of your question. The second part was there.

What do you expect recalling it varies over your thing to say.

Yeah, and and you know given that the fact that it did it sounds like the orders improved in July I suppose if some of that filling into the December quarter, but could you also mentioned that that the order rates were the order the the aging of the what issues very short is very short so perhaps you're not getting the same visibility you'd get.

And just to now be it in a typical accordion, perhaps that makes it more difficult to call.

So I would say you know just kinda environment, we can barely called September we believe we can't really called December.

Oh, it will depend on what happens in the covert situation exists.

For the vaccine come out to those fears go no go read as everybody go back to work well sexism in open schools opened there is lot of them to cover between now and October before the December quarter stuff, So let's say.

I'm not willing to say much about somebody yet.

Okay. Thank you.

Thank you. The next question will come from Rashid Gill with Needham and company. Please go ahead with your question.

Yeah, Thanks, and I'm not going to introduce the in the past question, but.

Just to kind of repeat so you introduced in the June quarter, we felt kind of a dramatic reversal <unk>, 0.99% don't minus 1.3%.

We're going to September machine.

Well, we're bullish on the other direction going to minus 8% to about minus 4%.

And so those would work either positive or negative if you're to sum it up.

Mainly based on complete lack of visibility that your customers are getting and basically operating I'm I'm very short lead times.

It's it's basically that it's you know so six send markets every end market is affected differently bike overnight in team you know automotive being the worse than industry being done you know next and you know the other than the best month. It was a data center in Medicare Ireland sort of work from home computer.

You know the so each market is affected very differently by covert 19.

And now backlog almost bye bye.

End markets, how the customers are behaving is quite different.

And I think it's really basically all driven by that so you know what you're seeing today.

Is the bookings today, not bad to really what we need to ship this week and next week in next week.

But we're not getting.

You know back in May and June we were not getting enough bookings for August and September and October.

So today.

Good looking for in July we got good looking for July August and September.

But not enough yet for the next quarter. So as we proceed in the core to especially even get in August and September not only we need to get the bookings to fill the August and September that has a hole in that we also made a good enough bookings. So on October one and we start the next quarter correctly.

And a journey on December quarters also frontend loaded usually because December is a short months because of all the holiday.

Okay, and it's really just Corbett 19 is controlling the people's emotions.

And purchasing managers habits and everything else.

And for my follow up in terms of gross margin.

Revenue to be down 4% sequentially gross margins are holding flat sequentially despite revenue declining.

Even though data centers.

Appearing to kinda revert back to normal pattern.

He didn't hit it might be a higher gross margin.

Product. So can you just talk talk little other puts and takes in terms of the mix shift in its happening utilization rates that are happening.

Why is margin being flat, which is a good thing like that in the coming down.

So you know that isn't it dealer.

Sure I I can sodas, maybe start by just reiterating that you know we're pretty proud about how the gross margins have held up and then you know the last couple of years of experience of the of the various things are trying to trade and now colder than even with her 13.9 million dollar under utilization charge still posts.

61.7% gross margin that's last quarter smelling other theres always friends with no product mix and that that impact gross margin utilization levels and all those things, but we see pretty good stability. This quarter the midpoint of guidance or did you said it is it's flat sequentially and we've given a little bit broader range of gross margin.

Margin guidance than we normally do between 61.2% and 62.2%. So a percent range there, but we've got a pretty wide range of revenue also that we're guiding to between flat and down 8%. So lots of puts and takes but we're continuing to do all the right thing and setting up keep costs under control when things.

In house, where we can do improved cost structure on gross margin I think is really kind of highlight in the cycle in terms of how well they say that maintain.

Thank you.

Thank you. The next question will come from William Stein with Truth Securities. Please go ahead.

Great. Thanks for taking my question Steve in in the press release in the comments you made in your prepared remarks, they seem to tribute.

The slower pace of bookings at least part of the two resurgence in conveyed and I think what some investors are concerned about is that instead, the slowdown maybe related to customers having over ordered a you know in recent a in the recent past microchips delivery against that and then customers have to digest.

Meanwhile, you seem to have had some pretty deep conversations with customers to figure out sort of end market expectations, who the full year. So I'm wondering if perhaps you have to sense from those discussions what customer inventory levels are like now it would seem to me if they're ordering.

Very short lead times.

Probably ordering for production and not for safety stock, but any.

Insight in this regard and really help thank you.

So really you know we yeah.

We do business with 120000 customers and long too.

Well over 100000 again by phone hundreds of for distributors around the world. We're not we're not afraid offering broad based holding off inventory by our customers.

And our distributor inventory this too and the danger from being 15 years rose.

You know with 120000 Bucks and customers.

We're really not able to assess the into the situation in each one of our customers.

No we have a generally good sense of inventory in the market. We've done a good job of keeping our lead time short in maintaining a delivery performance it is reasonable level.

If the if the customers were had ordered inventory.

Linda you know prior prior quarter. So are we wouldn't be getting you know so many short term request.

In some cases customers are paying.

You know expedite chose to get those cars.

And there's no reason customers would be paying expedite charges to get the parts. If they didn't need been for production and in many many cases were delivering right on the factory floor, they're short circuiting and shipping met her then you know it drop it in Mexico.

Because of their lines down situations. So if anything inventories not how are you able didn't make it even though.

Yeah, that's super helpful. Thank you.

Okay.

Thank you. The next question will come from Chris Danely with Citigroup.

Hey, Thanks, guys for squeezing me in I'm, just a quick when can you give us approximately what percentage of revenue goes through China, and how that's done over the last few quarters.

I think you have there.

Yeah. So, it's it's 21, 22% about or eliminate shifts and to China and obviously, there's some of that puts local consumption. It sounds like the comes back to the Americas or Europe for consumption, but it's it's been that 21, 22% range.

Yeah. Thanks, guys.

Okay. So you know the June quarter in the June quarter, China revenues snapped back to a higher level.

As a corporate 19 situation improved in China.

And your business activities supporting local consumption.

Appear to be much more normal [laughter] timing.

Thank you. The next question will come from Harlan sur with JP Morgan. Please go ahead.

Hi, Good afternoon things, taking my question in response to the muted demand environment back in the June quarter, you guys did cut that the number of manufacturing always hear fab employee using it to U.S. jobs I think it was the went from like I mean, when it went from like a 13 week.

Our work week, a war quarter to like 11 need a war quarter or what's the demand trends gain you did are you guys continuing to drive in 11 week manufacturing work corridor or are you guys ticking down work all or is it utilization is further here in the September quarter, and then just as a follow up it looks like Philippines is we imposing.

Some of the regional locked down kind a resurgence of course, the 19 is just having an impact on the Philippines test operations.

Well I'll kick the first part of the question.

No I think you may have missed the commentary earlier, but I did say.

In my remarks that actually a inventory last quarter.

No it came down.

To under 17 days from the 120 cases before.

Remember, we went into the quarter guiding to be down minus six. So if you were down minus six or anything to be would have gone up which we did not want so we put a though taking time off from the factory that leads from the two largest sets.

To really have operator, six sometime off.

So you know we get better than revenue was only being down minus 1.3 couldn't be cut back on the productions for the combined effect of that whether you're going to be actually came down.

Over the 117, good inventory, we have now or just heard the factory schedule or where we no longer work is working that rotating time, often goes to love Fabs.

Lots of small small plants, we inherited from microsemi around the world in Boston in Ireland, and Germany in other places where was it all small labs and each one has their own schedule or some of them are working short weeks, because you know the man and certain thought excuse me, but there, but the big plans are no longer works.

Oh sure dollars.

Let me take.

Question was the Philippines, they're going to ensure Olympic dam.

Yeah. So you know we did Oh, we are aware off the adjustment Philippines is making what do we have not giving too much color on is not the May conference call. I mentioned that we've had you know people who are effectively live in the Philippines factory will run our operations there.

For a significant portion of I suddenly March and April and at its peak, we had about 850 employees living in our factory to be able to work around the constraints or it has come down. Since then we still maintain a horse of about 300 people that are there gives us that strategic flexibility on anything.

Short time constraints.

So we have planned for where this might go and what other actions may be taken and now we're not unless something you know it different happens, but what we expected like heat up and.

We feel we have the controlling what we need to do well keeping Philippines right.

Yeah. Thanks, Steve Thanks, Good ash.

Thank you. The next question will come from BJ Rakish with <unk>. Please go ahead.

Yeah, I guess, a good execution are tough environment I'm, just wondering on your September quarter, great well it down for the did fine I didn't see any particular weakness and you look by segment.

It's are you seeing storage on the computer datacenter being a little bit more recur our.

Industrial to give some more kind of that.

So they can actually answered that question before but go ahead pick it again.

So as I mentioned some of the segments that who are strong in the June quarter.

Well driven by the work from home and medical type of activities, which had very short surge of demand that was acquired a that's why had us out running.

In the June quarter try and catch up.

Lot of new orders that came in as well we are anticipating I know that trends, we're seeing it some of that starts subsides and demand begins to revert back to normal at that point in time, so in that sense I wouldn't call it weak demand, but I would call. It it doesn't have the surge that the June quarter had required as you continue to go out in time.

And likewise on the opposite side some of the things that were really weak automotive I being one example of that also begins to crack in the opposite direction. When it begins to make up some of that weakness has factories running demand what kinds of that's not part of business got strong.

Got it and I know you've mentioned I'm not able to meet all of the demand coming through given the shock that makes us on disorders spurt and this spring to foreigners I guess given that you're seeing a risk losing orders started losing share to I'm just wondering if.

That's part of it or this or is it just noted visibility on the part of the testers. Thanks.

No. These are all proprietary products is on product that you know switch overnight and go between sources all that so no. We don't see any risk of losing share in what's going on and as he has not been working constructively with our customers to be into try and get the best visibility they have to us as well.

To be able to serve them a in order to meet that demand requirements that so these are short term issues caused by the I'd imagine supply shock in the system I don't expect needs to be long term missions.

Thanks, Rob.

Thank you for the question. The next question will come from Christopher Rolland with Susquehanna. Please go ahead with your question.

Thanks for the question then and this one's really for Steve switching gears. We now have the 80 I acquiring maximum do you see this changing anything for the analog market and you know what are your feelings generally on consolidation.

Do you expect it to continue at this pace or even accelerate drilling coded a and if you had a view of valuations for targets in the industry right now that would be appreciated as well. Thank you.

Okay well. Thanks for the question I know you know, we we ourselves do not see any trip from the proposed acquisition of Maxim 83.

They're both strong competitors in the analog space and we compete against both of them on a regular basis and they get combined.

I mean acquisition happens, we always see incremental opportunities that arise.

You know because.

Tend to customer wants to different sources or no one older business with 80, Ariane maximum to become one so some opportunities appear that would be able to take advantage of feared.

You know on in terms of for the merger environment is really.

You know it looks are at times that it could slow down and it for logic writers are digesting.

Onetime looked like it would be difficult to get approvals in China.

But then we got Flavio for approval.

Well go to food or I did she got approved the minutes got approved.

No no notice and axiom in Cyprus got approved.

So if we're if China continues to approve these deals and.

And she's acquirers are willing to acquire them the consolidation in the industry would continue.

I think that's really for sure and the fundamental issue is a you know if you look at a very long period of time over the last 20 years.

The overall growth as it semiconductor industry.

You know has been low to mid single digits and you know that's a tough environment to up anything.

Every year people get excited about a one thing or the other.

But all these radius trends have come in but a consolidated long term.

Industry has further than any time in industries triggers on the top line.

I'm going to stronger will acquire the weaker and consolidation will continue.

So that's really my view on consolidation that's for evaluation question.

Is concerned I mean look at the valuation.

Plus event for the maximum in Florida, just gonna keeps going higher and higher.

Oh I think are.

I think for most targets the remaining targets.

Stock price already reflected significant acquisition premium.

You wouldn't crown convinced there.

The Bulls in their management at the physician for years in there and that's what drives the they always ideation. So.

You know that's that's a problem.

Insightful. Thank you Steve.

Okay.

The next question will come from David O'connor with X amount of BNP Paribas. Please go ahead.

Great. Thanks for squeezing me in guys or maybe just a quick follow from previous question. Steve can you just remind us what the order mix is what percentages of orders are typically short lead time versus long lead time boot historically versus currently in like the one quick follow up thanks.

We don't have done a medicine I don't think we would be willing to should it.

The changes a lot week to week in month to month, and it's a very fluid situation when you're working with.

Under the distributors and under 20000 plus customers so.

We we wouldn't share that indicators.

Okay fair enough and as my follow on then last quarter or the you said with the the U.S. Department of Commerce exposed to link it should be pretty much straightforward for you guys. You called out I think military maybe some attention. There was there anything that popped up Lin from the instrumentation that you went through that was unexpected. Thanks.

Can I just want to do them.

Yeah, I know there were no issues out there was obviously administrative procedures and you put in place now or have a partner was put in place and so all about it dawned on behind us.

That's helpful. Thank you.

Thank you all next question will come from Craig Ellis with B. Riley FBR. Please go ahead.

Yeah. Thanks for taking my questions, guys and and my shop on the execution in the quarter, Steve I wanted to ask your question I'll start with you at May ultimately go to can Nash, but clearly the company is executed a number of things shot tactically with cost management, not Beck's management to really protect marching by bridge.

That's historically high levels through well last year. So now this year's crises. The question is is as we look ahead.

And think about things that the company might be doing that are those ongoing continuous efforts to drive structural improvement and in both Cogs and opex versus some of the things that will have some unwind employees going back to full salaries and eventually is.

As demand normalize just how do you think about the gives and takes there and and maybe you can actually if you can just west for us what some of the key longer term briberies for cost reduction in Opex optimization art that would be helpful. Thanks, guys.

Cigarettes diminishes over there.

So you know obviously there are some costs that are fourq down cost have you taken out a there's nothing wrong with that I called over a long long.

And as we see revenue recovery.

Yeah listen you should expect that some of those costs will come back.

And a you know historically, we have been disciplined about how we bring back some of these costs as the revenue for times and you can go back and look at other cycles and Tom how are they percentage of revenue we manage our operating expenses.

I think you know one thing, which we will do definitely has it come out of there is also look at what did you learn how to best prices.

Times outside managing more effectively from an operating expense standpoint, and their people get into change and methodology, Eric mentioned to perhaps travel not being as.

Yeah, hi rate as they used to switching to more virtual methods for customer training and a number of other things as well and so we are committed to the long term targets. We have just to get 'em operating expenses are down into the 23% range. That's part of <unk>, 40.5% operating margin.

Okay that we're working towards and every that every quarter. We learn things we can do more effectively where there was some research and development in sales and marketing on the overall general and administrative areas that up sequentially bring things out a bit by bit downs or we have been working on a lot better be integration.

For Microsemi route which is predominantly at this point focus on the business process and I T related items, what about nine months away from a wrapping that up as a last bits of those I get done. So you know there's constant part of our DNA that is working on these in all three areas.

And then a crisis you take some of the best learnings and make sure you capture them and you get pass the crisis.

Got it thanks Kash.

Thank you. The next question will come from John Pitzer with Credit Suisse. Please go ahead.

Yeah. Thanks for taking my follow up you can actually had mentioned his prepared comments that you thought.

Pgas would be up pretty significantly in the September quarter, I'm, just kind of curious is that a business that more exposed to the auto market into what we're saying is you know week June and auto to strong June in September and that's driving it are there. Other drivers. There. There are can you kind of enumerate. Please.

So exposes the automotive or do you have TJ business is low at this point, it's one of the things that microchip Brock to that business with our historical strengths and time to how we take advantage of each other's end markets. Thanks.

So in other parts of the market data are.

Responding I I've been providing growth in the September quarter, and even as we expect that was one large customer that created a it bounced. What then it goes anywhere in the June quarter, or we don't expect you're going to recover in the September quarter. In spite of act, we expect that the other improvements were making hi.

Business, but more than offsets to that in the September quarter.

But it's not automotive.

Thank you.

Thank you I'll now turn the conference back over to Steve thing he for any closing remarks.

So there is one of the indicator I wanted to give you right. Yeah, we hadn't planned on it but I think with all the questions. We got.

In a holiday bookings happen in last quarter, what's the what's happening in this quarter I'm going to go on the Little then give you. This number the July bookings.

Well at 15.5% higher.

And that May bookings per day, there's tons per day every month is not the same there's my mind that defenses.

In July bookings was 36.6% or high it for a day then they're doing booking.

So you could see how last quarter bookings were decreasing in May and then really fell precipitously in June.

But the bookings were very short term oriented so we made the quarterly actually beat the guidance from a quarter last quarter.

But it started this quarter in a hole, but now this quarter to July bookings were 15 assets are better than me and 36.6% better than June.

That's where do you have just kind of for Dan said, even though we started to minus 8%.

From an end up a lot better.

Hopefully that helps a little bit.

So with that true we'll be attending a number of works a little conferences in the coming days and weeks and so we're talking to you talked to some of your those conferences.

Thank you very much.

Thank you ladies and gentlemen, this concludes today's event.

Disconnect your lines.

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Good day, everyone and welcome to Microchip first quarter fiscal <unk> financial results Conference call. As a reminder, today's call is being recorded at this time I would like to turn the call over to Microchips, President and Chief excuse me <unk> Chief Financial Officer, Eric <unk>. Please go ahead Sir.

Thank you Brenda and good afternoon, everyone.

During the course, that's conference call, we'll be making projections or forward looking statements regarding future events for the future financial performance of the company.

We wish the caution you that such statements.

Actions and the actual events or results may differ materially.

We refer you to our customer leases up today, it's all about recent filings with the FCC identify important risk factors that might impact microchips does not results of operations.

And it sounds to me today, or Steve Sanghi, Microchips, Chairman and CEO.

And that's worthy microchips, president and CEO.

I will comment on our first quarter financial performance and Steve International then give their problems on the results Scott talked as much environments as well as our guidance.

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

We're including information in our press release, and that's conference call on various GAAP and non-GAAP measures, we posted a full GAAP to non-GAAP reconciliation on the Investor Relations page of our website at Www Dot Microchip Dot com, which we believe you will find useful when comparing our GAAP and non-GAAP results.

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

I will now go through some of the operating results, including that sales gross margin operating expenses.

The net sales I would be for into these results on a non-GAAP basis, which is based on expenses prior to the effects of acquisition activities share based compensation and certain other jobs sunsets described a press release.

That's sales on the June quarter were 1.31 billion, which was down 1.3 groups that sequentially and above the midpoint of our upwardly revised guidance from June 2nd 2021, net sales were expected to be flat to down 6% sequentially.

We have posted a summary of our GAAP net sales, while its end market demand by product line and geography on our website <unk>.

On a non-GAAP basis gross margins were strong at 61.7%.

Operating expenses were 23.1% and operating income was an outstanding 38.6% all better than the high end of our upwardly revised guidance.

Non-GAAP net income was 401.9 million.

Non-GAAP earnings per diluted share or $1.56 and three cents above the high end of our upwardly revised guidance from June 2nd.

I got basis in the June quarter gross margins were 61% and include the impact of 6.4 million share based compensation and 2.8 million called the 19 shelter and plates restrictions on manufacturing activities.

Total operating expenses were 580 million and include acquisition intangible amortization, a 235.4 million special charges, a point Threemillion 6 million of acquisition related and other costs.

Sure based compensation up 36 million.

GAAP net income of 123.6 million 48 cents per diluted share.

Our June quarter, GAAP tax benefit was impacted by a variety of factors, including tax reserve releases associated with the statute of limitations expiring.

Deferred tax adjustments related to intercompany movement of intellectual property rights.

Offset by tax reserve accruals associated with the outcome of the Altira case.

During the period and other matters.

The non-GAAP cash tax rate was 6% in the June quarter, we expect or non-GAAP cash tax rate for fiscal 21 to be about 6% exclusive of the transition tax any potential tax associated with restructuring the microsemi operations Microchip global structure.

And any tax audit settlements related to taxes accrued in prior fiscal years.

We have many tax attributes and net operating losses and patch as well lets you U.S. tracks interest deductions that we believe we'll keep our cash tax payments low.

Cash tax payments beyond.

The June 2020 quarter associated with the transition tax are expected to be about 245 million.

Well, we paid out over the next six years, including a payment that we made in July 2020 23.2 million.

We have posted a schedule of our projected transition tax paying up on the Investor Relations page of our website.

Our inventory balance at June 32020, with 657.2 million.

We had 117 days of inventory at the end of the June quarter, which was down five days from the prior quarters levels and late in the middle of our public publicly stated inventory target of 115 to a harder than 20 days.

Inventory at our distributors in the June quarter were 30 days compared to 29 days at the end of March we believed distribution inventory levels for microchip are still low compared to the historical range. We've experienced over the past 10 years, which is between 27 and 47 days.

The cash flow from operating activities was 501.8 million in the June quarter.

As of June Thirtyth, the consolidated cash in total investment because their son was 380.2 million.

We paid down $394 million, a total debt in the June quarter.

Over the last eight full quarters since we closed the microsemi acquisition and incurred over $808 billion that to do so we've paid down $2.62 billion on that and continue to allocate substantially all of our excess cash beyond dividends to aggressively bring down much that.

We have accomplished that despite the adverse macro and market conditions. During most of that's period, which we feel the testimony to the cash generation capabilities of our business as well as our ongoing operating discipline.

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

Our adjusted EBITDA in the June quarter was $562.2 million.

And our trailing 12 month adjusted EBITDA was 2.154 billion.

Our net debt to adjusted EBITDA, excluding our very long dated convertible debt that matures and 2037 and there's more equity likely nature was 4.24 at the end of June 2020 down from 4.46 at the end of March 2020.

Our dividend payment in the June quarter was 90.4 million.

Capital expenditures were 9.5 Lane and the June 2020 core we expect about $15 million in capital spending in the September quarter, and overall capital expenditures for fiscal 2021.

To be between 50 and $70 million.

We continue to add capital to maintain and operate our internal manufacturing operations support the production capabilities or new products and technologies as well up to selectively bring in house somebody in the assembly and test operations that are currently outsourced.

We expect these capital investments will bring some gross margin improved much more business, particularly through the outsource atmel and microsemi manufacturing activities that we are bringing into our own factories.

Depreciation expense in the June quarter was $41.1 million.

I'll now turn or what's going to ask to give us comments on the performance of the business in the June quarter and Nash.

Right. Thank you, Eric and good afternoon, everyone.

Let's start by taking a closer look at Microcontrollers.

Hey, weak macro environment, our microcontroller performed better than we expected.

On a GAAP basis microcontroller revenue sequentially down, 1.3% as compared to the March quarter.

From an end market demand standpoint, our microcontroller business with a quite straight down 2.8%.

On a GAAP general yuppie, all microcontroller business was up 1.2%.

We continue to introduce a steady stream of innovative new microbial solutions, including the industry smallest automotive grade maxed out of control family.

First functional safety right, maybe our microcontroller family with it could also touch controller.

That's what stack advance fabric generation generational poor PCIA switch family, which enables complex topic about topology, greater scalability, lower latency and higher performing and traditional PC I use which is.

And last but not me yeah, Doctech smock rate 3100 he rate.

What are done that already up inexpensive desks and doctors designed to provide reliable hardware on rate protection for customer data and costs I put an end applications that require low power and high performance.

Across all the overall represented 54.9% apart end market demand in the June quarter.

Now moving to analog on a GAAP basis, our analog revenue was sequentially up your 0.7%.

Compared to the March quarter walk from an end market standpoint, our analog business sequentially down 47%.

In both scenarios, our catalog business performed better than we expected in the midst of a weak macro environment.

On a GAAP year over year basis, or analog business is down 4.2%.

During the quarter, we continue to announce an interview a steady stream of innovative our products.

Including an expanded portfolio or what were 25 tracked in both at suppressor vertical erased.

And a 32 channel high voltage ALOG multiplexing further, enabling miniaturization of medical office phone application.

Analog represent a 28.1 person on end market demand in the June quarter.

All right Yeah revenue on a GAAP basis was down 10.3% sequentially as compared to the March quarter.

From an end market demand standpoint, all refugee.

Sequentially down 6.5%.

All right you had business in the June quarter had one significant aerospace customer who were shut down hard coded 19 restrictions, but pretty much the entire quarter, resulting in lower than expected at all.

Despite the customer.

Being unlike either reviewing production.

Or.

We are expecting you happy to hear business the sequentially grow meaningfully in the September quarter.

On a GAAP year over year basis, RFP here business was down 4.6%.

During the quarter, we continue to introduce a steady stream of innovative digital products.

Including the fact that block accelerator software development kit, which enables developers to take advantage microchip qualify refugee a good easily create low power neural network application.

[laughter] P.J. represented 6.7% I'll fight end market demand in the June quarter.

Our licensing memory and other product line, which we would afford to like that at all.

Flat compared to the March quarter from an end market demand standpoint.

During the quarter, we introduced a new phase noise analyze up designed for engineers and scientists who rely on precise and accurate measurement quickly signal generator for Fiveg networks data centers.

Commercial and military aircraft systems.

Vehicle communications satellite and metrology applications.

Alamo represented 10.4% about end market demand in the June quarter.

And update regarding put on the virus and its impact on operations.

Most of on factory employee base continues to work from home.

Our global teams have been highly engaged collaborative unproductive under the circumstances.

Resulting in strong customer engagement for your design and effective nothing on new product development programs.

I would like to tank car teams worldwide, we're adopting it needed to changing conditions, while continuing to deliver as ops.

Our manufacturing operation.

Especially those in the coking and our outsource partner and Malaysia.

Work the various constrain loved the June quarter.

I believe it increased output as reflected in a better than expected results.

By the end up the June quarter, we had dug out most of the delinquencies and all shipments that accumulated in April and May when unpredictable constraints from government mandates that are in effect.

Our customers enough supply chain partners also endured some constraints of their factories in the primary during the month of April and May.

As we progressed domain.

We get as many short lead time orders from customers.

Some of which we could not support in the quarter, primarily due to three factors.

First.

That's worth was businesses strengthened difficult at 19 conditions like from worked for all the Michigan medical devices.

Second the partial recovery in May and June some customers business, which experienced a sharp decline in the March April timeframe, Yeah, no automotive being the biggest example of that some industrials.

I started an unrealistic expectation from some customers that order slate the short lead times can be supported by the lack of supply chain.

We are working with our customers to improve the visibility of the backlog so as I mean, they serve them better.

Given the current market dynamics, we are providing some qualitative insights into our principal end markets.

Now before we provide commentary for the June quarter, we would like to share with you our best estimate for our fiscal year clay revenue by end market.

With over 140000 customers served by Microchip.

Given the complexity up a couple of big it is laborious to collect that data.

The only good so every few years.

Mind you that this data is on its only estimated and it is not something we can try at high accuracy.

Based on analysis done a in the June quarter for the fiscal year 20 revenue.

Industrial remain our largest end market 28% of revenue.

Computing and data center with NEC at 18% of revenue.

Followed by automotive 15% of revenue.

Communications at 14% of revenue consumer at 13% finally, aerospace and defense a 12% of revenue.

With that backdrop to provide context.

Got it from end market trend insights for the June quarter that we'd like to share with it.

They just don't front computing continued strength from the shift to work from home requirements.

However, we anticipate that these segments matter work to more normal demand patterns in the coming month has a thought requirements stopped to dissipate.

Automotive incarcerated automotive car sales and production in China recovered nicely to grow sequentially and year over year benefiting our China automotive business.

Our automotive business everywhere else had a very core core.

April and May were adversely impact.

Widespread automotive factory shutdowns.

We began to see recovery in June and believe that works for automotive that behind us.

Medical devices necessary to treat covert patients patients like ventilators respirators oxygen monetary portable ultrasound machines. They were all its strong.

In addition to host of other hospital equipment needed for increased patient close.

Medical devices for elective procedures, such as hearing AIDS pacemakers defibrillators. Some of the large also saw them all and machine those experience a slowdown has individual hospital the late elective procedures.

Even within the broad based industrial and consumer markets.

But generally we we didn't see pockets of strength really difficult at 19.

Consumer that strengths that related to gaming home improvement and hobbyist projects, so people shelter that help.

In industrial the strengths, but related to UBI disinfection system Air filtration system in pro rata temperature scanners, and it generally increasing trend towards touch weed control.

Let me know pop at the steep of comments about our business not guidance going forward Steve.

Thank you finish.

And good afternoon, everyone.

Today I would like to first that's left on that is.

First quarter of 2020 wrong.

And then provide guidance for the fiscal second quarter of 2021.

So Jim corridor demonstrated what the best stuff Microchip culture, and its people who represent.

Our global team of operations business units.

Sales and marketing and support groups all came together in the middle of the global endemic wind working with it pay card and deliver suppose corridor.

Quota how rapidly the microchip team.

After the new constraints, we faced.

Well that that employees would be safe.

Customers to do well served.

And our supply chain partners engaged to help ensure mutual success. Despite the challenges we faced.

Despite the corporate 19th and any challenges we deliver it nets is.

$1.31 billion that was down only 1.3% sequentially.

Down only one person from the year ago corridor.

What do you know net sales guidance was to be down 6% sequentially at the midpoint.

Probably June we devices to be down 3% sequentially at the midpoint.

And we ended at predominantly 1.3% sequentially.

He's had exceptional reserves against the backdrop of simultaneous supply and demand dislocations.

We also delivered outstanding non-GAAP gross margin of 61.7%.

90 basis points above the midpoint of our original guidance from May 720, 20.

Non-GAAP operating margin of 38.6%.

260 basis points above the midpoint of Harbhajan guidance and if we did all that is why do you have you seen or days of inventory from 122 days to 117 days.

I'm, particularly proud of producing 38.6% operating margin at near the bottom of the business like there.

Just a little bit than damage.

Our consolidated non-GAAP EPS was dollar 50, 621 cents above the midpoint of our original guidance and 12 cents above the midpoint of our revised guidance on a non-GAAP basis. This was also a 119 consecutive profitable quarter.

In the June quarter, we paid down $394 million a for debt.

Our total debt payments since the end of June 2018 has been about $2.62 billion.

Bringing over net leverage ratio down to 4.24.

The pace of debt payment has been strong.

Flights a week in uncertain business conditions underlying the strong.

Underlying got strong cash generation characteristics of our business that was really active efforts to continue to squeeze in working capital efficiency.

No.

I will discuss our guidance for the September quarter.

After a strong March and it through other bookings were soft in May and June.

The bookings we received in May and June had a much higher mix.

Near term requirements.

Customers and distributors did not have visibility to place and longer term orders.

While the near term instant booking filled up the June quarter. If that's the September quarter backlog on July 120, 20 <unk>.

To be down 8% compared to the backlog for June corridor on it too on 20 Twond.

We also left to large amount of backlog unsupported other the June quarter, because those requirements gain insight of Floodlit time, and we were not able to ship them. According to customer requested.

This all prompted us to lay the letter to our customers and distributors.

Most informing them off the business environment, and I was taking time to visit products.

Then we asked them to place at least 12 weeks of backlog for their requirements.

We also informed our customers and distributors.

If they ask for expediting up and older we would need to jobs and expedite service fee.

Given the disruptive nature it up such orders.

It was another we're just trying to encourage customers to give us more visibility.

So that we can better meet the requirements.

The expedited Ah the expedite charges have never been material in terms of our overall revenue.

In other than men Muslim that are better than out to the letter.

Well, we have seen some of the customers and distributors as a spawn.

The rate of bookings has increased public backlog for the September quarter is still well below the backlog for the June quarter, but the same point in time, but we believe that the stronger bookings now.

Compared to a week bookings are from me in June.

We've continued to improve the September quarter backlog compared to June quarter.

I'm in end market standpoint, or getting going issues of remarks, we have several crosscurrents contributing strengths and weaknesses at the same time.

The common denominator among them is rather covert 19 was a tailwind or headwind during the quarter for their given market.

Diversity of front end market exposure, which we consider to be assaying gives us the ability to capitalize on whatever strength that are.

Judy challenging market conditions.

Taking all these factors into consideration we expect over the next is.

The September quarter to be between flat to down 8% sequencing.

Got it can be broad guidance ranges to help accounting for the lack of visibility.

Uncertainty associated with the evolving over 19 situation.

It's one that much better than expected financial results in the June quarter.

We gave out employees half of the June quarter Libbeys sacrifice back.

The format for bone.

However, we have maintained a salary cuts in the September quarter.

Two continued uncertainty.

Oh the inventory had 117 days is now is right in the middle part of 115 to 120 days target.

We had also adjusting the subcu schedules and get moving the locating time off.

The September quarter, we're let's start with non-GAAP gross margin.

To be between 61.2 person and 62.2% offices.

We expect non-GAAP operating expenses to be between.

23.2 person and 24.2% of food.

We expect non-GAAP operating profit percentage.

Between 37 person and 39% of soon.

We expect our non-GAAP earnings per share could be between $1.30 per share to dollar 52 per ship.

We also expect to pay down.

Another approximately $300 million afford dead in the September quarter.

We believe that despite the near term pandemic driven challenges we're confident in the thing tender was to be able to businesses.

Markets, we had in blue cheese long term growth like so for the average.

Anything up to as market do.

Given all the complications of accounting for over the acquisitions.

Including amortization of intangibles.

Restructuring charges and going into the light up on acquisitions Microchip will continue to provide guidance and sockets reserves on non-GAAP basis, except for Mrs, which will be and get this is we believe that gap was does provide more meaningful in comparison to prior quarters and due to close to that the end.

<unk>.

Continue to support the non-GAAP estimates is supposed to call.

Good stuff, but it does would you please pull for questions.

Thank you if he would like to ask a question. Please signal by pressing star one of your telephone keypad. If you are using a speakerphone. Please make sure. Your mute function has turned off to allow your signal to return to work with.

Getting press Star one to ask a question, though if you would please limit yourself to one question Foster just a moment to allow everyone an opportunity to signal for questions.

The first question will come from the back are you with Bank of America Securities. Please go ahead.

Got it thanks for taking my question, Steve I think you mentioned booking somewhat improved in July.

Starting to see what due August and September bookings do.

And what are your assumptions and giving guidance for this quarter I are you assuming that the bookings trend kind of stays where it is does it get better does it get worse than I'm, just trying to frame the guidance versus some historical trends and what you what assumptions are for what are the environmental gosh a in.

There are many months of the corner.

Well, we did the first thing I would say is that you should not really looking at any pets friends because if it's just not a normal environment.

Our bookings and backlog of then.

Expedites and customer requests that really all driven by end market by end market, what they set the schools at 19 years and looked at visibility of the customers and distributors. So it really just absolutely.

You know bookings any quarter wouldn't be stronger if you go into it with a week of backlog and the bookings often wouldn't be a in terms would be no would if you have a strong backlog that all depends on lead time and visibility. So we went into the started this quarter.

So with this it clearly.

The medical you degrees visibility by your distributors and customers. Therefore, we started the quarter with literally be backlog, if you recall that young corridor.

We started the June quota on it and one with a very strong backlog.

You know from coming from March and a ton of China from the new Chinese new year on on that and then the bookings during the June quarter actually declined it to them in June.

What's the which was a divorce stuff that happens in a normal years, because you lose a very strong corridor and bookings accelerate from its into May and June he was talking to different. This time. So again in July other from September.

On July bookings were up significantly from the June the run rate June was very low.

And Oh. This is just starting but looking at just a couple of days of looking off for August and also a pretty good and even higher than the delay average.

So our expectation is that August and September bookings would be strong.

And a near term turns filled from those bookings.

I wouldn't be significant.

Which will make up for you know how the core to looks against the pinpointing time versus June.

Between them cool and that's really what is included in our garden.

Thank you.

Thank you. The next question will come from John Pitzer with Credit Suisse. Please go ahead.

Hi, Steve Thanks for let me ask the question you said in your prepared comments got backlog heading into September is down about 8% from you know the comparable time period heading into the June quarter, but but if I go back 90 days ago.

You didn't believe that backlog at least your initial guidance for June took a fairly significant hair cut to conduct the backlog in bookings I'm just kind of curious can you help us understand you know relative to the normal backlog coverage you had to your guide.

How does sort of the September guidance looks today.

Well you know Cynthia John a you know I think.

And it's been damaged given environment through all the order to get asked away because he lives each everyone conclusion.

You know if you recall on if there is one that backlog was quite strong and that guidance. We gave I think that backlog.

But it was it up 9% enjoyed a call it could actually.

And I can go back and exact mean or book to Bill was like 1.17 in the March quarter. So we entered with very strong backlog and that we saw a week bookings and okay that ladies flowing back log and you gave that guidance regional guidance, which was actually used to be down from 2% to 10% or to the 12%.

So we basically said that the backlog wouldn't deteriorated from being up a near 9% to down 6%.

This is a divorce corridor with the backlog started lower.

And it started 8% lower than it is one and the midpoint of guidance.

It's really down.

It is down four person. So this time, we didnt tooling, we are expecting that backlog in food and competitors into the last quarter right because last quarter bookings declined during the quarter this quarter to become the increasing during the quarter and it's all isn't really deep and then me and market driven what's happening in automotive looks.

Happening you did us into what's happening in others and it is no quota mission to what happened in the last five years total all seasonality of the passed away.

That's helpful, but let's see because if I could set on their you know we've all struggled and I think you guys have internally with all the acquisitions.

Finding what's normal seasonal any update on what you can give us a what do you think a normal seasonal September quarter would look like sequentially.

Well you know first environment has to become norland, we haven't seen older model.

In the last couple of years with all the U.S., China said sanctions and then that Ted if so now little bit of condemning so once we have to have a stable environment for the year, though so to forget our with a new Susan Alipay wouldn't be with all the acquisitions right now as of the anybody's guess and whatever the seasonality would be.

In future right now so that aware.

[laughter].

Okay.

Thank you. The next question will come from Ambrish Srivastava with BMO. Please go ahead.

Hi, Thank you Steve.

I'm going off for a clarification as well I.

I just want to make sure I understand your comments correctly. So that's the last quarter progressed based on what you're saying that it sounds like booking deteriorated because you had a lot of short lead time orders that are not met and now heading into the September quarter is it safe you seen than that.

Ah that those quarters announced those orders the club.

But then how do you can probably with the fact that Houston had been they couldn't see that you could not be <unk>.

Sure Baby.

Coming up in this quarter.

Just a little bit confused on trying to weaken silo there come in some of them deal.

Oh, So let me tell motors and be booking trends that made sense that as a quarterly progress.

Looking to do today did.

But then what about the shouldn't be pay motors that you could not meet in the last quarter.

Well, let me see like looking at some of the confusion. So no. We started the quarter, we'll get fairly strong backlog.

The call up 9% or so and you know anything that could affect that.

And gain.

We've got a reasonable bookings isn't it true so it wasn't good ones. So let's just looking good.

But bookings slowed down significantly in may and Didnt make up dramatically. So in June June was even lower than me and the bookings were so low.

If all work.

[noise] orders from those bookings wouldn't normally aged in terms of near term Anelka turned the quarter would have been very low.

The percentage of booking that it goes into the quarter, but quite high.

And even though we have another can meet some of the booking some of those all goes because a short lead time.

We see beat the corridor.

What do you know that Guy do so were minus six at the midpoint. We came in at minus 1.3, which means we did meet lot of the orders, but we still left a large amount delinquent.

And whatever was delinquent last quarter, we get shipped this quarter.

Since the bookings were so near term.

We started the quarter, it's still very much into whole down 8% from last quarter.

And now the bookings up strengthening bookings have largely the slope of the bookings have been higher day after day bookings a increasing all through July.

And therefore, the backlog versus 10 point in time.

Has improved somewhat but there is lots more to go and we've seen at the rates the bookings have now and continuing to increase.

The you know the shipments will improve.

From being minus eight at the start of according to the minus four at the midpoint of guidance does that make sense now.

Hey, good that's keeping it just cut off from most education does that mean, then that the visibility as you stand today.

But the then what was that the at the standpoint in the prior quarter.

Okay Visibilities any data on I think visibility is what do you know that's why.

You know, it's it's a it to fool from in June.

But it isn't in food from auction it too like Inking a much when it's a really strong bookings.

You know a China has just come back from Chinese new year, and everybody was expecting a quickie into the thing Danny So there's a lot of bookings people do when I get caught short.

And the pandemic disciplines longer and longer than long, but I know that as well and insight.

Who knows what's happening in stages to emerging some countries assumed going higher it every week.

No the customers in distributors are not getting long term mode or is it still slightly better than it wasn't in June as I described the bookings are higher and we believe with me continued to improve in August and September.

Okay. That's helpful. Thanks for the patients and a good luck.

And I I'm, just going to add on to what Steve said, there just to confirm that the 9% that he is quoting in terms of our opening backlog entering the June quarter that that is very accurate number for comparison purposes compared to minus 8% or about 8% heading into the September quarter.

Well, that's you know that's a good competitors and we're doing a quarter staggered.

9%.

September quarter is starting down 8%.

Got it thank you and the June quarter tedious, good I'm sitting through from minus nine to minus 1.3.

And we believe that this quarter.

Also improved from this quarter. We go the other way route and go from minus it to minus four that regarding too.

Right just to clarify that statements, we entered the June quarter with backlog being up 9% and it deteriorated to the point, where we finished the quarter and down 1.3%.

<unk>.

Thank you.

Thank you. The next question will come from Craig Hettenbach with Morgan Stanley. Please go ahead.

Yes. Thank you Pete just a question just from a geographic perspective. The initial growth was driven by China and as you mentioned coming back in China, New year do you think about China shrank. The sustainable and then also how are you feeling about other geographies like Europe and North America.

Yes, you're gonna Tessa.

Yes, so China, it's definitely stronger last quarter than we'd expect that.

But China does have that in isolation, China is affected by how other parts of the world do and so as they go into the September quarter or it is still doing well, but we anticipate that weakness in Europe weakness are inadequate would have some impact and try and that's all baked into guidance at the end up.

Got it thank you.

Thank you. The next question will come from harsh Kumar with Piper Center. Please go ahead.

Hey, Steve So I'm going to ask about what everybody else is talking about just sounds like there's good demand, but sound like there. What's the end of last quarter use our short term demand, but now you're seeing the customer pivot completely and they're starting to place orders. So my question to you or you've got stock you guys. You a great job, we've got lots of lots.

Customer did you do a good job keeping up with them. What do you think is making the customer slip in this manner.

I think it's all corporate 19, you know customers I'm not sure.

You know a there is it serves ends up school of it in certain countries in certain states in the United States.

Summers and distributors, a you know distributors have no backlog from that end customers.

And our daughter customers are not really sure what they've done that wouldn't be so we're getting good we're getting frequently to orders for short term. The liberty that you know they have the demand today, and then need to build up out of to deliver to the customer, but they do not know whether that it's sustainable in September and October November.

But we're getting we're not getting as many longer term orders, so probably tonight.

But we're getting orders.

To have the strong billings as we go as we saw last quarter there wasn't enough strength in a in a short term motors that the billings was good and the end it certainly gert.

For all of you know that could happen this quarter.

But yeah, but we can't say with <unk>.

<unk> today.

With that our backlog being low compared to certain same point last quarter. I'm. You know, we we could get enough turns fulfilled a corridor.

But that is lack of visibility therefore, we can't guide would that certainty.

Fair enough Stephen for my follow up your revenues are down quite a bit fish and your guidance, but your margin as pretty steady pretty stable sequentially. Just curious if you have any thoughts on that.

Well.

You know so.

You should look up but as those and I look at it little bit he Italy is so when you look at a year over year.

You know would be kind of much more than the pack overall in the semiconductors and and actually year over year is guidance for September.

Is better than a really most of a microcontroller and analog competitors. So everybody seasonality is different.

Automotive business is only about diminishes the 12 Merrill.

It's probably 13, 14% after the last quarter.

Automotive business is about 13 14, but some of our business and some of our competitors. It's 40 45.

So so they took a much larger to hit.

When the automotive and down automotive was down.

40% or so in the industry last quarter.

And so this team has much larger to cover the odd business, we're seeing a similar recovery, but being only 13 14 gizmodo businesses impact will be lower.

So we did better last quarter, a you know this quarter were doing worse sequentially, but if you look at Italy is in orders also better than all of our larger competitors on T., a ITT analysis and others.

Fair enough in as far as a question on the margin is concerned at all and margins.

There's been lots of moving parts to internalize vision would've been stuff. Its technology is some restructuring of factories, we have talked about before so you know lots of things we have brought to bid where there's been a tailwind on margins.

And now this is really the best to gross margin and operating margin performance of any psycho at microchip because driven by all of these self help kind of things we have done.

And when that business. It covers then goes back to new record on the top line.

I think you will see you know record gross and operating margins.

Thank you. The next question will come from Shawn Harrison with loop capital. Please go ahead.

Hi picture. Thanks for taking my question just a quick clarification, then that a a follow up Louisiana utilization going into the charges or charge this quarter.

Oh, the Andrew utilization was about $13.9 million, that's right inline with what it was in the March quarter, So flat flat sequentially.

It doesn't seem to kind of beat the dead horse on demand environment, but their end markets, where you're seeing sharper contractions in demand. We know automotive production will be up sharply in the September quarter, but where are you seeing they'd be a contraction or more volatility in kind of the bookings rate. If you can get an end market perspective that would be helpful.

Dennis I'll give it to the names.

So in my prepared remarks, I gave you some flavor off by different end markets. How what are we seeing the June quarter and I think.

As time goes on.

Some of these are going to start reverting to normal, which we think for example data center and Oh work from home related items.

I need to continue to be at a high level once you've gotten path for several months stopped buying which he.

And then both up or below in the initial cases like automotive and industrial should be the ones that he can do a couple of we've already seen the automotive part you know put a bottom in the June quarter, and would expect and you know september to be couldn't be expecting to somebody because I.

Likewise and somebody other segments so the.

That's medical that's another example, where you know some parts of medical did really well because of coated related items.

Other parks you know the elective parks got pushed out because people are not willing to go out of their homes I would go set up consol's public was elected.

Like the will come back you can't push it out forever and so that will be in general I think the places that were weaker.

Hi, and goes on will be the ones that have more strength and some other things up a stronger could revert back to normal in the coming months.

Thank you. The next question will come from Gary Mobley with Wells Fargo Securities. Please go ahead.

Hey, guys. Thanks for taking my question when it to a startup some questions for Eric Hey, I went to ask about Opex. It looks like for your guidance in what you delivered for the first quarter, you're somewhere just south of 300 billion per quarter, that's down I believe more than 10% from last year, how much of that.

That is out of it from salary cuts and various other opex decrease seems like lower tribal.

I'm just trying to get a sense of what normal might look like for you guys on the Opex I once things begin to turned out.

So the but salary cuts when Ah <unk> at the levels, we implemented we quantified those last quarter being about a 21 million dollar per quarter run rate that though that pull boat.

Yeah, Steve talked about us getting given some of that back to employees. This last quarter because the results are really quite good.

Things like travel you know I mean, there we haven't quantified them, but they're there they are pretty significant and you know what I would say without like some of that is probably more permanent then temporary I think as we'd like you know adjusted from working from home throughout the organization are written in the different functions people will become very effective in doing that and I think overall.

Travel, although it will come back to a higher level on some of that is gonna be permanent savings. So I think we're managing the operating expenses very tightly in the environment that we're in and out of the employees are done a good job managing that for would be environment, but overall, we've taken out a lot costs, but that's a business improved somewhat.

<unk> costs in terms of the salary caps and some of the boss with returning to a higher level, but those absolutely we'll come back to the P. and I wanted more managed appropriately given where topline growth that's.

Okay.

Oh, it's going to ask about the debt structure you guys. We find the interest and extended the maturity of that pretty hefty amount at the up your debt.

<unk> as a result, your debt interest expense the new norm, you know might be substantially lower Pete can speak to what they need to when they look like for.

Interest expense and in as well given the low interest rate environment that we're in you know what the additional opportunities might be to draw down your your cost of capital.

Sure. So you know we were active and and the debt capital markets and are in the quarter, We issued $2.2 billion live senior secured notes on paid off a bridge loan paid off some of our cumbersome and use the remaining bonds to after pay off while amounts on her line of credit.

The guidance that you'll see in our guidance table in the press release for other expense, which is most most of that its interest expense is about $78 million on non-GAAP basis fourth quarter and.

That's a pretty good run rates and all these that transaction. So I'm had occurred last quarter on are factored into that guidance and obviously, we're using a significant amount of the cash that we're generating to pay down debt everything really beyond the dividend payment. So Steve mentioned in his prepared remarks said on the current quarter, we expect to pay down another $300 million of that so.

But that is coming down nicely, we've done some nice things to remove some of the dilution that comes from those convertibles that we've retired from the structure and we're pretty happy with the transactions that we executed built in the March quarter and the June quarter, now about that I'm going run rate's, probably about $78 million and that will reduce as the interest expense comes down to.

Our debt repayments.

Gotcha, Thanks, guys.

Thank you for the question as a quick reminder, if you have the question at this time that installed one to enter into Q. The next question will come from Chris Caso with Raymond James. Please go ahead.

Yes. Thank you.

Just.

A couple of clarifications here your revenue guidance, if suggesting about a 6% year on year decline with all of that puts and takes that we've talked about do you think that down 6% year is accurate reflection of you know what your customers consumption really is that sort of the baseline that we should be.

Using here and as we look forward into the December quarter, you know based on what you're seeing in bookings does that provide you with with with any degree of confidence that we'd see a sequential increase as we go into December or is that just a bit too tough to call given that the short nature of the mortgage that you're receiving now.

Well take the first part of that question not incur.

The the revenue based on suddenly and definitely the port.

We also are telling the end market demand number which is this on sell through they're not that far apart now those two numbers are comes in because he loves together.

There were right apart when we were predicting for him and 32 years ago.

So you know if were down 6% in September quarter guidance versus September quarter of last year that basically that presents the market demand today.

So that was the first part of your question your second part was or.

Where do you expect if I missed or is everything perfect.

Yeah, and and you know given that the fact that it it sounds like the orders improved in July I suppose that's that some of that's selling into the December quarter, but could you also mentioned that that the order rates were the order the the aging of the what issues very short because very short so perhaps you're not getting the same visibility you getting.

Just to now be it in a typical core than perhaps that makes it more difficult to call.

Well I would say you know just kinda environment, we can barely close September we believe we can't really close December.

Oh, it would depend on what happens on the corporate situation is this a because of that can come out with those fears go no go read as everybody go back to work well sexism and old friends schools. All fun. There is lot of zones that covered within our in October for the December quarter stars, So let's say.

Another thing to say much about somebody yet.

Thank you.

[noise]. Thank you. The next question will come from Rashid Gill with Needham and company. Please go ahead with your question.

Yeah extension and you might get the interest.

Last question, but I didn't just to kind of repeat so you entered into the June quarter, we felt kind of the dramatic reversal <unk>, 0.99% going to minus 1.8%.

We're going to September machine.

Bush and the other direction going to minus 8% to about minus 4%.

And so those were blessed either positive or negative.

Year to someone else.

Primarily based on Didnt complete lack of visibility that your customers are getting.

And basically operating and I'm very short lead times.

It's it's basically that it's you know so six end markets every end market is affected differently by corporate 19, you know automotive being the worse than industry is being done you know next and then on the other than the best month. It was I did us into it and medical and fund the work fronts.

Routing and all the so each market is affected very differently by close to nine teams and backlog almost by by the end markets. How that customers are behaving is quite a different.

And I think it's really basically all the driven by that so you know what you're seeing today.

Is the bookings today, not bad to really what we need to ship this week and next week and next week.

But we're not getting.

You know back in May and June we were not getting enough bookings for August and September and October.

Closed today.

Oh.

Good looking for in July we got good looking for July August and September.

But not enough yet for the next quarter. So as we proceed in the core to especially when you get in August and September not only we need to get the bookings to fill the August and September that has a hole in it. We also met to get enough bookings. So on October one we start the next quarter correctly.

And June on December quarter, There's also frontend loaded usually because December is a short months because of all the holiday.

<unk> and it's really just quoted 19 is controlling the people's emotions.

And purchasing managers habits and everything else.

And then my follow up in terms of gross margin.

I'm going to be down 4% sequentially gross margins are holding flat sequentially despite revenue declining.

You know data center HM.

During two kind of revert back to normal pattern.

<unk> data center might be a higher gross margin.

Products. So can you just talk talk little other puts and takes in terms of the mix shifted its happening utilization rates that are happening.

<unk> why is Martin being flat, which is a good the flight revenue coming down.

So you know that is limited to everyone.

Sure I can set us maybe start by just reiterating that you know we're pretty proud about how good gross margins have held up and then you over the last couple of years of experience of the of the various things trying to trade and now Colbert and even with her 13.9 billion dollar under utilization charge still.

61.7% gross margin that's last quarter smelling other theres always friends with no product mix that that impact gross margin utilization levels and all those things, but we see pretty good stability. This quarter. The midpoint of guidance says he said it was it's flat sequentially and we've given a little bit broader range of gross margin.

Margin guidance than we normally do between 61.2% and 62.2% so a percent range there, but we've got a pretty.