Q2 2022 Microchip Technology Inc Earnings Call
Customer relations, who just joined us over the course of the last month.
I will comment on our second quarter fiscal year 2022 financial performance gas will then provide commentary on our results and discuss the current business environment as well as our guidance and Steve will provide an update on our cash returned strategy.
We will then be available to respond to specific investor analyst questions.
We are including information in our press release and in this conference call on various gap and non-GAAP measures. We have posted a full gap to non-GAAP reconciliation on the Investor Relations page of our website at Www Dot Microchip Dot com and.
And included reconciliation information in our press release, which we believe you will find useful when comparing our gap and non-GAAP results.
We have also posted a summary of our outstanding debt and our leverage metrics on our website.
I will now go through some of our operating results, including net sales gross margin in operating expenses other than that sales.
I'll be referring to these results on a non-GAAP basis, which is based on expenses prior to the effects of our acquisition activities sure based compensation and certain other adjustments as described in our press release.
Net sales in the September quarter were $1.65 billion, which was up 5.1% sequentially and up 26% compared to the September quarter of 2020.
We have posted a summary of our GAAP net sales by product line and geography, as well as our total and market demand on our website for your reference.
On a non-GAAP basis gross margins, where a record at 65.3% in operating income was a record 42.5%.
Non-GAAP net income was a record 605 $6 million.
Are non-GAAP cash tax rate in the quarter was 6%.
Non-GAAP earnings per diluted share on a split adjusted basis exceeded the mid point of our guidance and was a record dollars seven.
This reflects our recent two for one stock split that was effective for stockholders a record on October 4th 2021.
On a gap basis in the September quarter, gross margins, where record at 64, 8% and include the impact of $9.1 million a share based compensation expense.
To the extent our stock price appreciates over time.
The principal amount of convertible debt on the balance sheet at September 30 was $999 2 million compared to $4 48, 1 billion at the beginning of calendar year 2020, putting our overall capital structure and a much better long term position.
Our cash flow from operating activities was $611 $7 million in the September quarter.
Our free cash flow was $533 2 million and 32, 3% of net sales.
Our free cash flow was $533 2 million and 32, 3% of net sales.
As of September 30, our consolidated cash and total investment position was $255 3 million we.
We paid down $415 6 million of total debt in the September quarter and over the last 13 full quarters. Since we closed the microsemi acquisition and incurred over $8 billion in debt to do so we have paid down over $4 4 billion of debt and continue to allocate substantially all of our excess cash beyond dividends.
To aggressively bring down this debt.
We have accomplished this despite the adverse macro and market conditions during much of this period, which we feel is a 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 September quarter was a record at $762 5 million or 46, 2% of net sales our trailing 12 month. Adjusted EBITDA was also a record at $2 $72 billion and 45% of net sales.
Our net debt to adjusted EBITDA, excluding our very long dated convertible debt that matures in 2037 and is more equity like in nature was $2 99 at September 32021 down from $3 34 at June 32021.
Our net debt to adjusted EBITDA, excluding our very long dated convertible debt that matures in 2037 and is more equity like in nature was $2 99 at September 32021 down from $3 34 at June 32021.
Our dividend payment in the September quarter was $121 2 million.
Capital expenditures were $78 5 million in the September quarter, our expectation for the December 2021 quarters capital expenditures is between 70 and $90 million.
Our capital expenditures for fiscal year, 2022 are now expected to be between $350 million and $400 million.
As a reminder, our fiscal year 2021 capital expenditures came in lower than originally planned due to longer equipment lead times and deliveries pushing as a result of overall industry conditions.
We continue to add capital equipment to maintain grow and operate our internal manufacturing operations to support the expected growth of our business.
We expect these capital investments will bring gross margin improvement to our business and give us increased control over our production during periods of industry wide constraints.
Depreciation expense in the September quarter was $43 7 million.
I will now I will now turn it over to Ganesh to give his comments on the performance in the business in the September quarter as well as our guidance for the December quarter Ganesh.
Thank you Eric and good afternoon, everyone.
Our September quarter results continued to be strong with revenue growing five 1% sequentially to achieve another all time record at $1 65 billion.
September quarter revenue would've been even stronger but for constraints due to some of our capacity improvements coming in later than we wanted.
On a year over year basis, our September quarter revenue was up 26%.
Non-GAAP gross margin was another record at 65, 3% up 50 basis points from 64, 8% in the June quarter and above the high end of our guidance as we continue to ramp our internal factories and benefit from improved fixed cost absorption as well as product mix changes.
Non-GAAP operating margin was also a record at 42, 5% up 80 basis points from 41, 7% in the June quarter and above the high end of our guidance.
Our consolidated non-GAAP EPS was a split adjusted record $1 <unk> per share and was up 37, 6% from the year ago quarter.
Adjusted EBITDA at 46, 2% of revenue.
And free cash flow at 32, 3% of revenue were both very strong.
Microcontrollers represented 54, 2% of our revenue in the September quarter.
Our analog revenue was sequentially up a strong 13, 6% as compared to the June quarter setting another record in the process.
On a year over year basis, our September quarter analog revenue was up 35, 8%.
Analog represented 29, 8% of our revenue in the September quarter.
During the quarter, we completed our acquisition of iconic RF.
A Belfast Northern Ireland based small early stage private company.
Iconic RF makes innovative high performance gallium nitride and gallium arsenide monolithic microwave integrated circuits focus on the aerospace and defense market.
And we believe will further strengthen our position in this market.
Revenue contribution from iconic RF is not material.
The purchase price was in the mid single digit million range with possible future performance based earn outs.
This acquisition as I can to acquiring intellectual property, along with domain experts to help us accelerate our business agenda and specific laser focused areas.
Taking a look at our revenue from a geographic and end market perspective, the Americas was up 12, 5% sequentially.
Hearings and were adversely impacted by coverage related disruptions in our packaging and testing operations in Asia.
The Delta variant adversely impacted many of these countries.
We took additional steps to protect our employees in these countries and work with our partners as they took mitigation steps.
We also work closely with our supply chain partners, who provide wafer foundry assembly test and materials to secure additional capacity wherever possible.
It is a challenging environment for our factories and our partners factories to hire train and retain employees to support the plan manufacturing reps.
Despite all this.
Through all the actions we have taken to increase capacity.
We expect we will be in a position to support revenue growth for at least each of the next four quarters.
This extends by one more quarter, what we stated in our August conference call as of September quarter results on are behind us.
We now expect that manufacturing constraints will persist through much of 2022 and possibly beyond that.
We believe our backlog position, especially the.
The proportion of PSP backlog is giving us a solid foundation to prudently acquire constrained raw materials invest.
Invest in expanding our factory capacity and hire employees to support our factory lamps.
Our capital spending plans are rising in response to growth opportunities in our business as well as to fill gaps in the level of capacity investments being made by our outsource manufacturing partners and technologies. They may consider to be trailing edge, but which we believe will be workhorse technologies for us for many years to come.
In the September quarter, we were able to secure a license from one of our way for manufacturing partners for a key trailing edge technology that runs on eight inch wafers, which we expect to have qualified and in production by 2023.
This license technology is still growing for us and we expect it will be a workhorse technology for at least 10 to 15 more years.
We believe our increase in capital spending will enable us to capitalize on growth opportunities improve our gross margins increase our market share and give us more control over our destiny for trailing edge technologies.
We will of course continue to utilize the capacity available from our outsource partners.
And we requested analysts continue to report their non-GAAP estimates to first call.
Finally, as previously announced we will be holding our investor and analyst day on November eight in New York.
Which will also be simultaneously webcast for those who cannot attend in person.
At the event, we will be providing details about our long term expected growth rate.
Updated gross and operating margin targets.
As well as more specifics about our strategy for capital return revenue growth and manufacturing.
We hope you will be able to join us for this important and informative event.
Let me now pass the baton to Steve to talk about our cash return to shareholders Steve.
Thank you <unk>.
Good afternoon, everyone.
Today, I would like to reflect on our financial results announced today.
And provide you further updates on our cash return strategy.
Reflecting on our financial results I continue to be very proud of all employees of microchip.
That have delivered another exceptional quarter and making new records in many respects.
Namely record net sales record non-GAAP gross margin percentage.
Record non-GAAP operating margin percentage.
The record cash flow from operations and record adjusted EBITDA.
Reflecting on a journey of debt and leverage ratio since the acquisition of Microsemi, three plus years ago I note. The following.
First we financed the Microsemi acquisition.
By adding $8 $1 billion of debt, which increased our net leverage ratio.
In the June 2018 quarter to $4 95.
Which we know is a concern for many of you.
In the last three plus years, we have paid down accumulative.
$4 $4 billion of debt and brought our net leverage ratio down to $2 99.
We allocated substantially all of our excess cash generation beyond what we paid to shareholders in dividends to pay down significant debt every quarter.
Number two within the last six months based on the debt pay down and the continued strong cash and our adjusted EBITDA generation of our business.
Both Moody's and Fitch changed the rating outlook from stable to positive outlook.
And now last quarter with very strong debt pay down.
And getting to a leverage ratio of below three now.
We believe we will receive an investment grade rating in the coming months.
Regarding our capital return strategy, we are continuing to provide more cash returned to the shareholders.
Just today, we announced a dividend of $23 <unk> per share.
Our dividend dividend is reflective of microchips two for one stock split that was effective last month.
This is our fourth consecutive quarter with a large dividend increase.
Increasing the dividend by six 2% sequentially and 25, 9% over a year ago quarter.
And in the coming quarters, we expect to continue with more actions to increase the cash returned to shareholders. We plan to give you more information about our capital return strategy next week at our Investor and Analyst Day, We hope to see you all there.
With that operator will you please poll for questions.
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We'll take our first question from John Pitzer.
With credit Suisse. Please go ahead, yes.
Taking my question I look forward to catching up with everybody next week I wanted to.
Ask about the backlog and your ability to fill that backlog over the next four consecutive quarters I appreciate.
Your commentary about how the capital equipment, you're playing in it tend to put in place is supportive of four quarters of sequential revenue growth, but what is the risk of not receiving the capital equipment because of long lead times or lead times or the inability to get desired capacity from partners.
And is this roughly 6% sequential revenue growth supported by more.
Passing the indicative of how you see it unwinding for those remaining three quarters or so.
Okay.
So firstly, the 6% growth as a December quarter.
Midpoint of guidance that we have a we're not making predictions for quarters beyond the December quarter. What we do see is enough capacity coming online. We have line of sight to what we're doing internally. We have line of sight to what we were working with our partners. So that we expect that every quarter.
For the next four quarters, including December and it will have the opportunity for supply side growth and right now there is any.
Are you with Bank of America Securities. Please go ahead.
Thanks for taking my question.
Some debate, whether the preferred supply programs or some of your peers called <unk> on our programs are they really enforceable or our dependable.
Because some of your competitors have chosen not to use them as much. So I'm just curious to get your perspective why is there. So much debate on use of these programs what is their enforceability and and dependability because ultimately your products are.
Going in end markets that need products from your competitors as well so as those markets are not doing as well then how enforceable right or are your contracts or just any how.
How should we think about the fact you have this PSB backlog as to how dependable.
Okay. Thank you.
So firstly you know I don't know all the different programs different people haven't so I won't try to contrast, with what we're doing what we know in talking to many of our key customers, who really by the way drove how we designed and implemented the system the PSP program.
Is that it is one is seen as highly valuable to that it has grown over time and three it continues to not only be strong but people want to extend that PSP outlook, we have 12 months as our standard backup.
Backlog requirement for it there are people, placing beyond 12 months on us and I think everybody is recognizing that the semiconductor content in the products that they are making are extremely important to they are achieving their innovation and their products their growth objectives, and therefore are much more in the mode of making sure.
<unk> that they have that thought through in the demand they place on us and because it is noncancelable I also expect.
I believe every one of them is putting thought into where to have PSP backlog and where not to have PSP backlog given by the strength of their business and the views they have for their growth.
Thank you.
We'll take our next question from Pradeep Ramani with UBS. Please go ahead.
Hi, congratulations on a great quarter. Thanks for taking my question.
I had a little bit more of a longer term question I guess.
Lead times for.
I mean, the 32 bit MCU seem to be still stretching in there well beyond 52 weeks is what I'm hearing but if.
If you look into 2022.
How would you sort of.
Paint the picture for investors.
I mean.
Well lead times had to by say mid 2022.
Do you get a sense that in the current market scenario that lead.
Lead times might not compress much at all in 2022 or can you help us sort of gauge that a little bit more.
So there's two sides to that equation, there's one side of that equation, which is supply.
And the other side of that equation as demand if you look a year ago, where we were.
To where we are today, despite having brought significant supply online.
We are further behind in terms of the constrained or the unsupported that we have and thats because demand grew even faster than the supply Dan.
I don't know, how 2020 twos demand picture and we have a good sense of our own supply and what we're doing but.
But how the demand picture will change and when that will change.
I don't know, but at this point in time, if you judge by how much unsupported did we have every quarter exiting each quarter, we've had five quarters in a row, where we produced more but had more unsupported exiting the quarter.
And I'm fully expecting that exiting the exiting December it will be the sixth consecutive quarter, where that's going to happen.
Great. Thank you.
Okay.
We will take our next question from Matt Ramsey with Cowen. Please go ahead.
Thank you very much guys good afternoon.
I wanted to ask a little bit about the pricing environment and that's been topical given the.
The big supply demand imbalance in the industry.
Can I ask maybe you could talk a little bit about that.
Comments that you made about having support for growth over the next four quarters from here how much of that is based on supply coming online and how much of that is based on I guess better pricing or passing through higher input costs in terms of pricing and whatever pricing you are putting in place right now how durable do you.
Feel that is that supply and demand maybe converge down the line. Thank you.
Costs that have been going up I mean, those are in they're not coming back down.
A lot of the costs for material and equipment is requiring companies not just us, but even our supply chain to have significant capital spending to be able to not just expand factories, but build brand new factories and the cost structure is when you're involved there are quite significant as well so.
It is my belief that these price increases are here to stay and it leaves us to stay for a fair amount of time in.
Into 'twenty, two and 'twenty three.
Very clear thank you.
Okay.
We'll take our next question from Harlan sur with Jpmorgan. Please go ahead.
Good afternoon, and congratulations on the solid results and execution.
Macro trends in China, and somewhat mixed obviously building and construction activity has been muted.
Deal activity seems to be relatively okay consumer mix.
The team has really great real time visibility on all the end markets in China have you guys seen any slight infections in China demand or or is the supply demand gap is so wide that they're not able to provide enough supply even if things have downshifted a bit.
It's a little early to put all that together or some of the power of changes were really in the late September time frame.
The effects of evergrande or any of the other ones when it percolates down too.
The rest of the chain that's involved there it takes some time.
There is no discernible and market.
Color, we have to provide on China, we continue to have enough demand in excess of supply that even if some of that demand were to soften we.
Still have a lot of unsupported demand for China today.
Okay.
Okay. Thank you.
As a reminder, star one for questions or comments please star one.
We will take our next question from William Stein with Truth Securities. Please go ahead.
Okay, great. Thank you.
A question and I'll add my congratulations, especially on the outlook.
One of the great things microchips.
Overtime is that you were very early on to recognize that similar to the industrial.
<unk> industrial companies acquisitions in semi could provide great opportunities for both cost synergies, but also revenue synergies.
So if you to call back in a major enough.
2018, when we acquired Microsemi, you know, we guided to a run rate and earnings per share of $2 per share three years out.
So now we are three years out at three years and one quarter.
And we just known to things of dollar seven which is split or just too so $2.14 presplit versus a two dollar guidance, we have given us a target you know three years ago, So essentially have completely deliver on that promise.
Okay.
Now you know do we have customers from.
You know other companies were not able to get products coming to us for help yes lots and lots of them.
I'll be able to help them all no, but we're able to help some of them on many of them are.
You could also have a situation where somebody who is not able to get product from us seeking product from one of our competitors.
That's the only natural and I'm sure, they're able to help some of them if.
If they happen to have a product which is available in shorter lead time, so but when you take all the puts and takes you guys who at the end of the day look at the overall growth.
Where we are exceeding what we're seeing from the competition.
Especially in the two markets of Microcontrollers and analog and we're gaining share in both.
And of course, as we win those customers coming over to us because we are able to help them. We're also getting long term commitments from them to stay with microchip beyond the cycle.
Yes, thanks, guys that's very helpful.
Thanks.
To their benefit in a highly constrained environment, where demand far exceeds supply and we're leaving unsupported going out of every quarter.
Thank you.
Youre welcome.
We will take our next question from <unk> Srivastava with.
BMO. Please go ahead.
Hi, Thank you very much and if im going to put my.
Lack of knowledge on full display here on the unsupported backlog so.
Always.
Always a lot of concern when lead times gets stressed out in such a tight environment for so long.
So you're referring to the unsupported backlog as one of the reasons why you say your visibility is so high.
Is this included in your book to Bill is this noncancelable why is that the right metric to look at could you. Please.
Planed up there.
So let me separate two different things for you we have backlog over multiple quarters.
Orders placed on us and they can be asked for delivery in March and June this quarter et cetera.
Unsupported that I'm, referring to is what was requested in a given quarter that.
That we could not ship.
Meaning if we could ship at all that would have added to the revenue within the quarter.
And that's what we said.
Quick question.
Yes.
I'm very positive that Melbourne.
But Asia is that.
We don't even have enough supply to meet all the P. S P needs.
There is a sufficient even P. S P backlog.
Which is unsupported in the current quarter and will continue to be unsupported for several quarters, we will ship the last quarter and supported this quarter, but some of the current quarter backlog will not be supported this quarter. We will support the next quarter. So some of the capacity quota doors byproduct by technology by Fab.
So constrained.
That that PSP backlog is over 100% of debt capacity.
Got it and that is not against level over the next 12 months.
Yep.
You see you taking the time to explain it thank you.
Okay.
We'll go next to Chris Caso with Raymond James. Please go ahead.
Yes. Thank you good evening too.
Two quick questions on pricing and first a clarification.
On the PSP program and when the when the customer places the order on the PSP program is there a firm pricing commitments with that order such that they're protected against further price increases and if so does that create a risk for you looking or input cost increase.
Over the next year when that products on the books and then just longer term do you feel that there is a structural element to these input cost increases so you know the.
Here is that one point demand will eventually slow and we'll catch up with <unk>.
Supply and demand in and costs will start to come down again do you feel that that's not likely to happen and if so why.
So to your first question.
The PSP program is a priority for delivery has nothing to do with pricing pricing is what we would need to make adjustments to <unk>.
When there are reasons to make those adjustments based on input costs going up. So there is no guarantee of fixed pricing being part of the PSP program.
On your second question with respect to input costs.
There are certain input costs, which are structurally in for example, labor costs that go in.
Now, perhaps in time as factories scale in size, they would get amortized over more units, but right now labor cost is going up and you don't take labor costs down.
When the cycle begins to change that our material costs and maybe some of the material costs could be more driven by what the cost of the commodity involves copper.
Et cetera are going to be and we don't know how those will change.
And then there are equipment cost as we buy them where.
We have in the past to grow our capacity typically been buying used equipment at discounted prices.
In the current environment. We're all Fabs are full all capacity is full that is not an available option to us. So we are paying more expensive or buying more expensive equipment to be able to outfit the capacity the capacity growth that we need and that will of course, Stan structurally as well.
But scale will help with some of that cost and how it gets amortized, but I don't fundamentally think pricing is going to change.
Given all these moving parts and that's the general sense I get from all of our supply chain partners and how they're thinking about it and what the.
The input variables out of them as they look at what pricing theyre going to be doing.
Okay, maybe I can really helps us.
And a little bit on Dns's first point on pricing just to explain how it works. So if we have a price increase.
Our customer has five days once that price increase goes out to make the decision do they want to accept that price increase or not.
And if they don't accept the price increase that comes back to microchip and it does microchip choose to ship it at the lower price point or do we reallocate that capacity. When there was so much capacity on the books when customers are screaming for products to another customer and what we've seen when we've had price increases is that there has been hardly any custom.
<unk> that cancel their orders or choose not to accept the price increase because they understand the situation on the supply side.
Yes.
Very interesting thank you.
Thanks, Chris.
We will take our next question from Christopher Rolland with Susquehanna. Please go ahead.
Hey, guys, just following up on that as well and.
And can I assume that you may have already answered this but we are hearing about pricing increases from a bunch of your competitors across microcontroller and analog and some of this as input costs, but some of this is also opportunistic.
So I guess my first question is how you guys feel about that and whether you have a plan around pricing moving forward.
And then Steve I always love your Big picture thoughts.
And so as it relates to pricing.
The more pricing power that's enacted here when this all ends does this does this pricing revert or you know is there something structural and you think it might be more sticky this cycle versus other cycles, just given that there are fewer competitors out there than than in past decades.
Okay. So.
And I'm trying to remember what was the first part of the question again.
The first part is pricing increases from your competitors do you guys have a plan there and then thoughts on a bigger picture on pricing and sticking.
So we view pricing as a strategic exercise not a tactical exercise.
We don't subscribe to.
Trying to raise prices just because we can.
These are proprietary products, our customers are entrusting us to be able to.
Make their designs two years before they go to production.
And they need to have the.
<unk> that pricing will be thought off in a long term perspective.
And so we do the changes this year, but we did the changes this year.
Only because of the significant increase in input costs, but on an ongoing basis, we do not view pricing as something to tactically go change is not a commodity product like memory products might be.
These are proprietary products with our strategic engagements and long term relationships with customers and.
Their trust that we expect to be able to maintain let Steve answer the second half.
So.
My my feeling is that the pricing.
Wherever the pricing has increased I do not see that pricing.
Coming down longer term.
On the proprietary products.
On some of the commodity products. If there is a lot of supply becomes available and there is a competition, who is able to ship DRAM or flash or or NAND.
Was pricing may come down, but I don't see pricing on microcontroller products on analog products, our connectivity products, 98% of what we make is largely proprietary.
Those prices to come down because when you look at the components of the pricing.
<unk>.
I don't see that Fabs are going to lower the wafer cost.
Sorry chaps.
Because they are making huge investments because of shortage in and that equipment is being placed in now and what would be the reason to lower the price later.
If the commodity prices come down there is a small component of the overall costs, where that will come down.
And as Ganesh mentioned earlier, the level of cross sell and not likely to come down the assembly test growth and I'd like you to come down.
Internal fabrication and other costs are not going to come down we're paying more for the equipment and that structurally stays in the cost structure.
So I don't really see that the price increases that we're passing on to their customers are temporary in nature.
That would be giving that kind of impression to our customers I think they're largely there to stay could there be a minor adjustment here and there if there was a significant.
<unk> costs downward from the input cost perspective, then then it's possible, but I don't really see it.
Thoughtful answers thanks, guys.
We'll take our next question from Harlan sur with Jpmorgan. Please go ahead.
Yeah.
Yes, Thanks for letting me ask a follow up you know the gross margin expansion has been very impressive and I know you'd be providing your long term margin target next week, but more near term.
I look at the December quarter guide in the last three reported quarters.
Incremental gross margins on a pretty tight range like 74% to 77% fall through very strong very predictable. So given that you're at full utilization and will be sold at least through most of next year is this how we should think about the gross margin expansion on incremental revenue growth kind of near term or.
Around 75% fall through.
Yeah, we're not we're never really comfortable providing that metric right, where it's a complex equation with many many factories and lots of input cost changes and whatnot labor cost increases so wait.
<unk> is being as efficient as we can obviously PSP backlog, having so much backlog in place allows our factories to be efficient in what they're doing in and we do expect gross margin to continue to rise, but I don't want to take away from our messaging that we're gonna give at the Investor Day next week on gross upon what the gross margin target is going to be.
We also have outside manufacturing right. So it does not have the same factory benefits us when we do it inside so theres a lot of different pieces of this puzzle and so I would not draw a straight line through whatever equation that you had for the last three or four quarters. I think there are many more puts and takes that will give you more guidance on kind of how we see things.
For the longer term, but we have had good success in the last three four quarters that you've seen in the results.
Posted.
And even though it makes our factories in the gross margin goes the incremental gross margin is much higher.
When you are going from underutilized factories to full utilization.
Once you had actual utilization and you were adding capital, which youre, adding depreciation then youre shipping that product the incremental gross margin is not as high as you would think.
Remember, we also shipped our first in first out so even when the factory becomes under utilization goes away.
You are still shipping product, which are built earlier.
You know when they utilize the increasing increasing capital wasn't added. So now we are adding incremental capital to grow their capacity and that depreciation comes in.
So therefore, the incremental gross margin still grew.
Incremental gross margin is better than the average because you're utilizing the factory better.
The management fixed infrastructure the ecosystem, the water and everything else who are using it more efficiently. So there is incremental gross margin, which is higher than corporate but youre metric of what it has been in the last four quarters minutes today.
Perfect. Okay looking forward to next week. Thank you.
Thank you.
We will take our next question from David O'connor with Exane. Please go ahead.
Great. Good afternoon, and thanks for squeezing me in here at maybe just one.
One follow up finished in your comments earlier in your prepared remarks that there was a license for wait for manufacturing technology on an eight inch.
What was the just wondering what.
So for that what do you need to take that license no wasn't some large design win or was there some change in the technology roadmap that really requires this or even anything around the end markets, where that is going and.
And how significant it could be.
That'd be helpful. Thank you.
Yes, it's an eight inch trailing edge technology.
That we see.
<unk> lots of legs for many years in key end markets and with key customers.
The products are built on.
The appetite to invest there are the priority to invest there.
It did not rise to the level to make that investment from our partners.
And so we've worked to get it licensed and to be able to do it ourselves very consistent with what we said last time and this time.
We will be increasing our.
Capacity investments and trailing edge technologies, where our partners do not see the same opportunity to invest but we see that opportunity and priority for what we do.
So that's all that it represents.
That's helpful. Thank you.
We will take our next question from Nik Todorov with Longbow.
Research. Please go ahead.
Thanks, Yes, good afternoon, everyone and congrats on the results Ganesh you comment that the growth in unsupported backlog.
I think it implies that you are bookings continue to accelerate or at least they're all growing your billings are a is that correct and b. If thats. The case why do you think you continue to see such acceleration or outgrowth in your bookings and does that imply that you are seeing increasing number of expedites, because I'm assuming that all.
Also ties up to how many how much product customers are asking for the current quarter.
So you have a number of questions in what you asked and not all of them necessarily are linked so.
First of all.
Bookings have been strong remains strong.
But we also have so much backlog in front of us that.
Bookings are not necessarily the best indicator for where strength of the business is.
Unsupported can come both from <unk>.
Business that is something which is booked inside of the quarter, but more often than not what is happening is that people are pulling in their requirements. So it's already backlog we have.
And people would like to get it sooner than what the weekend provided to them.
So a lot of factors that go into that unsupported, but the bottom line is that whatever we are able to produce and the growth that we're able to deliver.
Despite it being 26% year over year.
As far from what is required to meet what customers are telling us they want in a given quarter.
And that keeps squeezing out and we keep shipping more every quarter and was squeeze some more out in the subsequent quarters there'll be can't ship into this quarter and it just reflects how.
Demand is continuing to outstrip our the demand growth is continuing to outstrip the supply growth for multiple quarters, and we do not see a bending of that curve.
Through much of 2022.
Got it thanks good luck.
We will take our final question from John Pitzer with Credit Suisse. Please go ahead.
Yes, guys. Thanks for let me ask a follow up I had two quick ones Eric just on the Capex you guided for this year I'm just kind of curious how we should think about next year, especially given the exit trajectory and then Ganesh you guys are really kind enough to give us both kind of a revenue number and in end market demand number.
Just kind of curious of how to think how we should think about the relationship between the two because this quarter. It did look like your revenues.
Just kind of curious of how to think how we should think about the relationship between the two because this quarter. It did look like your revenues.
We're above in demand and I'm, just trying to trying to understand what that means, especially in light of how constrained you seem to be in the business.
So I'll start with Capex, so capex as I indicated as the forecast is between 350 and $400 million for fiscal 'twenty two.
And our Investor and Analyst Day next Monday, we will give you some parameters in terms of how to think about capex in percentage of revenue on a go forward basis, but again not going to take away from that messaging today. So we haven't you haven't given a fiscal 'twenty three forecast as of yet.
Overall, it'll depend on what the shape of the demand picture looks like and how our capacity is coming in and what is needed in the business to support customers.
You want to talk about any end market or do you want me to do that.
So you know for.
For multiple quarters, you've seen that the end market demand has been higher.
And the.
The GAAP revenue that we've had.
The difference this quarter is small distribution.
Inventory still continue to decline by one day in this case, there's nothing meaningful in that number for this quarter.
Perfect. Thank you.
Okay.
It's basically constrained very distribution inventory they don't have much to ship.
They have left is really all slower moving sludge they need a lot of new product from us to be able to increase the end market demand.
And in some cases I guess some of the product has been prioritize to PSP customers and there is more direct PSP backlog than the distribution Dr. Claude.
Significantly more direct customers have grown PSB than them through distribution.
We are therefore much.
Much more to the product has.
Been skewed towards the direct to customers and distribution would like more but there is no capacity.
Debt limit.
So that makes a lot of sensitive I think we're all learning that perhaps supply chains are a little bit more complex.
Than we once thought.
Sure exactly.
Okay.
Ladies and gentlemen, this does conclude today's question and answer session. At this time for closing remarks, I'd like to turn the conference back to Mr. Moorthy. Please go ahead.
Well. Thank you everyone for attending we look forward to providing you a lot more insight on Monday, when we had the investor and analyst meeting and we will be doing some of the circuit during the quarter as well for other investor meetings. Thank you.
Yes.
Ladies and gentlemen. This concludes today's conference. We appreciate your participation you may now disconnect.
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