Q4 2023 Microchip Technology Inc Earnings Call

May 6, 2024

Yeah.

Operator: Greetings, and welcome to the Microchip Q4 fiscal year 2024 financial results conference call. At this time, all participants are in a listen-only mode.

Greetings greetings and welcome to the Microcap Q4.

Full year 2024 financial results conference call.

Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Bjornholt, Senior Vice President and CFO. Thank you, Eric. Thank you, and good afternoon, everyone.

At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded it is now.

My pleasure to introduce your host Eric be Oracle Senior Vice President and CFO.

Eric: You may begin.

Operator: During the course of this conference call, we'll be making projections and other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions and that actual events or results may differ materially. We refer you to our press releases today, as well as to our recent filings with the SEC that identify important risk factors that may impact Microchip's business and results of operations. In attendance with me today are Ganesh Moorthy, Microchip's President and CEO, Steve Sanghi, Microchip's Executive Chairperson, Rich Simoncic, Microchip's COO, and Saja Dowdy, Microchip's Head of Investor Relations.

Eric Bjornholt: During the course of this conference call, we'll be making projections and other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions and that actual events or results may differ materially. We refer you to our press releases today, as well as to our recent filings with the SEC that identify important risk factors that may impact Microchip's business and results of operations. In attendance with me today are Ganesh Moorthy, Microchip's President and CEO, Steve Sanghi, Microchip's Executive Chairperson, Rich Simoncic, Microchip's COO, and Saja Dowdy, Microchip's Head of Investor Relations.

Eric: Thank you and good afternoon, everyone. During the course of this conference call, we'll be making projections and other forward looking statements regarding future events or the future financial performance of the company.

Eric: We wish to caution you that such statements are predictions and that actual events or results may differ materially.

Eric: For you to our press releases of today as well as our recent filings with the SEC that identify important risk factors that may impact microchips business and results of operations.

Speaker Change: In attendance with me today are going to ask Marty Microchips, President and CEO, Steve Sanger Microchips Executive Chair Rich Simon Sac, Microchip, CLO and Sajid Dowdy Microchip head of Investor Relations.

Eric Bjornholt: I will comment on our fourth quarter and full fiscal year 2024 financial performance. Ganesh will then provide commentary on our results and discuss the current business environment as well as our guidance. Steve will provide an update on our cash return strategy, and we will then be available to respond to specific investor and analyst questions. We are including information in our press release and this conference call on various GAAP and non-GAAP measures. We have posted a full GAAP to non-GAAP reconciliation on the Investor Relations page of our website at www.microchip.com and included reconciliation information in our earnings press release, which we believe you will find useful when comparing our GAAP and non-GAAP results.

Speaker Change: I will comment on our fourth quarter and full fiscal year 2024 financial performance <unk> 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 return strategy.

Speaker Change: We'll then be available to respond to specific investor and analyst questions.

Speaker Change: We are including information in our press release and this conference call on various GAAP and non-GAAP measures. We have posted a full GAAP to non-GAAP reconciliation on the Investor Relations page of our website at Www Dot Microchip Dot com and.

Speaker Change: And included reconciliation information in our earnings press release, which we believe you will find useful when comparing our GAAP and non-GAAP results.

Speaker Change: We have also posted a summary of our outstanding debt and our leverage metrics on our website.

Eric Bjornholt: 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, and operating expenses. Other than net sales, I will be referring to these results on a non-GAAP basis, which is based on expenses prior to the effects of our acquisition activities, share-based compensation, and certain other adjustments that are described in our earnings press release and in the reconciliations on our website. Net sales in the March quarter were $1.326 billion, which was down 24.9% sequentially.

Speaker Change: I will now go through some of the operating results, including net sales gross margin and operating expenses other than net sales I will be referring to these results on a non-GAAP basis, which is based on expenses prior to the effects of our acquisition activities share based compensation and certain other adjustments as described in our earnings press.

Speaker Change: Release, and then the reconciliations on our website.

Speaker Change: Net sales in the March quarter were $1, $32 6 billion, which was down 24, 9% sequentially.

Eric Bjornholt: We have posted a summary of our net sales by product line and geography on our website for your reference. On an on-gap basis, gross margins were 60.3%, including capacity underutilization charges of $32 million, operating expenses were at 27.4%, and operating income was 32.9%. Although our operating income was better than the midpoint of our guidance, our cash taxes came in higher than forecast. Non-GAAP net income was $310.3 million, and non-GAAP earnings per diluted share was $0.57, which was at the midpoint of our guidance.

We have posted a summary of our net sales by product line and geography on our website for your reference.

Speaker Change: On a non-GAAP basis gross margins were 63%, including capacity Underutilization charges of $32 million operating expenses were at 27, 4% and operating income was 32, 9%.

Speaker Change: Although our operating income was better than the midpoint of our guidance our cash taxes came in higher than forecasted non-GAAP net income was $310 3 million and non-GAAP earnings per diluted share was <unk> 57.

Speaker Change: And at the midpoint of our guidance.

Eric Bjornholt: On a gap basis, in the March quarter, gross margins were 59.6%. Total operating expenses were $536.4 million and included acquisition and tangible amortization of $151.2 million, and Special Income of $16.9 million, which was primarily driven by the settlement of an unclaimed property audit at a value that was less than what we had accrued for. Share base compensation of $37.4 million and $1.1 million of other expenses. Gap net income was $154.7 million, resulting in $0.28 in diluted earnings per share.

Speaker Change: On a GAAP basis in the March quarter gross margins were 59, 6%.

Speaker Change: Total operating expenses were $536 4 million and included acquisition intangible amortization of $151 2 million special income of $16 9 million, which was primarily driven by the settlement of an unclaimed property audits at a value that was less than what we had accrued for.

Share based compensation of $37 4 million and $1 1 million of other expenses.

Speaker Change: GAAP net income was $154 7 million, resulting in 28 and diluted earnings per share.

Eric Bjornholt: For fiscal year 2024, net sales were $7.634 billion, and we were down 9.5% from net sales in fiscal year 2023. On a non-GAAP basis, gross margins were 65.8%, operating expenses were 22% of sales, and operating income was 43.9% of sales. Non-GAAP Net Income was $2.698 billion, and EPS was $4.92 per diluted share.

Speaker Change: For fiscal year 2024, net sales were 763 $4 billion and were down nine 5% from net sales in fiscal year 2023.

Speaker Change: On a non-GAAP basis gross margins were 65, 8% operating expenses were 22% of sales and operating income was 43, 9% of sales.

Speaker Change: non-GAAP net income was $2 698 billion and EPS was $4 92 per diluted share.

Eric Bjornholt: On a gap basis, gross margins were 65.4%, operating expenses were 31.8% of sales, and operating income was 33.7% of sales. Net income was $1.907 billion, and EPS was $3.48 per diluted share. Our non-GAAP cash tax rate was 18.8% in the March quarter and 14.5% for fiscal year 2024.

On a GAAP basis gross margins were 65, 4% operating expenses were 31, 8% of sales and operating income was 33, 7% of sales.

Speaker Change: Net income was $1 907 billion and EPS was $3 48 per diluted share.

Our non-GAAP cash tax rate was 18, 8% in the March quarter, and 14, 5% for fiscal year 2024.

Eric Bjornholt: Our non-GAAP tax rate for fiscal year 2025 is expected to be about 13%, which is exclusive of the transition tax and any tax audit settlements related to taxes accrued in prior fiscal years. We are still hopeful that the tax rules requiring companies to capitalize R&D expenses will be pushed out or repealed. If this were to happen, we would anticipate about a 200 basis point favorable adjustment to Microchip's non-GAAP tax rate in future periods.

Speaker Change: Our non-GAAP tax rate for fiscal year 2025 is expected to be about 13%, which is exclusive of the transition tax and any tax audit settlements related to taxes accrued in prior fiscal years.

Speaker Change: We are still hopeful that the tax rules requiring companies to capitalize R&D expenses will be pushed out or repealed. If this were to happen. We would anticipate about a 200 basis point favorable adjustment to microchips non-GAAP tax rate in future periods.

Eric Bjornholt: Our inventory balance of March 31st, 2024 was $1.316 billion. We had 224 days of inventory at the end of the March quarter, which was up 39 days from the prior quarter's level and in line with our expectations, given the Difficult Revenue Quarter We Experienced. At the midpoint of our June 2024 quarter guidance, we would expect inventory dollars to be up modestly and days of inventory to increase based on the lower cost of goods sold, driven by the depressed revenue levels at which we believe this is the low point of the current cycle for microchips.

Speaker Change: Our inventory balance at March 31, 2024 was 131 6 billion.

Speaker Change: We had 224 days of inventory at the end of the March quarter, which was up 39 days from the prior quarter's level and in line with our expectation.

Speaker Change: Giving the difficult revenue quarter, we experienced.

Speaker Change: At the midpoint of our June 2024 quarter guidance, we would expect inventory dollars to be up modestly and days of inventory to increase based on the lower cost of goods sold driven by the depressed revenue levels at which we believe is the low point of the current cycle for microchip.

Eric Bjornholt: We also continue to invest in building inventory for long-lived, high-margin products whose manufacturing capacity is being phased out by our supply chain partners, and these last-time buys represented 14 days of inventory at the end of March. Inventory at our distributors in the March quarter was at 41 days, which was up four days from the prior quarter's level. Distribution took down their inventory in the March quarter as distribution sell-through was about $125 million higher than distribution sell-in.

Speaker Change: We also continued to invest in building inventory for long lived high margin products, whose manufacturing capacity is being end of life by our supply chain partners and these last time buys represented 14 days of inventory at the end of March.

Speaker Change: Inventory at our distributors at the market in the March quarter, We're at 41 days, which was up four days from the prior quarter's level.

Speaker Change: Distribution took down their inventory in the March quarter as distribution sell through was about $125 million higher than distribution sell in.

Eric Bjornholt: The inventory days increased as this is reflective of the much lower cost of sales for microchips in the March quarter that is used in this calculation. Our cash flow from operating activities was $430 million in the March quarter. Our adjusted free cash flow was $389.9 million in the March quarter. As of March 31st, our consolidated cash and total investment position was $319.7 million. Our total debt increased by $312 million in the March quarter, and our net debt increased by $273.3 million.

Speaker Change: The inventory days increased as this is reflective of the much lower cost of sales for microchip in the March quarter that is used in this calculation.

Speaker Change: Our cash flow from operating activities was 430, <unk> excuse me $430 million in the March quarter, our adjusted free cash flow was $389 9 million in the March quarter.

Speaker Change: As of March 31, our consolidated cash and total investment position was $319 7 million or.

Speaker Change: Our total debt increased by $312 million in the March quarter, and our net debt increased by $273 3 million.

Eric Bjornholt: Our adjusted EBITDA in the March quarter was $503 million, and 37.9% of sales. Our trailing 12-month adjusted EBITDA was $3.623 billion, and our net debt to Adjusted EBITDA was $1.57 at March 31st, 2024, up from $1.45 at March 31st, 2023. Capital expenditures were $40.1 million in the March quarter and $285.1 million for fiscal year 2024. Our expectation for capital expenditures for fiscal year 2025 is about $175 million. Appreciation expense in the March quarter was $45.8 million.

Our adjusted EBITDA in the March quarter was $503 million and 37, 9% of sales.

Speaker Change: Our trailing 12 month, adjusted EBITDA was $362 3 billion and our net debt to adjusted EBITDA was 157 at March 31, 2024 up from 145 at March 31 2023.

Speaker Change: Capital expenditures were $40 1 million in the March quarter, and $285 1 million for fiscal year 2024.

Speaker Change: Our expectation for capital expenditures for fiscal year 2025 is about $175 million.

Speaker Change: Depreciation expense in the March quarter was $45 8 million.

Ganesh Moorthy: I will now turn it over to Ganesh to give his comments on the performance of the business in the March quarter, as well as our guidance for the June quarter. Thank you, Eric, and good afternoon, everyone. Our March quarter results were consistent with our guidance, with net sales down 24.9% sequentially and down 40.6% from the year-ago quarter, as we endured through a major inventory correction. Non-gap gross margin came in as expected at 60.3%, and non-gap operating margin was better than expected at 32.9% due to the strong expense control programs we had in place. However, as Eric mentioned, our tax rate was higher than expected, and as a result, our consolidated non-GAAP diluted EPS only met expectations at $0.57.

Speaker Change: I will now turn it over to <unk> to give his comments on the performance of the business in the March quarter as well as our guidance for the June quarter Ganesh.

Ganesh: Thank you Eric and good afternoon, everyone.

Ganesh: Our March quarter results were consistent with our guidance with net sales down 24, 9% sequentially and down 46% from the year ago quarter.

Ganesh: As we endure for a major inventory correction.

Ganesh: non-GAAP gross margin gross margin came in as expected at 63%.

non-GAAP operating margin was better than expected at 32, 9% due to the strong expense control programs, we had in place.

Ganesh: However, as Eric mentioned.

Ganesh: Tax rate with higher than expected and as a result, our consolidated non-GAAP diluted EPS only met expectations at 57 per share.

Ganesh Moorthy: Our revenue decline resulted in March quarter EBITDA dropping, and as a result, our net leverage ratio rose to 1.57%. We expect our net leverage to rise modestly for a few quarters. (Inaudible) Week or current year quarter. However, our cash generation capability remains strong, and we are committed to our capital return.

Ganesh: Our revenue decline resulted in March quarter, EBITDA, dropping and as a result, our net leverage ratio rose to $1 57 X.

Ganesh: We expect our net leverage to rise modestly for a few quarters now.

Ganesh: Trailing 12 month, adjusted EBITDA drops when replacing stronger prior year quarters with weaker current headquarters.

Ganesh: However, our cash generation capability remains strong and we are committed to our capital return plan.

Ganesh Moorthy: Our capital return to shareholders in the June quarter will increase to 87.5% of our March quarter adjusted free cash flow. As we continue on our path to return 100% of our adjusted free cash flow to shareholders by the March quarter of calendar year 2025. Reflecting on our fiscal year 24 results, it was a roller coaster year with a positive start that was followed by a major inventory correction. As compared to fiscal year 23, revenue declined 9.5% to $7.6 billion.

Ganesh: Our capital returned to shareholders in the June quarter will increase to 87, 5%.

Ganesh: March quarter, adjusted free cash flow as we continue on our path to return 100% of our adjusted free cash flow to shareholders.

Ganesh: March quarter of calendar year 2025.

Ganesh: Reflecting on our fiscal year 'twenty four results. It was a roller coaster year with a positive start at just followed by a major inventory correction.

Ganesh: As compared to fiscal year 'twenty three revenue declined nine 5% to $7 6 billion.

Ganesh Moorthy: Non-Gap Operating Margin was resilient at 43.9% as we took the actions required to respond to the major inventory corrections. Capital Return to Shareholders through a Combination of Dividends and Share Buybacks in Fiscal 24. This is 1.89 billion, representing a 15.4% growth as compared to fiscal year 2020.

non-GAAP operating margin was resilient at 43, 9% as we took the actions required to respond to the major inventory correction.

Ganesh: Capital returned to shareholders through a combination of dividends and share buybacks in fiscal 'twenty four it was <unk>.

Ganesh: 189 billion, representing a 15, 4% growth as compared to fiscal year 'twenty three.

Ganesh Moorthy: My thanks to our worldwide team for their support, hard work, and diligence as we navigate a difficult environment and focus on actions that we believe position us well to thrive in the long term. For example, taking a look at our fiscal year 2024 net sales from a product line perspective. Our mixed-signal microcontroller net sales were down 10.2% and represented 56% of Microchip's overall revenue. Our analog net sales were down 15.2% and represented 26.4% of Microchip's overall revenue.

Ganesh: My thanks to our worldwide team for their support hard work and diligence.

Ganesh: <unk> in a difficult environment and focus on actions that we believe position us well to thrive in the long term.

Ganesh: Taking a look at our fiscal year 'twenty for net sales and a product line perspective.

Ganesh: Mixed signal microcontroller net sales were down 10, 2% and represented 56% of microchips overall revenue.

Ganesh: Our analog net sales were down 52 point 15, 2%.

And represented 26, 4% of microchips overall revenue.

Ganesh Moorthy: While we don't normally break out our FPGA product line results, it is noteworthy that our fiscal year 24 FPGA revenue exceeded $679 million and set another record; FPGA revenue grew over 22% as compared to fiscal 23, and Delivered Operating Margins Up North of Corporate Average. We deliver market-leading mid-range FPGA solutions, with best-in-class low-power, reliability, and security and are especially well-suited for the fast-emer Our overall FPGA design wind momentum is strong across multiple end markets.

Ganesh: While we don't normally breakout our FPGA product line results. It is noteworthy that our fiscal year 'twenty for FPGA revenue exceeded $670 million and set another record.

Ganesh: FPGA revenue grew over 22% as compared to fiscal 'twenty three.

And delivered operating margins of our north of corporate average.

Ganesh: We deliver market, leading midrange FPGA solutions.

Ganesh: Best in class low power.

Ganesh: Reliability and security and are especially well suited for the fast emerging opportunities around artificial intelligence at the edge.

Ganesh: Our overall FPGA design win momentum is strong across multiple end markets.

Ganesh Moorthy: A few other product line notes of significance. Early in April, we closed our acquisition of Seoul, Korea-based BSI, and ADAS and Digital Cockpit Connectivity Pioneer, to extend our automotive networking market leadership. This acquisition adds Automotive 30s Alliance motion link technology, otherwise known as ASA-ML, to Microchip's broad Ethernet and PCIe automotive networking portfolio to enable next-generation software-defined vehicles, with the anticipated increase in the adoption of advanced camera-based driver assistance systems. For example, In-Cabin Monitor. Safety and Convenience Features and a Multi-Screen Digital Cockpit for Next Generation Software Defined Vehicles

Ganesh: A few other product line notes of significance.

Ganesh: Early in April we closed our acquisition of Seoul, Korea based BSI.

Ganesh: In Adas and digital cockpit connectivity pioneer to extend our automotive networking market leadership.

Ganesh: This acquisition adds automotive Thirty's Alliance motion link technology.

Ganesh: Otherwise known as ASC Dashon al.

Ganesh: Microchips broad Ethernet and pcie automotive networking portfolio to enable next generation software defined vehicles.

Ganesh: With the anticipated increase in the adoption of advanced camera based driver assistant systems in cabin monitoring.

Ganesh: Safety and convenience features and multi screen digital cockpit for next generation software defined vehicles. There is a growing requirement for our more highly asymmetric raw data and video links and higher bandwidth.

Ganesh Moorthy: There is a growing requirement for more highly asymmetric raw data and video length and higher bandwidth, with the ASA MotionLake Open Standard Support. Also, last month, we closed our acquisition of Neuronics AI Lab, an innovator of software technology. Enhancer AI Enabled Edge Intelligent Edge Solution and Increases Neural Networking Capabilities. This technology expands our capabilities for power-efficient, AI-enabled edge solutions deployed on FPGA. Neuronics AI Labs provides neural network sparsity optimization technology that enables the reduction in power, size, and calculation for tasks such as image classification, object detection, and semantic segmentation while maintaining high accuracy.

Ganesh: With the assay motion like open standards supports.

Ganesh: Also last month, we closed our acquisition of neuron X AI labs, whose innovative software technology enhances AI enabled edge intelligent edge solutions and increased neural networking capabilities.

This technology expands our capabilities for power efficient AI enabled edge solutions deployed on FPGA.

Onyx AI labs provides neural networks <unk> optimization technology that enables the reduction in power size and calculation for tasks such as image classification object detection and semantic segment segmentation, while maintaining high accuracy.

Ganesh Moorthy: Finally, in July, we expect to announce our entry into the 64-bit embedded microprocessor market with a suite of products, development tools, and other support requirements to address high-performance embedded processing applications, including AI-enabled edge solutions. This will extend our strong 32-bit embedded microprocessor portfolio to higher performance and increased capability. While preserving Microchip's historically strong ecosystem of leading development tools to make adoption easy for embedded system design engineers, Microchip is the only company to offer the widest embedded control and processing platform, from 8-bit to 64-bit, as well as FPGAs.

Ganesh: Finally in July we expect to announce our entry into the 64 bit embedded microprocessor market with a suite of products developing tools and other support requirements to address high performance embedded processing applications, including AI enabled edge solutions.

Ganesh: This will extend our strong 32 bit embedded microprocessor portfolio to higher performance and increase capabilities, while preserving microchip historically strong ecosystem.

Ganesh: Leading development tools to make adoption easy for embedded system design engineers.

Ganesh: Microchip is the only company to offer the widest embedded control and processing platform.

Ganesh: From 8% to 64 bit as well as FPGA with a common development tool ecosystem.

Ganesh Moorthy: The Common Development Tool Ecosystem that's empowering customers to innovate and reuse their work across a wide spectrum of markets and applications. Now for some color on the Marks Quarter and the general business environment. All regions of the world and most of our end markets, with the exception of aerospace and defense and the artificial intelligence subset of data centers, were weak. We believe that our product shipments are significantly lower than the end market consumption of our products, as our distribution channels drained inventory during the quarter.

Ganesh: Powering customers to innovate and reuse their work across a wide spectrum of markets and applications.

Speaker Change: Now for some color on the March quarter, and the general business environment.

Speaker Change: All regions of the World and most of our end markets with the exception of aerospace and defense and the artificial intelligence subset of data centers were weak.

Speaker Change: We believe that our product shipments are significantly lower than the end market consumption of our products.

Speaker Change: Our distribution channels drained inventory during the quarter.

Ganesh Moorthy: Our broad base of customers continues to lower their inventory and adjust their business plans in the midst of a weak macro environment and an uncertain outcome. With no major supply constraints, coupled with very short lead times, and a weak macro environment, we believe that an inventory de-stocking, as well as production, and target inventory levels, is underway at multiple levels. We look at our direct customers and distributors who buy from us, our indirect customers who buy through our distributors, and in some cases, our customers. We are, however, also seeing early signs of green shoots in our business. First,

Speaker Change: Our broad base of customers continue to lower their inventory and adjust their business plans in the midst of a weak macro environment and an uncertain outlook.

Speaker Change: With no major supply constraints, coupled with very short lead times and a weak macro environment, we believe that as inventory destocking as well as production and targeted inventory levels that is underway at multiple levels.

Speaker Change: At our direct customers and distributors buy from us.

Speaker Change: Our indirect customers, who buy through our distributors and in some cases, our customers' customers.

Ganesh Moorthy: Second, our bookings have started to pick up, albeit from low levels. February bookings were the highest in eight months. March bookings were the highest in all of fiscal 24, and April bookings were higher than March. Third, the new bookings are aging over a shorter period of time. The number of expedites and shipment pull-in requests is growing. Collectively, these green shoots, we believe, are pointing to the formation of a bottom.

Speaker Change: We are however, also seeing early signs of green shoots in our business.

Speaker Change: First the level of requests the cancellations and push outs has started to subside.

Speaker Change: Our bookings have started to pick up albeit from low levels.

Speaker Change: Bookings were the highest in eight months March bookings were the highest in all of fiscal 'twenty four and April bookings were higher than March.

Speaker Change: Third the new bookings are aging over a shorter period of time and.

Speaker Change: And fourth the number of expedite in Poland and shipment poling requests are growing.

Speaker Change: Collectively these green shoots we believe are pointing to the formation of a bottom.

Ganesh Moorthy: Our average lead times continue to be eight weeks or less. During a period of business uncertainty, we believe short lead times are the best way to help customers navigate the environment successfully and improve the quality of backlog placed with us. However, the significant reduction in lead time is also resulting in reduced near-term visibility for our business, given the severity of the inventory correction. Additionally, our factories around the world are running at lower utilization rates.

Speaker Change: Our average lead times continue to the eight weeks or less.

Speaker Change: During a period of business uncertainty, we believe short lead times are the best way to help customers navigate the environment successfully and improve the quality of backlog placed with us.

Speaker Change: However, the significant reduction in lead time is also resulting in reduced near term visibility for our business.

Speaker Change: Given the severity of the inventory correction our factories around the world are running at lower utilization rates and a pretty major fabs will take another two weeks shutdown in the June quarter in order to help control the growth of inventory.

Ganesh Moorthy: And our three major fabs will take another two-week shutdown in the June quarter in order to help control the growth of inventory. Our internal capacity expansion actions remain paused. We expect our capital investments in fiscal year 25 will be low, even as we prepare for the long-term growth of our business. The Chipsack Trunk.

Speaker Change: Our internal capacity expansion actions remain paused.

Speaker Change: We expect our capital investments in fiscal year 'twenty five we'll be low.

Speaker Change: Even as we prepare for the long term growth of our business.

Ganesh Moorthy: We have nothing new to report. Microchip's office has completed its diligence for the GrantSquare CQM, and we are working towards an, At this stage, it's a major inventory correction. We believe that the days of inventory metrics..., whether for Microchip or for our distributors can be deceptive, and this is a backward looking indicator measuring off a baseline that is well below where we believe end market consumption is.

Speaker Change: When the chips that front, we have nothing new to report the.

Speaker Change: <unk> office has completed their diligence for the grants were seeking and we are working towards an agreement.

Speaker Change: At this stage if a major inventory correction, we believe that the days of inventory metric for.

Speaker Change: For microchip offer our distributors can be deceptive.

Speaker Change: As this is a backward looking indicator measuring off of a baseline that is well below where we believe end market consumption of that.

Ganesh Moorthy: For inventory planning, we are therefore focused on where we believe consumption is running and will likely run in the coming quarter. We continue to work with our distribution partners to attempt to find the right balance of inventory required to serve their customers. manage through their cash flow requirements and be positioned for the eventual strengthening of business. The operating expense reduction efforts we implemented last quarter, including Proud Bay Salary Sacrifices, are continuing. The shutdowns for manufacturing team members and pay cuts for non-manufacturing team members are consistent with our long-standing culture of shared sacrifices and down cycles and shared rewards and ups and downs. Our culture of shared sacrifice protects our valuable employees from layoff

Speaker Change: For inventory planning, we are therefore focused on where we believe consumption is running and will likely run in the coming quarters.

Speaker Change: We continue to work with our distribution partners to attempt to find the right balance of inventory required to serve their customers.

Speaker Change: <unk> managed through their cash flow requirements and be positioned for the eventual strengthening of business conditions.

Speaker Change: The operating expense reduction efforts, we implemented last quarter.

Speaker Change: Including broad based salary sacrifices are continuing this quarter.

Speaker Change: Shutdowns for manufacturing team members and pay cuts for non manufacturing team members are consistent with our long standing culture of shared sacrifices in down cycles and shared rewards in up cycles.

Speaker Change: Our culture of shared sacrifice protects our valuable employees from layoffs.

Speaker Change: Helps enable us to support customers and maintain our design win momentum helps ensure that manufacturing capacity can be turned on quickly as business conditions strengthen and helps enable our product development teams to maintain their pace of new solution introductions.

Ganesh Moorthy: , , , , , , , , , , , , , to maintain the pace of new solution introduction. Now let's get into the guidance for the June quarter. While we see a number of green shoots in our business indicators, We still need terms orders within the quarter to meet our guidance. Operating in a high-terms environment has historically been normal for microchips.

Speaker Change: Now, let's get into the guidance for the June quarter.

Speaker Change: While we see a number of green shoots in our business indicators.

Speaker Change: Still needs turns orders within the quarter to meet our guidance.

Speaker Change: Operating in a high turns environment has historically been normal for microchip.

Ganesh Moorthy: It is just not a position we have found ourselves in over the last few years due to the supply-constrained, high-backlog environment we and the industry experience, taking all the factors we have discussed on the call today into consideration. We expect our net sales for the June quarter to be between $1.22 billion and $1.26 billion. We believe that the June 2024 quarter marks the bottom of the cycle for microchips and that our business will return to sequential revenue growth in the September 2024 quarter.

Speaker Change: It is just not a position we have found ourselves in over the last few years due to the supply constrained high backlog environment, we and the industry experience.

Speaker Change: Taking all the factors we have discussed on the call today into consideration, we expect our net sales for the June quarter to be between 122 billion and.

Speaker Change: And $1 6 billion.

Speaker Change: We believe that the June 2024 quarter marks the bottom of the cycle for microchip and that our business will return to sequential revenue growth in the September 2024 quarter.

Ganesh Moorthy: We expect our non-GAAP gross margin to be between 59% and 61% of sales. We expect non-GAAP operating expenses to be between 28.25% and 28.75% of sales. We expect non-GAAP operating profit to be between 30.25% and 32.75% of sales. We expect our non-GAAP diluted earnings per share to be between $0.48 and $0.56.

Speaker Change: We expect our non-GAAP gross margin to be between 59% and 61% of sales.

Speaker Change: We expect non-GAAP operating expenses to be between $28 25, and 28, 75% of sales.

Speaker Change: We expect non-GAAP operating profit to be between 32, 5% and 32, 75% of sales and.

Speaker Change: And we expect our non-GAAP diluted earnings per share to be between <unk> 48.

Speaker Change: 56.

Ganesh Moorthy: We believe that the fundamental characteristics of growth, profitability, and cash generation of our business remain intact. We are confident that our solutions remain the engine of innovation for the applications and end markets we serve. Our focus on total system solutions. Key market megatrends continue to fuel strong design momentum, which we expect will drive above-market long-term growth. We remain committed to executing our Microchip 3.0 strategic imperative, which we believe will deliver sustained results and substantial shareholder value.

Speaker Change: We believe that the fundamental characteristics of growth profitability and cash generation of our business remain intact.

Our confidence that our solutions remain the engine of innovation for the applications and end markets we serve.

Speaker Change: Our focus on total system solutions.

Speaker Change: Key market Mega trends continue to fuel strong design win momentum, which we expect will drive above market long term growth.

Speaker Change: Remain committed to executing a microchip pre fund our strategic imperatives, which we believe will deliver sustained results and substantial shareholder value.

Ganesh Moorthy: Last but not least, a month ago, we appointed Richard Simoncic as Chief Operating Officer. Rich is a microchip lifer who has been with us for 35 years in many different capacities, and he has been expanding his role over the last few years.

Speaker Change: Last but not least a month ago, we appointed rich Simon <unk> as Chief operating officer.

Speaker Change: Which is a Microsoft lifer, who has been with US for 35 years in many different capacities, which has an expanding his role over the last few years and Eni will jointly lead the microchip global enterprise. So that we can apply our combined leadership capacity to engage the opportunities and challenges that are ahead of us.

Speaker Change: With that let me pass the Baton to Steve will talk more about our cash return to shareholders.

Stephen Sanghi: I would like to provide you with a further update on our cash return strategy. The Board of Directors approved an increase in the dividend of 18% from the year-ago quarter to a record $0.452 per share. During the last quarter, we purchased a record $387.4 million of our stock in the open market. We also paid out a record $242.5 million in dividends. Thus, the total cash return was a record $629.9

Stephen Sanghi: Thank you Dinesh and good afternoon, everyone.

Stephen Sanghi: I would like to provide you with a further update on our cash return strategy.

Stephen Sanghi: The board of directors approved an increase in the dividend of 18% from the year ago quarter to a record $45 <unk> per share.

During the last quarter, we purchased a record 387 4 million for stock in the open market. We also paid out a record of $242 5 million in dividends.

Stephen Sanghi: The total cash return.

Stephen Sanghi: A record of $629 9 million.

Stephen Sanghi: This amount was 82.5% of our actual adjusted free cash flow of $763.4 million during the December 2023 quarter. Our net leverage at the end of the March 2024 quarter was 1.57 times. Ever since we achieved an investment grade rating for our debt in November 2021 and pivoted to increasing our capital return to shareholders, we have returned a total of $4.23 billion to shareholders as of March 31, 2024 through a combination of dividends and share buyback.

Stephen Sanghi: This amount rose 82, 5% of our actual and adjusted free cash flow of 763.

Stephen Sanghi: $40 million.

Stephen Sanghi: During the December 2023 quarter.

Stephen Sanghi: Our net leverage at the end of March 2024 quarter, whereas 157 times.

Stephen Sanghi: Ever since we achieved an investment grade rating for our debt in November 2021, and pivoted to increasing capital returned to shareholders.

Stephen Sanghi: We have returned a total of $42 3 billion to shareholders.

Stephen Sanghi: Through March 31, 2024 by a combination of dividends and share buybacks during.

Stephen Sanghi: During this period, our share buyback in the open market was approximately 30.4 million shares, representing approximately 5.7% of our shares outstanding. We will use the adjusted free cash flow level from the March quarter to target the amount of cash return to shareholders. The Adjusted Free Cash Flow, [inaudible] These payments are refundable when purchase commitments are fulfilled. Our adjusted fee cash flow for the March quarter was $389.9 million.

During this period of a share buyback in the open market for approximately 34 million shares representing approximately five 7% of our shares outstanding.

Stephen Sanghi: In the current June quarter.

Stephen Sanghi: We will use the word adjusted free cash flow level from the March quarter to target the amount of cash returned to shareholders via.

Stephen Sanghi: Adjusted free cash flow excludes amounts we've collected from our customers for long term supply assurance payments.

Stephen Sanghi: These payments are refundable when purchase commitments for full truth.

Stephen Sanghi: Our adjusted free cash flow for the March quarter was $389 9 million.

Stephen Sanghi: So our target return to shareholders would be 87.5% or $341.2 million of that amount. However, as Ganesh mentioned, we did complete two small acquisitions in this June quarter, so we are reducing our share buyback amount to reflect the cash outlay for those deals. That is, in the June quarter, our cash return to shareholders is expected to be $315.3 million, out of which dividends are expected to be approximately $243 million, and our expected stock buyback will be approximately $72.3 million.

Stephen Sanghi: We are targeting a return to shareholders would be 87, 5% or $341 $2 million of that amount.

Stephen Sanghi: However, as Ganesh mentioned, we did complete two small acquisitions in this June quarter. So we are reducing our share buyback amount to reflect the cash outlay for those deals.

Stephen Sanghi: That's in the June quarter, our cash return to shareholders is expected to be $315 3 million.

Stephen Sanghi: Rich dividends are expected to be approximately $243 million in unexpected stock buyback will be approximately $72 $3 million.

Stephen Sanghi: Going forward, we plan to continue to increase our adjusted free cash flow return to shareholders by 500 basis points every quarter until we reach 100% of our adjusted free cash flow return to shareholders through dividends and share buybacks. It will take three more quarters, and we expect that dividends, over time, will represent approximately 50% of our cash return. With that, operator, will you please hold for questions? Thank you. We'll now be conducting a question and answer session.

Stephen Sanghi: Going forward, we plan to continue to increase our adjusted free cash flow returned to shareholders by 500 basis points every quarter until we reach 100% preferred just to free cash flow returned to shareholders through dividends and share buybacks.

Stephen Sanghi: We'll take three more quarters, and we expect that dividends overtime will represent.

Stephen Sanghi: Currently 50% of our cash return.

Speaker Change: With that operator, please poll for questions.

Speaker Change: Thank you and I will be conducting a question and answer session.

Stephen Sanghi: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Speaker Change: I would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Speaker Change: Press Star two if you'd like to remove your question from the queue.

Speaker Change: Participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

In the interest of time, we ask that participants limit themselves to one question and re queue for additional questions. One moment. Please while we poll for questions.

Speaker Change: Okay.

Operator: In the interest of time, we ask that participants limit themselves to one question and re-queue for additional questions. One moment, please, while we pull up our questions. Thank you. Our first question is from Vivek Arya with Bank of America Securities. Please proceed with your question. Thanks for doing my question. Ganesh, you were suggesting June to be the bottom and for September to grow sequentially because of green shoots, but to be fair, you know, green shoots are suggested on the last call also.

Speaker Change: Thank you. Our first question is from Vivek Arya with Bank of America Securities. Please proceed with your question.

Vivek Arya: Thanks for taking my question Dennis you are suggesting June to be the bottom end for September to grow sequentially.

Vivek Arya: Because of green shoots but to be fair Green shoots are suggested on the last call also so what's the difference between the last call and this call and if you could help us may be quantify what has been maybe the pace of bookings increase year on year or quarter on quarter. So far so we can get a sense for the base.

Vivek Arya: So what's the difference between the last call and this call? And if you could help us maybe quantify, you know, what the pace of bookings increase year on year or quarter on quarter so far, so we can get a sense for the pace of recovery into September. And then, maybe if I could also ask Eric on a related note, is 60% also the trough for gross margin? If June is the bottom, does it also mean 60% of the trough for gross margins? Thank you. Great. Thank you, Vivek.

Vivek Arya: Company into September and then maybe if I could also ask Eric on a related note is.

Vivek Arya: 60% also the trough for gross margin June is the bottom does it also mean, 60% of the cross border gross margins. Thank you.

Ganesh Moorthy: I don't think we mentioned Green Shoes on the last earnings call, but we did say that at one of our banking sessions that we were at, and that was the first time we began to see it in the March timeframe. And the momentum is picking up, right, as we go through March, April, and May. I mentioned what the bookings were doing on a relative basis over that time. We can see how many more people are asking for pull-ins and expedites and all of that.

Eric: Great. Thank you Vivek.

Speaker Change: I don't think we mentioned green shoots at the last earnings call, but we did say that one of our banking sessions that we were at and that was the first time, we began to see it within the March time frame and the momentum is picking up right. As we go through March and April and May I mentioned, what the bookings were.

<unk> on a relative basis over that time.

Speaker Change: We can see how many more people are asking for pull ins and expedite and all of that so let's say, it's a qualitative view looking at how we integrate the last two or three months, where momentum is coming in where the customer feedback is coming in that reflects our view that the June quarter is the bottom in September quarter.

Eric Bjornholt: So it's a qualitative view, looking at how we integrate the last two or three months of where momentum is coming in, where the customer feedback is coming in, that reflects our view that the June quarter is the worst, and September quarter is. The follow-up question for me on that was on gross margin, and would I expect, if June is the trough in revenue, if gross margin would bottom out, and I believe that to be the case. I mean, obviously, we haven't given guidance yet, and there are factors that apply to that that we don't know yet in terms of product mix and where we'll be running our factories, but I think that we are bouncing along the bottom on gross margin. Great, thank you.

Speaker Change: Growth.

Speaker Change: And then the follow up question for me on that was on gross margin and would I expect if a June is the trough in revenue if gross margin would bottom out and I believe that to be the case I mean, obviously, we haven't given guidance Adam Theres factors that apply to that that we don't know yet in terms of product mix and where we'll be running.

Speaker Change: Our factories, but I think that we are bouncing along the bottom on gross margin.

Speaker Change: Thank you.

Speaker Change: Great. Thank you.

Christopher Caso: Our next question is from Chris Caso with Wolf Research. Please proceed with your question. Yes, thank you. Good afternoon.

Speaker Change: Our next question is from Chris <unk> with Wolfe Research. Please proceed with your question.

Ganesh Moorthy: I guess the question is, if there's any difference that you're seeing from any of the different end markets. I mean, you talked about some of the booking stabilization improvement that you've seen, you know, how would you characterize that among the different end markets? I don't, on the stabilization, I can't really point to a particular end market doing better or not. As I said, in the aggregate, aerospace and defense and the AI segment of data centers are both doing well, and so that part is pulling it up.

Chris: Yes. Thank you good afternoon I guess the question is if there is any.

Chris: The difference that you're seeing.

Chris: From any of the different end markets I mean, you talked about some of the the.

Chris: The booking stabilization improvement that you've seen.

Chris: How would you characterize that among the different end markets.

Speaker Change: Hi, I don't on the stabilization I can't really point to a particular end.

Speaker Change: And market are doing better or not I said that in the aggregate at aerospace and defense and the.

Speaker Change: AI segment of datacenter are both doing well.

Speaker Change: And so that part is pulling it up on the others.

Eric Bjornholt: On the others, you know, there can be some industrial customers who are still seeing weakness, others who are beginning to see the bottom and trying to come back in with rush orders that go into the other end markets as well. So there is no particular end market trend that is distinguishable, bottoming out of where their inventories are. Thanks.

Ganesh Moorthy: On the others, you know, there can be some industrial customers who are still seeing weakness, others who are beginning to see the bottom and trying to come back in with rush orders that go into the other end markets as well. So there is no particular end market trend that is distinguishable, bottoming out of where their inventories are. Thanks.

Speaker Change: There can be some industrial customers, who are still seeing weakness others, who are beginning to see the bottom and trying to come back in with the rush orders that goes into the other end markets as well. So no particular end market trend that is distinguishable alone.

Speaker Change: <unk>, where their inventories are.

Eric Bjornholt: As a follow-up, you know, Eric, you talked about, you know, perhaps, if things go well, June's the trough, then June's likely the bottom for gross margins as well. As you go forward, as we pull our way out of this, what do you think the trajectory of gross margins will be? And I guess I ask that taking into consideration the fact that your internal inventory is still high.

Speaker Change: Thanks, as a follow up.

Speaker Change: Eric you talked about perhaps.

Speaker Change: Things go well June the trough in June is likely.

Speaker Change: The bottom for gross margins as well as you go forward as we pull our way out of this.

Speaker Change: What do you think would be the trajectory of gross margins and I guess I asked that taking consideration. The fact that your internal inventory is still high so how would we think about gross margins in.

Eric Bjornholt: So how would we think about gross margins, you know, in the context of recovery as you have to bring your own inventories down to normal? So it does depend on the revenue trajectory and then how we run our factories to respond to that. And so, you know, it's not a question that I can 100% answer today. But, you know, our cost structures are still in good shape. Average selling prices are absolutely hanging in there.

Speaker Change: In the context of recovery as you have to bring your own inventories down to normal.

Speaker Change: So it does depend on the revenue trajectory and then how we would run our factories to respond to that and so it's not a question that I can 100% answer today, but our cost structures are still in good shape average selling prices are absolutely hanging in there.

Eric Bjornholt: So with that, you know, we have confidence in our long-term model and our ability to get back there. But the trajectory and how we get there are going to very much be revenue-dependent, which will drive certain actions to increase output from our factories. So I know that's not specifically answering your question, but I think that's the best we can do right now.

Speaker Change: So with that we have confidence in our long term model and our ability to get back there, but the trajectory and how we get there is going to very much be revenue dependent and which will drive certain actions to increase output from our factories. So I know thats not specifically answering your question, but I think that's the best we can do right.

Speaker Change: Wow.

Speaker Change: Okay fair enough. Thank you.

Eric Bjornholt: Thank you. Thank you. Our next question is from Harlan Sur with J.P. Morgan. Please proceed with your question. Good afternoon.

Speaker Change: Our next question from Harlan sur with Jpmorgan. Please proceed with your question.

Harlan Sur: Thanks for taking my question. Can you just talk about channel sell-through dynamics from your global distributors? You know, in March, you mentioned sell-through $125 million higher versus sell-in. Is that a similar delta here in the June quarter? And if excess inventories and customers of distributors are coming down, I would assume that distribution sell-through is starting to grow. Are you seeing that this quarter?

Harlan Sur: Good afternoon. Thanks for taking my question can you just talk about channel sell through dynamics timing of global distributors in on March.

Harlan Sur: You mentioned sell through $125 million.

Higher versus sell in is that a similar delta here in the June quarter.

And if excess inventories at end customers of distributors are coming down I would assume that distribution sell through is starting to grow are you seeing that this quarter and then maybe what's also giving you confidence that June is the bottom.

Ganesh Moorthy: And is this maybe what's also giving you confidence that June is the bottom? So, Harlan, thanks for the question. You know, the level of inventory that is past what our distributors had that were with our customers. [inaudible] So they are seeing how they are managing their end customers, their inventory, and placing incremental orders on it. So that must have some relevance to how they're viewing things, but I don't have a definitive answer on where sell-through is going to end up versus sell-in here in the June quarter, at least not at this time. Thank you.

Speaker Change: So harlan thanks.

Harlan Sur: Thanks for the question.

Harlan Sur: The level of inventory that is passed what our distributors has entered into with our customers.

Harlan Sur: It's not always visible to us I think we can get some sense of that from what the distribution sell through is but there is also a second factor, which is some of those customers are also reducing the months of inventory they want to carry so let's say, it's a multi pronged.

Harlan Sur: Answer to it but what we can see is that distribution is part off the placing of additional orders on us. So they are seeing how they are managing their end customers their inventory and placing incremental orders on us. So that must have some relevance to how they are viewing things, but I don't know.

Harlan Sur: Have a definitive answer on where sell through is going to end up versus sell in here in the June quarter or at least not at this time.

Ganesh Moorthy: And then just a quick follow-up. So direct customer shipments. We're down almost 30% sequentially, while Disney shipments were only down 20% sequentially in March. Does that suggest that excess inventories are maybe a bit more pronounced at your direct customers? And if your lead times are sub-eight weeks, you guys only have visibility through the end of this quarter.

Speaker Change: Thank you for that and then just a quick follow up so direct customer shipments.

Speaker Change: Most 30% were down almost 30% sequentially, while Disney shipments will own.

Speaker Change: Down 20% sequentially in March does that suggest that excess inventories are maybe a bit more pronounced that your direct customers.

Speaker Change: So lead times are eight weeks you guys only have visibility through the end of this quarter. So what gives the microchip team confidence that shipments to direct customers will still be growing sequentially. As you are looking beyond that and you don't really have visibility into their sell through dynamics.

Ganesh Moorthy: So what gives the microchip team confidence that shipments to direct customers post-June will be going sequentially as you aren't booking beyond that, and you don't really have visibility into their sell-through dynamics? So we know, and customers are placing backlog into the September quarter and into the December quarter. So there's not a single answer that everybody saw.

Speaker Change: So we know and customers are placing backlog into the September quarter into the December quarter. So theres not a single answer that everybody is solid.

Ganesh Moorthy: And we can see that as the bookings are rising, they are placing them into the next three to six months on a more predominant basis. So that level of where the momentum is coming in, of how the backlog is coming in, is what gives us a sense of where the bottom is and how things are going to be as we move into September and December. Thanks, Ganesh.

Speaker Change: And we can see that as the bookings are rising they are placing them into the next three to six months on a more predominant basis.

Speaker Change: So that level of where the momentum is coming in and how backlog is coming in.

Speaker Change: Is what gives us a sense of where the bottom is and how things are going to be as we move into the September and December quarters.

Speaker Change: Thanks goodness.

Speaker Change: Thank you.

Gary Wade Mobley: Our next question is from Gary Mobley with Wells Fargo. Please proceed with your question. Okay, thanks very much for taking my question. I know you guys communicated that you held the OPEX lower than expected. I think it's at today, what, $355 million on a non-gap basis. My question is, you know, how long can you hold that down?

Speaker Change: Thank you. Our next question is from Gary Mobley with Wells Fargo. Please proceed with your question.

Eric Bjornholt: And are there any clawback provisions for the lost wages during this temporary salary cut, and I'm just trying to get a sense of how we should think about the OPEX increasing as revenue increases. Well, I'll start with the response, and Ganesh can add to it if he wants to. So yeah, there is not a clawback in terms of what we're doing from a salary sacrifice for our employees. We have this shared sacrifice, shared reward program, and in the past, when we have implemented something like this, it has worked out well for our employees, because we keep everybody working on the things that are important to drive revenue growth as the cycle turns upward, and we've gained market share through that.

Gary Wade Mobley: Hi, guys. Thanks, very much for taking my question.

Gary Wade Mobley: I know you guys communicated that you held the opex lower than expected I think it's at today, what $355 million and non-GAAP basis.

Gary Wade Mobley: My question is.

Gary Wade Mobley: How long can you hold that down and is there any clawback provisions for the loss wages during this temp.

Gary Wade Mobley: Temporary salary cut and I'm, just trying to get a sense of how we should think about the opex increasing as revenue increases.

Speaker Change: So I'll start with our response and <unk> can add to it if he wants to so there is not a clawback in terms of what we're doing from a salary sacrifice for our employees. We have this shared sacrifice shared reward program and in the past when we have <unk>.

Speaker Change: Implemented something like this that has worked out well for our employees that we keep everybody working on the things that are important to drive the revenue growth as the cycle turns upward and we gain market share through that and so we've had great financial results coming out of it and then been able to share those rewards with employees through higher bonuses and taking a.

Eric Bjornholt: And so we've had great financial results coming out of it and then been able to share those rewards with employees through higher bonuses and, you know, taking away the pay cuts at the appropriate time. So we're going to have to see how this plays out from a top-line revenue perspective. It would be my opinion that we will achieve the same types of results this go around with the actions that we've taken. But there's no promise to employees that they're going to get this money back. There's no retroactive clawback that would be implemented.

Speaker Change: The pay cuts at the appropriate time, so we're gonna have to see how this plays out from a topline revenue perspective. It would be my perspective that we will achieve the same types of results. This go around with the actions that we've taken but theres no theres no promise to employees that theyre going to get this money back there's no retroactive clawback that would be implemented.

Speaker Change: It.

Eric Bjornholt: You know, this is a part of our culture that is not always as easily appreciable from an investor's perspective. We have 98% of employees around the world that are participating in this voluntarily. We have another 700 employees who have volunteered for a higher salary. Salary Reduction and What We Have Requested From, It's very difficult to quantify how powerful culture plays a role in these types of difficult situations.

Speaker Change: This is a.

Speaker Change: Part of our culture that is not always as easily appreciable from a investor community.

Speaker Change: We have 98% of employees around the world that are participating in this voluntarily.

We have another 700 employees, who have volunteered for a higher.

Speaker Change: Salary reduction and what we have requested from them.

Speaker Change: It's very difficult to quantify how powerful culture plays a role in these type of difficult situations.

Eric Bjornholt: And of course, they are a part of the shared rewards that come up as we get into better times as well. So this is very much a program that has worked many times in the past and is another time we're applying it, and we expect it to be successful. I think the other thing that I'd add is, you know, we know this is difficult for employees. You know, inflation still exists, and this is a challenge for employees.

Speaker Change: And how much that the employees that are part of the solution and of course. They are a part of the shared rewards that come up as we get into better times as well. So this is very much of a program that has worked many times in the past and is another time, we're applying it and we expect it to be successful.

Speaker Change: I think the other thing that I'd add is we know this is difficult for our employees.

Speaker Change: The inflation still exists and this is this is a challenge for our employees. So we it's not that we want to keep these in place, but you know at the time with where were guiding revenue for the current quarter EPP revenue and earnings Thats appropriate and we hope that we can restore these things back to normal salary levels as soon as possible.

Eric Bjornholt: So it's not that we want to keep these in place, but, you know, at the time, with where we're guiding revenue for the current quarter of revenue and earnings, it's appropriate. And we hope that we can restore these things back to normal salary levels as soon as possible. I wanted to perhaps strike a more positive chord and ask about design win metrics for the fiscal year. I don't know if you have those stats handy with you, but maybe you can just give us some qualitative or quantitative measure of the lifetime value of the design win. So we don't usually break that rule out.

Speaker Change: Thank you for that color as my follow up I wanted to perhaps strike a more positive court.

Speaker Change: And ask about design win metrics for the fiscal year.

Speaker Change: I don't know if you have those stats on handy with you, but maybe if you can just give us some qualitative or quantitative.

Speaker Change: Measure the lifetime value of the design wins.

Eric Bjornholt: And, you know, we have slightly different ways of looking at this. What we do constantly look at is, you know, how is the design pipeline progressing? In the course of 2023, in addition to all the work that we did, we also saw them shift their priorities from doing triage for some of their shortages that they were running into. [inaudible] Thank you. Our next question is from Carlos Coronado with UBS. Please proceed with your question. Hi, it's Tim on.

Ganesh Moorthy: And, you know, we have slightly different ways of looking at this. What we do constantly look at is, you know, how is the design pipeline progressing? In the course of 2023, in addition to all the work that we did, we also saw them shift their priorities from doing triage for some of their shortages that they were running into. [inaudible] Thank you. Our next question is from Carlos Coronado with UBS. Please proceed with your question. Hi, it's Tim on.

Speaker Change: So we don't usually break that out.

Speaker Change: And we have slightly different ways in which we look at this.

Speaker Change: What we do constantly look at is how is the design pipeline progressing and in the course of 2023. In addition to all the work that we did we also saw customers shifting their priorities from doing triage for some of the shortages that they were running into to bringing back.

Speaker Change: The innovation programs.

Speaker Change: <unk> had put on hold and so if you put all of that and together.

Speaker Change: The design win pipeline is strong there's a lot more design in activity over the last 12 months and there wasn't the prior 12 months, just simply because customer bandwidth was there to be able to run the development programs that they were progressing with.

Speaker Change: Thanks Ganesh.

Ganesh: Thank you.

Ganesh: Thank you. Our next question is from Carlos Coronado with UBS. Please proceed. Please proceed with your question.

Carlos Coronado: So, Ganesh, can you give us a sense of book-to-bill? It sounds like it was below one for March, but I just wanted to confirm that. And I know that, you know, you did say that orders are getting better month by month, but is the message that you think book-to-bill could be above one for the June quarter? So I'm just wondering if you could talk about book-to-bill.

Tim: Hi, Hi, it's Tim.

Tim: So can I ask can you give us a sense of.

Carlos Coronado: Book to Bill it sounds like it was below one four for March but I just wanted to confirm that and I know that you did say that orders are getting better month by month, but but is the message that you think book to bill could be above one for the June quarter, and so I'm. Just wondering if you could talk to a book to bill. Thanks.

Ganesh Moorthy: So, book-to-bill was below one. However, book-to-bill has never been an indicator for us of where the business is going as much as an indicator for a lead time. During the 2021-2022 shortages, we had Hook the Bill in many, many multiples of where they were at, reflecting the long lead time.

Carlos Coronado: So book to Bill was below one however book to Bill has never been an indicator for us of where the business is going as much as an indicator of where our lead times.

Carlos Coronado: During the 2021 and 2022 shortages.

Carlos Coronado: <unk> in many many multiples of where they were at reflecting the long lead times right.

Carlos Coronado: Right now with short lead times that we had we expect book to Bill will be lower.

But the bookings are rising and I can't quite tell what May and June are going to complete so I don't have.

Speaker Change: Hey, thanks.

Speaker Change: We don't really look at book to Bill has a necessarily an indicator of where the growth is going to be it's more a reflection of is lead times get short people replace the bookings consistent with the shorter lead times.

Eric Bjornholt: So inventory was a little higher coming out of March than I think, you know, some of us thought it would be. Can you talk about loadings in the factory and sort of how you're thinking about loadings into June? Are you kind of drawing a line in the sand where you plan to bring down inventory on the, you know, balance sheet in June? And, and, and, yeah, just kind of talk about that and its impact on gross margin. Thanks. Yes, I'm honestly not quite sure where the street had us modeled.

Speaker Change: Got it Okay, and then Eric one for you so inventory was a little higher coming out of March then.

Eric: And I think some of us thought it would be.

Eric: Can you talk about loadings in the factory and sort of how youre thinking about loadings into June.

Eric: Are you just kind of join them I understand where you plan to bring down inventory on the balance sheet in June.

Eric: And yes, just kind of talk about that and its impact on gross margin.

Eric Bjornholt: You know, we talked about in our last conference call that inventory days were expected to be between about 225 and 230 days at the midpoint. We came in at 224. So I think we kind of delivered on what we told the street we were going to do. In terms of utilization in the current quarter, we have been having some attrition in our factories, and because of that, we can start less wafers on a monthly basis than we can because we have a fewer number of employees, but in the big picture, things are relatively modest. I don't think utilization will be significantly different than it was in the March quarter, maybe just modestly lower. Perfect, Eric.

Eric: Yes, I'm honestly not quite sure where the street had US modeled we had talked about in our last conference call that inventory days were expected to be between about 225 to 230 days at the midpoint. We came in at 224. So I think we kind of deliberate on what we what we told the street, where we're going to do.

Eric: In terms of utilization in the current quarter.

Eric: We have been having some attrition in our factories and because of that we can start less wafers on a monthly basis and we can because we have a fewer number of employees, but it's in the big picture of things relatively modest. So I don't think utilization will be significantly different than it was in the March quarter, maybe just modestly lower.

Eric: Sure.

Speaker Change: Perfect. Thank you.

Speaker Change: Thank you.

Eric Bjornholt: Thank you. Our next question is from Tore Svanberg with Schuylkill. Please proceed with your question. Yes, thank you. Let me move on from cyclical questions. And I have a question about 64-bit microcontrollers.

Speaker Change: Our next question is from Tories Lundberg with Stifel. Please proceed with your question.

Tore Egil Svanberg: You also had an AI acquisition in the quarter. Just trying to understand Ganesh, your conversations with customers, you know. We hear about AI at the edge a lot, but you know, it's hard for us to get true visibility on that. So when will, when will, you know, edge AI become a much more meaningful part of your revenues? You know, our target market for Edge AI is predominantly industrial, to a small extent automotive, some in medical, the medical segment of industrial, factory automation, all that. So they are designs in progress, and they've been taking place over the last six to 12 months. They probably will gestate for 24 to 30 months.

Speaker Change: Yes.

Tories Lundberg: Let me move on from cyclic quick questions.

Tories Lundberg: And I have a question on 64 bit Microcontrollers you also had any Io acquisition in the quarter just trying to understand Dinesh.

Tories Lundberg: Your conversations with customers, we hear AI at the edge a lot but.

Tories Lundberg: Hard for us to get visibility on that so when when will edge AI become a much more meaningful part of your revenues.

Tories Lundberg: Our target markets.

Tories Lundberg: For edge AI.

Commonalty in industrial small extent automotive summit medical the medical segment of industrial factory automation all of that so they are designs in progress and they've been taking place over the last six to 12 months, they probably will gestate over a 24 to 30 months of time. So it's in that time business. Some of it small amounts that are already.

Ganesh Moorthy: So it's in that time. There's some of it, small amounts that are already taking place, but I think it will become a more and more meaningful part as time goes on. And each of these is a product line announcement or some of the acquisitions which give us specific technologies just to accelerate where those designs can go and how our solutions can be differentiated from others providing similar solutions. Great, and as a follow-up, you said that you're basically shipping below consumption. You're about a billion dollars from your trough.

Tories Lundberg: Place, but I think it becomes a more and more meaningful part as time goes on.

Tories Lundberg: And each of these is a product line announcement or some of the acquisitions, which give us specific technologies, just accelerated where those designs can go and how our solutions can be differentiated from others, providing similar solutions.

Ganesh Moorthy: Obviously, you're running inventory at a certain level, so you must have some idea where the consumption is. Is that a number you could share with us? Not to any level of precision.

Interviewer: Great and as my follow up.

Speaker Change: <unk> said that Youre basically shipping below consumption.

Speaker Change: There are about $1 billion from your trough.

Speaker Change: Obviously, youre running inventories district level. So you must have some idea of where the consumption is.

Speaker Change: Is that a number you can share with us.

Ganesh Moorthy: I think any form of taking a four-quarter revenue divide by four starts to get you into the ballpark. But even that is unclear, right? So I think that number will get clearer as people begin to, but there's not an easy way to make that number determinable. It's clearly between where our peak a year ago was in the June quarter to where you're seeing the guidance for this quarter. That's helpful; thank you.

Speaker Change: Not with any level of precision.

Speaker Change: I think.

Speaker Change: Any form of a take a four quarter revenue divide by four starts to get you into the ballpark, but even that is unclear right. So I think.

Speaker Change: That number will get clearer as people begin to.

Speaker Change: Book and buy at a level that they need to excluding any growth just to get back to consumption, but there is not an easy way to make that number a determinable, it's clearly between where our peak a year ago was in <unk>.

Speaker Change: The June quarter to where youre seeing the guidance for this quarter.

Speaker Change: That's helpful. Thank you.

Speaker Change: Thank you.

Toshiya Hari: Thank you. Our next question is from Toshiya Hari with Goldman Sachs. Please proceed with your question. Hi, good afternoon. Thank you so much for taking the questions. I had two quick ones.

Speaker Change: Thank you. Our next question is from Toshi Hari with Goldman Sachs. Please proceed with your question.

Eric Bjornholt: First on inventory, maybe for Eric. So how should we think about inventory management through the cycle or longer term? I know you've got, you know, strategic inventory; I know you want to better serve your customers on the way up. But, you know, when you think 12 months out, 18 months out, whether it be in dollars or days, what are you managing the business to? Then, a quick follow-up on pricing. I think you mentioned that in the near term, pricing is holding up.

Toshiya Hari: Hi, good afternoon. Thank you so much for taking the question I had two quick ones first on inventory.

Toshiya Hari: Maybe for Eric So how should we think about inventory management through cycle or longer term I know you've got strategic inventory I know you want a better service your customers on the way up but when you think 12 months out 18 months out whether it be in dollars of days what are you managing the business too.

Toshiya Hari: And then a.

Toshiya Hari: A quick follow up on pricing I think you mentioned that in the near term pricing is holding up but as you think about calendar 'twenty five.

Eric Bjornholt: But if you think about, you know, calendar 25, I think some of your peers have talked about pricing trends potentially reverting to pre-pandemic patterns down, call it, low singles. Is that a view that you would agree with or share?

Toshiya Hari: Some of your peers have talked about pricing trends potentially reverting to pre pandemic patterns.

Toshiya Hari: Down call. It low singles is that a view that you would agree with a share or.

Ganesh Moorthy: Or do you feel or think differently on pricing? Thank you. Okay. All right. So on inventory days, you know, longer term our model is, and this really hasn't changed from what we shared back in our analyst and investor day that we're targeting 130 to 150 days. Now we're a long ways from that today.

Speaker Change: Do you feel or think differently on pricing. Thank you.

Eric Bjornholt: And I'm not going to put a time horizon on when we will get there, but that's still the goal, right? We think with that level, in a more normalized environment, we can have short lead times and support our customers appropriately. With that level, I'll turn the pricing question over to you. And I would add one more thing, which is, you know, we also have these last time buys that we put into place on very high gross margin products, and those would be additive, and they are situational depending on when we're faced with that.

Speaker Change: Okay, alright, so on inventory days.

Speaker Change: Longer term our model is and this really hasnt changed from what we shared back in our analyst and Investor day that we're targeting 130 to 150 days now where are we.

Speaker Change: Long ways from that today, and I'm not going to put a time horizon on when we will get there, but that that's still the goal right, we think with that level and a more normalized environment. We can have short lead times and support our customers appropriately with that level. So I will turn the pricing question over to Ganesh.

Ganesh: And I would add one more thing which is we also have these last time buys that we put into place on very high gross margin product lines.

Ganesh: That would be additive and they are situational depending on when we're faced with that kind of situation.

Eric Bjornholt: On pricing itself, you know, our pricing is predominantly a function of what we have to compete with at the point of design. So, you know, in the near term, pricing is really driven by where designs have been historically, and where we want them to be. And a lot of these are products going into applications that have long life cycles.

On the pricing itself.

Ganesh: Our pricing is predominantly a function of what.

Ganesh: We have to compete with at the point of design.

Ganesh: And so.

Ganesh: In the near term pricing is really driven by where designs, where historically, what we want them at and a lot of these are products going into applications that have long life cycles.

Ganesh: And they don't really change unlike a consumer electronics or other end market. They don't really every nine to 12 months change things out.

Ganesh: We have products that have been in designs for $5 seven 910 years in many cases as.

Ganesh Moorthy: We are being competitive on new designs with pricing where we need to, but we also have new products that we compete with. And so the most competitive new products are what we use to go fight for the most price-sensitive new design. And that's been historically how it's been. It's not something new.

Ganesh: As well.

Ganesh: We are being competitive on new designs with pricing, where we need to be but we also have new products that we compete with.

Ganesh: So the most competitive new products, what we use to go fight in the most price sensitive new design applications.

That's been historically, how expand is not something new.

Ganesh: If you go back and look at 20 years of Microsoft That's how we've done it.

Ganesh Moorthy: And if you go back and look at 20 years of microchips, that's how we did it. And we have a lot of business that continues. That will be existing business at existing prices for a long, long time to come. And then we'll have new business at new prices. And that new pricing, we expect, will have good close margins over time. Great. Thank you. Thank you.

Ganesh: And we have a lot of business that continues that will be existing business at existing prices.

Ganesh: Long long time to come and then we'll have new business at new pricing and that new pricing. We expect will have good gross margins.

Ganesh: As time goes on.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Joshua Louis Buchalter: Our next question is from Joshua Buchalter with TD Cowan. Please proceed with your question. Hey guys, thank you for taking my questions. I guess to start, maybe I can follow up on the previous one.

Speaker Change: Thank you. Our next question is from Joshua <unk> with TD Cowen. Please proceed with your question.

Ganesh Moorthy: You mentioned pricing hanging in overall, but you mentioned competing more on new design wins. Have those, are you observing those new design wins becoming any more price sensitive or more price competitive as the shortages have eased and we've entered this correction mode or sort of still normal operating and competitive conditions? Thank you. You know, new designs have always been highly competitive.

Joshua: Hey, guys. Thank you for taking my questions.

Joshua: I guess I'll start maybe I can follow up on the previous one you mentioned pricing hanging in overall, but.

Joshua: <unk> more on new design wins have those are you observing those new design wins, becoming any more price sensitive or more price competitive as the shortages have eased and we entered this correction mode or sort of still normal operating and competitive conditions. Thank you.

Ganesh Moorthy: It's where people are trying to work on winning platforms with multi-year implications. So in the last couple of years of constraints, there have been fewer new platforms, and new designs that customers are. But in the sense of having to be competitive and the competitive intensity for new designs, yes, it's different from the last two or three years, but it is consistent with what it has been over 20 years before. That's clear. Thank you. I appreciate the color there.

Speaker Change: New designs have always been highly competitive it's where people are trying to work on winning platforms with multi year implications. So.

Speaker Change: It's in the couple of years of constraints there were fewer new platforms, new designs that customers are doing but in the sense of having to be competitive in the competitive intensity for new designs, yes, it's different from the last two or three years, but it is consistent with what it has been over 20 years before that.

Speaker Change: That's clear. Thank you I appreciate the color there and then for my follow ups.

Speaker Change: The Capex guidance is obviously down meaningfully off of what was likely a peak two years ago could you maybe just speak to your confidence in having enough capacity, both internally and perhaps more importantly.

Speaker Change: Investment from your foundry partners that the process geometries that you ship your products. Thank you.

Eric Bjornholt: Yeah, so what you say is a plan that we look at consistently, both short, medium, and long term. We feel very confident with the internal capacity, both what is installed and underutilized, what is available and ready to go, and then, eventually, what we might add to it. And then we work with our partners, both the foundries as well as the OSATs on their capacity planning across the horizon that they have. You know, we're obviously a small piece of a much bigger pie there that they're running. But we don't have any particular capacity constraints that we're concerned about.

Yes, So let me say, it's a plan that we look at consistently both short medium and long term.

Speaker Change: We feel very confident with the internal capacity, both what is installed and under utilized what is available and ready to go.

Speaker Change: And then eventually what we might add to it and then we worked with our partners both the foundries as well as the <unk> on their capacity planning across the horizon that they have.

Speaker Change: We're obviously, a small piece of a much bigger pie there that theyre running.

Eric Bjornholt: You know, it may change as demand begins to come back, and if, in fact, there's a much sharper rise. Thank you. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. Our next question is from Chris Danely with Citibank. Please proceed with your question. Hey, thanks guys.

Christopher Brett Danely: You know, it may change as demand begins to come back, and if, in fact, there's a much sharper rise. Thank you. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. Our next question is from Chris Danely with Citibank. Please proceed with your question. Hey, thanks guys.

Speaker Change: We don't have any particular capacity constraints that we're concerned about it may change as demand begins to come back and if in fact that is a much sharper rise.

Some people are predicting but for the moment for the quite confident both in our internal as well as our partner capacity for the business were running.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Our next question is from Chris Daly with Citibank. Please proceed with your question.

Chris Daly: Hey, Thanks, guys.

Christopher Brett Danely: So now that we're, you know, yet another quarter into the correction and hopefully coming out of it, if we look at your total drop in terms of revenue... Probably going to be like 45.

Ganesh Moorthy: So now that we're, you know, yet another quarter into the correction and hopefully coming out of it, if we look at your total drop in terms of revenue... Probably going to be like 45.

Chris Daly: So now that were you had another quarter into the.

Chris Daly: Correction and hopefully coming out of it.

Chris Daly: If we look at your total drop in terms of revenue, it's probably going be like 45% or something like that and thats.

Ganesh Moorthy: And that's... And that's... And that's... Why do you think that is? Do you think that the PSP program encouraged a little double ordering? Is there some geography or something else going on here? Just looking for your take on why.

Chris Daly: Worse than most of your competitors. So I guess why do you think that is do you think that the PSP program encourage total double ordering is there some geographic or something else going on just looking for some now for.

Chris Daly: So your take on why that's happened.

Ganesh Moorthy: I know, great question, Chris. You know, when you look at peak to trough, it all is a question of when does it start and when does it bottom out, right? [inaudible] And in this case, the downturn is substantially deeper than what anybody had expected on that. And there's probably a component of PSP that may have amplified some of those things, etc.

Speaker Change: Yeah, Great question Chris.

Speaker Change: When you look at peak to trough at all as a question of when does it start and when does that bottom out right. You've seen one of our peer group companies that try to do a peak trough in one quarter and you could say boy you know that was one way to do it.

Speaker Change: Our.

Speaker Change: Objective has always been to.

Speaker Change: Try to respond as the car of tomorrow as the business is changing and so we've had different.

Speaker Change: And markets are responding at different times, we had a lot of automotive and industrial that were later in the cycle and our mix is higher in some of those markets as well.

Speaker Change: In this case the downturn as you know.

Speaker Change: Substantially deeper and what anybody had expected on that and Thats, probably a component of PSP that may have amplified some of those things et cetera, but a lot of it has to do with we started later and we are correcting stronger in the end markets that we are predominantly represented in one of the ones with the with the later in the cycle correction than perhaps.

Ganesh Moorthy: But a lot of it has to do with we started later, and we are correcting stronger. And the end markets that we are predominantly represented in were the ones with the later in the cycle corrections than perhaps those that are more consumer or phone or PC, that kind of thing.

Speaker Change: Those that are more consumer a phone a PC that kind of exposure.

Speaker Change: Got it thanks guys.

Speaker Change: Youre welcome.

Vijay Raghavan Rakesh: Thank you. The next question is from Vijay Rakesh with Mizuho Securities. Please proceed with your question. Yeah, hi, just a quick question on the competitive landscape, I guess, especially as you look at kind of China's supply, is there any worry around them being aggressive with the microcontroller supply coming out from there? And what are you seeing in those trends? You know, China has always been a competitor in many of the spaces that we're in. You know, their approach is a little bit different.

Speaker Change: Thank you. Our next question is from Vijay Rakesh with Mizuho Securities. Please proceed with your question.

Vijay Raghavan Rakesh: Yeah, Hi, just a quick question on the competitive landscape I guess, especially as you look at kind of China supply is that anybody around them being aggressive on the.

Vijay Raghavan Rakesh: Microcontroller supply coming out from that what.

Vijay Raghavan Rakesh: What I was seeing in those trends.

Ganesh Moorthy: They have a lot of their attention going into things that can go faster to market. [inaudible] [inaudible] And we win by providing the customer with a solution that is better than what they can get otherwise, and that remains the way in which we've gone to market, and we'll continue to fight for new business in China and anywhere else.

Vijay Raghavan Rakesh: China has always been.

Vijay Raghavan Rakesh: A competitor in many of the spaces that we're in.

Vijay Raghavan Rakesh: <unk> approach is a little bit different they have.

Vijay Raghavan Rakesh: A lot of their attention going into things that can be faster to market.

Vijay Raghavan Rakesh: Quicker.

Vijay Raghavan Rakesh: Those tend to take them into places like.

Vijay Raghavan Rakesh: Consumer electronics and.

Vijay Raghavan Rakesh: The other areas that are faster design in cycles, a lot of the power supplies for cell phones, and those kind of things.

Vijay Raghavan Rakesh: Clearly they are.

Vijay Raghavan Rakesh: We're also making products that can go into other and apt.

<unk> locations and Thats, a competitive environment that is not different today.

Vijay Raghavan Rakesh: You could argue perhaps that there is a lot of attention and priority that they have but we win with our new products, we win with companies with competitive solutions that we have.

Vijay Raghavan Rakesh: And we need we win by providing the customer with a solution that is better than what they can get otherwise and.

Vijay Raghavan Rakesh: That remains the way in which we've gone to market and we'll continue to fight for new business in China than anywhere else.

Ganesh Moorthy: And then as you look at utilization, I don't know if you gave a hard number there, but how do you how do you see that playing out for the rest of the year? I know there's a lot of moving parts to that. But anyway, to look at what utilization looks like, I know you cut CapEx pretty significantly too, so, Yeah, so, we don't break out a specific utilization. In total, we have, you know, it varies very much by factory.

Speaker Change: Got it and then as you look at.

Speaker Change: <unk> I don't know if you gave it.

Speaker Change: Hard number to that but how do you see that.

Speaker Change: Laying out to the rest of the year.

Speaker Change: I know, there's a lot of moving parts to that but anyway to look at what utilization looks like I know you've cut capex pretty significantly so that should help.

Eric Bjornholt: You know, we've had some attrition and employee headcount, which I mentioned in response to an earlier question, that just makes it seem, as we go by the months in our rehiring, that capacity utilization would come down modestly. So I'm not expecting a huge change from March to June, maybe just a little bit lower. And then obviously, actions, depending on what our outlook is on revenue and inventory, will drive, you know, what the rest of the year looks like as we gain a little bit more confidence and understanding where the business is heading over the coming months. Thank you.

Speaker Change: Yes, so we don't break out our specific utilization in total we have.

Speaker Change: <unk> very much by factory.

Speaker Change: We we have had some attrition in employee head count, which I mentioned in response to an earlier question that just makes it that as we go by the months on arent rehiring that capacity utilization would come down modestly so I'm not expecting a huge change from March to June maybe just a little bit lower and then obviously action.

Speaker Change: Depending on what we our outlook is on revenue and inventory will drive what the rest of the year looks like as we as we gain a little bit more confidence and understanding where the business is heading over the coming months.

Speaker Change: Great. Thanks.

William Stein: Our next question is from William Stein with Truist Securities. Please proceed with your question. Okay.

Speaker Change: Thank you. Our next question is from William Stein with tourists Securities. Please proceed with your question.

Ganesh Moorthy: It was interesting to see a couple of tuck-in acquisitions this quarter. I'm wondering if you can talk about the relative focus of that approach to capital deployment or, let's say, product development going forward relative to internal development. So, you know, we have internal development that works on the model that we have provided, which over the long term is 68% gross margin, 23% gross margin, and operating Expansion 45% operating margin. That allows for the prioritization of our internal activities and where we want to apply them to different opportunities that we have in front of us. From time to time, we find there are external opportunities where our time on https://www.kenhub.com can be a lot longer if we were to do it just organically.

Speaker Change: Great.

Speaker Change: Yeah.

William Stein: Interesting to see a couple of tuck in acquisitions. This quarter I'm wondering if you could talk about the relative focus of that approach to capital deployment or let's say product development going forward relative to internal development.

William Stein: So we have a internal development that works on the.

The model that we have provided which over the long term is the 68% gross margin and 23% operating expense of 45% operating margin that allows for the prioritization of our internal activities and where we want to apply it for different opportunities that we have in front of us.

William Stein: From time to time, we find that our extra.

William Stein: External opportunities where the.

William Stein: The speed at which we could do something or the time that it would.

William Stein: And trying to get to a solution can.

William Stein: Can be a lot longer if we were to do it just organically and there we have applied these tuck in acquisitions as a way to speed up what we're able to do consistent with the direction that we are interested in or have been following for a while.

Ganesh Moorthy: And there we have applied these tuck-in acquisitions as a way to speed up what we're able to do, consistent with the direction that we are interested in or have been following for a while. And we've done about six or eight of them now in the last four or five years of time; ever since microSME was the last major public acquisition we did, we've done about six to eight smaller ones. And all of this is to speed up our agenda with a very tactical and pinpoint strike on what the acquisition can do for the area that we're driving growth. We will do more of those as we continue on as well. Let's say, you know, we've always been public.

William Stein: And we've done about six or eight of them now in the last four or five years of time ever since Microsemi was the last major.

William Stein: Public acquisition related we've done about 6% to eight smaller ones.

William Stein: Stan.

Stan: And it all has to speed up our agenda with.

Stan: With a very tactical and a pinpoint strike on what the acquisition can do.

Stan: For the areas that we're driving growth in.

Stan: And we will do more of those.

Stan: We continue on as well.

Ganesh Moorthy: That's an essential part of our strategy. As a follow-up, it does sound that while you anticipate revenue to grow in September, I would imagine the inventory burn isn't done at the end of June. I wonder if you can maybe help us understand when we should expect a situation where your revenue is approximately the same as demand, in other words, when the inventory reductions will be mostly done. Have I misread you and that actually does happen in June, or do you think it's more like September or even further out?

Stan: We've always we've been public thats, an essential part of our strategy.

Speaker Change: As a follow up.

Speaker Change: It does sound.

Speaker Change: While you anticipate revenue to grow in September.

Speaker Change: I would imagine the inventory burn isn't done at.

Speaker Change: At the end of June I Wonder if you can.

Speaker Change: Maybe help us understand when we should expect.

A situation where your revenue is approximately the same as <unk>.

Speaker Change: And demand in other words, when when the inventory reductions will be mostly done do you think.

Speaker Change: I misread that actually does happen in June or do you think it's more like September or even further out. Thank you.

Eric Bjornholt: Thank you. So I'll start with the response here. I mean, I think the bottom line is, Will, with 125,000 customers, it is impossible to know when all customers or a majority of customers have kind of corrected their inventory to what they think the right level is. And that's somewhat a moving target as lead times adjust based on whatever point in the cycle that we're at. So we don't have a good answer to be able to answer your question there.

Speaker Change: So I'll start with a response here I mean, I think the bottom line as well with 125000 customers it is impossible.

Speaker Change: Impossible to know when when all customers a majority of customers have kind of corrected in their inventory to what they think the right level is and thats somewhat of a moving target as lead times adjust based on whatever point in the cycle that we're at so we don't have a good answer to be able to answer your question there will.

Eric Bjornholt: We'll obviously give guidance for the next quarter, and we'll have more information that we can share at that time. But yeah, I think that for some customers, this inventory correction is going to last beyond this quarter. I absolutely think that is the case.

Speaker Change: Obviously give.

Speaker Change: Guidance for the next quarter and we'll have more information that we can share at that time, but I think that for some customers. This inventory correction is going to last beyond this quarter. I think that's absolutely is the case I think many customers made their own mistakes on how they viewed air business, what they thought the prospects were many.

Ganesh Moorthy: Yeah, I think many customers made their own mistakes in how they viewed their business, what they thought the prospects were. Many other customers, you know, were very thoughtful, and continue to be strong players where they're at. And, as we gave you some indications of certain end markets where there's strength as well. So it's all over the place.

Speaker Change: Other customers.

Speaker Change: We're very thoughtful are.

Speaker Change: Continue to be strong players and where they are at and as we gave you some indication of certain end markets, where their strength as well. So it's all over the place and just as a preponderance of.

Ganesh Moorthy: And just as a preponderance of people who are done with their inventory correction and are now going back to buying for their consumption or into growth that they may be seeing, the weighted average begins to shift. And that's the weighted average that starts to shift in September. Thank you.

Speaker Change: People, who are done with their inventory correction and are now going back into buying for buying for their consumption.

Speaker Change: And or into growth that they may be seeing the weighted average begins to shift and that's the weighted average that begins to shift in September.

Speaker Change: Thank you Paul.

Paul: Thank you.

David O'Connor: Please proceed with my question. Great, thanks for taking my questions. Two from my side, maybe firstly, Ganesh, just on the green shoots, can you talk about them from a geographical perspective?

David O'Connor: Our next question is from David O'connor with BNP. Please proceed with your question.

Ganesh Moorthy: Is it mainly China driven? And now you're seeing that continue in Europe and the US? Or how would you describe it geographically? Yeah, so the green shoots are not limited to any one geography, not limited to any one end market. It's really across all of them.

David O'Connor: Great. Thanks for taking my questions.

David O'Connor: Two from my side, maybe firstly can I ask just on the Green shoots can you talk about them from a geographical perspective is it mainly China driven.

David O'Connor: Seeing this.

David O'Connor: Continue in Europe, and the U S. How would you describe it geographically.

Ganesh Moorthy: And as I mentioned, you're going to have, in a geography or in an end market, both customers with continued pain and other customers who are starting to look at how to get back into growth mode. Okay, got it. Thanks for that. And then maybe just on the acquisition, the Neuronics Labs acquisition, seems like it helps you address the AGI market at your MCU.

Speaker Change: Yes, so the green shoots are not limited to any one geography not limited to any one end market.

Speaker Change: It's really across all of them and as I mentioned, you're going to have in a geography or in an end market. Both customers with continued pain and other customers who are starting to look at how to get back into growth mode, and what they're doing so no specific end market or geography, leading to the green shoots.

Speaker Change: Okay got it thanks for that and then maybe just on the acquisition. The Neuro next labs acquisition. It seems like it has to address the Agi Mark insurance you can you maybe talk about the claim of content tailwind for your MCU for Agi, but this can generate or how much of your <unk> portfolio or.

Ganesh Moorthy: Can you maybe talk about the kind of content tailwind for your MCUs for AI that this can generate? Or how much of your MCU portfolio are customers looking to add AI content to their next-gen products to kind of run those AI models? Maybe there's any more color on that would be helpful.

Speaker Change: Looking to add edge AI content into next Gen products depend on Windows AGM model needs any more color around that would be helpful. Thank you.

Ganesh Moorthy: Thank you. I don't know if there's a numerical way to express that. Here's what I'll say. I believe that embedded customers are thinking about how AI can be used to deliver better solutions than what they have in the past. No different from, if you go back in time, from 20, 25 years ago, people added intelligence first because you could make a product better with intelligence added. Then, farther out in time, people added connectivity as a way to make it even better than just adding intelligence. And then they added security as the second thing.

Speaker Change: I don't know if theres a.

Speaker Change: Numerical way to give you that I think this is all set.

Speaker Change: I believe that.

Speaker Change: Embedded customers are thinking about how AI can be used in delivering better solutions than what they have in the past no different from if you go back in the chronology from 2025 years ago people added intelligence first because you could make a product better with intelligence at it.

Speaker Change: And then further out in time people added connectivity as a way to now make it even better than just adding intelligence.

Speaker Change: And then the added security as the thing and now finally, I think AI is the next leg of how people will add capability to the products to make them better. So it is a journey and there's going to be many customers, who don't need to do anything with AI.

Ganesh Moorthy: And now, I think, you know, AI is the next leg of how people will add capability to products to make them better. So it's a journey, and there are gonna be many customers who don't need to do anything with AI, others who are seeing the opportunity and will take advantage of that in the next generation of their products. But I think you should think of it as a continuum of customers. They're all looking to innovate. AI gives them another opportunity on their platforms to be able to innovate and provide better products than their previous generation. That's helpful. Thanks, Ganesh.

Speaker Change: Those who are seeing the opportunity and we will take advantage of that in the next generation of their products.

Speaker Change: But I think you should think of it as a continuum of customers that are looking to innovate AI give them another opportunity in their platforms to be able to innovate and provide better products than the previous generation.

Speaker Change: That's helpful. Thanks, guys.

Speaker Change: Great. Thank you.

Mark Lapacious: Great. Thank you. Thank you. The next question is from Mark Lapacious with Evercore ISI. Please proceed with your question. Hi, thanks for taking my question. I think this is for Ganesh or Steve. I'm wondering what the difference is between the setup for the microchip business over the next six months and the setup that you see at the bottom of every cycle. It seems like there are a lot of similarities, and I'm hoping you can tell me the difference.

Speaker Change: Thank you. Our next question is from Mark will the patients with Evercore ISI. Please proceed with your question.

Ganesh Moorthy: The similarities I see are, There's some kind of demand shock or, you know, a big inventory build, and then your customers and the supply chain downstream from them recognize that, so they decide that they're going to supply themselves out of their own inventories. They cancel orders, or they take orders down, and then you don't get any visibility.

Mark: Hi, Thanks for taking my question I think this is for Ganesh or Steve.

Mark: I'm wondering what is the difference between the setup for micro chips business.

Mark: Over the next six months.

Mark: And the setup that you see at the bottom at the bottom of every cycle. It seems like Theres a lot of similarities and I'm, hoping you can tell me the difference similarities I C. R.

Mark: There is some kind of demand shock or a big inventory build and then your customers and the supply chain downstream from them recognize that so they.

Mark: They decided that they're going to supply themselves out of their own inventories they cancel orders or they take take orders down and then you don't get any visibility. So you and your peers take your utilization rates down and sometimes do temporary fab shutdowns and then your customers have an epiphany that they overcorrected on the downside in <unk>.

Ganesh Moorthy: So you and your peers take your utilization rates down and sometimes do temporary FAB shutdowns. And then your customers have an epiphany that they overcorrected on the downside. And in three, four quarters from here, everybody's taking their numbers up, and everybody's scrambling to get components. Those are the similarities I see. What are the differences? And if you have a disagreement over those similarities, I'd love to hear that,

Mark: Three four quarters from here everybody is taking their numbers up and everybody is scrambling to get components. So.

Speaker Change: Those are the similarities I see what are the what are the differences in if you have a disagreement over there similarities I'd love to hear that too. Thank you.

Ganesh Moorthy: Thank you. Mark. Mark, I think you've answered your question. We couldn't say it any better. You asked a question, then you answered it. I think it's perfect. Mark, I was going to welcome you back to the forum as well. And, as you said, I think this is a cycle we've seen play out many times. And the elements that you answered or the elements that you proposed are there. I don't know of any different.

Speaker Change: Mark I think I've answered your question recruited and treated any better.

Mark: You asked the question and you answered it I think it's perfect.

Speaker Change: Mark I was going to welcome you back.

Mark: Thank you, Florida as well.

Speaker Change: And as you said I think this is a cycles, we've seen play out many times and the elements that you answered the element that you proposed there I don't know if any differences.

Ganesh Moorthy: I was hoping that you might say, Well, the supply chain has learned its lesson over the last three years and recognizes that you guys need to have visibility because there's a manufacturing cycle time. So has the supply chain not learned anything downstream from you? Is it, we're just doing the same thing over and over again? No, so yeah, I had assumed that during the.

Speaker Change: And this one obviously.

Speaker Change: The length of the upcycle, sometimes effects the depth of the down cycle, but other than that the elements are very similar.

Speaker Change: Was hoping that you might say I was hoping you might say.

Speaker Change: The supply chain has learned their lesson over the last three years and recognize that you guys need to have visibility because theres a manufacturing cycle time.

Speaker Change: So is that is the supply chain not learned anything downstream from you is that we're just doing the same thing over and over again no. So yeah I had assumed that during the depth of the constraints with all of the different discussions I was having with senior executives at our customers.

Ganesh Moorthy: That's the constraint with all the different discussions I had with the senior executives that are coming to our customers, that they would come out of this cycle with a better understanding of how semiconductor supply works and what they would need to be to be more strategic. But I have been surprised at how quickly people have forgotten and how quickly they have returned back to the way they used to think. You know, basically, they think semiconductors are like, you know, water in your tap. You turn on the tap, and the water comes, and you turn off the tap, and it goes away.

Speaker Change: They would come out of this cycle with a better understanding of how semiconductor supply works and what they would need to be to be more strategic but I.

Speaker Change: I have been.

Speaker Change: Surprised at how quickly people have forgotten.

Speaker Change: And how quickly people have.

Speaker Change: Have returned back to the way they used to think.

Speaker Change: Basically the thing semiconductors I like.

Speaker Change: What are in your tap you turn on the tap in the water comes in you're kind of off the top of it goes away.

Ganesh Moorthy: And so I am of the belief that those lessons will have to be relearned again as we go through the cycle. And, you know, we'll see how the cycle goes, but no, there have not been any, there are a few, but for the most part, those learnings have not carried forward. So wash, rinse, repeat on the bottom.

Speaker Change: And so I am.

Speaker Change: I am of the belief that those lessons will have to be re learned again as we go through the cycle.

Speaker Change: Let's see how the cycle goes but no there has not been any.

Speaker Change: There are a few but for the most part those learned those learnings have not carried forward.

So Washington, Rinse repeat off the bottom.

Ganesh Moorthy: Yes, Mark, from time to time, some people have written or talked about, you know, the industry has matured, and there will not be any more cycles anymore. I think all those predictions have been wrong. The industry has always been cyclic and will always be cyclic. I think our customers are distributors, vendors, suppliers, and this one was the most challenging, the Pronounce cycle, both on the upside and now we're seeing on the downside.

Speaker Change: Yes, Mark from time to time, some people have written or talked about in our industry has matured and they will not be any cycles anymore. I think all of those predictions have been wrong.

Speaker Change: Industry has always been cyclic and we'll always be strictly.

Speaker Change: Think of our customers or distributors the vendors suppliers.

Speaker Change: They don't learn I think people change new purchasing managers come in new people come in and that is going on.

Speaker Change: Describe the lessons with regarding very rapidly.

Speaker Change: Leading to just through these cycles and inevitably go away.

Speaker Change: And this one was the most.

Speaker Change: Pronounced cycle, both on the upside and now we're seeing on the downside.

Ganesh Moorthy: Yeah, I was just going to make the point, as I view this as inventory correction on steroids, right? I mean, we had not seen our lead times for the vast majority of our products go to 52 weeks before, and then they contracted over a period of 12 months down to, you know, these various short lead times that we have today. Very helpful. Thanks, everybody.

Speaker Change: I was just going to make the point as I view this as inventory correction on steroids right I mean that we had not seen our lead times for the vast majority of our products go to 52 weeks before and then they contracted over a period of 12 months down to these various short lead times that we have today.

Speaker Change: Very helpful. Thanks, everybody. Thank you Mark.

Ganesh Moorthy: Thank you. Our next question is from Joe Moore with Morgan Stanley. Please proceed with your question. Great. Thank you.

Joseph Lawrence Moore: Thank you. Our next question is from Joe Moore with Morgan Stanley. Please proceed with your question. Great. Thank you.

Speaker Change: Thank you. Our next question is from Joe Moore with Morgan Stanley. Please proceed with your question.

Joseph Lawrence Moore: You gave us some color on the FPGA business. And I wonder, you sound like you had some pretty good growth relative to the peers for the fiscal year. Can you talk about the trajectory of that? Have you seen, you know? It's obviously been a tough patch for FPGAs as well.

Ganesh Moorthy: You gave us some color on the FPGA business. And I wonder, you sound like you had some pretty good growth relative to the peers for the fiscal year. Can you talk about the trajectory of that? Have you seen, you know? It's obviously been a tough patch for FPGAs as well.

Great. Thank you you gave us some color on the FPGA business and I Wonder.

Joseph Lawrence Moore: It sounded like some pretty good growth relative to peers for the fiscal year can you talk about the trajectory of that have you seen.

Joseph Lawrence Moore: It's been a tough patch for FPGA is as well has that look similar to the rest of your business has there been an outperformance relative to that and can you talk about your.

Joseph Lawrence Moore: Market share prospects going forward in there.

Ganesh Moorthy: Has that looked similar to the rest of your business? Has there been an outperformance relative to that? And can you talk about, you know, your market share prospects going forward in that? Sure.

Speaker Change: Sure. So our FPGA business has in fact perform better than our other businesses and in part it's because our FPGA business has historically had a large aerospace and defense components and continuous to now we have over the last four or five years been creating the new design opportunities for FPGA.

Speaker Change: And the longer term to grow in industrial and automotive and the historical end market strength that microchip had before we got the FPGA business.

Ganesh Moorthy: So our FPGA business has, in fact, performed better than our other businesses. And in part, that's because our FPGA business has historically had a large aerospace and defense component and continues to. Now we have, over the last four or five years, been creating new design opportunities for FPGAs in the longer term to grow in industrial and automotive and the historical end market strengths that Microchip had before we got the FPGA business. And so this, you know, is not immune to market forces and where things are going to go.

Speaker Change: And so.

Speaker Change: It is not immune to market forces and where things are going to go but it is got a better end market mix than some of our other businesses and therefore has performed better and of course, we are picking up design.

Ganesh Moorthy: But it has a better end market mix than some of our other businesses and therefore has performed better. And, of course, we are picking up designs that, in the long term, are falling off of, Erstwile Xilinx, and Erstwile Altera as they take focus away from the mid tier over the many years that they have done. Or end of life products; those are all creating opportunities for our FPGA business. And so I am very, very optimistic about the prospects for our FPGA business. Great, thank you.

Speaker Change: Designs that are in the long term that are falling off.

Speaker Change: Ah trial, Xilinx, and erstwhile Intel and Altera.

As they take focus away from the mid tier.

Speaker Change: <unk> over many years that they have done.

Speaker Change: Our end of life Ing products those are all creating opportunities for our FPGA business and so I am very very optimistic about prospects for our FPGA business.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Ganesh Moorthy: Thank you. Our next question is from Christopher Rolland with Susquehanna. Please proceed with your question. Hey guys, thanks for the question. I guess first of all, Ganesh, like in terms of this inventory, are there any products or markets that have surprised you, either that they have burnt inventory and have normalized quicker than you expected, or that this is going to take longer for these products or markets? I think, not so much my product, but I think if you look at specific customers, in many cases even in the same market, right, so we can have an end market, say industrial, and we have examples of certain customers who have burned through their inventory, and they're back asking for new orders at expedited times.

Speaker Change: Thank you. Our next question is from Christopher Roland with Susquehanna. Please proceed with your.

Christopher Adam Jackson Rolland: Hey, guys. Thanks for the question I guess first of all to Nash like in terms of this inventory.

Christopher Adam Jackson Rolland: Or are there any products or markets that have surprised you.

Either that they burnt inventory and then normalized quicker than you expected.

Christopher Adam Jackson Rolland: Or that this is going to take longer for these products for markets.

I think not so much by product, but I think if you look at.

Christopher Adam Jackson Rolland: Specific customers in many cases, even in the same market right. So we can have an end markets industrial and we have examples of certain customers, who have burned through their inventory and their back asking for new orders that expedited times. We also have other customers same industry.

Ganesh Moorthy: We also have other customers in the same industry who are still burning through inventory and taking longer. So I think a lot depends on the customer, their market prospects, what did they do to create and grow their business, and how well are they executing? And so that's really been the difference is that it's customer by customer; the stories are different.

Christopher Adam Jackson Rolland: Who are still burning through inventory and taking longer but I think also I think a lot depends on the customer their market prospects what did they do to create and grow their business and how well are they executing.

And so that's really been the differences that is customer customer customer by customer the stories are different.

Christopher Adam Jackson Rolland: Yep, understood. And then, if I'm hearing you correctly, you think June is the bottom. A lot of that is inventory-based. I'd like an idea of how you're looking at the inventory position in September for your customers more generally. Do you think we can get back to seasonal trends in September and going forward? Or is this, or is there still this inventory drag overall?

Speaker Change: Yes understood.

Speaker Change: And then.

Speaker Change: If I'm hearing you correctly, you think June is the bottom a lot of that is inventory based I'd like a nice deal.

Speaker Change: Uh huh of how Youre looking at in the inventory position in September at your customers more generally.

Speaker Change: Do you think we can get back to seasonal trends in September and going forward or is this or is there still this inventory drag overall.

Speaker Change: No I think that's gonna be customers at different points in the collection cycle. Some will have corrected and moved on others, but still be correct and so I think seasonality is perhaps one of these things, which you need a level of normalcy for some period of time before you can say, okay. We now have all of the these are variables that have been taken out.

Ganesh Moorthy: For you, I can now say, OK, we now have all these variables that have been taken out. So I can't say we have seasonality in the September quarter. I can say, however, that, incrementally on a weighted average basis, there are more customers who are going to be out of their inventory correction, but not that they're all done. Great. Thank you, Ganesh.

Speaker Change: So I can't say, we have seasonality in the September quarter, I can say that incrementally on a weighted average basis that are more customers, who are going to be out of their inventory correction, but not that they're all done.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Tore Egil Svanberg: Our next question is from Tore Svanberg with Steeple. Please proceed with your question. Yes, thank you. Just one quick follow-up. Ganesh, you said that you still need quite a bit of terms this quarter. Just wondering what the terms requirement is and how does that compare with, you know, previous cycle troughs?

Our next question is from tourist Swanberg with Stifel. Please proceed with your question.

Tore Egil Svanberg: Yes. Thank you just one quick follow up and this you said that you still have quite a bit of terms.

Tore Egil Svanberg: This quarter just wondering what is the turns requirement and how does that compare with the previous cycle troughs. Thank you.

Ganesh Moorthy: Thank you. So we are not going to break out the amount of terms that are required, but we do have turns to take to meet our guidance, and our guidance is obviously, you know, to have another down quarter, but the lead times are short. We are getting these requests for pull in. I don't have a good comparison to give you in terms of prior cycles.

Speaker Change: So we are not going to break out the amount of terms that are required.

Speaker Change: But we do have turns to take to meet our guidance our guidance is obviously.

Speaker Change: <unk> got another another down quarter, but the lead times are short we are getting these requests for Poland.

Speaker Change:

Speaker Change: I don't have a good comparison to give you in terms of prior cycles.

Ganesh Moorthy: You know, if this turns out to be the bottom for us, which we believe it will, we can probably give some commentary when we talk about our September guidance. As you know, we kind of hit and move through that bottom. So one of the things which is more difficult to do is, you know, when most people talk about turns in a normal environment where there isn't inventory out. And it's harder to, you know, we can say, hey, it turns out X percent from a historical basis. But when there is inventory, we know those turns aren't going to show up because people will burn through their inventory before they begin to place it.

Speaker Change:

Speaker Change: If this turns out to be the bottom for us, which we believe it will we can probably give some commentary when we talk about our September guidance.

Speaker Change: We kind of hit and move through that bottom.

Speaker Change: So one of the things, which is more difficult to do as you know.

Speaker Change: But most people talk about turns in a normal environment, where there isn't inventory out there.

Speaker Change: And it's harder to we can say hey, it turns our X percent from a historical basis.

Speaker Change: But when there is inventory we know what those turns aren't going to show up because people have burned through their inventory before they begin to place that and I think that's some of the hesitation. We have in trying to provide some insight where we know theres a lot of uncertainty.

Ganesh Moorthy: And I think that's some of the hesitation we have in trying to provide some insight where we know there's a lot of uncertainty. What we have done is made the best of our assessment of what those are going to be, where they're going to be, and built it into the guide. So I think that's the best way to think about it is that we have taken into account the risks that are present from inventory that would otherwise, you know, cause headwinds to turns in the, Very fair. Thank you. Thank you.

Speaker Change: We have done is done the best of our assessment.

Speaker Change: Of what those are going to be where they're going to be and built it into the guidance.

Speaker Change: I think that's the best way to think about it is that we have taken into account.

Speaker Change: Risks that are present from inventory that would otherwise cause headwinds to turns in the quarter.

Speaker Change: Thank you.

Vivek Arya: Our next question is from Vivek Arya with Bank of America. Please proceed with your question. Thanks for the quick follow-up.

Speaker Change: Thank you. Our next question is from Vivek Arya with Bank of America. Please proceed with your question.

Ganesh Moorthy: I just wanted to clarify what the contribution of the acquisitions was in the June quarter or in fiscal 25. And then, Ganesh, back to the September quarter, I think you did say that you expected it to grow. I understand that it's hard to put a seasonal number on it.

Vivek Arya: Thanks for the quick follow up I, just wanted to clarify what is the contribution of the acquisitions.

Vivek Arya: In the June quarter or in fiscal <unk>.

Vivek Arya: 25, and then getting back to the September quarter. I think you did say that you expect it to grow I understand that it's hard to put a seasonal.

Vivek Arya: <unk>.

Ganesh Moorthy: But based on what you have seen in prior downturns, just the fact that, you know, the microchip has gone down so much from peak to trough, should we also expect kind of sharper recovery back when you do start recovering? So to answer your first question, you know, these are small tuck-in acquisitions. They're intended to accelerate our efforts on design-ins and design-wins and all of that, so they don't have any revenue contribution.

Vivek Arya: On it but based on what you have seen in prior downturns.

Speaker Change #100: Got that.

Speaker Change #100: Microchip has gone down so much from peak to trough should we also expect kind of a sharper recovery.

Back to when you do stock.

Company.

Speaker Change #100: So to answer your first question. These are small tuck in acquisitions with their intended to accelerate our effort on design ins and design wins in all of that so they don't have any revenue contribution.

Ganesh Moorthy: In the June quarter or in the September quarter for that. In terms of revenue and what happens as the correction happens, yes, you should think that at some point, and I can't tell you if it is in September or is it in December, we will see a sharper recovery. That's how it has played itself out in many other cycles as well.

Speaker Change #100: The June quarter or in the September quarter for that matter.

Speaker Change #100: In terms of the Rev.

Speaker Change #100: Revenue and what happens as the correction happens, yes, you should think that at some point and I can tell you is that in September or is it in December you will see we will see a sharper recovery. That's how it has played itself out in many other cycles as well.

Ganesh Moorthy: And, you know, there are two stages to it. There's the first stage, which is just people needing to get back to, they've burned through most of their inventory, and they need to get back to at least buying for consumption. And then there's a second phase, which is, what is the macro doing, and is the macro driving further growth for them above just what their flattened consumption line alone might tell us? And I think all of that, if you look forward into a likely environment over the next 12 months, should give us a sharper recovery. This concludes our question and answer session. I would like to hand the floor back over to Ganesh Moorthy for any closing comments. Great

Speaker Change #100: And.

Speaker Change #100: There are two stages to it is the first stage, which is just people needing to get back to the burn through most of the inventory and they need to get back to at least buying to consumption and then there's a second phase which is what is the macro doing and if the macro driving further growth.

Speaker Change #100: Four of them above just what they are flattened consumption line alone My tell us.

Speaker Change #100: And I think all of that if you look forward into a likely environment over the next 12 months should give us a sharper recovery.

Speaker Change #101: Thank you.

Speaker Change #102: This concludes our question and answer session.

Speaker Change #102: I would like to hand, the call back over to Martin for any closing comments.

Ganesh Moorthy: I want to thank everybody for joining us on the call. I know we ran over a little bit, but I appreciate the questions and we look forward to seeing and talking to many of you in the coming days, as well as the many of the conferences that are coming up. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? , , , , , , , , , , , , , , , , , , , , , , , , , , , At this time all participants are in a listen-only mode.

Martin: Great I want to thank everybody for joining us on the call I know, we ran over a little bit but I appreciate the questions and we look forward to seeing and talking to many of you.

Martin: In the coming days as well as in many of the conferences that are coming up thank you.

Martin: Yeah.

Speaker Change #104: This concludes today's conference.

Speaker Change #104: Your lines at this time, thank you for your participation.

Speaker Change #105: Are we hung up I.

Speaker Change #105: I don't want do that which one.

Speaker Change #105: [music].

Speaker Change #106: Greetings and welcome to the Microchip two for fiscal year 2024 financial results Conference call.

Eric Bjornholt: During the course of this conference call, we'll be making projections and other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions, and that actual events and results may differ materially. We refer you to our press releases today, as well as to our recent filings with the SEC that identify important risk factors that may impact Microchip's business and results of operations. In attendance with me today are Ganesh Moorthy, Microchip's President and CEO, Steve Sanghi, Microchip's Executive Chairperson, Rich Simoncic, Microchip's COO, and Saja Dowdy, Microchip's Head of Investor Relations.

Speaker Change #106: At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Speaker Change #106: As a reminder, this conference is being recorded it is now.

Speaker Change #106: My pleasure to introduce your host Eric <unk> Senior Vice President and CFO. Thank you Eric you may begin.

Eric Bjornholt: I will comment on our fourth quarter and full fiscal year 2024 financial performance. Ganesh will then provide commentary on our results and discuss the current business environment as well as our guidance. Steve will provide an update on our cash return strategy, and we will then be available to respond to specific investor and analyst questions. We are including information in our press release and this conference call on various gap and non-gap measures. We have posted a full gap to non-gap reconciliation on the investor relations page of our website at www.microchip.com and included reconciliation information in our earnings press release, which we believe you will find useful when comparing our GAAP and non-GAAP results. We have also posted a summary of our outstanding debt and our leverage metrics on our website.

Eric: We wish to caution you that such statements are predictions and that actual events or results may differ materially.

Eric: For you to our press releases of today as well as our recent filings with the SEC that identify important risk factors that may impact <unk> business and results of operations and.

Eric: In attendance with me today are going to ask Marty Microchips, President and CEO, Steve Sanger Microchips Executive chair.

Speaker Change #107: Britain, Simon Sac, Microchip, CLO, and Sajid Dowdy microchips head of Investor Relations.

Speaker Change #107: I will comment on our fourth quarter and full fiscal year 2024 financial performance.

Speaker Change #107: I'll 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 return strategy.

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

Stephen Sanghi: We are including information in our press release and this conference call on various GAAP and non-GAAP measures. We have posted a full GAAP to non-GAAP reconciliation on the Investor Relations page of our website at Www Dot Microchip Dot com and.

Stephen Sanghi: And included reconciliation information in our earnings press release, which we believe you will find useful when comparing our GAAP and non-GAAP results.

Stephen Sanghi: We have also posted a summary of our outstanding debt and our leverage metrics on our website.

Eric Bjornholt: I will now go through some of the operating results, including net sales, gross margin, and operating expenses. Other than net sales, I will be referring to these results on a non-GAAP basis, which is based on expenses prior to the effects of our acquisition activities, share-based compensation, and certain other adjustments as described in our earnings press release and in the reconciliations on our website. Net sales in the March quarter were $1.326 billion, which was down 24.9% sequentially.

Stephen Sanghi: I will now go through some of the operating results, including net sales gross margin and operating expenses other than net sales I will be referring to these results on a non-GAAP basis, which is based on expenses prior to the effects of our acquisition activities share based compensation and certain other adjustments as described in our earnings.

Stephen Sanghi: Release and in the reconciliations on our website.

Stephen Sanghi: Net sales in the March quarter were $132 6 billion, which was down 24, 9% sequentially.

Stephen Sanghi: We have posted a summary of our net sales by product line and geography on our website for your reference.

Stephen Sanghi: On a non-GAAP basis gross margins were 63%, including capacity Underutilization charges of $32 million operating expenses were at 27, 4% and operating income was 32, 9%.

Eric Bjornholt: Although our operating income was better than the midpoint of our guidance, our cash taxes came in higher than forecast. Non-GAAP net income was $310.3 million, and non-GAAP earnings per diluted share was $0.57, which was at the midpoint of our guidance. On a gap basis, in the March quarter, gross margins were 59.6%. Total operating expenses were $536.4 million and included acquisition and tangible amortization of $151.2 million. Special Income of $16.9 million, which was primarily driven by the settlement of an unclaimed property audit at a value that was less than what we had accrued for it. Share base compensation of $37.4 million, and $1.1 million of other expenses. Gap net income was $154.7 million, resulting in $0.28 in diluted earnings per share.

Stephen Sanghi: Although our operating income was better than the midpoint of our guidance our cash taxes came in higher than forecasted non-GAAP net income was $310 3 million and non-GAAP earnings per diluted share was <unk> 57.

Stephen Sanghi: And at the midpoint of our guidance.

Stephen Sanghi: On a GAAP basis in the March quarter gross margins were 59, 6%.

Stephen Sanghi: Total operating expenses were $536 4 million and included acquisition intangible amortization of $151 2 million special income of $16 9 million, which was primarily driven by the settlement of an unclaimed property audits at a value that was less than what we had accrued for.

Stephen Sanghi: Share based compensation of $37 4 million and $1 1 million of other expenses.

Stephen Sanghi: Net income was $154 7 million, resulting in 28 and diluted earnings per share.

Eric Bjornholt: For fiscal year 2024, net sales were $7.634 billion, and were down 9.5% from net sales in fiscal year 2023. On a non-GAAP basis, gross margins were 65.8%, operating expenses were 22% of sales, and operating income was 43.9% of sales. Non-GAAP Net Income was $2.698 billion, and EPS was $4.92 per diluted share.

Stephen Sanghi: For fiscal year 2024, net sales were 763 $4 billion and were down nine 5% from net sales in fiscal year 2023.

Stephen Sanghi: On a non-GAAP basis gross margins were 65, 8% operating expenses were 22% of sales and operating income was 43, 9% of sales.

Stephen Sanghi: non-GAAP net income was $2 698 billion and EPS was $4 92 per diluted share.

On a GAAP basis gross margins were 65, 4% operating expenses were 31, 8% of sales and operating income was 33, 7% of sales.

Net income was $1 907 billion and EPS was $3 48 per diluted share.

Our non-GAAP cash tax rate was 18, 8% in the March quarter, and 14, 5% for fiscal year 2024.

Stephen Sanghi: Our non-GAAP tax rate for fiscal year 2025 is expected to be about 13%, which is exclusive of the transition tax and any tax audit settlements related to taxes accrued in prior fiscal years.

Stephen Sanghi: We are still hopeful that the tax rules requiring companies to capitalize R&D expenses will be pushed out or repealed. If this were to happen. We would anticipate about a 200 basis points favorable adjustment to microchips non-GAAP tax rate in future periods.

Eric Bjornholt: Our inventory balance at March 31st, 2024 was $1.316 billion. We had 224 days of inventory at the end of the March quarter, which was up 39 days from the prior quarter's level and in line with our expectations, given the Difficult Revenue Quarter We Experienced. At the midpoint of our June 2024 quarter guidance, we would expect inventory dollars to be up modestly and days of inventory to increase based on the lower cost of goods sold, driven by the depressed revenue levels at which we believe this is the low point of the current cycle for microchips.

Stephen Sanghi: Our inventory balance at March 31, 2024 was $131 6 billion we.

Stephen Sanghi: We had 224 days of inventory at the end of the March quarter, which was up 39 days from the prior quarter's level and in line with our expectations.

Stephen Sanghi: Giving the difficult revenue quarter, we experienced.

Stephen Sanghi: At the midpoint of our June 2024 quarter guidance, we would expect inventory to be up modestly and days of inventory to increase based on the lower cost of goods sold driven by the depressed revenue levels at which we believe is the low points of the current cycle for microchip.

Stephen Sanghi: We also continue to invest in building inventory for long lived high margin products, whose manufacturing capacity is being end of life by our supply chain partners and these last time buys represented 14 days of inventory at the end of March.

Stephen Sanghi: Inventory at our distributors at the market in the March quarter. We're at 41 days, which was up four days from the prior quarter's level dis.

Stephen Sanghi: Distribution took down their inventory in the March quarter as distribution sell through was about $125 million higher than distribution sell in.

Stephen Sanghi: The inventory days increased as this is reflective of the much lower cost of sales for microchip in the March quarter that is used in this calculation.

Stephen Sanghi: Our cash flow from operating activities was 430, <unk> excuse me $430 million in the March quarter, our adjusted free cash flow was $389 9 million in the March quarter.

Stephen Sanghi: As of March 31, our consolidated cash and total investment position was $319 7 million or.

Stephen Sanghi: Our total debt increased by $312 million in the March quarter, and our net debt increased by $273 3 million.

Stephen Sanghi: Our adjusted EBITDA in the March quarter was $503 million and 37, 9% of sales.

Stephen Sanghi: Our trailing 12 month, adjusted EBITDA was $362 3 billion and our net debt to adjusted EBITDA was 157 at March 31, 2024 up from 145 at March 31 2023.

Stephen Sanghi: Capital expenditures were $40 1 million in the March quarter, and $285 1 million for fiscal year 2024.

Stephen Sanghi: Our expectation for capital expenditures for fiscal year 2025 is about $175 million.

Stephen Sanghi: Depreciation expense in the March quarter was $45 8 million.

Eric Bjornholt: I will now turn it over to Ganesh to give his comments on the performance of the business in the March quarter, as well as our guidance for the June quarter. Thank you, Eric, and good afternoon, everyone. Our March quarter results were consistent with our guidance, with net sales down 24.9% sequentially and down 40.6% from the year-ago quarter, as we endured through a major inventory correction. Non-gap gross margin came in as expected at 60.3%, and non-gap operating margin was better than expected at 32.9% due to the strong expense control programs we had in place. However, as Eric mentioned, our tax rate was higher than expected, and as a result, our consolidated non-GAAP diluted EPS only met expectations at $0.57.

Stephen Sanghi: I will now turn it over to <unk> to give his comments on the performance of the business in the March quarter as well as our guidance for the June quarter Ganesh.

Ganesh: Thank you Eric and good afternoon, everyone.

Ganesh: Our March quarter results were consistent with our guidance with net sales down 24, 9% sequentially and down 46% from the year ago quarter.

Ganesh: As we endure through a major inventory correction.

Ganesh: non-GAAP gross margin gross margin came in as expected at 63%.

Ganesh: non-GAAP operating margin was better than expected at 32, 9% due to the strong expense control programs, we had in place.

Ganesh: However, as Eric mentioned, our tax rate was higher than expected and as a result, our consolidated non-GAAP diluted EPS only met expectations at 57 per share.

Ganesh Moorthy: Our revenue decline resulted in March quarter EBITDA dropping, and as a result, our net leverage ratio rose to 1.57. We expect our net leverage to rise modestly for a few quarters as trailing 12-month adjusted EBITDA drops when replacing stronger prior year quarters. However, our cash generation capability remains strong, and we are committed to our capital return plan.

Ganesh: Our revenue decline resulted in March quarter, EBITDA, dropping and as a result, our net leverage ratio rose to $1 $5 seven X.

We expect our net leverage to rise modestly for a few quarters.

Ganesh: Trailing 12 month, adjusted EBITDA drops when replacing stronger prior year quarters with weaker current headquarters.

Ganesh: However, our cash generation capability remains strong and we are committed to our capital return plan.

Ganesh Moorthy: Our capital return to shareholders in the June quarter will increase to 87.5% of our March quarter adjusted free cash flow as we continue on our path to return 100% of our adjusted free cash flow to shareholders by the March quarter of calendar year 2025. Reflecting on our fiscal year 24 results, it was a roller coaster year with a positive start that was followed by a major inventory correction. As compared to fiscal year 23, revenue declined 9.5% to $7.6 billion.

Ganesh: Our capital returned to shareholders in the June quarter, when increased to 87, 5% of our <unk>.

Ganesh: March quarter, adjusted free cash flow as we continue on our path to return 100% of our adjusted free cash flow to shareholders by the March quarter of calendar year 2025.

Ganesh: Reflecting on our fiscal year 'twenty four results. It was a roller coaster year with a positive start at just followed by a major inventory correction.

Ganesh: As compared to fiscal year 'twenty three.

Ganesh: Revenue declined nine 5% to $7 6 billion.

Ganesh Moorthy: The Non-Gap Operating Margin was resilient at 43.9% as we took the actions required to respond to the major inventory corrections. Capital returned to shareholders through a combination of dividends and share buybacks in fiscal 24. $1.89 billion, representing a 15.4% growth as compared to fiscal year 2020. My thanks to our worldwide team for their support, hard work, and diligence as we navigate a difficult environment and focus on actions that we believe position us well to thrive in the long term.

Ganesh: non-GAAP operating margin was resilient at 43, 9% as we took the actions required to respond to the major inventory correction.

Ganesh: Capital return to shareholders through a combination of dividends and share buybacks in fiscal 'twenty four it was $1 89 billion, representing a 15, 4% growth as compared to fiscal year 'twenty three.

Ganesh: My thanks to our worldwide team for their support hard work and diligence as we know.

Ganesh: Navigated a difficult environment and focus on actions that we believe position us well to thrive in the long term.

Ganesh Moorthy: Taking a look at our fiscal year 24 net sales from a product line perspective, our mixed-signal microcontroller net sales were down 10.2% and represented 56% of Microchip's overall revenue. Our analog net sales were down 15.2% and represented 26.4% of Microchip's overall revenue.

Ganesh: Taking a look at our fiscal year 'twenty for net sales and a product line perspective.

Our mixed signal microcontroller net sales were down 10, 2% and represented 56% of microchips overall revenue.

Ganesh: Our analog net sales were down $52 15, 2%.

Ganesh: And represented 26, 4% of microchips overall revenue.

Ganesh Moorthy: While we don't normally break out our FPGA product line results, it is noteworthy that our fiscal year 24 FPGA revenue exceeded $679 million and set another record; FPGA revenue grew over 22% as compared to fiscal 23, and Delivered Operating Margins North of Corporate Average. We deliver market-leading mid-range FPGA solutions with best-in-class low power, reliability, and security and are especially well-suited for the fast-emerging opportunities around artificial intelligence at the end.

Ganesh: While we don't normally breakout our FPGA product line results. It is noteworthy that our fiscal year 'twenty for FPGA revenue exceeded $670 million and set another record.

Ganesh: FPGA revenue grew over 22% as compared to fiscal 'twenty three and.

Ganesh: And delivered operating margins of our north of corporate average.

Ganesh: We deliver market, leading midrange FPGA solutions.

Ganesh: Best in class low power.

Ganesh: Reliability and security and are especially well suited for the fast emerging opportunities around.

Ganesh: Artificial intelligence at the edge.

Ganesh Moorthy: Our overall FPGA DesignWin momentum is strong across multiple end markets. Here are a few other product line notes of significance. Early in April, we closed our acquisition of Seoul, Korea-based BSI, and an ADAS and Digital Cockpit Connectivity Pioneer, to extend our automotive networking market leadership. This acquisition adds Automotive 30s Alliance motion link technology, otherwise known as ASA-ML. Microchip's broad Ethernet and PCIe automotive networking portfolio to enable next-generation software-defined vehicles, with the anticipated increase in the adoption of advanced camera-based driver assistance systems. For example, the In-Cabin Monitor. Safety and Convenience Features and a Multi-Screen Digital Cockpit for Next Generation Software Defined Vehicles

Ganesh: Our overall FPGA design win momentum is strong across multiple end markets.

Ganesh: A few other product line no significance.

Ganesh: Early in April we closed our acquisition of Seoul, Korea based BSI.

Ganesh: And a das and digital cockpit connectivity pioneer to extend our automotive networking market leadership.

Ganesh: This acquisition adds automotive Thirty's Alliance motion link technology.

Ganesh: Otherwise known as ASC Dash ml.

Ganesh: Microchips broad Ethernet and pcie automotive networking portfolio to enable next generation software defined vehicles.

Ganesh: With the anticipated increase in the adoption of advanced camera based driver assistance systems in cabin monitoring.

Ganesh: Safety and convenience features and multi screen digital cockpits for next generation software defined vehicles. There is a growing requirement for our more highly asymmetric raw data and video links and higher bandwidth with.

Ganesh Moorthy: There is a growing requirement for more highly asymmetric raw data and video length and higher bandwidth, with the ASA MotionLake Open Standard Support. Also, last month, we closed our acquisition of Neuronics AI Lab, which is Innovative Software Technology. Enhances AI Enabled Edge Intelligent Edge Solution and increases neural networking capabilities. This technology expands our capabilities for power-efficient, AI-enabled edge solutions deployed on FPGA. Neuronics AI Labs provides neural network sparsity optimization technology that enables a reduction in power, size, and calculation time for tasks such as image classification, object detection, and semantic segmentation while maintaining high accuracy.

Ganesh: With the assay motion like open standard supports.

Ganesh: Also last month, we closed our acquisition of neuron X AI labs, who has innovative software technology.

Ganesh: Enhances AI enabled edge intelligent edge solutions and increase the neural networking capabilities.

Ganesh: This technology expands our capabilities for power efficient.

Enabled edge solutions deployed on FPGA.

Ganesh: On X AI labs provides neural networks <unk> optimization technology that enables the reduction in power size and calculation for tasks such as image classification object detection and semantic segment segmentation, while maintaining high accuracy.

Ganesh Moorthy: Finally, in July, we expect to announce our entry into the 64-bit embedded microprocessor market with a suite of products, development tools, and other support requirements to address high-performance embedded processing applications, including AI-enabled edge solutions. This will extend our strong 32-bit embedded microprocessor portfolio to high-end performance and increased capability. While preserving Microchip's historically strong ecosystem of leading development tools to make adoption easy for embedded system design engineers. Microchip is the only company to offer the widest embedded control and processing platform, from 8-bit to 64-bit, as well as FPGAs, with a common development tool ecosystem that's empowering customers to innovate and reuse their work across a wide spectrum of markets and applications.

Ganesh: Finally in July we expect to announce our entry into the 64 bit embedded microprocessor market with a suite of products development tools and other support requirements to address high performance embedded processing applications, including AI enabled edge solutions.

Ganesh: This will extend our strong third exhibit embedded microprocessor portfolio to higher performance and increase capabilities.

Ganesh: While preserving microchip historically strong ecosystem of <unk>.

Ganesh: Leading development tools to make adoption easy for embedded system design engineers.

Ganesh: Microchip is the only company to offer the widest embedded control and processing platform for.

Ganesh: 8% to 64 bit as well as the FPGA with a common development tool ecosystem, thus empowering.

Ganesh: Customers to innovate and reuse their work across a wide spectrum of markets and applications.

Ganesh Moorthy: Now for some color on the Marks Quarter and the general business environment. All regions of the world and most of our end markets, with the exception of aerospace and defense and The Artificial Intelligence Subset of Data Centers for We, We believe that our product shipments are significantly lower than the end market consumption of our products, as our distribution channels drained inventory during the quarter. Our broad base of customers continues to lower their inventory and adjust their business plans in the midst of a weak macro environment and an uncertain outcome.

Ganesh: Now for some color on the March quarter, and the general business environment.

Ganesh: All regions of the World and most of our end markets with the exception of aerospace and defense and the artificial intelligence subset of data centers were weak.

Ganesh: We believe that our product shipments were significantly lower than the end market consumption of our products.

Ganesh: Our distribution channels drained inventory during the quarter.

Ganesh: Our broad base of customers continue to lower their inventory and adjust their business plans in the midst of a weak macro environment and an uncertain outlook.

Ganesh Moorthy: With no major supply constraints, coupled with very short lead times and a weak macro environment, we believe that an inventory destock, as well as production and target inventory levels, is underway at multiple levels. For example, at our direct customers and distributors who buy from us, our indirect customers who buy through our distributors, and in some cases, our customers' customers. We are, however, also seeing early signs of green shoots in our business.

Ganesh: With no major supply constraints, coupled with very short lead times and a weak macro environment. We believe there is inventory destocking as well as production and targeted inventory levels that is underway at multiple levels.

Ganesh: Our direct customers and distributors, who buy from us.

Ganesh: Our indirect customers, who buy through our distributors and in some cases, our customers' customers.

Ganesh: We are however, also seeing early signs of green shoots in our business.

Ganesh: First the level of requests the cancellations and push outs has started to subside.

Ganesh: Our bookings have started to pick up albeit from low levels.

February bookings were the highest in eight months.

March bookings were the highest in all of fiscal 'twenty, four and April bookings were higher than March.

Ganesh: Third the new bookings are aging over a shorter period of time and.

Ganesh: And fourth the number of Expedites in Poland and shipment poling requests are growing.

Ganesh: Collectively these green shoots we believe are pointing to the formation of a bottom.

Ganesh Moorthy: Our average lead times continue to be eight weeks or less. During a period of business uncertainty, we believe short lead times are the best way to help customers navigate the environment successfully and improve the quality of backlog placed with us. However, the significant reduction in lead time is also resulting in reduced near-term visibility for our business, given the severity of the inventory correction. Our factories around the world are running at lower utilization rates, and our three major fabs will take another two-week shutdown in the June quarter in order to help control the growth of inventory.

Ganesh: Our average lead times continue to be eight weeks or less.

Ganesh: During a period of business uncertainty, we believe short lead times are the best way to help customers navigate the environment successfully and improve the quality of backlog placed with us.

Ganesh: However, the significant reduction in lead time is also resulting in reduced near term visibility for our business.

Ganesh: Given the severity of the inventory correction our factories around the world are running at lower utilization rates.

And a pretty major fabs it will take another two week shutdowns in the June quarter in order to help control the growth of inventory.

Ganesh Moorthy: Our internal capacity expansion actions remain paused. We expect our capital investments in fiscal year 25 will be low, even as we prepare for the long-term growth of our business. The Chipsack Trunk. We have nothing new to report. Microchip's office has completed their diligence for the GrantSquare CK.

Ganesh: Our internal capacity expansion actions remain paused.

Ganesh: We expect our capital investments in fiscal year, 'twenty five will be low.

Ganesh: Even as we prepare for the long term growth of our business.

Ganesh: From the chipset front, we have nothing new to report the.

Ganesh: <unk> office has completed their diligence for the grants were seeking and we are working towards an agreement.

Ganesh Moorthy: We are working towards an At this stage of a major inventory correction, we believe that the days of inventory metrics, whether for Microchip or for our distributors, can be deceptive, and this is a backward-looking indicator measuring a baseline that is well below where we believe end-market consumption is at. For inventory planning, we are therefore focused on where we believe consumption is running and will likely run in the coming quarter. We continue to work with our distribution partners to attempt to find the right balance of inventory required to serve their customers. They can manage through their cash flow requirements and be positioned for the eventual strengthening of business.

Ganesh: At this stage if a major inventory correction, we believe that the days of inventory metrics with a for microchip offer our distributors can be deceptive.

Ganesh: As this is a backward looking indicator measuring a baseline that is well below where we believe end market consumption of that.

Ganesh: For inventory planning, we are therefore focused on where we believe consumption is running and will likely run in the coming quarters.

Ganesh: We continue to work with our distribution partners to attempt to find the right balance of inventory required to serve their customers manage through their cash flow requirements and be positioned for the eventual strengthening of business conditions.

Ganesh Moorthy: The operating expense reduction efforts we implemented last quarter, including Proud Bay Salary Sacrifices, are continuing this Shared Sacrifices and Downs Cycles, Shared Rewards and Ups. Our culture of shared sacrifice protects our valuable employees from layoffs, helps enable us to support customers and maintain our design momentum, manufacturing capacity can be turned on quickly as business conditions strengthen, and helps enable our product development to maintain their pace of new solution introduction. Now, let's get into the guidance for the June quarter. While we see a number of green shoots in our business indicators, we still need terms orders within the quarter to meet our guidance. Operating in a high-terms environment has historically been normal for microchips.

Ganesh: The operating expense reduction efforts, we implemented last quarter, including cloud based salary sacrifices are continuing this quarter.

Ganesh: The shutdowns for manufacturing team members.

Ganesh: And pay cuts for non manufacturing team members are consistent with our long standing culture of shared sacrifices in down cycles and shared rewards in up cycles.

Ganesh: Our culture of shared sacrifice protects our valuable employees from layoffs.

Ganesh: Helps enable us to support customers and maintain our design win momentum helps ensure that manufacturing capacity can be turned on quickly as business conditions strengthen and helps enable our product development teams to maintain their pace of new solution introductions.

Speaker Change #108: Now, let's get into the guidance for the June quarter.

Speaker Change #108: While we see a number of green shoots in our business indicators we.

We still need turns orders within the quarter to meet our guidance.

Speaker Change #108: Operating in a high current environment has historically been normal for microchip.

Ganesh Moorthy: It is just not a position we have found ourselves in over the last few years due to the supply-constrained, high-backlog environment we and the industry are experiencing. Taking all the factors we have discussed on the call today into consideration, we expect our net sales for the June quarter to be between $1.22 billion and $1.26 billion.

Speaker Change #108: It is just not a position we have found ourselves in over the last few years due to the supply constrained high backlog environment, we and the industry experience.

Speaker Change #108: Taking all the factors we have discussed on the call today into consideration.

Speaker Change #108: We expect our net sales for the June quarter to be between 122 billion.

And $1 6 billion.

Ganesh Moorthy: We believe that the June 2024 quarter marks the bottom of the cycle for microchips and that our business will return to sequential revenue growth in the September 2024 quarter. We expect our non-GAAP gross margin to be between 59% and 61% of sales. We expect non-GAAP operating expenses to be between 28.25% and 28.75% of sales. We expect non-GAAP operating profit to be between 30.25% and 32.75% of sales. And we expect our non-GAAP diluted earnings per share to be between 48 cents and 56 cents.

We believe that the June 2024 quarter marks the bottom of the cycle for microchip and that our business will return to sequential revenue growth in the September 2024 quarter.

Speaker Change #108: We expect our non-GAAP gross margin to be between 59% and 61% of sales.

Speaker Change #108: We expect non-GAAP operating expenses to be between $28 25, and 28, 75% of sales.

We expect non-GAAP operating profit to be between 32, 5%.

Speaker Change #108: <unk> 32, 75% of sales and.

Speaker Change #108: And we expect our non-GAAP diluted earnings per share to be between <unk> 48.

Speaker Change #108: 56.

Ganesh Moorthy: We believe that the fundamental characteristics of growth, profitability, and cash generation of our business remain intact. Additionally, we are confident that our solutions remain the engine of innovation for the applications and end markets we serve. Our focus on total system solutions. Key market megatrends continue to fuel strong design momentum, which we expect will drive above-market long-term growth. We remain committed to executing our Microchip 3.0 strategic imperative, which we believe will deliver sustained results and substantial shareholder value.

Speaker Change #108: We believe that the fundamental characteristics of growth profitability and cash generation of our business remain intact.

Speaker Change #108: We are confident that our solutions remain the engine of innovation for the applications and end markets we serve.

Speaker Change #108: Our focus on total system solutions and key market Mega trends continue to fuel strong design win momentum, which we expect will drive above market long term growth.

Speaker Change #108: We remain committed to executing a microchip pre fund our strategic imperatives, which we believe will deliver sustained results and substantial shareholder value.

Speaker Change #108: Last but not least a month ago, we appointed rich Simon <unk> as Chief operating officer.

Speaker Change #108: Rich is a microchip lifer, who is there.

Speaker Change #108: Been with us for 35 years in many different capacities.

Speaker Change #108: <unk> has an expanding his role over the last few years and Eni will jointly lead the microchip global enterprise. So that we can apply our combined leadership capacity to engage the opportunities and challenges that are ahead of us.

Stephen Sanghi: And he and I will jointly lead the Microchip Global Enterprise so that we can apply our combined leadership capacity to address the opportunities and challenges that are ahead of us. With that, let me pass the baton to Steve to talk more about our cash return to shareholders. Thank you, Ganesh, and good afternoon, everyone. I would like to provide you with a further update on our cash return strategy. The Board of Directors approved an increase in the dividend by 18% from the year-ago quarter to a record $0.452 per share.

Stephen Sanghi: During the last quarter, we purchased a record $387.4 million of our stock in the open market. We also paid out a record $242.5 million in dividends. Thus, our total cash return was a record $629.9 million.

Speaker Change #108: With that let me pass the Baton to Steve will talk more about our cash return to shareholders Steve.

Stephen Sanghi: Thank you Ganesh and good afternoon, everyone.

Stephen Sanghi: This amount was 82.5% of our actual adjusted free cash flow of $763.4 million during the December 2023 quarter. Our net leverage at the end of the March 2024 quarter was 1.57 times. Ever since we achieved an investment grade rating for our debt in November 2021 and pivoted to increasing our capital return to shareholders, we have returned a total of $4.23 billion to shareholders to March 31, 2024 by a combination of dividends and share buyback. During this period, our share buyback in the open market was approximately 30.4 million shares, representing approximately 5.7% of our shares outstanding, in the current June quarter.

Stephen Sanghi: I would like to provide you with a further update on our cash return strategy.

Stephen Sanghi: The board of directors approved an increase in the dividend of 18% from the year ago quarter to a record $45 <unk> per share.

Stephen Sanghi: During the last quarter, we purchased a record 387 $4 million of our stock in the open market.

Stephen Sanghi: Also paid out a record of $242 5 million.

Stephen Sanghi: And dividend.

Stephen Sanghi: Thus the door to a cash return.

Stephen Sanghi: A record of $629 9 million.

Stephen Sanghi: This amount was 82.5% of our actual adjusted free cash flow of $763.4 million during the December 2023 quarter. Our net leverage at the end of the March 2024 quarter was 1.57 times. Ever since we achieved an investment grade rating for our debt in November 2021 and pivoted to increasing our capital return to shareholders, we have returned a total of $4.23 billion to shareholders to March 31, 2024 by a combination of dividends and share buyback. During this period, our share buyback in the open market was approximately 30.4 million shares, representing approximately 5.7% of our shares outstanding, in the current June quarter.

Stephen Sanghi: This amount growth 82, 5% of our actual and adjusted free cash flow of 763.

Stephen Sanghi: $40 million.

Stephen Sanghi: During the December 2023 quarter.

Stephen Sanghi: Our net leverage at the end of March 2020 for quarter was 137 times.

Stephen Sanghi: Ever since we achieved an investment grade rating for our debt in November 2021.

Stephen Sanghi: <unk> pivoted to increasing capital returned to shareholders.

Stephen Sanghi: We have returned a total of $4 $2 3 billion to shareholders.

Stephen Sanghi: Through March 31 2024.

Stephen Sanghi: A combination of dividends and share buybacks.

Stephen Sanghi: During this period of a share buyback in the open market for approximately 34 million shares representing approximately five 7% of our shares outstanding.

Stephen Sanghi: In the current June quarter.

Stephen Sanghi: We will use the adjusted free cash flow level from the March quarter to target the amount of cash return to shareholders. The Adjusted Free Cash Flow, Transcripts provided by Transcription Outsourcing, LLC. These payments are refundable when purchase commitments are fulfilled. Our adjusted free cash flow for the March quarter was $389.9 million.

We will use the word adjusted free cash flow level from the March quarter to target the amount of cash returned to shareholders via.

Stephen Sanghi: Adjusted free cash flow excludes amounts we've collected from our customers for long term supply assurance payments.

Stephen Sanghi: These payments are refundable when purchase commitments were fulfilled.

Stephen Sanghi: However, the adjusted free cash flow for the March quarter was $389 9 million.

Stephen Sanghi: So our target to return to shareholders would be 87, 5% or $341 2 million a good amount.

Stephen Sanghi: However, as Ganesh mentioned, we did complete two smaller acquisitions in this June quarter. So we are reducing our share buyback amount to reflect the cash outlay for those deals.

Stephen Sanghi: Thus in the June quarter, our cash return to shareholders is expected to be $315 3 million. However for.

Stephen Sanghi: Rich dividends are expected to be approximately $243 million.

Stephen Sanghi: And our expected stock buyback will be approximately $72 3 million.

Stephen Sanghi: Going forward, we plan to continue to increase adjusted free cash flow return to shareholders by 500 basis points every quarter until we reach 100% of adjusted free cash flow return to shareholders through dividends and share buybacks. It will take three more quarters, and we expect that dividends, over time, will represent approximately 50% of our cash return. With that, operator, will you please hold for questions? Thank you. We'll now be conducting a question and answer session.

Stephen Sanghi: We'll take three more quarters, and we expect the dividends overtime will represent.

Stephen Sanghi: Currently 50% of our cash return.

With that operator dilute please poll for questions.

Speaker Change #109: Thank you now be conducting a question and answer session.

Stephen Sanghi: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Speaker Change #110: If you'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change #111: Confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.

Speaker Change #111: For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

Speaker Change #111: In the interest of time, we ask that participants limit themselves to one question and re queue for additional questions. One moment. Please while we poll for questions.

Operator: In the interest of time, we ask that participants limit themselves to one question and re-queue for additional questions. One moment, please, while we pull for questions. Thank you. Our first question is from Vivek Arya with Bank of America Securities. Please proceed with your question. Thanks for doing my question. Ganesh, you were suggesting June to be the bottom and for September to grow sequentially because of green shoots. But to be fair, you know, green shoots were suggested on the last call also. So what's the difference between the last call and this call?

Vivek Arya: And if you could maybe quantify, you know, what the pace of bookings increase year on year or quarter on quarter so far, so we can get a sense for the pace of recovery into September. And then, on a related note, is 60% also the trough for gross margin? If June is the bottom, does it also mean 60% of the trough for gross margins? Thank you. Great. Thank you, Vivek.

Speaker Change #111: Thank you. Our first question is from Vivek Arya with Bank of America Securities. Please proceed with your question.

Vivek Arya: Alright, Thanks for taking my question and if you are suggesting June to be the bottom end for September to grow sequentially.

Vivek Arya: Because the greenfields, but to be fair Greenfield suggested on the last call also so what's the difference between the last call and this call and if you could help us may be quantify what has been maybe the pace of bookings increase year on year or quarter on quarter. So far so we can get a sense for the base of <unk>.

Vivek Arya: Company into September and then maybe if I could also ask Eric on a related note is.

Vivek Arya: 60% also the trough for gross margin. Its June is the bottom does it also mean, 60% of the cross border gross margins. Thank you.

Ganesh Moorthy: I don't think we mentioned Green Shoes on the last earnings call, but we did say it at one of our banking sessions that we were at. And that was the first time we began to see it in the March timeframe. And the momentum is picking up, right, as we go through March, April, and May. I mentioned what the bookings were doing on a relative basis over that time. We can see how many more people are asking for pull-ins and expedites and all of that.

Eric: Great. Thank you Vivek.

Speaker Change #112: I don't think we mentioned green shoes at the last earnings call, but we did say that one of our banking.

Speaker Change #112: One is that we were at.

Speaker Change #112: And that was the first time, we began to see it was in the March timeframe and the momentum is picking up right. As we go through March and April and May I mentioned with the bookings.

Speaker Change #112: We're doing on a relative basis over that time.

Speaker Change #112: We can see how many more people are asking for pull ins and expedite and all of that so let's say, it's a qualitative view looking at how we integrate the last two or three months of malaria momentum is coming in where the customer feedback is coming in that reflects our view that the June quarter is the bottom in September quarter.

Ganesh Moorthy: So it's a qualitative view, looking at how we integrate the last two or three months of where momentum is coming in, where the customer feedback is coming in, that reflects our view that the June quarter is the bottom, and September quarter is the Member. The follow-up question for me on that was on gross margin. And would I expect, if June is the trough in revenue, if gross margin would bottom out? And I believe that to be the case.

Speaker Change #112: Correct.

Eric Bjornholt: I mean, obviously, we haven't given guidance yet, and there are factors that apply to that that we don't know yet in terms of product mix and where we'll be running our factories. But I think that we are bouncing along the bottom on gross margin. Thank you.

And then the follow up question for me on that was on gross margin would I expect if a June is the trough in revenue if gross margin would bottom out and I believe that to be the case I mean, obviously, we haven't given guidance Adam Theres factors that apply to that that we don't know yet in terms of product mix and where.

Speaker Change #112: We'll be running our factories, but I think that we are bouncing along the bottom on the gross margin.

Speaker Change #113: Thank you.

Speaker Change #114: Great. Thank you.

Christopher Caso: Our next question is from Chris Caso with Wolf Research. Please proceed with your question. Yes, thank you. Good afternoon.

Speaker Change #114: Our next question is from Chris <unk> with Wolfe Research. Please proceed with your question.

Ganesh Moorthy: I guess the question is, if there's any difference that you're seeing from any of the different end markets. I mean, you talked about some of the, the, the booking stabilization improvement that you've seen, you know, how would you characterize that among the different end markets? I don't, on the stabilization, I can't really point to a particular end market that is doing better or not. I just, in the aggregate, aerospace and defense and the AI segment of data centers are both doing well. And so that part is pulling it up.

Chris Daly: Yeah. Thank you good afternoon I guess the question is if there is any.

Chris Daly: The difference that you're seeing.

Chris Daly: From any of the different end markets I mean, you talked about some of the.

Chris Daly: The booking stabilization improvement that you've seen.

Chris Daly: How would you characterize that among the different end markets.

Hi.

Speaker Change #115: On the stabilization I can't really point to a particular.

And market are doing better or not as that in the aggregate aerospace and defense and the AI segment of datacenter are both doing well.

Speaker Change #115: And so that part is pulling it up on the others.

Speaker Change #115: There can be some industrial customers, who are still seeing weakness others, who are beginning to see the bottom and trying to come back in with the rush orders that goes into the other end markets as well. So no particular end market trend that is distinguishable along the <unk>.

Speaker Change #115: Bottoming out of where their inventories are.

Speaker Change #115: Yes.

Eric Bjornholt: As a follow-up, you know, Eric, you talked about, you know, perhaps if things go well, June's the trough, then June's likely the bottom for gross margins as well. As you go forward, as we pull our way out of this, what do you think the trajectory of gross margins will be? And I guess I ask that taking into consideration the fact that your internal inventory is still high. So how would we think about gross margins, you know, in the context of recovery as you have to bring your own inventories down to normal?

Speaker Change #115: Thanks.

Speaker Change #116: Follow up.

Eric you talked about perhaps.

Speaker Change #116: If things go well June the trough in June likely.

Speaker Change #116: The bottom for gross margins as well as you go forward as we pull our way out of this.

Eric: What do you think would be the trajectory of gross margins and I guess I asked that taking in consideration. The fact that your internal inventory is still high so how would we think about gross margins in.

Eric: In the context of recovery as you have to bring your own inventories down to normal.

Eric Bjornholt: So it does depend on the revenue trajectory and then how we would run our factories to respond to that. And so, you know, it's not a question that I can 100% answer today. But, you know, our cost structures are still in good shape. Average selling prices are absolutely hanging in there.

Eric: So it does depend on the revenue trajectory and then how we would run our factories to respond to that and so it's not a question that I can 100% answer today, but our cost structures are still in good shape average selling prices are absolutely hanging in there.

Eric Bjornholt: So with that, you know, we have confidence in our long-term model and our ability to get back there. But the trajectory and how we get there is going to very much be revenue-dependent, which will drive certain actions to increase output from our factories. So I know that's not specifically answering your question, but I think that's the best we can do right now. Yeah, fair enough.

Eric: So with that we have confidence in our long term model and our ability to get back there, but the trajectory and how we get there is going to very much be revenue dependent which will drive certain actions to increase output from our factories. So I know thats not specifically answering your question, but I think thats. The best we can do right.

Eric: Now.

Speaker Change #117: Okay fair enough. Thank you.

Eric Bjornholt: Thank you. Our next question is from Harlan Sur with J.P. Morgan. Please proceed with your question. Good afternoon.

Harlan Sur: Thank you. Our next question is from Harlan Sur with J.P. Morgan. Please proceed with your question. Good afternoon.

Harlan Sur: Our next question from Harlan sur with Jpmorgan. Please proceed with your question.

Ganesh Moorthy: Thanks for taking my question. Can you just talk about channel sell-through dynamics from your global distributors? You know, in March, you mentioned sell-through $125 million higher versus sell-in. Is that a similar delta here in the June quarter? And if excess inventories and customers of distributors are coming down, I would assume that distribution sell-through is starting to grow. Are you seeing that this quarter?

Harlan Sur: Good afternoon. Thanks for taking my question can you just talk about channel sell through dynamics timing of global distributors in on March <unk>.

Harlan Sur: You mentioned sell through $125 million.

Higher versus sell in is that a similar delta here in the June quarter.

Harlan Sur: And it's excess inventories at end customers or distributors are coming down I would assume that distribution sell through is starting to grow are you seeing that this quarter and is this maybe what's also giving you confidence that June is the bottom.

Ganesh Moorthy: And is this maybe what's also giving you confidence that June is the bottom? So, Harlan, thanks for the question. You know, the level of inventory that is past what our distributors have that have been with our customers. [inaudible] So they are seeing how they are managing their end customers, their inventory, and placing incremental orders on it. So that must have some relevance to how they're viewing things, but I don't have a definitive answer on where sell-through is going to end up versus sell-in here in the June quarter, at least not at this time. Thank you.

Speaker Change #118: So harlan thanks.

Harlan Sur: Thanks for the question.

Harlan Sur: The level of inventory that is passed or our distributors had that had been with our customers.

Speaker Change #119: It's not always visible to us I think we can get some sense of that from what the distribution sell through is but there is also a second factor, which is some of those customers are also reducing the months of inventory they want to carry so let's say, it's a multi pronged.

Speaker Change #119: Answer to it but what we can see is that distribution is part of the placing of additional orders on us.

Speaker Change #119: So they are seeing how they are managing their end customers their inventory and placing incremental orders on us.

Speaker Change #119: So that must have some relevance to how they are viewing things, but I don't have a definitive answer on where sell through is going to end up versus sell in here in the June quarter or at least not at this time.

Ganesh Moorthy: And then just a quick follow up. So, direct customer shipments. We're almost 30% We're down almost 30% sequentially, while Disney shipments were only down 20% sequentially in March. Does that suggest that excess inventories are maybe a bit more pronounced at your direct customers? And if your lead times are sub-eight weeks, you guys only have visibility through the end of this quarter. So what gives the microchip team confidence that shipments to direct customers post June will be going sequentially as you aren't booking beyond that? And you don't really have visibility into their sell-through dynamics. So we know, and customers are placing backlog into the September quarter and into the December quarter. So there's not a single answer that everybody is solving.

Speaker Change #120: Thank you for that and then just a quick follow up so direct customer shipments.

Speaker Change #120: We're almost 30% were down almost 30% sequentially, while <unk> shipments were only down 20% sequentially in March does that suggest that excess inventories are maybe a bit more pronounced that your direct customers.

Speaker Change #120: Lead times are eight weeks you guys only have visibility through the end of this quarter. So what gives the microchip team confidence that shipments to direct customers will still be growing sequentially. As you are looking beyond that and you don't really have visibility into their sell through dynamics.

Speaker Change #120: So we know customers are placing backlog.

Speaker Change #120: Into the September quarter into the December quarter, So theres not a single answer that everybody is following.

Ganesh Moorthy: And we can see that as the bookings are rising, they are placing them into the next three to six months on a more predominant basis. So that level of where the momentum is coming in, and how the backlog is coming in, is what gives us a sense of where the bottom is and how things are going to be as we move into September and December. Thanks, Ganesh.

Speaker Change #120: And we can see that as the bookings are rising they are placing them into the next three to six months on a more predominant basis.

Speaker Change #120: So that level of where the momentum is coming in at how backlog is coming in.

Speaker Change #120: Is what gives us a sense of where the bottom is and how things are going to be as we move into the September and December quarters.

Speaker Change #121: Thanks goodness.

Speaker Change #122: Thank you.

Gary Wade Mobley: Thank you. Thank you. Our next question is from Gary Mobley with Wells Fargo. Please proceed with your question. Hi guys.

Speaker Change #122: Thank you. Our next question is from Gary Mobley with Wells Fargo. Please proceed with your question.

Eric Bjornholt: Thanks very much for taking my question. I know you guys communicated that you held the OPEX lower than expected. I think it's at today, what, $355 million on a non-GAAP basis. My question is, you know, how long can you hold that down?

Gary Wade Mobley: Hey, guys. Thanks, very much for taking my question.

Gary Wade Mobley: I know you guys communicated that you held the opex lower than expected I think it's at today, what $355 million and non-GAAP basis.

Gary Wade Mobley: My question is.

Gary Wade Mobley: How long can you hold that down and is there any clawback provisions for the lost wages during this temp.

Temporary salary cut and I'm, just trying to get a sense of how we should think about the opex increasing as revenue increases.

Speaker Change #123: So I'll start with our response and <unk> can add to it if he wants to so there is not a clawback in terms of what we're doing from a salary sacrifice for our employees. We have this shared sacrifice shared reward program.

Eric Bjornholt: And in the past, when we have implemented something like this, it has worked out well for our employees that we keep everybody working on the things that are important to drive revenue growth as the cycle turns upward, and we've gained market share through that. And so we've had great financial results coming out of it and then been able to share those rewards with employees through higher bonuses and, you know, taking away the pay cuts at the appropriate time.

Speaker Change #123: In the past when we have implemented something like this that has worked out well for our employees that we keep everybody working on the things that are important to drive the revenue growth as the cycle turns upward and we gained market share through that and so we've had great financial results coming out of it and then been able to share those rewards with employees through higher bonus.

Speaker Change #123: <unk> and taking away the pay cuts at the appropriate time, so we're going to have to see how this plays out from a topline revenue perspective. It would be my perspective that we will achieve the same types of results. This go around with the actions that we've taken but theres no theres no promise to employees that theyre going to get this money back Theres no.

Eric Bjornholt: So we're going to have to see how this plays out from a top-line revenue perspective. It would be my opinion that we will achieve the same types of results this go around with the actions that we've taken. But there's no promise to employees that they're going to get this money back. There's no retroactive clawback that would be implemented.

Speaker Change #123: This clawback that would be implemented.

Speaker Change #123: This is a.

Speaker Change #123: Part of our culture that is not always as easily appreciable from a investor community.

Speaker Change #123: We have 98% of employees around the world that are participating in this voluntarily.

Speaker Change #123: We have another 700 employees, who have volunteered for a higher.

Speaker Change #123: Salary reduction than what we have requested from them.

Speaker Change #123: It's very difficult to quantify how powerful culture plays a role in these type of difficult situations and how much that the employees that are part of the solutions and of course. They are a part of the shared rewards that come up as we get into better times as well. So this is very much of a program that has worked many times in the past.

Eric Bjornholt: And of course, they are a part of the shared rewards that come up as we get into better times as well. So this is very much a program that has worked many times in the past and is another time we're applying it, and we expect it to be successful. I think the other thing that I'd add is, you know, we know this is difficult for employees, you know, inflation still exists, and this is a challenge for employees. So it's not that we want to keep these in place.

Speaker Change #123: And as another time, we are applying it and we expect it to be successful.

Speaker Change #124: I think the other thing that I'd add is we know this is difficult for our employees.

Speaker Change #124: The inflation still exists. This is this is a challenge for our employees. So we it's not that we want to keep these in place, but at the time with where were guiding revenue for the current quarter EPP revenue and earnings Thats appropriate and we hope that we can restore these things back to normal salary levels as soon as possible.

Eric Bjornholt: But you know, at the time, with where we're guiding revenue for the current quarter of revenue and earnings, it's appropriate, and we hope that we can restore these things back to normal salary levels as soon as possible. I wanted to perhaps strike a more positive chord and ask about design win metrics for the fiscal year. I don't know if you have those stats handy with you, but maybe you can just give us some qualitative or quantitative measure of the lifetime value of the design win. So we don't usually break that rule out.

Ganesh Moorthy: But you know, at the time, with where we're guiding revenue for the current quarter of revenue and earnings, it's appropriate, and we hope that we can restore these things back to normal salary levels as soon as possible. I wanted to perhaps strike a more positive chord and ask about design win metrics for the fiscal year. I don't know if you have those stats handy with you, but maybe you can just give us some qualitative or quantitative measure of the lifetime value of the design win. So we don't usually break that rule out.

Speaker Change #125: Thank you for that color as my follow up I wanted to perhaps strike a more positive cord.

Speaker Change #126: And ask about design win metrics for the fiscal year.

Speaker Change #127: I don't know if you have those stats on handy with you, but maybe if you can just give us some qualitative or quantitative.

Speaker Change #127: Measure of the lifetime value of the design wins.

Carlos Coronado: And, you know, we have slightly different ways of looking at this. What we do constantly look at is, you know, how is the design pipeline progressing? In the course of 2023, in addition to all the work that we did, we also saw them shift their priorities from doing triage for some of their shortages that they were running into. [inaudible] Thank you.

Speaker Change #128: So we don't usually break that out.

We have slightly different ways in which we look at this.

Speaker Change #128: What we do constantly look at is how is the design pipeline progressing and in the course of 2023. In addition to all the work that we did we also saw customers shifting their priorities from doing triage for some of the shortages that they were running into bringing back the innovation program.

Speaker Change #128: That they.

Speaker Change #128: Had put on hold and so if you put all of that together.

Speaker Change #128: Design win pipeline is strong there's a lot more design in activity over the last 12 months and that was in the prior 12 months, just simply because customer bandwidth was there to be able to run the development programs.

Speaker Change #128: They were progressing with.

Speaker Change #129: Thanks <unk>.

Speaker Change #130: Thank you.

Carlos Coronado: Our next question is from Carlos Coronado with UBS. Please proceed with your question. Hi, it's Tim on.

Ganesh Moorthy: Our next question is from Carlos Coronado with UBS. Please proceed with your question. Hi, it's Tim on.

Speaker Change #130: Thank you. Our next question is from Carlos Coronado with UBS. Please proceed. Please proceed with your question.

Ganesh Moorthy: So, Ganesh, can you give us a sense of book-to-bill? Sounds like it was below one for March, but I just wanted to confirm that. And I know that, you know, you did say that orders are getting better month by month, but is the message that you think book-to-bill could be above one for the June quarter? So I'm just wondering if you can talk about book-to-bill.

Carlos Coronado: Hi, Hi, it's Tim on.

Carlos Coronado: So.

Carlos Coronado: Could you give us a sense of <unk>.

Carlos Coronado: Book to Bill it sounds like it was below one four for March but I just wanted to confirm that and I know that you did say that orders are getting better month by month, but is the message that you think book to bill could be above one for the June quarter, and so I'm. Just wondering if you could talk to a book to Bill.

Ganesh Moorthy: So, book-to-bill was below 1. However, book-to-bill has never been an indicator for us of where the business is going as much as an indicator for our lead times. During the 2021-2022 shortages, we had shook the bill by many, many multiples of where they were at, reflecting the long lead time. Nathaniel Bolton, Ambrish Srivastava, William Stein, Stephen Sanghi, Nathaniel Bolton, Ambrish, Got it.

Carlos Coronado: So book to Bill was below one however book to Bill has never been an indicator for us of where the business is going as much as an indicator of where our lead times are during.

During the 2021 and 2022 shortages, we had book to Bill in many many multiples of where they were at reflecting the long lead times.

Carlos Coronado: Now with short lead times that we had we expect book to Bill will be lower.

Carlos Coronado: But the bookings are rising and I can't quite tell what May and June are going to complete so I don't have.

Carlos Coronado: Thanks.

Carlos Coronado: We don't really look at book to Bill has a necessarily an indicator of where's the growth going to be it's more a reflection of is lead times get short people replace the bookings consistent with the shorter lead times.

Carlos Coronado: Yes.

Eric Bjornholt: Okay. And then, Eric, one for you. So inventory was a little higher coming out of March than I think, you know, some of us thought it would be. Can you talk about loadings in the factory and sort of how you're thinking about loadings into June? Are you kind of drawing a line in the sand where you plan to bring down inventory on the, you know, balance sheet in June and, and, and, yeah, just kind of talk about that and its impact on gross margin. Thanks. Yeah, so I'm honestly not quite sure where the street had us modeled.

Speaker Change #131: Got it Okay, and then Eric one for you so inventory was a little higher coming out of March then.

Eric: And I think some of us thought it would be can.

Eric: Can you talk about loadings.

In the factory and sort of how youre thinking about loadings into June.

Eric: Are you just kind of a drawing them I understand where you plan to bring down inventory on the balance sheet in June and and.

Speaker Change #132: Yes, just kind of talk about that and its impact on gross margin. Thanks.

Eric Bjornholt: You know, we talked about in our last conference call that inventory days were expected to be between about 225 and 230 days at the midpoint. We came in at 224. So I think we kind of delivered on what we told the street we were going to do. In terms of utilization in the current quarter, we have been having some attrition in our factories, and because of that, we can start less wafers on a monthly basis than we can because we have a fewer number of employees, but it's relatively modest in the big picture. I don't think utilization will be significantly different than it was in the March quarter, maybe just modestly lower. Perfect, Eric.

Speaker Change #132: Yes.

Speaker Change #132: Not quite sure where the street had us modeled we had talked about in our last conference call that inventory days were expected to be between about 225 million to 230 days at the midpoint. We came in at 224. So I think we kind of delivered on what we what we told the street, where we're going to do in.

Speaker Change #132: In terms of utilization in the current quarter.

Speaker Change #132: We have been having some attrition in our factories and because of that we can start less wafers on a monthly basis and we can because we have a fewer number of employees, but it's in the big picture of things relatively modest. So I don't think utilization will be significantly different than it was in the March quarter, maybe just modestly lower.

Speaker Change #132: Sure.

Speaker Change #133: Perfect. Thank you.

Speaker Change #134: Thank you.

Tore Egil Svanberg: Thank you. Our next question is from Tore Svanberg with Speedball. Please proceed with your question. Yes, thank you. Let me move on from cyclical questions. And I have a question about 64-bit microcontrollers.

Speaker Change #134: Our next question is from Tories Lundberg with Stifel. Please proceed with your question.

Ganesh Moorthy: You also had an AI acquisition in the quarter. Just trying to understand Ganesh, your conversations with customers, you know. We hear about AI at the edge a lot, but you know, it's hard for us to get true visibility on that. So when will, when will, you know, edge AI become a much more meaningful part of your revenues? You know, our target market for Edge AI is predominantly industrial, to a small extent automotive, some in medical, the medical segment of industrial, factory automation, all that. So they are designs in progress, and they've been taking place over the last six to 12 months. They probably will gestate for 24 to 30 months.

Speaker Change #134: Yes.

Tories Lundberg: Let me move on from cyclical questions.

Tories Lundberg: And I have a question on 64 bit Microcontrollers you also had any Io acquisition in the quarter just trying to understand Dinesh.

Tories Lundberg: Your conversations with customers, we hear AI at the edge a lot but.

Tories Lundberg: Hard for us to get visibility on that so when when will edge AI become a much more meaningful part of your revenues.

Tories Lundberg: Our target markets.

Tories Lundberg: Sure.

Dinesh: Hi, predominantly in industrial smaller extent automotive summit medical the medical segment of industrial factory automation all of that so they are designs in progress and they've been taking place over the last six to 12 months, they probably will adjust state over a 24 to 30 months of time. So it's in that time because of some of its small.

Ganesh Moorthy: So it's in that time. There's some of it, small amounts that are already taking place, but I think it will become a more and more meaningful part as time goes on. And each of these is a product line announcement or some of the acquisitions which give us specific technologies just to accelerate where those designs can go and how our solutions can be differentiated from others providing similar solutions. Great, and as my follow-up, you said that you're basically shipping below consumption. You're about a billion dollars, you know, from your trough. Obviously, you're running inventory at a certain level, so you must have some idea where the consumption is. Is that a number you could share with us? Not to any level of precision.

Dinesh: Amounts that are already taking place, but I think it becomes a more and more meaningful part as time goes on.

Dinesh: Each of these is a product line announcement or some of the acquisitions, which give us specific technologies, just accelerated where those designs can go and how our solutions can be differentiated from others, providing similar solutions.

Great: Great and as my follow up.

Great: <unk> said that Youre basically shipping below consumption.

Great: We have about $1 billion from your trough.

Speaker Change #137: Obviously, youre running inventories district level. So you must have some idea of where the consumption.

Speaker Change #138: Is that a number you can share with us.

Ganesh Moorthy: I think any form of a four-quarter revenue divide by four starts to get you into the ballpark, but even that is unclear, right? So I think that number will get clearer as people begin to book and buy at a level that they need to, excluding any growth, just to get back to consumption. There's not an easy way to make that number determinable.

Speaker Change #139: Not with any level of precision.

Speaker Change #140: I think.

Any form of a take a four quarter revenue divide by four starts to get you into the ballpark, but even that is unclear right. So I think.

Speaker Change #140: That number will get clearer as people begin to.

Speaker Change #140: Book and buy at a level that they need to excluding any growth just to get back to consumption, but there is not an easy way to make that number a determinable, it's clearly between where our peak a year ago was in <unk>.

Ganesh Moorthy: It's clearly between where our peak a year ago was, the June quarter, to where you're seeing the guidance for this quarter. That's us.

Speaker Change #140: The June quarter to where youre seeing the guidance for this quarter.

Speaker Change #141: That's helpful. Thank you.

Speaker Change #142: Thank you.

Toshiya Hari: Well, thank you. Thank you. Our next question is from Toshiya Hari with Goldman Sachs. Please proceed with your question. Hi, good afternoon. Thank you so much for taking the questions. I had two quick ones.

Speaker Change #142: Thank you. Our next question is from Toshi Hari with Goldman Sachs. Please proceed with your question.

Toshiya Hari: Hi, good afternoon. Thank you so much for taking the question I had two quick ones first on inventory.

Toshiya Hari: Eric So how should we think about inventory management through cycle or longer term I know you've got strategic inventory I know you want a better service your customers on the way up but when you think 12 months out 18 months out whether it be in dollars of days.

Toshiya Hari: Managing the business too.

Speaker Change #143: And then a.

Speaker Change #144: A quick follow up on pricing I think you mentioned that in the near term pricing is holding up but as you think about calendar 'twenty five.

Eric Bjornholt: But as you think about, you know, calendar 25, I think some of your peers have talked about pricing trends, potentially reverting to pre-pandemic patterns, down call it low singles. Is that a view that you would agree with or share?

Speaker Change #144: Some of your peers have talked about pricing trends potentially reverting to pre pandemic patterns.

Speaker Change #144: Down call. It low singles is that a view that you would agree with their share or.

Speaker Change #145: Do you feel or think differently on pricing. Thank you.

Ganesh Moorthy: Or do you feel or think differently on pricing? Thank you. Okay. All right. So on inventory days, you know, longer term, our model is, and this really hasn't changed from what we shared back in our analysis on Investor Day, that we're targeting 130 to 150 days. Now, we're a long ways from that today.

Speaker Change #145: Okay, alright, so on inventory days.

Speaker Change #145: Longer term our model is and this really hasnt changed from what we shared back in our analyst and Investor day that we're targeting 130 to 150 days now where are we.

Speaker Change #145: Long ways from that today, and I'm not going to put a time horizon on when we will get there, but that that's still the goal Gregg we think with that level and a more normalized environment. We can have short lead times and support our customers appropriately with that level. So I will turn the pricing question over to <unk>.

Eric Bjornholt: And I'm not going to put a time horizon on when we will get there, but that's still the goal, right? We think with that level of quality, in a more normalized environment, we can have short lead times and support our customers appropriately. So with that level, I'll turn the pricing question over to you. And I would add one more thing, which is, you know, we also have these last time buys that we put into place on very high gross margin products, and those will be additive, and they are situational depending on when we're faced with them.

Speaker Change #146: I would add one more thing which is we also have these.

Speaker Change #146: Last time buys that we put into place on very high gross margin product lines and those will be additive and they are situational depending on when we're faced with that kind of situation.

Eric Bjornholt: On pricing itself, you know, our pricing is predominantly a function of what we have to compete with at the point of design. So, in the near term, pricing is really driven by where designs have been historically and where we want them to go. And a lot of these are products going into applications that have long life cycles. [inaudible] We are being competitive on new designs with pricing where we need to be, but we also have new products that we compete with, and so the most competitive new products are what we use to fight in the most price-sensitive new design applications. And that's historically how it's been. It's not something new.

Speaker Change #147: On the pricing itself.

Speaker Change #147: Our pricing is predominantly a function of what.

Speaker Change #147: We have to compete with at the point of design.

Speaker Change #147: And so.

Speaker Change #147: In the near term pricing is really driven by where designs, where historically, what we want them at and a lot of these are products going into applications that have long life cycles.

Speaker Change #147: They don't really change unlike a consumer electronics or other end market. They don't really every nine to 12 months change things out.

Speaker Change #147: Products that have been in designs for $5 seven 910 years in many cases.

Speaker Change #147: As well.

We are being <unk>.

Speaker Change #147: Competitive on new designs with pricing, where we need to be but we also have new products that we compete with and so the.

Speaker Change #147: The most competitive new products, how would we use to go fight in the most price sensitive new design applications and Thats been historically, how expand is not something new.

Speaker Change #147: If you go back and look at 20 years of Microsoft That's how we've done it.

Ganesh Moorthy: And if you go back and look at 20 years of microchips, that's how we did it. And we have a lot of business that continues. That will be existing business at existing prices for a long, long time to come. And then we'll have new business at new prices. And that new pricing, we expect, will have good gross margins over time. Great. Thank you. Thank you.

And then we have a lot of business that continues that will be existing business at existing prices for a long long time to come and then we will have new business at new pricing and that new pricing. We expect will have good gross margins.

Time goes on.

Speaker Change #148: Great. Thank you.

Speaker Change #149: Thank you.

Joshua Louis Buchalter: Our next question is from Joshua Buchalter with TD Cowan. Please proceed with your question. Hey guys, thank you for taking my questions.

Speaker Change #149: Thank you. Our next question is from Joshua <unk> with TD Cowen. Please proceed with your question.

Ganesh Moorthy: I guess to start, maybe I can follow up on the previous one. You mentioned pricing hanging in overall, but you know, competing more on new design wins. Have those, are you observing those new design wins becoming any more price sensitive or more price competitive as the shortages have eased and we've entered this correction mode or sort of still normal operating and competitive conditions? Thank you. You know, new designs have always been highly competitive.

Joshua: Hey, guys. Thank you for taking my questions.

Joshua: Let's start maybe I can follow up on the previous one you mentioned pricing hanging in overall, but competing more on new design wins have those are you observing those new design wins, becoming any more.

Joshua: <unk> sensitive or more price competitive as the shortages have eased and we've entered this correction mode or sort of still normal operating and competitive conditions. Thank you.

Joshua: New designs have always been highly competitive it's where people are trying to work on winning platforms with multiyear implications. So.

Joshua: Its in the couple of years of constraints there were fewer new platforms, new designs that customers are doing but in the sense of having to be competitive in the competitive intensity for new designs.

Yes. It is different from the last two or three years, but it is consistent with what it has been over 20 years before that.

Eric Bjornholt: And then for my follow-up, the CapEx guidance is obviously down meaningfully off of what was likely a peak two years ago. Could you maybe just speak to your confidence in having enough capacity, both internally and, perhaps more importantly, investment from your foundry partners at the process geometries that you ship your products on? Thank you. Yeah, so let me say, it's a plan that we look at consistently, both short, medium, and long term. We feel very confident with the internal capacity, both what is installed and underutilized, and what is available and ready to go.

Speaker Change #150: That's clear. Thank you I appreciate the color there and then for my follow up.

Speaker Change #150: The Capex guidance is obviously down meaningfully off of what was likely a peak.

Speaker Change #150: Two years ago could you, maybe just speak to your confidence in having enough capacity, both internally and perhaps more importantly.

Speaker Change #150: <unk> from your foundry partners that the process geometries that you ship your products on thank you.

Eric Bjornholt: And then eventually, what we might add to it. And then we work with our partners, both the foundries as well as the OSATs on their capacity planning across the horizon that they have. You know, we're obviously a small piece of a much bigger pie there that they're running. But we don't have any particular capacity constraints that we're concerned about.

Speaker Change #151: Yes, So let me say.

Speaker Change #152: It's a plan that we look at consistently both short medium and long term.

We feel very confident with the internal capacity, both what is installed and underutilized what is available and ready to go.

And then eventually what we might add to it and then we worked with our partners both the foundries as well as the <unk> on their capacity planning across the horizon that they have.

Speaker Change #152: We're obviously, a small piece of a much bigger pie there that theyre running.

Speaker Change #152: We don't have any particular capacity constraints that we're concerned about it may change as demand begins to come back and if in fact that is a much sharper rise.

Speaker Change #152: Some people are predicting but for the moment for the quite confident both in our internal as well as our partner capacity for the business were running.

Speaker Change #153: Thank you.

Speaker Change #153: Yes.

Speaker Change #153: As a reminder.

Speaker Change #154: Under if you'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change #154: Our next question is from Chris Danley with Citibank. Please proceed with your question.

Christopher Brett Danely: Hey, Thanks, guys.

Christopher Brett Danely: So now that were you had another quarter into the.

Christopher Brett Danely: Correction and hopefully coming out of it.

Christopher Brett Danely: If we look at your total drop in terms of revenue, it's probably going be like 45% or something like that and thats.

Ganesh Moorthy: . Transcribed by https://otter.ai. Why do you think that is? Do you think that the PSP program encouraged a little double ordering? Is there some geography or something else going on?

Christopher Brett Danely: Worse than most of your competitors. So I guess why do you think that is do you think that the PSP program encouraged a little double ordering is there some geographic or something else going on just looking for some now for.

Christopher Brett Danely: For your take on why that has happened.

Ganesh Moorthy: Just looking for your take on that. I know, great question, Chris. You know, when you look at peak to trough, it all is a question of when does it start and when does it bottom out, right? We've seen one of our peer group companies that tried to do a peak drop in one quarter, and you could say, boy, that was one way to do it. Our, you know, objective has always been to try to respond as the business changes.

Speaker Change #156: Yes, great question Chris.

Speaker Change #156: When you look at peak to trough at all as a question of when does it start and when does that bottom out right. You've seen one of our peer group companies that try to do a peak trough in one quarter and you could say boy that was one way to do it.

Speaker Change #156: Our.

Speaker Change #156: Objective has always been to try to respond as the car of tomorrow as the business is changing and so we've had different and.

Ganesh Moorthy: And so we've had different end markets responding at different times; we had a lot of automotive and industrial that were later in the cycle, and our mix is higher in some of those markets as well. And in this case, the downturn is, you know, substantially deeper than what anybody had expected on that. And there's probably a component of PSP that may have amplified some of those things, etc.

Speaker Change #156: And markets are responding at different times, we had a lot of automotive and industrial they were later in the cycle and our mix is higher in some of those markets as well.

Speaker Change #156: And in this case the downturn is.

Speaker Change #156: Substantially deeper than what anybody had expected on that and there's probably a component of PSB that may have amplified some of those things et cetera, but a lot of it has to do with we started later and we are correcting stronger in the end markets that we are predominantly represented in what are the ones with the later in the cycle correction.

Speaker Change #156: And perhaps those that are more consumer a phone a PC that kind of exposure.

Got it thanks guys.

Speaker Change #157: So welcome.

Vijay Raghavan Rakesh: Thank you. The next question is from Vijay Rakesh with Mizuho Securities. Please proceed with your question. Yeah, hi, just a quick question on the competitive landscape, I guess, especially if you look at kind of China's supply, is there any worry around them being aggressive with the microcontroller supply coming out from there? And what are you seeing in those trends? You know, China has always been a competitor in many of the spaces that we're in. You know, their approach is a little bit different.

Speaker Change #157: Thank you. Our next question is from Vijay Rakesh with Mizuho Securities. Please proceed with your question.

Vijay Raghavan Rakesh: Yeah, Hi, just a quick question on the competitive landscape I guess, especially as you look at kind of China supply is that any worry around them being aggressive on the microcontroller supply coming out from there.

Vijay Raghavan Rakesh: What are you seeing in those trends.

Ganesh Moorthy: They have a lot of their attention going into things that are faster to market.,,,, [inaudible] You could argue perhaps that there's a lot of attention and priority that they have. But we win with new products. We win with the competitive solutions that we have. And we win by providing the customer with a solution that is better than what they can get otherwise, and that remains the way in which we've gone to market, and we'll continue to fight for new business in China and anywhere else.

Vijay Raghavan Rakesh: China has always been.

Vijay Raghavan Rakesh: Okay.

Vijay Raghavan Rakesh: <unk> in many of the spaces that we're in.

<unk> approach is a little bit different they have.

Vijay Raghavan Rakesh: A lot of their attention going into things that can be faster to market.

Vijay Raghavan Rakesh: Quicker.

Vijay Raghavan Rakesh: And those tend to take them into places like.

Vijay Raghavan Rakesh: Consumer electronics and.

Vijay Raghavan Rakesh: The other areas that are faster design in cycles, a lot of the power supplies for cell phones, and those kind of things.

Vijay Raghavan Rakesh: Clearly they are all.

Vijay Raghavan Rakesh: We're also making products that can go into other end applications and thats a competitive environment that is not different today.

Vijay Raghavan Rakesh: You could argue perhaps that there is a lot of attention and priority that they have but we win with our new products, we win where companies with competitive solutions that we have.

Vijay Raghavan Rakesh: And we need we win by providing the customer with a solution that is better than what they can get otherwise and.

Vijay Raghavan Rakesh: That remains the way in which we've gone to market and we'll continue to fight for new business in China than anywhere else.

Ganesh Moorthy: Got it, and then as you look at utilization, I don't know if you gave a hard number there, but how do you see that playing out for the rest of the year? I know there's a lot of moving parts to that, but anyway, to look at what utilization looks like... I know you cut CAPEX pretty soon.

Vijay Raghavan Rakesh: Got it and then.

Vijay Raghavan Rakesh: If you look at.

Speaker Change #158: Listen I don't know if you'd give a.

Speaker Change #159: The hard number to that but how do you see that.

Speaker Change #159: Laying out to the rest of the year.

Speaker Change #159: I know, there's a lot of moving parts to that but anyway to look at what utilization looks like I know you've cut capex pretty significantly as two so that should help.

Eric Bjornholt: Yeah, so, you know, we don't break out a specific utilization. In total, we have, you know, it varies very much by factory. You know, we've had some attrition and employee headcount, which I mentioned in response to an earlier question, that just makes it seem, as we go by the months in our rehiring, that capacity utilization would come down modestly. So I'm not expecting a huge change from March to June, maybe just a little bit lower.

Yes, so we don't break out our specific utilization in total we have.

Speaker Change #159: <unk> very much by factory.

Speaker Change #159: We have had some attrition in employee head count, which I mentioned in response to an earlier question that just makes it that as we go by the months on arent rehiring.

Speaker Change #159: Capacity utilization would come down modestly so I'm not expecting a huge change from March to June maybe just a little bit lower and then obviously actions depending on what we're outlook is on revenue and inventory will drive what the rest of the year looks like as we as we gain a little bit more confidence and understanding where the business is heading over the coming.

Eric Bjornholt: And then obviously, actions, depending on what our outlook is on revenue and inventory, will drive, you know, what the rest of the year looks like as we gain a little bit more confidence and understanding where the business is heading over the coming months. Thank you.

Speaker Change #159: Months.

Speaker Change #160: Alright. Thanks.

William Stein: Our next question is from William Stein with Truist Securities. Please proceed with your question. Okay.

Speaker Change #160: Thank you. Our next question is from William Stein with Tour Securities. Please proceed with your question.

Ganesh Moorthy: It was interesting to see a couple of tuck-in acquisitions this quarter. I'm wondering if you can talk about the relative focus of that approach to capital deployment or, let's say, product development going forward relative to internal development. So, you know, we have an internal development that works on the model that we have provided, which over the long term is, Operating Expanse 45% Operating Margin. That allows for the prioritization of our internal activities and where we want to apply them to different opportunities that we have in front of from time to time. We find that our external opportunities, such as www.microsoft.com, can be a lot longer if we were to do it just organic

Speaker Change #160: Great.

William Stein: It was interesting to see a couple of tuck in acquisitions. This quarter I'm wondering if you could talk about the relative focus of that approach to capital deployment or let's say product development going forward relative to internal development.

Speaker Change #161: So we have a internal development that works on the.

Speaker Change #161: The model that we have provided which over the long term is the 68% gross margin and 23% operating expense, 45% operating margin that allows for the prioritization of our internal activities and where we want to apply it for different opportunities that we have in front of us.

Speaker Change #161: From time to time, we find in our.

Speaker Change #161: External opportunities were.

Speaker Change #161: The speed at which we could do something or the time that it would involve and trying to get to a solution.

Speaker Change #161: Can be a lot longer if we were to do with just organically.

Speaker Change #161: And there we have applied these tuck in acquisitions as a way to speed up what we're able to do consistent with the direction that we are interested in or have been following for awhile.

Speaker Change #161: And we've done about six or eight of them now in the last four or five years of time ever since Microsemi was the last major.

Speaker Change #161: Public acquisition related we've done about six to eight smaller ones since then.

Ganesh Moorthy: And it all is to speed up our agenda with a very tactical and a pinpoint strike on what the acquisition can do for the area that we're driving growth. We will do more of those as we continue on as well. It's a, you know, we've always, we've been public.

Speaker Change #161: And it all has to speed up our agenda with a very tactical and a pinpoint strike on what the acquisition can do.

Speaker Change #161: For the areas that we're driving growth in.

Speaker Change #161: And we will do more of those as we continue on as well.

Ganesh Moorthy: That's an essential part of our strategy. As a follow-up, it does sound that while you anticipate revenue to grow in September, I would imagine the inventory burn isn't done at the end of June. I wonder if you can maybe help us understand when we should expect a situation where your revenue is approximately the same as demand, in other words, when the inventory reductions will be mostly done. Do you think that's, have I misunderstood you and that actually does happen in June, or do you think it's more like September or even further out?

Speaker Change #161: We've been public that's an essential part of our strategy.

Speaker Change #162: As a follow up.

Speaker Change #162: It does sound.

Speaker Change #162: While you anticipate revenue to grow in September.

Speaker Change #162: I would imagine the inventory burn isn't done.

Speaker Change #162: At the end of June I Wonder if you can.

Speaker Change #162: Maybe help us understand when we should expect.

Speaker Change #162: A situation where your revenue is approximately the same as.

Speaker Change #162: And demand in other words, when when the inventory reductions will be mostly done do you think that.

Speaker Change #162: I misread that actually does happen in June or do you think it's more like September or even further out. Thank you.

Ganesh Moorthy: So I'll start with the response here. I mean, I think the bottom line is, well, with 125,000 customers, it is impossible to know when all customers, the majority of customers have kind of corrected their inventory to what they think the right level is.

Speaker Change #163: So I'll start with the response here I mean, I think the bottom line as well with 125000 customers it is impossible.

Speaker Change #163: Impossible to know when when all customers a majority of customers have kind of corrected their inventory to what they think the right level is and thats somewhat of a moving target as lead times adjust based on whatever point in the cycle that we're at so we don't have a good answer to be able to answer your question there will.

Eric Bjornholt: And that's somewhat of a moving target as lead times adjust based on whatever point in the cycle that we're at. So we don't have a good answer to be able to answer your question there. We'll obviously give guidance for the next quarter, and we'll have more information that we can share at that time. But yeah, I think that for some customers, this inventory correction is going to last beyond this quarter. I think that absolutely is the case.

Speaker Change #163: Obviously give.

Speaker Change #163: Guidance for the next quarter and we'll have more information that we can share at that time, but I think that for some customers. This inventory correction is going to last beyond this quarter I think thats absolutely is the case I think many customers made their own mistakes on how they viewed per business what they thought the prospects were many.

Eric Bjornholt: Yeah, I think many customers made their own mistakes in how they viewed their business, what they thought the prospects were. Many other customers, you know, were very thoughtful, and continue to be strong players where they're at. And as we gave you some indications of certain end markets where there's strength as well, so it's all over the place. And just as a preponderance of people who are done with their inventory correction and are now going back to buying for their consumption or into growth that they may be seeing, the weighted average begins to shift. And that's the weighted average that starts to shift in September.

Other customers.

Speaker Change #163: We're very thoughtful are.

Speaker Change #163: Continue to be strong players and where they are at and as we gave you some indication of certain end markets, where their strength as well so it's all over the place and.

Speaker Change #163: And just as a preponderance of.

Speaker Change #163: People, who are done with their inventory correction and are now going back into buying for buying for their consumption.

Speaker Change #163: And or into growth that they may be seeing the weighted average begins to shift and that's the weighted average that begins to shift in September.

Speaker Change #164: Thank you Paul.

Paul: Thank you.

Ganesh Moorthy: Thank you. Thank you. The next question is from David O'Connor with BNP.

David O'Connor: Our next question is from David O'connor with BNP. Please proceed with your question.

David O'Connor: Please proceed with my question. Two from my side, maybe firstly Ganesh, just on the green shoots, can you talk about them from a geographical perspective?

David O'Connor: Great. Thanks for taking my questions.

David O'Connor: Two from my side, maybe firstly can I ask just on the Green shoots can you talk about them.

David O'Connor: Geographical perspective is it mainly China driven.

David O'Connor: Seeing this.

David O'Connor: Continue in Europe, and the U S. How would you describe it geographically.

Ganesh Moorthy: Is it mainly China driven? And now you're seeing that continue in Europe and the US, or how would you describe it geographically? Yeah, so the green shoots are not limited to any geography, not limited to anyone and any market. It's really across all of them.

Speaker Change #165: Yes, so the green shoots are not limited to any one geography not limited to any one end market.

Speaker Change #165: It's really.

Speaker Change #165: Ross all of them and as I mentioned, you're going to have in a geography or in an end market. Both customers with continued pain and other customers who are starting to look at how to get back into growth mode and what they are doing so no specific end market or geography, leading to the green shoots.

Ganesh Moorthy: And as I mentioned, you're going to have in a geography or in an end market both customers with continued pain and other customers who are starting to look at how to get back into growth more. Okay, got it. Thanks for that. And then maybe just on the acquisition, the Neuronics Labs acquisition, seems like it helps you address the AGI market with your MCUs.

Speaker Change #166: Okay got it thanks for that and then maybe just on the acquisition the <unk> Labs acquisition. It seems like it has to address the Agi Mark insurance you can you maybe talk about the claim of content tailwind for your MCU for Agi, but this can generate or how much of your <unk> portfolio.

Ganesh Moorthy: Can you maybe talk about the kind of content tailwind for your MCUs for AGI that this can generate? Or how much of your MCU portfolio are customers looking to add AI content to their next-gen products to kind of run those AGI models? Maybe some more color on that would be helpful.

Speaker Change #166: Looking at each AI content into next Gen products depend on Windows AGM model needs any more color on that would be helpful. Thank you.

Speaker Change #167: I don't know if there is a.

Ganesh Moorthy: Thank you. I don't know if there's a numerical way to express that. I think, here's what I'll say. I believe that embedded customers are thinking about how AI can be used to deliver better solutions than what they have in the past. No different from, if you go back in the chronology from 20, 25 years ago, people added intelligence first because you could make a product better with intelligence added. Then, farther out in time, people added connectivity as a way to make it even better than just adding intelligence. And then they added security as the next thing.

Speaker Change #168: Numerical way to give you that I think this is all set.

Speaker Change #169: I believe that.

Speaker Change #169: Embedded customers are thinking about how AI can be used in delivering better solutions than what they have in the past no different from if you go back in the chronology from 2025 years ago people added intelligence first because you could make a product better with intelligence at it.

Speaker Change #169: And then further out in time people added connectivity.

Way to now make it even better than just adding intelligence and.

Speaker Change #169: And then the added security as the thing and now finally, I think AI is the next leg of how people will add capability to the products to make them better. So it is a journey and there's going to be many customers, who don't need to do anything with our AI, others, who are seeing the opportunity and we will take advantage of that in the next generation of their products, but.

Speaker Change #169: I think you should think of it as a continuum of customers.

Speaker Change #169: Looking to innovate AI give them another opportunity in their platforms to be able to innovate and provide better products than the previous generation.

Speaker Change #170: That's helpful. Thanks, guys.

Speaker Change #171: Great. Thank you.

Mark Lapacious: Thank you. The next question is from Mark Lapacious with Evercore ISI. Please proceed with your question. Hi, thanks for taking my question. I think this is for Ganesh or Steve. I'm wondering what the difference is between the setup for the microchip business over the next six months and the setup that you see at the bottom of every cycle. It seems like there are a lot of similarities, and I'm hoping you can tell me the difference.

Speaker Change #171: Thank you. Our next question is from Mark will the patients with Evercore ISI. Please proceed with your question.

Hi, Thanks for taking my question I think this is for a good Nash or Steve.

Mark: I'm wondering what is the difference between the setup for micro chips business over the next six months and the setup that you see at the bottom at the bottom of every.

Mark: Cycle, it seems like Theres, a lot of similarities and I'm, hoping you can tell me the difference similarities I C. R.

Mark: There is some kind of demand shock or a big inventory build and then your customers and the supply chain downstream from them recognize that so.

Mark: Hey.

Mark: Decided that they're going to supply themselves out of their own inventories they cancel orders or they take take orders down and then you don't get any visibility. So you and your peers take your utilization rates down and sometimes do temporary fab shutdowns and then.

Ganesh Moorthy: And then your customers have an epiphany that they overcorrected on the downside. And in three, four quarters from here, everybody's taking their numbers up, and everybody's scrambling to get components. Those are the similarities I see. What are the differences?

Mark: Your customers have an epiphany that they overcorrected on the downside and then three four quarters from here everybody is taking their numbers up and everybody is scrambling to get components. So.

Speaker Change #172: Those are the similarities I see what are the what are the differences in if you have a disagreement over there similarities I'd love to hear that too. Thank you.

Ganesh Moorthy: And if you have a disagreement over those similarities, I'd love to hear that too. Mark. Mark, I think you've answered your question. We couldn't say it any better. You asked a question, then you answered it. I think it's perfect.

Speaker Change #173: Mark Mark I think I've answered your question recruited and treated any better.

Speaker Change #174: You asked the question and you answered it I think it's perfect.

Ganesh Moorthy: Mark, I was going to welcome you back to the forum as well. And, as you said, I think this is a cycle that we've seen play out many times. And the elements that you answered or the elements that you proposed are there. I don't know of any different.

Speaker Change #174: Mark I was going to welcome you back.

Mark: Thank you, Florida as well and as you said I think this is a cycle we've seen play out many times and the elements that you answered the element that you proposed there I don't know if any differences.

Mark: And this one obviously.

Mark: The length of the upcycle, sometimes effects the depth of the down cycle, but other than that the elements are very similar.

Mark: Was hoping that you might say I was hoping you might say.

Mark: The supply chain has learned their lesson over the last three years and recognize that you guys need to have visibility because theres a manufacturing cycle time.

So is that is the supply chain not learned anything downstream from you is that we're just doing the same thing over and over again now so yeah I had assumed that during the depth of the constraints with all of the different discussions that we're having with the senior executives at our customers.

Ganesh Moorthy: That's the constraint with all the different discussions I was having with the senior executives that are coming to our customers, that they would come out of this cycle with a better understanding of how semiconductor supply works and what they would need to be to be more strategic. But I have been surprised at how quickly people have forgotten and how quickly people have returned back to the way they used to think. Basically, they think semiconductors are like water in your tap. You turn on the tap, and the water comes, and you turn off the tap, and it goes away.

Mark: They would come out of this cycle with a better understanding of how semiconductor supply works and what they would need to be to be more strategic.

Speaker Change #175: I have been.

Speaker Change #175: Surprised at how quickly people have forgotten.

Speaker Change #175: And how quickly people have.

Speaker Change #175: Have returned back to the way they used to think.

Speaker Change #175: Basically the thing semiconductors I like.

Speaker Change #175: Water and your tap you turn on the tap in the water comes in you're kind of off the top of that goes away.

Speaker Change #176: And so I am.

Speaker Change #176: I am of the belief that those lessons will have to be re learned again as we go through the cycle.

Speaker Change #176: Let's see how the cycle goes but no there has not been any.

Speaker Change #176: And there are a few but for the most part those learned those learnings have not carried forward.

Speaker Change #176: So Washington, Rinse repeat off the bottom.

Ganesh Moorthy: Not from time to time, some people have written or talked about, you know, the industry has matured, and there will not be any more cycles anymore. I think all those predictions have been wrong; the industry has always been cyclic and will always be cyclic. I think our customers are distributors, vendors, and suppliers. They don't learn. And I think people change. New purchasing managers come in, new people come in. And as Ganesh described, the lessons are forgotten very rapidly, leading to just these cycles never going away, and this one was the most obvious Pronounced cycle, both on the upside, and now we're seeing on the downside.

Speaker Change #177: Yes, Mark from time to time, some people have written or talked about in our industry has matured and they will not be any cycles anymore. I think all of those predictions have been wrong.

Speaker Change #177: Industry has always been cyclic and we'll always be strickler.

Speaker Change #177: Think of our customers or distributors vendors suppliers.

Speaker Change #177: They don't learn I think people change new purchasing managers come in new people come in and Eric can you just describe the lessons with regarding very rapidly.

Speaker Change #177: Leading produced through these cycles and inevitably array.

Eric: And this one was the most.

Eric: Known cycle, both on the upside and now we're seeing on the downside.

Ganesh Moorthy: Yeah, I was just going to make the point that this is inventory correction on steroids, right? I mean, we had not seen our lead times for the vast majority of our products go to 52 weeks before, and then they contracted over a period of 12 months down to, you know, these very short lead times that we have today. Very helpful. Thanks, everybody.

Eric: I was just going to make the point and as I view. This as inventory correction on steroids right that we had not seen our lead times for the vast majority of our products go to 52 weeks before and then they contracted over a period of 12 months down to these various short lead times that we have today.

Speaker Change #178: Very helpful. Thanks, everybody. Thank you Mark.

Joseph Lawrence Moore: Thank you. Our next question is from Joe Moore with Morgan Stanley. Please proceed with your question. Great. Thank you.

Speaker Change #178: Thank you. Our next question is from Joe Moore with Morgan Stanley. Please proceed with your question.

Ganesh Moorthy: You gave us some color on the FPGA business, and I wonder if you sound like you had some pretty good growth relative to the peers for the fiscal year. Can you talk about the trajectory of that? Have you seen, it's obviously been a tough patch for FPGAs as well. Has that looked similar to the rest of your business? Has there been any outperformance relative to that? And can you talk about, you know, your market share prospects going forward in that market?

Speaker Change #178: Yeah.

Joseph Lawrence Moore: Great. Thank you can you give us some color on the FPGA business and I Wonder.

Joseph Lawrence Moore: It sounded like some pretty good growth relative to peers for the fiscal year can you talk about the trajectory of that have you seen.

Joseph Lawrence Moore: Market share prospects going forward in there.

Ganesh Moorthy: Sure. So our FPGA business has, in fact, performed better than our other businesses. And in part, it's because our FPGA business has historically had a large aerospace and defense component and continues to. Now, we have, over the last four or five years, been creating new design opportunities for FPGAs in the longer term to grow in industrial and automotive and the historical end market strengths that Microchip had before we got the FPGA business.

Speaker Change #179: Sure. So our FPGA business has in fact perform better than our other businesses and in part it's because our FPGA business has historically had a large aerospace and defense components and continuous to now we have over the last four five years been creating the new design opportunities for FPGA.

Speaker Change #179: And the longer term to grow in industrial and automotive and the historical end market strength that microchip had before we got the FPGA business.

Ganesh Moorthy: And so, you know, it is not immune to market forces and where things are going to go, but it has a better end market mix than some of our other businesses and, therefore, has performed better. And, of course, we are picking up designs that, in the long term, are falling off. [inaudible] Great, thank you.

Speaker Change #179: And so.

Speaker Change #179: It is not immune to market forces and where things are going to go but it is got a better end market mix than some of our other businesses and therefore has performed better and of course, we are picking up.

Speaker Change #179: Designs that are in the long term that are falling off.

Speaker Change #179: Earth's trial, Xilinx, and erstwhile Intel and Altera.

Speaker Change #179: As they take focus away from the mid tier.

Speaker Change #179: <unk> over many years that they have done.

Speaker Change #179: Our end of life Ing products those are all creating opportunities for our FPGA business and so I am very very optimistic about prospects for our FPGA business.

Speaker Change #180: Great. Thank you.

Speaker Change #181: Thank you.

Christopher Adam Jackson Rolland: Thank you. Our next question is from Christopher Rolland with Susquehanna. Please proceed with your question. Hey guys, thanks for the question.

Speaker Change #181: Thank you. Our next question is from Christopher Roland with Susquehanna. Please proceed with your.

Ganesh Moorthy: I guess first of all, Ganesh, like in terms of this inventory, are there any products or markets that have surprised you, either that they have burnt inventory and have normalized quicker than you expected, or that this is going to take longer for these products or markets? I think, not so much my product, but I think if you look at specific customers, in many cases, even in the same market, right, so we can have an end market, say industrial, and we have examples of certain customers who have burned through their inventory, and they're back asking for new orders at expedited times.

Christopher Adam Jackson Rolland: Hey, guys. Thanks for the question I guess first of all to Nash like in terms of this inventory.

Christopher Adam Jackson Rolland: Are there any products or markets that have surprised you.

Christopher Adam Jackson Rolland: Either that they burnt inventory and a normalized quicker than you expected.

Christopher Adam Jackson Rolland: Or that this is going to take longer for these products for markets.

Speaker Change #182: Alright, I think not so much by product, but I think if you look at.

Speaker Change #182: Specific customers in many cases, even in the same market right. So we can have an end markets industrial and we have examples of certain customers, who have burned through their inventory and their back asking for new orders that expedited times. We also have other customers same industry.

Ganesh Moorthy: We also have other customers in the same industry who are still burning through inventory and taking longer. So I think a lot depends on the customer, their market prospects, what they did to create and grow their business, and how well they are executing. And so that's really been the difference is that, customer by customer, the stories are different.

Speaker Change #182: Who are still burning through inventory and taking longer for it to go. So I think a lot depends on a customer they're market prospects what did they do to create and grow their business and how well are they executing.

Speaker Change #182: And so thats really been the difference is that it's customer by customer by customer the stories are different.

Ganesh Moorthy: Yep, understood. And then, if I'm hearing you correctly, you think June is the bottom, a lot of that is inventory-based. I'd like an idea of how you're looking at the inventory position in September for your customers more generally. You know, do you think we can get back to seasonal trends in September and going forward? Or is this, or is there still this inventory drag overall?

Speaker Change #183: Yes understood.

And then.

Speaker Change #183: If I'm hearing you correctly, you think June is the bottom a lot of that is inventory based.

Speaker Change #183: I'd like Oh.

Speaker Change #183: <unk>.

Speaker Change #183: How are you looking at the inventory position in September at your customers more generally.

Speaker Change #183: Do you think we can get back to seasonal trends in September and going forward or is this or is there.

Speaker Change #183: There is still this inventory drag overall.

Ganesh Moorthy: Well, I think there are going to be customers at different points in the correction cycle. Some will have corrected and moved on; others will still be correcting. So I think seasonality is perhaps one of these things where you need a level of normalcy for some period of time so that you can say, OK, we now have all these variables that have been taken out. So I can't say we have seasonality in the September quarter. I can say, however, that, incrementally on a weighted average basis, there are more customers who are going to be out of their inventory correction, but not that they're all done. Great. Thank you, Ganesh.

Speaker Change #183: So I think theres going to be customers at different points in the correction cycle. Some will have corrected and moved on others will still be correct and so I think seasonality is perhaps one of these things, which you need a level of normalcy for some period of time before you can say, okay. We now have all of the these are variables that have been taken out.

Speaker Change #183: So I can't say, we have seasonality in the September quarter, I can say that incrementally on a weighted average basis that are more customers, who are going to be out of their inventory correction, but not they're all done.

Speaker Change #184: Great. Thank you.

Speaker Change #185: Thank you.

Tore Egil Svanberg: Our next question is from tourist Swanberg with Stifel. Please proceed with your question.

Tore Egil Svanberg: Yes. Thank you just one quick follow up.

Tore Egil Svanberg: You said that you still had quite a bit of terms.

Swanberg: This quarter just wondering what is the turns requirement and how does that compare with the previous cycle troughs. Thank you.

Ganesh Moorthy: Thank you. So we are not going to break out the amount of terms that are required, but we do have terms to take to meet our guidance, and our guidance is obviously, you know, to have another down quarter, but the lead times are short. We are getting these requests for pull in, so I don't have a good comparison to give you in terms of prior cycles. You know, if this turns out to be the bottom for us, which we believe it will, we can probably give some commentary when we talk about our September guidance as we kind of hit and move through that bottom.

Speaker Change #187: So we are not going to break out the amount of terms that are required.

Speaker Change #187: But we do have turns to take to meet our guidance our guidance is obviously.

Speaker Change #187: <unk> got another another down quarter, but the lead times are short we are getting these requests for Poland.

Speaker Change #187:

Speaker Change #187: I don't have a good comparison to give you in terms of prior cycles.

Speaker Change #187: <unk>.

Speaker Change #187: If this turns out to be the bottom for us, which we believe it will we can probably give some commentary when we talk about our September guidance.

Speaker Change #187: We kind of hit and move through that bottom.

Ganesh Moorthy: So one of the things which is more difficult to do is, you know, when most people talk about turns in a normal environment where there isn't inventory out, And it's harder to, you know, we can say, hey, it turns our X percent from a historical basis. But when there is inventory, we know those torrents aren't going to show up because people will burn through their inventory before they begin to place it.

Speaker Change #187: One of the things, which is more difficult to do as you know.

Speaker Change #187: But most people talk about turns in a normal environment, where there isn't inventory out there.

And it's harder to we can say hey, it turns our X percent from a historical basis.

Speaker Change #187: When there is inventory we know those turns aren't going to show up because people have burned through their inventory before they begin to place that and I think that some of the hesitation. We have in trying to provide some insight where we know theres a lot of uncertainty what we have done is done the best of our assessment.

Speaker Change #187: Of what those are going to be where they are going to be and build that into the guidance.

Speaker Change #187: That's the best way to think about it is that we have taken into account.

Speaker Change #187: Risks that are present from inventory that would otherwise cause headwinds to turns in the quarter.

Speaker Change #188: Very clear thank you.

Speaker Change #189: Great. Thank you.

Speaker Change #189: Thank you. Our next question is from Vivek Arya with Bank of America. Please proceed with your question.

Vivek Arya: I just wanted to clarify what the contribution of the acquisitions was in the June quarter or in fiscal 25. And then, Ganesh, back to the September quarter, I think you did say that you expected it to grow. I understand that it's hard to put a seasonal number on it.

Vivek Arya: Thanks for the quick follow up I, just wanted to clarify what is the contribution of the acquisitions.

Vivek Arya: In the June quarter or in fiscal <unk>.

Vivek Arya: 25, and then getting back to the September quarter. I think you did say that you would expect it to grow I understand that it's hard to put a seasonal.

Ganesh Moorthy: But based on what you have seen in prior downturns, just the fact that microchip prices have gone down so much from peak to trough, should we also expect kind of sharper recovery back when you do start recovering? So to answer your first question, you know, these are small token acquisitions; they're intended to accelerate our effort on design ends and design wins and all of that. So they don't have any revenue in the June quarter or in the September quarter, for that matter.

Vivek Arya: A number on it but based on what you have seen in prior downturns.

Vivek Arya: Just the fact that.

Vivek Arya: Microchip has gone down so much from peak to trough should we also expect kind of a sharper recovery.

Vivek Arya: Back to when you do stock.

Vivek Arya: Thanks.

Speaker Change #190: So to answer your first question. These are small tuck in acquisitions, they're intended to accelerate our effort on design ins and design wins in all of that so they don't have any revenue contribution in.

Speaker Change #190: In the June quarter or in the September quarter for that matter.

Ganesh Moorthy: In terms of revenue and what happens as the correction happens, yes, you should think that at some point, and I can't tell you if it is in September or is it in December, we will see a sharper recovery. That's how it has played itself out in many other cycles as well.

Speaker Change #190: In terms of the <unk>.

Speaker Change #190: Our revenue and what happens as the correction happens, yes, you should think that at some point and I can tell you is that in September or is it in December you will see we will see a sharper recovery. That's how it has played itself out in many other cycles as well.

Speaker Change #190: And.

Speaker Change #190: There are two stages to it is the first stage, which is just people needing to get back to the burn through most of the inventory and they need to get back to at least buying to consumption and then the second phase, which is what is the macro doing and if the macro driving further growth.

Speaker Change #190: Four of them above just what they are flattened consumption line alone might tell us.

Ganesh Moorthy: And I think all of that, if you look forward to a likely environment over the next 12 months, should give us a sharper recovery. This concludes our question and answer session. I would like to hand the floor back over to Ganesh Moorthy for any closing comments.

And I think all of that if you look forward into a likely environment over the next 12 months should give us a sharper recovery.

Speaker Change #191: Thank you.

Speaker Change #192: This concludes our question and answer session.

Speaker Change #192: <unk>.

Speaker Change #192: I would like to hand, the call back over to Dennis Martin for any closing comments.

Dennis Martin: Great I want to thank everybody for joining us on the call I know, we ran over a little bit but I appreciate the questions and we look forward to seeing and talking to many of you in.

Dennis Martin: In the coming days as well as in many of the conferences that are coming out. Thank you.

Speaker Change #194: This concludes today's conference.

Speaker Change #194: Your lines at this time, thank you for your participation.

Q4 2023 Microchip Technology Inc Earnings Call

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