Analyst Conference Summary

semiconductors

conference date: November 4, 2021 @ 2:00 PM Pacific Time
for quarter ending: September 30, 2021 (Q2, second fiscal quarter 2022)

Forward-looking statements

Overview: Another record quarter as demand remains high.

Basic data (GAAP):

Revenue was $1.65 billion, up 5% sequentially from $1.57 billion, and up 26% from $1.31 billion in the year-earlier quarter.

Net income was $242 million, down 4% sequentially from $253 million, and up from $74 million in the year-earlier quarter.

EPS (diluted earnings per share) were $0.43, down sequentially from $0.89 (0.445 split adusted), and up from $0.14 year-earlier.

Guidance:

Expects December sales to be up 4% to 8% sequentially, or $1.716 to $1.782 billion. GAAP Eps $0.58 to $0.60; non-GAAP $1.14 to $1.20. Will spend $70 to $90 million on capital expenditures.

Conference Highlights:

CEO Ganesh Moorthy said "September quarter results continued to be strong, with revenue growing 5.1% sequentially and 26% year-over-year despite ongoing manufacturing capacity constraints. September quarter revenue, non-GAAP gross margin, non-GAAP operating margin, and non-GAAP EPS were all records." Business conditions were exceptionally strong, resulting in a record backlog of orders. Improved capacity was outstripped by increased demand. Lead times expanded. Inventory at distributors ended at record lows.

Expects to continue to increase the dividend.

Payed down $416 million of debt in the quarter. Believes positioned to achieve an investment grade rating in the coming months.

Microchip is ramping factory capacity to attempt to catch up with demand. Also continuing to pay off debt. But experiencing constraints to production. In Asia covid interrupted testing facilities. Hiring is difficult.

As usual, many new products were added in the quarter. Microchip is aggressively using capital to support new, fast-growing products.

A dividend was declared of $0.232, to stockholders of record on November 19, payable on December 3, 2021. Expects to contribute more of free cash flow as dividends, and later (after achieving investment grade) as stock buy backs.

Non-GAAP numbers: Net income was $606 million, up 8% sequentially from $559 million and up 46% from $416 million year-earlier. EPS was $1.07, up sequentially from $1.98 ($0.99 split-corrected) and up 37% from $0.78 year-earlier.

Microcontrollers represented 54.2% of total end market demand. record quarter. Revenue down 1% sequentially, and up 27% y/y. Record revenue in 8-bit, 16-bit, and 32-bit markets.

Analog chips represented 29.8% of overall end market demand. Sequentially up 13.6%. Up 35.8% y/y.

Other (Licensing, memory FPGA, and MMO segment) was na% of total end market demand. Up na% sequentially.

All end markets were strong in the September 2021 quarter and supply constrained.

Cash and investments ended at $255 million, down sequentially from $280 million. Cash flow from operations was $612 million. $79 million capital spend in quarter. $533 free cash flow. Long term debt was about $8.2 billion (down sequentially from $8.5 billion). $121 million used for dividends. $416 million used to pay down debt.

Microchip plans to use most cash flow, above dividend payments, to pay down debt.

GAAP cost of goods sold was $582 million, leaving gross profit of $1.07 billion. Operating expenses of $652 million consisted of: research and development $246 million; selling, general and administrative $180 million; amortization $216 million; and special charges $10 million. Leaving operating income of $416 million. Other expense $152 million. Income tax $23 million.

Q&A summary:

Microcontrollers down sequentially; analog up? They are just q/q timing. We had super strong microcontroller sales in the June quarter. Both businesses are doing well and should have nice growth in the September quarter.

Backlog into 2022? Lead times for capital equipment? We see enough capacity coming online for supply side growth for at least 4 quarters, and demand is such there is no risk. It is hard to tell the future of inventory at distributors, but it is challenging to fulfill demand at present.

Shortages are in every segment, not just automotive. Even defense and aerospace.

Pricing environment? Input costs? Many variables. Pricing is to pass along cost increases, which we do periodically. We expect unit growth in 2022, not just price increases. We do not see input costs coming back down.

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