Analyst Conference Summary

semiconductors

conference date: February 3, 2022 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2021 (Q3, third fiscal quarter 2022)

Forward-looking statements

Overview: Yet another record quarter.

Basic data (GAAP):

Revenue was $1.76 billion, up 7% sequentially from $1.65 billion, and up 30% from $1.35 billion in the year-earlier quarter.

Net income was $353 million, up 46% sequentially from $242 million, and way up from $36 million in the year-earlier quarter.

EPS (diluted earnings per share) were $0.62, up 44% sequentially from $0.43, and way up from $0.07 year-earlier.

Guidance:

Expects March 2022 quarter (fiscal Q4) revenue between $1.79 and $1.85 billion. GAAP EPS $0.66 to $0.68; non-GAAP $1.22 to $1.28. Cap ex $135 to $145 million.

Conference Highlights:

CEO Ganesh Moorthy said "Overall business conditions remained very strong in the December quarter with high levels of bookings and record backlog for product to be shipped over multiple quarters, accentuated by our Preferred Supply Program which continues to be greater than 50% of our aggregate backlog and 100% of our backlog in the most constrained capacity areas. Similar to the September quarter, in the December quarter demand outpaced the capacity improvements we implemented, resulting in our unsupported backlog continuing to climb to a record and our lead times stretching out." Gross margins set a record.

Expects to continue to increase the dividend.

Payed down $363 million of debt in the quarter.

Microchip achieved Investment Grade debt rating in the quarter. A $4 billion stock buy back program was announced.

Microchip is ramping factory capacity to attempt to catch up with demand. But still experiencing some constraints to production and employee hiring. Signed a agreement to buy a shell for assembly in the Philippines.

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

The dividend was increased to $0.25.3, to stockholders of record on February 22, payable on March 8, 2022. 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 $682 million, up % sequentially from $na million and up % from $445 million year-earlier. EPS was $1.20, up sequentially from $1.07 and up % from $0.81 year-earlier.

Microcontrollers represented 55.3% of total end market demand. Record quarter. Revenue up sequentially, and up 33.9% y/y. Record revenue in 8-bit and 32-bit markets.

Analog chips represented 28.5% of overall end market demand. Sequentially up 1.9%. Up 34.3% y/y. Broke through $2 billion annual rate.

Other (Licensing, memory FPGA, and MMO segment) is not broken out, but FPGA and licensing both hit records.

Cash and investments ended at $316 million, up sequentially from $255 million. Cash flow from operations was $853 million. $91 million capital spend in quarter. $763 free cash flow. Long term debt was about $7.87 billion (down sequentially from $8.2 billion). $129 million used for dividends. $166 million used for stock repurchases.

GAAP cost of goods sold was $604 million, leaving gross profit of $1.15 billion. Operating expenses of $638 million consisted of: research and development $245 million; selling, general and administrative $177 million; amortization $216 million; and special charges $0 million. Leaving operating income of $515 million. Other expense $74 million. Income tax $89 million.

Q&A summary:

Supply issues for March quarter are included in our guidance, and are largely due to covid. There is no shortage of demand, so we continue to grow capacity as fast as we can. But we expect we will be capacity constrained throughout 2022.

We have demand visibility beyond four quarters. We are bringing on capacity every quarter. Much of the backlog is non-cancelable.

At some point supply and demand will come back into balance, but at this point we do not see that coming in 2022 or 2023.

Our lead times for receiving equipment to increase our capacity have stretched due to constraints at our suppliers.

Price increases? Input prices for us continue to go up, magnitude varies by supplier. We expect that to continue in 2022. Our prices are likely to increase in 2022 as we pass that on to our customers. We do not know when that cycle will stop. There are large capital costs and material costs both for our suppliers and for us.

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