Analyst Conference Summary

semiconductors

conference date: May 9, 2022 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2021 (Q4, fourth fiscal quarter 2022)

Forward-looking statements

Overview: Beat guidance, continuing rapid revenue and profit growth.

Basic data (GAAP):

Revenue was $1.84 billion, up 5% sequentially from $1.76 billion, and up 25% from $1.47 billion in the year-earlier quarter.

Net income was $438 million, up 24% sequentially from $353 million, and up 278% from $116 million in the year-earlier quarter.

EPS (diluted earnings per share) were $0.77, up 24% sequentially from $0.62, and up 267% from $0.21 year-earlier.

Guidance:

Expects continuing revenue ramp in fiscal Q1 2023 (June quarter) to $1.918 to $1.992 billion. For the year fiscal 2023 expects capital expense to be at the high end of the prior range.

Conference Highlights:

CEO Ganesh Moorthy said "We delivered yet another quarter of strong growth and profitability during the March quarter and closed out a record fiscal year 2022 with outstanding revenue growth of 25.7% compared to the prior year's fourth fiscal quarter. Our March quarter results came in near the high end of our guidance range, and we achieved new records across key operating non-GAAP metrics. These impressive results are a testament to the resilience of our model and the strength of our team as we continue to navigate through a challenging supply environment. We believe our focus on operational excellence positions us well to achieve our long-term non-GAAP gross margin target of 68%, non-GAAP operating margin target of 45%, and free cash flow target of 38% through industry cycles." Order backlog reached another record high. Lead times remained stretched. "We expect to remain supply-constrained throughout 2022 and into 2023."

Expects to continue to increase the dividend. Anticipates repurchasing an additional $194.6 million of shares during the June quarter.

Payed down $206 million of debt in the quarter.

Gross margin was a record 66.2%.

Microchip is ramping factory capacity to attempt to catch up with demand. But still experiencing some constraints to production and employee hiring. Some capital investment in the March quarter was delayed by supply issues. 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 declared $0.27.6, to stockholders of record on May 20, payable on June 3, 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 $764 million, up 12% sequentially from $682 million and up 47% from $521 million year-earlier. EPS was $1.35, up 12.5% sequentially from $1.20 and up 45% from $0.93 year-earlier.

Microcontrollers represented 57% of revenue. Record quarter with $1.046 billion revenue. Revenue up sequentially, and up 28% y/y. Record revenue in 8, 16 and and 32-bit markets. 46% of microcontrol revenue was from 32-bit segment, making it the largest segment for the first time.

Analog chips represented 30% of revenue. Revenue was $516 million. Up 24% y/y.

Other (Licensing, memory FPGA, and MMO segment) income was $283 million. 21% of revenue. FPGA and licensing both hit records.

Cash and investments ended at $319 million, up sequentially from $316 million. Cash flow from operations was $748 million. $115 million capital spend in quarter. $633 free cash flow. Long term debt was about $7.69 billion (down sequentially from $7.87 billion). $141 million used for dividends. $260 million used for stock repurchases.

GAAP cost of goods sold was $624 million, leaving gross profit of $1.22 billion. Operating expenses of $671 million consisted of: research and development $259 million; selling, general and administrative $187 million; amortization $216 million; and special charges $9 million. Leaving operating income of $ million. Other expense $70 million. Income tax $41 million.

Full fiscal year 2022 had a record of $6.82 billion in revenue. GAAP net income $1.29 billion. Non-GAAP net income $2.61 billion.

Q&A summary:

Supply visibility? We do not see any major capacity relief, at this point, as the result of any of the markets we do not serve.

Customer v. supply chain issues? Hard to quantify. We have built an aggregate risk into guidance, which has both upsides and downsides. Lots depends on events in China.

Distribution channel inventory? There was only a $11 million difference between revenue and sell through for the fiscal year. What we ship in, they ship out almost immediately. We shipped in slightly more than they slipped out, but because demand is growing, inventory days still declined a bit.

Potential for macroeconomic downturn? We have a lot of cushion, including 17 days of distribution inventory. At first we would replenish inventory, both distributors and our own. We intend to build inventory in a down cycle, given the long-lived nature of our products and the cost of increasing capacity. It would take us a year to rebuild inventories, so we are not worried about a drop in margins.

Capital expense plans? It is still a challenge, it has been getting more challenging. We are prioritizing chip supply to semiconductor equipment manufacturers to help improve the situation.

Any end markets showing major changes? All end markets were strong. Saw more strength in defense segment, aerospace, but they are a small part of our overall business.

Most of our revenue growth over the year came from increase unit sales, only a small part came from price increases. We are not trying to increase gross margins with price increases, we are just passing along our own cost increases.

We are still struggling to keep up with automotive demand.

We do not think the general gross margin is impacted by the ratios of 8, 16, and 32 bit microcontroller sales.

We believe the industry cap ex spend is mainly on bleeding edge technologies. Where we are, in specialty legacy technologies, there is still not enough being spent to keep up with demand. Microcontrollers and analogs are still in the 20 nm to 60 nm range, and is 8 inch slabs, while most new capacity is 14 nm or under on 12 inch slabs.

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