Analyst Conference Summary

semiconductors

conference date: August 3, 2023 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2023 (Q1, first fiscal quarter 2024)

Forward-looking statements

Overview: Continued strong growth.

Basic data (GAAP):

Revenue was $2.29 billion, up 3% sequentially from $2.23 billion, and up 17% from $1.96 billion in the year-earlier quarter.

Net income was $666 million, up 10% sequentially from $604 million, and up 31% from $507 million in the year-earlier quarter.

EPS (diluted earnings per share) were $1.21, up 11% sequentially from $1.09, and up 34% from $0.90 year-earlier.

Guidance:

For fiscal Q2 2024 expects sales of $2.22 to $2.31 billion. EPS GAAP $1.18 to $1.21; non-GAAP $1.60 to $1.64.

Conference Highlights:

CEO Ganesh Moorthy said "Our June quarter results were in-line with the midpoint of our guidance as revenue grew 2.5% sequentially and 16.6% year over year, amid a weakening macro backdrop and increased business uncertainty. We delivered record revenue of $2.29 billion during our first fiscal quarter, marking the 11th consecutive quarter of revenue growth. Our team's disciplined execution, in combination with resilient end markets and a diverse customer base, helped to drive record non-GAAP gross and operating margins of 68.4% and 48.1%, respectively."

In fiscal Q1 2024 lead times continued to improve. Non-scheduled backlog was pushed out to future quarters. China was weak. Macroenvironment is slowing. Margins hit records.

Microsoft is targetting returning $562 million to shareholders in the September quarter through dividends and buybacks.

Channel inventory grew 5 days in the quarter. But ready to be able to rapidly respond to demand growth. Anticipates further demand headwinds in the December quarter.

Microchip is considering building a specialized 300 mm fab in the U.S.

Microchip expects to be eligible for benefits of the new Chips and Science bill.

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 $0.41, to stockholders of record on August 22, 2023, payable on September 5, 2023. Expects to contribute more of free cash flow as dividends, and later to stock buy backs.

Non-GAAP numbers: Net income was $905 million, down 0.3% sequentially from $908 million and up 18% from $767 million year-earlier. EPS was $1.64, flat sequentially from $1.64 and up 20% from $1.37 year-earlier.

Cash and investments ended at $271 million, up sequentially from $234 million. Cash flow from operations was $993 million. $111 million capital spend in quarter. $882 million free cash flow. Paid down $413 million of debt; some was repurchase of convertible bonds. Long term debt was about $4.63 billion down sequentially from $5.04 billion. $209 million used for dividends. $140 million used for stock repurchases.

GAAP cost of goods sold was $730 million, leaving gross profit of $1.56 billion. Operating expenses of $655 million consisted of: research and development $299 million; selling, general and administrative $204 million; amortization $152 million; and special expense $2 million. Leaving operating income of $903 million. Other expense $55 million. Income tax $182 million.

Q&A selective summary:

Orders and backlog, particularly China? Through July we have not yet seen China recover. Bookings have been weak, we are pushing out backlog for now. Our lower lead times mean customers do not have to order so far in advance.

Supply chain pricing? Mostly stable, as for wafers and assembly services. Lead times for us have come down.

Pricing trends? Our business pricing tends to be stable.

September guidance, December statement, could you see a decline y/y? There are a range of scenarios. No specific guidance.

Automotive/industrial? We don't know how much is inventory consumption, how much is end demand, we just can't predict demand from China.

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