Analyst Conference Summary

semiconductors

conference date: February 1, 2024 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2023 (Q3, third fiscal quarter 2024)

Forward-looking statements

Overview: Sales fell substantially and missed guidance. Still increased the dividend.

Basic data (GAAP):

Revenue was $1.77 billion, down 22% sequentially from $2.25 billion, and down 19% from $2.17 billion in the year-earlier quarter.

Net income was $419 million, down 37% sequentially from $667 million, and down 28% from $580 million in the year-earlier quarter.

EPS (diluted earnings per share) were $0.77, down 36% sequentially from $1.21, and down 26% from $1.04 year-earlier.

Guidance:

For 4Q FY 2024 (March quarter) expects revenue between $1.22 and 1.43 billion. Net income GAAP $69 to $175 million, non-GAAP $250 to $376 million. EPS GAAP $0.12 to $0.32, non-GAAP $0.46 to $0.68. Cap ex $50 to $60 million. "As we enter the March quarter, we anticipate customers may continue to reduce inventory levels in the short-term as they adjust operations and seek to match demand in an increasingly dynamic market."

Conference Highlights:

CEO Ganesh Moorthy said "Our December quarter performance fell short of our November guidance, primarily due to weaker business conditions. Revenue declined 21.7% sequentially as weak demand drove customers to cut shipments and extend shutdowns to further de-risk their inventories, which prevented us from fulfilling previously planned shipments from backlog. We are proactively taking measures to navigate these short-term challenges, with our focus firmly set on ensuring the long-term sustainability and growth of our business. While we remain confident in the long-term opportunities for our business, we are cautious about demand in the near term given the weak macro environment and customers' ongoing actions to reduce inventory. As such, we are taking steps to limit discretionary spending and tightly manage inventory levels during this downcycle. As a result, we intend to have two-week shutdowns in our large wafer fabrication facilities in each of the March and June quarters and reduced activity in many of our other factories, resulting in underutilization charges. We believe that our average lead times of less than eight weeks position us to navigate this choppy market environment effectively. At the same time, we continue investing in the innovative technologies and capabilities that will allow us to serve customers better and emerge even stronger when end market conditions improve."

In 2025 hopes to be able to return all free cash flow to shareholders.

Working to reduce expenses during this down cycle, including a 20% pay cut for executives and 10% for other workers.

Revenue by end markets was: 41% industrial, 19% data center or computing, 17% automotive, 11% communications, 12% consumer appliances. By product line: MCUs 56%, analog 25%, other 19%. By geography: Asia 48%, Americas 29%, Europe 23%. Most end markets and regions of the world were weak compared to the prior quarter and year-earlier quarter. Customers found their business expectations to be too optimistics and so had too much inventory.

Discontinuing PSP (guaraneed buying from customers) program as of today.

37 days of inventory at end of quarter, up sequentially. Some customers pushed out orders. Lead times have become shorter.

As usual, many new products were added in the quarter. Microchip conserving capital but supporting new, fast-growing products.

The dividend was increased to $0.45, to stockholders of record on February 23, 2024, payable on March 8. Plans to continue to increase dividends until they reach about 50% of cash flow.

Non-GAAP numbers: Net income was $593 million, down 33% sequentially from $889 million and down 31% from $864 million year-earlier. EPS was $1.08, down 33% sequentially from $1.62 and down 31% from $1.56 year-earlier.

Cash and investments ended at $281 million, up sequentially from $257 million. Cash flow from operations was $853 million. $60 million capital spend in quarter. $794 million free cash flow. Long term debt was about $4.03 billion down sequentially from $4.41 billion; reduced net leverage to 1.27x. $352 million returned to shareholders: $237 million used for dividends. $115 million used for stock repurchases.

GAAP cost of goods sold was $646 million, leaving gross profit of $1.12 billion. Operating expenses of $591 million consisted of: research and development $266 million; selling, general and administrative $172 million; amortization $151 million; and special expense $1 million. Leaving operating income of $529 million. Other expense $45 million. Income tax $65 million.

Q&A selective summary:

Inventory in distribution? Expecting to drain inventory in distribution in the March quarter.

Utilization rates, potential write-downs? Working on employment attrition, will have a utilization charge in inventory reserve charges, included in the guidance.

Cancellations, any stabilization? We are still having customers ask for help, distributors have backlogs, so orders continue to be pushed out.

Pricing? Declines are revenue related. Pricing is stable. Design in is done years before production, so no competition except for new designs.

There is nothing typical about this downturn. We have very limited visibility. We think we are undershipping to end demand. Lead times have been coming down, for many items to less than 8 weeks. For years we typically were at 4 to 8 weeks as our inventory grows.

Basically, the future is hard to predict, especially timing, but after a slump there is always new growth.

OpenIcon Analyst Conference Summaries Main Page
Microchip Investor Relations page
Microchip

Search

More Analyst Conference Pages: