Analyst Conference Summary

semiconductors

conference date: May 6, 2024 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2024 (Q4, fourth fiscal quarter 2024)

Forward-looking statements

Overview: Sales fell substantially. Still increased the dividend, ever so slightly.

Basic data (GAAP):

Revenue was $1.33 billion, down 25% sequentially from $1.77 billion, and down 40% from $2.23 billion in the year-earlier quarter.

Net income was $155 million, down 63% sequentially from $419 million, and down 74% from $604 million in the year-earlier quarter.

EPS (diluted earnings per share) were $0.28, down 64% sequentially from $0.77, and down 74% from $1.09 year-earlier.

Guidance:

For the first quarter of fiscal 2025 expects revenue of $1.22 to $1.26 billion. Net income $103 to $128.6 million GAAP; $263 to $304.2 million non-GAAP. EPS GAAP $0.19 to $0.24, non-GAAP $0.48 to $0.56.

Conference Highlights:

CEO Ganesh Moorthy said "We experienced a major inventory correction in fiscal 2024, leading to a 9.5% decline in revenue to $7.6 billion. Despite this, our resilient operating model and rapid adjustment to the adverse business environment enabled us to navigate these challenges to achieve a non-GAAP operating margin of 43.9%. We believe we are under shipping to end market demand, as customers and channel partners continued to reduce inventory. This situation has required us to implement ongoing austerity measures, including taking actions to reduce factory utilization, that will persist into the June quarter. We see early signs of demand stabilization but are experiencing low business visibility due to our short lead times and the continued macro uncertainty." Fiscal year 2024 was a very volatile year, going from record sales to an inventory correction. In July plans to enter the 64-bit microprocessor market. In June will shut down plants for 2 weeks. Waiting for Chips Act agreement to be finalized.

By March quarter of 2025 hopes to be able to return all free cash flow to shareholders.

FPGA 2024 revenue grew over 2023 and set a record. Design win momentum is strong. In Q4 all end markets were weak.

Discontinued PSP (guaraneed buying from customers) program in February 2024.

In April 2024 acquired BSI, a Korean company specializing in automotive networking (ASA-ML). Also acquired Neuronics AI Labs.

224 days of inventory at end of quarter, up 39 days sequentially. 41 days of inventory at distributors. Some customers pushed out orders. Lead times have become shorter, but most are at 8 weeks or less.

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

The dividend was raised 0.002 to $0.452, to stockholders of record on May 22, 2024, payable on June 5. Plans to continue to increase dividends until they reach about 50% of cash flow.

Non-GAAP numbers: Net income was $310 million, down 48% sequentially from $593 million and down 66% from $908 million year-earlier. EPS was $0.57, down 47% sequentially from $1.08 and down 65% from $1.64 year-earlier.

Cash and investments ended at $320 million, up sequentially from $281 million. Cash flow from operations was $430 million. $40 million capital spend in quarter. $390 million free cash flow. Long term debt was about $5.00 billion; increased net leverage to 1.57x. $630 million returned to shareholders: $243 million used for dividends. $387 million used for stock repurchases.

GAAP cost of goods sold was $536 million, leaving gross profit of $790 million. Operating expenses of $536 million consisted of: research and development $240 million; selling, general and administrative $161 million; amortization $151 million; and special income $17 million. Leaving operating income of $254 million. Other expense $54 million. Income tax $45 million.

Q&A selective summary:

Prediction of June as bottom? Momentum picked up March through May. More asking for pull-ins and expedites. Basis of June quarter as bottom and September quarter return to growth. Believes also bouncing along the bottom for gross margins.

Any end markets stabilizing faster? Aerospace and defense and the AI segment of datacenter are doing well. Some industrial customers are still seeing weakness.

Gross margin trajectory depends on revenue trajectory and how we run our factories. Our long-term outlook is positive.

Distributor dynamics? We don't always have full visibility of distributor inventories. We can see distributors are starting to place incremental orders on us.

Some customers are placing backlog into the September quarter. That contributes to where we think the bottom will be.

Any clawback provision for lost wages? None. We have a shared sacrifice, shared rewards program. We try to keep everyone working. We have done this through previous cycles. We restore the paycuts when demand is appropriate. Salary reduction is voluntary, it is part of our culture, and is compensated by shared rewards during good times. We know it is difficult for employees, especially given inflation.

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