Analyst Conference Summary

semiconductors

conference date: August 1, 2024 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2024 (Q1, first fiscal quarter 2025)

Forward-looking statements

Overview: Dramatic decline in y/y revenue.

Basic data (GAAP):

Revenue was $1.24 billion, down 7% sequentially from $1.33 billion, and down 46% from $2.29 billion in the year-earlier quarter.

Net income was $129 million, down 17% sequentially from $155 million, and down 81% from $666 million in the year-earlier quarter.

EPS (diluted earnings per share) were $0.24, down 14% sequentially from $0.28, and down 80% from $1.21 year-earlier.

Guidance:

September quarter revenue $1.12 to $1.18 billion. Resulting GAAP EPS $0.10 to $0.14, non-GAAP $0.40 to $0.46.

Conference Highlights:

CEO Ganesh Moorthy said "We delivered June 2024 quarterly results in line with our guidance as we continued to navigate a challenging macro environment in combination with our customers focusing on reducing their inventory positions based on short lead times for our products. Our strategic cost management actions have helped maintain financial resilience and operational efficiency in the face of a 6.4% sequential revenue decline this quarter. While the 'green shoots' we observed last quarter have continued, they have not developed as robustly as anticipated. The macro environment particularly for industrial and automotive markets, especially in Europe and the Americas, continues to be weaker than expected, resulting in an extended period over which the inventory correction is playing out. Despite customer short-term focus on reducing inventory, we believe that our expanded portfolio, now spanning 8 to 64-bit processors including FPGAs as well as our analog portfolio, positions us well for sustainable, above market growth across a diverse set of applications." In a major inventory correction. Lowering factory utilization, also new capital investment. Design wins will drive long-term growth. Stock buyback will be minimal while cash flow is low.

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

In June quarter acquired Neuronix AI Labs and VSI Co. Expanded TSMC partnership.

CHIPS grants process had proven to be complicated.

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

237 days of inventory at end of quarter, up 13 days sequentially. 43 days of inventory at distributors, up 2 days sequentially. Some customers pushed out orders. Lead times are very short. But cancelations are pushouts are subsiding.

As usual, many new products were added in the quarter, including 64-bit controllers. Microchip conserving capital but supporting new, fast-growing products.

The dividend was raised 0.002 to $0.454, to stockholders of record on August 22, 2024, payable on September 5. Plans to continue to increase dividends until they reach about 50% of cash flow.

Non-GAAP numbers: Net income was $290 million, down 6% sequentially from $310 million and down 68% from $905 million year-earlier. EPS was $0.53, down 7% sequentially from $0.57 and down 68% from $1.64 year-earlier.

Cash and investments ended at $315 million, down sequentially from $320 million. Cash flow from operations was $377 million. $73 million capital spend in quarter. $394 million free cash flow. Long term debt was about $6.2 billion; increased net leverage to x. $315 million returned to shareholders: $243 million used for dividends. $73 million used for stock repurchases.

GAAP cost of goods sold was $504 million, leaving gross profit of $737 million. Operating expenses of $518 million consisted of: research and development $242 million; selling, general and administrative $151 million; amortization $123 million; and special charges $3 million. Leaving operating income of $219 million. Other expense $57 million. Income tax $33 million.

Q&A selective summary:

Orders up 50% sequentially but still weak? Book to Bill is below 1. On right track, not where we would like it to be. June had lower momentum than May. We hope for strength going forward in the datacenter markets.

Shutdowns? We do not plan another fab two week shutdown. We will have days off for assembly and test to manage those.

China? Asia was flatish, declines in Americas and Europe. People tend to go too low, minimizing inventory, then when demand picks up they need to overcompensate. Right now they know we can get them inventory quickly. Customers are typically down just 10% to 15%, the differential with us is their draw down of their inventory.

We don't have visibility as to when orders will start growing again.

64-bit microcontroller end markets? At high-performance end, like machine vision, AI at edge. We will have a broad family of products.

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