Analyst Conference Summary

semiconductors

conference date: November 5, 2024 @ 2:00 PM Pacific Time
for quarter ending: September 30, 2024 (Q2, second fiscal quarter 2025)

Forward-looking statements

Overview: Revenue slump bad, but from a record peak, due to excess inventories. Did hit high end of EPS guidance.

Basic data (GAAP):

Revenue was $1.16 billion, down 6% sequentially from $1.24 billion, and down 48% from $ billion in the year-earlier quarter.

Net income was $78 million, down 40% sequentially from $129 million, and down 88% from $667 million in the year-earlier quarter.

EPS (diluted earnings per share) were $0.14, down 42% sequentially from $0.24, and down 88% from $1.21 year-earlier.

Guidance:

December quarter revenue expected between $1.025 and $1.095 billion. GAAP EPS near zero. Non-GAAP EPS $0.25 to $0.35.

Conference Highlights:

CEO Ganesh Moorthy said "Our September quarter results were consistent with our guidance, as we continued to navigate through an inventory correction that's occurring in the midst of macro weakness for many manufacturing businesses, accentuated by heightened weakness in our European business which is concentrated with Industrial and Automotive customers. The 'green shoots' we saw in recent quarters have progressed unevenly with essentially flat sequential bookings, normalized cancellation rates and much higher expedite requests, which we believe are all positive signs for a potential bottom formation despite limited visibility." Low revenue reflected destocking efforts by customers and weak end demand. AI accelerated server products are a postiive. There is weakness in the industrial end market. Aerospace and defense was relatively strong. European automotive was weak. Bookings were weak. Hopes for a strong upturn in the cycle in 2025.

By March quarter of 2025 hopes to be able to return all free cash flow to shareholders. Declared a 45.4 cent dividend for shareholders of record on November 22, payable December 6, 2024.

A $13.3 million legal settlement had a positive impact on GAAP and non-GAAP numbers. GAAP net income was adversely impacted by amortization of acquired intangible assets associated with previous acquisitions.

The cybersecurity incident in August did not materially impact finances, but resulted in a $24 million charge due to interuptions in operations.

247 days of inventory at end of quarter, up 10 days sequentially. 40 days of inventory at distributors, down 3 days sequentially. Some customers pushed out orders. Lead times are very short. But cancelations and 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.

Non-GAAP numbers: Net income was $250 million, down 14% sequentially from $290 million and down 72% from $889 million year-earlier. EPS was $0.46, down 13% sequentially from $0.53 and down 72% from $1.62 year-earlier.

Cash and investments ended at $286 million, down sequentially from $315 million. Cash flow from operations was $44 million. $21 million capital spend in quarter. $23 million free cash flow. Long term debt was about $4.48 billion; $261 million returned to shareholders. $243 million used for dividends. $17 million used for stock repurchases.

GAAP cost of goods sold was $495 million, leaving gross profit of $669 million. Operating expenses of $522 million consisted of: research and development $241 million; selling, general and administrative $157 million; amortization $123 million; and special charges $2 million. Leaving operating income of $147 million. Other expense $55 million. Income tax $13 million.

Q&A selective summary:

How long could it take for distribution channel to get back to normal? 20 days is towards the low end of where we were during Covid. Days are calculated on a backward looking basis. It is not just driven by what they are carrying, but by what their customers are destocking. Limits visibility. The customers need new demand signals from their own customers to start a turn around.

Capacity, under utilization? Depends on the slope of the revenue curve. We expect to be underutilized in December quarter, which impacts margins. We do not have a lot of backlog.

Is there anything company specific in this slump? It is true it is asynchronous, depends on end markets and geographies. Microchip has an overhang, other companies may have that to a different degree. We do not believe we are losing revenue to competitors, we believe our customers overbought based on outlooks a couple of years ago.

March quarter? Hard to predict. The headwind is the Chinese New Year holidays, offset by less holidays v. December quarter in Europe.

We are now shipping under current consumption, lowering inventories. Eventually customers will have to increase orders.

The market for new designs is very competitive. Pricing is competitive.

We are seeing neither weakness nor strength in China.

Any particular green shoots you are seeing now? Aerospace/Defense and AI. But non-AI data centers are constrained.

OpenIcon Analyst Conference Summaries Main Page
Microchip Investor Relations page
Microchip

Search

More Analyst Conference Pages: