Microchip Technology Inc Business Update Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Vivek Arya - BofA Securities Inc - Analyst : I appreciate the detailed plan. Steve, I guess the center question still remains. What is the right way to model revenue growth for Microchip? I think you are suggesting it's a little bit over industry, if I look at industry over the last 5 or 10 years, right, growth has been sort of in the mid-single digit. If I look at the average growth rate for your peers that consensus has for this or next year, it's somewhere in the 5% to 10% range. So I guess the question is, given all that information, how do you think about Microchip's revenue growth? And then specifically, what revenue has been assumed for that reduction in the inventory chart that you showed?

Question: Christopher Caso - Wolfe Research, LLC - Analyst : I guess the question is with regard to some of what you talked about in the near-term booking trends. And if you could give us some color about why you feel that there may be some sustainability there. I know during this downturn; it's been really challenging that there have been some head fakes in the past. Why do you think this one is different? And if you could also comment on the proximity of the Chinese New Year holiday and what effect that may have had on some of the bookings since the beginning of the year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 03, 2025 / 2:00PM, MCHP.OQ - Microchip Technology Inc Business Update Call

Question: Tore Svanberg - Stifel, Nicolaus & Company, Incorporated - Analyst : Yes. Thank you, Steve, for all this detail, and great job the first 100 days. My question is on your China business. I was just hoping you could clarify that a little bit more. So I do understand the China Co. and the relationship and so on and so forth. But perhaps you could add a little bit more information on how big is that revenue today? And I think you mentioned that initially its catalog but eventually can move beyond catalog. So any more color you could add on that would be really helpful.

Question: William Stein - Truist Securities, Inc. - Analyst : Great. Perhaps I'll touch on the channel inventory comments. Steve, you said that the distributors are near the end of the inventory correction. We've heard this from them or certainly over a year, maybe longer. But if you just look at their financials, I mean, it's pretty easy to see that inventory is still extremely elevated for them. If it's not elevated for you, it suggests you're in a much better position than their average supplier, which is just a little tough to understand given DSP and the changes you're making today, right? So how can you help us reconcile that distinction, please?

Question: William Stein - Truist Securities, Inc. - Analyst : Yes, that helps.

Question: Joshua Buchalter - TD Cowen - Analyst : I wanted to ask about the competitive environment. Obviously, a lot has changed over the last few years. But how are you viewing the competitive environment as you sort of -- it sounds like start to lean a little bit out of the distribution channel and also most of your peers now everybody has parts versus coming out of the shortages. And in particular, you mentioned, I think, pricing concessions, your willingness to take pricing concessions on your last earnings call. How is that factored into your long-term model?

Question: Harlan Sur - JPMorgan Chase & Co - Analyst : Thanks for hosting this event. On the lower turns business, that was responsible for the weakness in the December quarter relative to your original guidance. On the March quarter guide, I assume that the Microchip team was a bit conservative on percentage terms business required to hit the midpoint of the revenue range. Can you guys just give us an update first two months, March versus first two months, December quarter? What's the trend on terms? I assume it follows the overall bookings trend, which is up quarter over-quarter in dollars? I mean, typically, when the supply demand starts to kind of normalize, the first thing you would see is a pickup in terms. I wanted to get the team's view.

Question: Joseph Moore - Morgan Stanley & Co LLC. - Analyst : I wonder what you see when you get to steady state, the balance between internal fabs and foundries and has that changed at all? And kind of can you give us a sense with these capacity shutdowns? What kind of through rate utilization are you looking for? I know sometimes will be higher, sometimes lower, but like how are you optimizing that.

Question: Christopher Rolland - Susquehanna Financial Group - Analyst : My question is really around inventory. One of your competitors have moved to like a consignment model with their customers, just given your inventory position. Like does that make sense? Maybe Steve if you could talk about the puts and takes on that kind of model. And on inventory, Eric, could we unreserve that inventory at some point in time, just given the long life of your products? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 03, 2025 / 2:00PM, MCHP.OQ - Microchip Technology Inc Business Update Call

Question: Craig Ellis - B. Riley Securities, Inc. - Analyst : Appreciate the expensive breadth and depth of information. I wanted to go back to the table that showed megatrend revenue and its performance over time versus non megatrend revenue and understand, Steve, how the mix shift in the two with potentially megatrend revenue now greater than on megatrend factors into your objective for above-industry growth. And then related to that and maybe more for Eric, to what extent are megatrend products gross margin better than those for non-megatrend? And to what extent, if that is the case, is that factored into the gross margin target?

Question: Craig Ellis - B. Riley Securities, Inc. - Analyst : If I can, Steve, most of our anchor products that we include in those megatrends are highest proprietary products, our most proprietary products, and so they typically have higher gross margins.

Question: Vijay Rakesh - Mizuho Securities USA - Analyst : Steve, just to clarify on the CHIPS Act, you said you paused it. Is that coming from Microchip? Or are you seeing pause on kind of the disbursement of that? And I have a follow-up.

Question: Vijay Rakesh - Mizuho Securities USA - Analyst : Got it. And then on the cash return to investors, I guess, how do you view the dividends and debt paydown and buybacks? How are you prioritizing (technical difficulty)?

Question: David O'Connor - BNP Paribas Exane - Analyst : Just a couple of clarifications on my side. Just going back to China. Firstly, that 4.5% of the business, that kind of local for local in China that's going through now China (technical difficulty). Is the expectation that disappears over time given that the competition that you have on a localized basis there in China? And the rest -- just to be clear, the rest outside of that 4.5%, the rest of it is business as usual. That business is moving out to China to Southeast Asia? Talked about, Steve. That is -- there is no change to that side of things? That's my first question. And then just going back to that slide on the client relationship, you talked about where the relationship 6%, I think, was the number of where it kind of declined. Is there -- I know the survey, but is there any way kind of how we should think about that number in terms of kind of revenues? If there's any way to think about that, is that 6% like a proxy kind of for revenue? How to think about it? And then lastly, one final one, if you could fit it in. Just Steve, you just mentioned on one question there earlier, shutting Fab 2 and internally now you will have high utilization. Can you just talk around kind of how much capacity there, your ability to respond to bring back online and the kind of the long-term CapEx to sales, any kind of change in thinking there?

Question: William Stein - Truist Securities, Inc. - Analyst : In the China-for-China strategy Steve, what about the development tools? Are those going to be sort of rebranded or presented as coming from another vendor? How are you managing that, please?