Microchip Technology Inc at Citi Global TMT Conference Transcript

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

Question: Chris Danely - Citi - Analyst : I'll start with the most obvious question. One of the reasons why we like Microchip so much is it can't get any worse, right, with sales down the most among the analog names. And it's a very high quality company. We don't think that the business model has really changed. Ganesh, maybe in your own words, why do you think that your sales have gone down more than peers?

Question: Chris Danely - Citi - Analyst : Just to dig in on some of that, you have two main businesses, microcontrollers and analog. Have you seen more weakness in either? And if so, why has one been weaker than the other, you think?

Question: Chris Danely - Citi - Analyst : And when things do bounce back, would you expect them both to bounce back roughly at the same time any one more than the other? Any insights there from what you've seen so far this year?

Question: Chris Danely - Citi - Analyst : Great. And then let's just dig in on the inventory trends. Where do you think inventory is in the best shape out there? And where are you more concerned?

Question: Chris Danely - Citi - Analyst : And why do you think we're closer to the later innings? What gives you some confidence there? What are you seeing?

Question: Chris Danely - Citi - Analyst : Given that inventories are going down, do you think there's any risk that we see some extension in lead times as things do start to bounce? I mean, you mentioned a few pull-ins. Has that impacted lead times at all? Or is it now still in inventory burn mode? How do you look at it operationally, I guess?

Question: Chris Danely - Citi - Analyst : You mentioned, as far as what gives you a little bit of confidence that we're getting close to the bottom, you've seen some more accelerated orders and some pull-ins. Is that any different than what you had, say, three months ago or six months ago? Or doesn't this happen -- just to play devil's advocate, doesn't that happen every quarter? Maybe not a year ago, but -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 12:20PM, MCHP.OQ - Microchip Technology Inc at Citi Global TMT Conference

Question: Chris Danely - Citi - Analyst : Is there any consistency or rhyme or reason where you're seeing it? Is it more prevalent in any particular geography, end market? Anything else, any pattern you can see out there, just of out curiosity?

Question: Chris Danely - Citi - Analyst : So just to get the geos down, you say Europe is weakest even though it's a seasonally slow quarter for them?

Question: Chris Danely - Citi - Analyst : And would you say the US is a little weaker than seasonal as well and then China is the strongest? Has that been true for the last, would you say, a couple of quarters? Or any changes you've seen over the last six months out of any of those three geos?

Question: Chris Danely - Citi - Analyst : Up or down?

Question: Chris Danely - Citi - Analyst : Up or down?

Question: Chris Danely - Citi - Analyst : Okay. And can you just remind us what your rough splits are between those three regions?

Question: Chris Danely - Citi - Analyst : Sure. And then maybe switching gears to the end markets. Are you seeing -- you talked about the machinations of the geographies. Are you seeing any difference between, say, the auto or industrial or aerospace and defense end markets in terms of strength, weakness?

Question: Chris Danely - Citi - Analyst : Sure. Would you say there's any difference between the auto and the industrial space as far as one weaker than the other?

Question: Chris Danely - Citi - Analyst : And why do you think that is? Do you think it's the underlying demand trends? Or do you think that -- has there's been a little more inventory build or both?

Question: Chris Danely - Citi - Analyst : And so you spend a lot of time with the customers. What are they saying as far as their own inventory goes? Do they want to take it back to normal levels, below normal levels? This is just like massive inventory everywhere. I hope not because we're already down 45%. Any insights there?

Question: Chris Danely - Citi - Analyst : And so what would be your overall take on just underlying demand trends in semis? When I say trends, I mean, do you think the demand has gotten worse over the last three months or stabilized or better or somewhere in between?

Question: Chris Danely - Citi - Analyst : I have a a macro question on that. I mean you were around the last time rates went down. There was a lot of speculation they're going to go down again. So do you think that rates going down is going to help the tech or semi industry in general? And do you remember like what happened last time the rates went down?

Question: Chris Danely - Citi - Analyst : That's interesting. Next question is a little difficult. I have to ask it. We're no spin research here. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 12:20PM, MCHP.OQ - Microchip Technology Inc at Citi Global TMT Conference We mentioned that your sales have fallen more than the competitors. I'm sure this keeps you up at night. Why would this not be share loss? Or do you think there is some share loss in there?

Question: Chris Danely - Citi - Analyst : Okay. Would you say that your visibility now versus where you were, let's say, three months ago, has that changed? I mean, can it get any worse? Have you seen any signs that it's getting a little bit better? Or is it about the same? Is it still like just pure charcoal when you look at the order rates out there? What --

Question: Chris Danely - Citi - Analyst : Yeah. Can it get any worse, by the way?

Question: Chris Danely - Citi - Analyst : Yeah. Here's a question you probably haven't heard for a while, but turns percentage. Maybe talk about what the typical percentage is and what you're looking at these days? And do you expect that to change at all? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 12:20PM, MCHP.OQ - Microchip Technology Inc at Citi Global TMT Conference

Question: Chris Danely - Citi - Analyst : Got it. So you mentioned that you've seen some signs that we're getting close to the bottom. I remember back at one of our dastardly competitors' conferences a few months ago, I think it was in May or June, that you talked about things some green shoots or signs that things were -- could be bottoming. Are you seeing any difference now versus then? Because obviously, since then, your sales have fallen again. Maybe compare and contrast, do you have more confidence now? Or is it just, all right, we're seeing a few signs and who knows?

Question: Chris Danely - Citi - Analyst : How are you guys managing inventory? Because we've started to see some of your peers bounce back. They're starting to see some above seasonal order trends, which you would expect to happen. And how do you manage your inventory, right? You don't want to take it down to nothing because then when the orders bounce back, your lead time's out to infinity. So how does that work as a CEO? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 12:20PM, MCHP.OQ - Microchip Technology Inc at Citi Global TMT Conference

Question: Chris Danely - Citi - Analyst : So yeah, I think -- I don't know if you guys are still doing furloughs, but maybe talk a little bit about utilization rates now. Are they pretty much as low as they're going to go, where your inventory days are where you expect them to go? Will you keep a little bit more, even though we're at the bottom of the cycle, just in case the order rates bounce back? How do you look at that?

Question: Chris Danely - Citi - Analyst : Because there's no furloughs this quarter, did you lower utilization rates or where utilization rates flat this quarter versus last quarter?

Question: Chris Danely - Citi - Analyst : Okay. And so what will that do to inventory days? Do you expect inventory or inventory days to go up, how much this quarter? And then --

Question: Chris Danely - Citi - Analyst : Got it. Now given you have inventory, there's inventory in the channel, this has been going on for a while. Are you seeing any pricing pressure? What should we think of as far as price goes for Microchip?

Question: Chris Danely - Citi - Analyst : So are you seeing any more pricing pressure, say, now versus a year or two ago? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 12:20PM, MCHP.OQ - Microchip Technology Inc at Citi Global TMT Conference

Question: Chris Danely - Citi - Analyst : Will that go away once whatever the upturn starts? Will take a couple of quarters based on your experience in previous cycles? Does it take one quarter, two quarter, three quarters of the upturn in better orders and sequential increases in revenue before the price structure goes away? Or do you expect it to just remain like fairly constant within this level as long as nothing crazy happens?

Question: Chris Danely - Citi - Analyst : Great. I have one question. So you said that you had furloughs in the March and the June quarter, but none this quarter, right?

Question: Chris Danely - Citi - Analyst : Why was that decision made? Why no furloughs this quarter?

Question: Chris Danely - Citi - Analyst : Great. Let's sum a little more longer-term question, get of the short-term stuff. 2025, what are you most excited about for next year -- as far as longer-term trends go?

Question: Chris Danely - Citi - Analyst : I was hoping you're going to pull out a crystal ball and say we're looking forward to the upturn. As far as the gross margin drivers from here, were number one is utilization rates. Talk about anything else going on? And then do you think that your gross margins can eventually get back to the previous peak?

Question: Chris Danely - Citi - Analyst : Great. We have a few minutes left. I'd be remiss if I didn't see if the audience had any questions out there, going once, going twice, I'm fine, continuing to flat my gums and pester the (inaudible) Ganesh, yes. Do we need a microphone or -- Unidentified Participant Ganesh, a quick one. On the GM side, one of the biggest -- one of the contributors was as you started doing more packaging for some of the acquisitions you did. Are you guys done there? Or do you have any more to go on that side? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 12:20PM, MCHP.OQ - Microchip Technology Inc at Citi Global TMT Conference And then just a follow-up, you just mentioned that pricing discipline while there's a few statements ago, you said that it's pretty in the last. Is it pricing discipline for a certain part of product? Or is it like -- I mean, in spite of the -- in industry, there's always some short -- I think you said?

Question: Chris Danely - Citi - Analyst : We have time for one more in the corner over there. Unidentified Participant Can you guys talk a little bit about your data center products there, traction, growth drivers and market share shifts because I think that seems like a very interesting and obviously explosive growth in market?

Question: Chris Danely - Citi - Analyst : Great. I think that's all we have time for. Thanks, Ganesh. Thanks, everyone.