Microchip Technology Inc at Goldman Sachs Communacopia & Technology Conference Transcript

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

Question: Toshiya Hari - Goldman Sachs - Analyst : All right. I'll kick off with a bunch of questions here. In terms of the near term, probably one for you, Eric. You cited a moderation in customer bookings. You guided September quarter revenue down 7% sequentially at the midpoint. How has the quarter trended so far? Any standouts, any surprises to the upside or the downside?

Question: Toshiya Hari - Goldman Sachs - Analyst : Okay. Got it. So again, September quarter guidance is down 7% sequentially. I think many of your peers are guiding the quarter flat to maybe up a little bit, down a little bit, somewhere in that range. I realize one quarter doesn't make a trend, certainly. But what is driving the delta there in your view, is it inventory dynamics? Is it share? How should we think about the relative performance in the near term?

Question: Toshiya Hari - Goldman Sachs - Analyst : Got it. And on that point on customer inventory, I realize you guys don't have perfect visibility into customer inventory. But how would you characterize where inventories are today relative to three, six months ago? Or what you would consider to be no more healthy?

Question: Toshiya Hari - Goldman Sachs - Analyst : Right. Got it. On the PSP program, now that you've had multiple quarters to look back on the pandemic and the PSP program, I'm curious if a sharp cyclical upturn were to occur over the next, say, couple of quarters and your customers came to you asking for reassurance of supply, long-term supply. Would you reintroduce the PSP program? And what aspects of the latest iteration of Virgin would you inherit -- and which aspects would you tweak or change?

Question: Toshiya Hari - Goldman Sachs - Analyst : Microchip sells, you guys sell a broad range of products to a broad range of end markets and applications. But I am curious if you had to call out, you talked a little bit about data center earlier. But if you had to call out three or plus or minus drivers that could really turbocharge the business forward over the medium to long term, what would they be?

Question: Toshiya Hari - Goldman Sachs - Analyst : All right. At the most recent Analyst Day, I feel like it was a long time ago, but the most recent one, I think the long-term revenue CAGR target you provided was in the 10% to 15% range. Obviously, you guys operate in a cyclical business. But when you think about the through cycle growth rate, is that still the relevant appropriate range in your view? A lot has happened.

Question: Toshiya Hari - Goldman Sachs - Analyst : Got it. Again, going back to data center, I think it was 16% of fiscal '24.

Question: Toshiya Hari - Goldman Sachs - Analyst : 18%. I apologize. 18% of fiscal '24 revenue not all data centers are created equal. I'm curious, as AI comes into the picture, if not already, how should we think about that impacting and influencing your business going forward, total data center?

Question: Toshiya Hari - Goldman Sachs - Analyst : Got it. Eric, you talked a little bit about your total system solution strategy. Maybe expand on that a little bit? How does it different? How does it

Question: Toshiya Hari - Goldman Sachs - Analyst : Got it. I guess somewhat related to that, your FPGA business has done really well over the past couple of years. You've outperformed the industry, I believe, over the past 12 months. I think many of your peers have gone through a pretty significant correction. Which end markets or applications have driven your success relative to peers? And what are your long-term aspirations in FPGA? 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 11, 2024 / 8:45PM, MCHP.OQ - Microchip Technology Inc at Goldman Sachs Communacopia & Technology Conference

Question: Toshiya Hari - Goldman Sachs - Analyst : Okay. Great. Maybe on pricing, I realize you guys don't operate a commodity business and the design cycles are long and the product cycles are long. But curious how you're thinking about pricing going forward? You've gone through -- not you specifically, but the industry has gone through a fairly inflationary period. I would say a lot of capacity has been added both at the IDMs as well as the foundries. So I guess there is a concern out there that pricing could declined more so than historical patterns into '25. But how are you all thinking about overall pricing for your overall business?

Question: Toshiya Hari - Goldman Sachs - Analyst : Okay. Okay. Great. On the geopolitical backdrop and how you all think about your manufacturing footprint, one of your competitors have been pretty aggressive in expanding capacity here in the US. They've also been very vocal as to how having access to geopolitically dependable capacity as a competitive edge. How do you guys think about that dynamic? 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 11, 2024 / 8:45PM, MCHP.OQ - Microchip Technology Inc at Goldman Sachs Communacopia & Technology Conference

Question: Toshiya Hari - Goldman Sachs - Analyst : Okay. The medium term?

Question: Toshiya Hari - Goldman Sachs - Analyst : Got it. That's helpful. CHIPS Act funding, you guys announced an agreement with the CHIPS office back in January. What are some of the key milestones that you need to hit for you to actually see the funds come through? .

Question: Toshiya Hari - Goldman Sachs - Analyst : Shifting gears a little bit. competition with local Chinese suppliers is a big topic, and I'm sure you guys get questions all the time. Can you remind us what percentage of your business today comes from China? What percentage of that is China for China? What are you seeing on the ground from a competitive standpoint? Is it more intense? What are you seeing from your perspective?

Question: Toshiya Hari - Goldman Sachs - Analyst : Yes. I'm going to pause here and see if we have any questions from the audience. if you can raise your hand. . Maybe going into the model, gross margins, puts and takes, maybe starting off of factory utilization rates. I know you guys have been moderating production, if you will, what's the plan going forward? You talked about pricing being stable. Any other kind of pluses and minuses that we should be thinking about as it pertains to gross margins?

Question: Toshiya Hari - Goldman Sachs - Analyst : Got it. Okay. So to your point, for you to meaningfully take up utilization rates, it's bookings, sustainability, its business confidence. Those kind of things.

Question: Toshiya Hari - Goldman Sachs - Analyst : Right. Okay. Makes sense. OpEx Down about 25% peak to trough. Is it entirely due to the cycle? Is there a permanent change? How should we think about OpEx on the way up as business recovers?

Question: Toshiya Hari - Goldman Sachs - Analyst : Got it. Okay. It sounds like a lot of the changes, whether it be the gross margin or the OpEx is very cyclical in nature. The long-term margin targets that you guys threw out at the Analyst Day those seem fairly reasonable still is that the right way to think about?

Question: Toshiya Hari - Goldman Sachs - Analyst : Capital allocation and maybe M&A, you've been really methodical and transparent with your approach to capital return. I believe by the March quarter of next year, you'll be returning 100% of free cash flow to shareholders. Post that, is M&A still a consideration? Do you feel like you have the right pieces in place to execute your strategies and therefore, you're done. How should we think about the priorities from a capital allocation standpoint?

Question: Toshiya Hari - Goldman Sachs - Analyst : Very clear. AI is obviously a very hot topic these days and certainly at this conference. At Microchip, do you guys leverage AI? Whether it be chip design or day-to-day operations vis-a-vis a couple of years? p. 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 11, 2024 / 8:45PM, MCHP.OQ - Microchip Technology Inc at Goldman Sachs Communacopia & Technology Conference

Question: Toshiya Hari - Goldman Sachs - Analyst : Okay. Great. I guess in the last two minutes, Eric, I wanted to give you the opportunity to kind of speak to anything that we may have missed or I know we're keeping you busy with meetings all day. Anything as a collective unit, we underappreciate about Microchip or misunderstand about the cycle. Anything you want to highlight?

Question: Toshiya Hari - Goldman Sachs - Analyst : Okay. Awesome. Thank you so much. Really appreciate the time.