Microchip Technology Inc at Goldman Sachs Communacopia & Technology Conference Transcript

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

Question: Jim Schneider - Goldman Sachs - Analyst : Quarterly reported back in early August, I thought your commentary was fairly constructive. You noted increased bookings, rising backlog levels in some pockets, lead times expanding, and reduced inventory on your balance sheet. And I think you also talked about minimal Poland activity. So I'll ask you a few questions about the core and the trends you're seeing right now to lead off. So your June quarter backlog I believe was the head of the prior quarter. July bookings sort of the highest month in some time. How do you continue to see trends in your backlog and bookings since then? And how is linearity tracked since your last earnings call?

Question: Jim Schneider - Goldman Sachs - Analyst : Okay. Very good. And then in terms of the end markets, which ones for fiscal '26, do you see rebounding most quickly? Is that auto, industrial, defense, cloud, data center, et cetera? And which do you think could be more sluggish for some period of time? 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 08, 2025 / 3:50PM, MCHP.OQ - Microchip Technology Inc at Goldman Sachs Communacopia & Technology Conference

Question: Jim Schneider - Goldman Sachs - Analyst : I think one exception to that broad end market improvement, you think you noted on the call was automotive. That's been a controversial end market for a lot of companies. Just curious whether you're seeing any changes there or any kind of improvement or not?

Question: Jim Schneider - Goldman Sachs - Analyst : Very good. Just one point on inventory. I think last quarter, you talked about your inventory on balance sheet going down by a little over $120 million sequentially. Maybe give us a sense like how much of that was sort of distributor destocking internal improvement? Like maybe give a sense of what you're seeing from an inventory perspective, both on your balance sheet and your customers.

Question: Jim Schneider - Goldman Sachs - Analyst : Yeah, makes sense.

Question: Jim Schneider - Goldman Sachs - Analyst : Great. Maybe one more short-term question before I move to some longer-term questions. In terms of your growth outlook and what you're seeing from China specifically, you just mentioned not so much on the EV side, but how do you think about the potential impact to the business based on sort of the macro challenges that sort of tariff regimes and everything else that we're seeing right now. And maybe talk about how your overall China business is tracking?

Question: Jim Schneider - Goldman Sachs - Analyst : Yeah. Very good. Pivoting to some more strategic issues. Since his return to the company's CEO, Steve Sanghi, has kind of had a nine-point strategic plan for the company. You made a lot of progress on those fronts. What do you see as the most important remaining steps for the overall company still to be completed? And then maybe, Rich, where are you focused on most in terms of operational objectives?

Question: Jim Schneider - Goldman Sachs - Analyst : Okay. Great. And then maybe within the strategic review, the financial targets you sort of laid out, you talked about operating expense goal of 25% of revenue. Right now, you're just above 30%. Where is the path to 25% look like for Microchip, how fast can you get there? And sort of keeping in mind the fact that the Microchip historically has this kind of philosophy or culture of shared sacrifice and downturns and kind of how you expect that to reverse or not in the upturn?

Question: Jim Schneider - Goldman Sachs - Analyst : Okay. Very good. Maybe switching to some of the end market trends that you're seeing right now. You touched on it before, Rich, about data center. That exposure has grown over time. It seems to be a good business for you. We've also heard from others that the crowd of the space. So maybe talk about Microchip and what applications do you see? And do you address most commonly? What's your competitive advantage there?

Question: Jim Schneider - Goldman Sachs - Analyst : Interesting. And the emergence of generative AI, has that really changed your focus in the market at all? Or is it just made the market bigger with the same products you had before?

Question: Jim Schneider - Goldman Sachs - Analyst : Guilty as charged. But maybe talk a little bit about the aerospace and defense. You called that one out tendentially before. It's been a good market for you. Maybe talk about what you think about that market and your exposure to it is underappreciated by investors. Why is the intricate opportunity for Microchip specifically? Your competition?

Question: Jim Schneider - Goldman Sachs - Analyst : And within that or maybe on top of that, FPGA, that's been a pretty strong brewer for you. Maybe talk a little bit about sort of where your where you're playing where some of your competitors may not be playing and why that's kind of a drill opportunity for Microchip?

Question: Jim Schneider - Goldman Sachs - Analyst : Great. And then I mean you touched on industrial and obviously, it's a very broad market across a bunch of submarkets. Maybe talk about for Microchip's business where you see the most traction and the most growth right now over the next maybe couple of quarters or so. 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 08, 2025 / 3:50PM, MCHP.OQ - Microchip Technology Inc at Goldman Sachs Communacopia & Technology Conference

Question: Jim Schneider - Goldman Sachs - Analyst : Pivot to operations for a second. You're near to your heart, I'm sure. Just maybe talk about the TSS, total system solution approach that you've been taking for several years now. How has the strategy sort of unfolded for you? How does it differentiate you from your competitors? And maybe talk about if you can quantify market share gains or any kind of other quantitative metrics you can put to that in terms of the success of DSS?

Question: Jim Schneider - Goldman Sachs - Analyst : Interesting. And then relative to AI, you've talked about an AI coding assistant, which I don't think most people would think about in the microcontroller context. But how long have you had this product internally when you've be really good to customers? And what has the feedback been?

Question: Jim Schneider - Goldman Sachs - Analyst : Interesting. Then just maybe switching topics a little bit to pricing. I mean, I realize you're not in the commodity business, you're focused on high-margin long-lived products. But we have some interesting gyrations during COVID, big changes in pricing and competitors have added a lot of capacity operationally over the last several years. So maybe talk about how you think about the analog side of the portfolio in terms of forward pricing trends you're expecting over the next couple of years more longer term?

Question: Jim Schneider - Goldman Sachs - Analyst : So that's more of like a go-forward perspective on new designs, but it's a mix effect in terms of --

Question: Jim Schneider - Goldman Sachs - Analyst : Yeah, makes sense. Maybe probably time for one more question, but I wanted to sort of ask you with respect to manufacturing footprint and your strategy, I mean you have production capacity in the United States, you also have outsourced capacity, which is relies mainly in Asia. I think some of your competitors have been very vocal about doing a lot more onshore US capacity. And now we have a tariff regime in place where that incentivizes US production. So maybe talk about your manufacturing strategy long term vis-a-vis your competitors and then your understanding about Microchip's applicability to the new territory regime that was recently announced?