Microchip Technology Inc at Raymond James Institutional Investors Conference Transcript

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

Question: Melissa Fairbanks - Raymond James - Analyst : I have a feeling we might have a lot. I would -- just to begin, I would highly recommend you go check out their website. They do have a presentation up from Monday's business update. There's a lot of data in that presentation that the company has never shared before. And I think it's very helpful in understanding the path and already some of the returns that you've started to see from some of the actions that you've taken. It might be helpful though to start. How did we get here? For those that may be unfamiliar with the semi cycle or if you can even call this a cycle over the past several years, Microchip took a little bit of a unique approach to managing through the shortages, but if you don't mind kind of walking us through a little bit of that plan.

Question: Melissa Fairbanks - Raymond James - Analyst : To say the least.

Question: Melissa Fairbanks - Raymond James - Analyst : I think that's a really important point. Bookings would not be increasing if there was still a glut of inventory in the channel somewhere. You would be -- it would be absorbed from the channel. And I think that's an important point. So yeah, we're encouraged to see that for sure. That kind of -- 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 05, 2025 / 2:50PM, MCHP.OQ - Microchip Technology Inc at Raymond James Institutional Investors Conference

Question: Melissa Fairbanks - Raymond James - Analyst : All very good signs. You did mention that you had built out, increased some capacity in order to deal with the big upsurge in demand. As part of the nine point plan, you have announced some pretty significant restructuring actions in terms of your manufacturing footprint. And maybe if you could go over that, what the impact on the margin profile and how that helps support your margin profile through the cycle, that would be helpful.

Question: Melissa Fairbanks - Raymond James - Analyst : How has -- as you're trying to work through bringing down -- channel inventory is coming down nicely. I think your channel inventory levels are actually slightly below some of your peers, which is good. And then working on bringing down the inventories internally, how has the supply chain crisis that we endured over the past four or so years, how has that changed the way that you deal with your customers directly or with your distribution partners?

Question: Melissa Fairbanks - Raymond James - Analyst : And remind me, distribution is about 45% of your sales and then you go direct for the balance?

Question: Melissa Fairbanks - Raymond James - Analyst : Maybe pivoting a little. And this is a topic that's come up all week and pretty much every meeting and almost every call I do. China. I think Steve highlighted kind of a really unique approach that you're using to address the China for China manufacturing. And then how that kind of helps to protect some of your business? We'll get into competitive dynamics in China next, but I would like to highlight this because it is pretty unique for Microchip.

Question: Melissa Fairbanks - Raymond James - Analyst : I think you kind of touched on it a little bit. We always get asked about threats from the Chinese suppliers, from the upfront. My view has always been that there's a bigger focus on discrete commodity type products. You're able to offer some level of differentiation even just on the -- at the die level. Maybe discuss. You highlighted the percentages of your exposure to China. That 4.5% is in theory what would be at risk to maybe competing against direct Chinese suppliers. Is that correct?

Question: Melissa Fairbanks - Raymond James - Analyst : It doesn't happen overnight, of course.

Question: Melissa Fairbanks - Raymond James - Analyst : So I'd like to extend that conversation on competitive advantages to even just in your overall business. Like finally moving beyond just the next 100 days, but let's talk about the longer term strategy of Microchip. Maybe focus on explain the total system solution. When we talk about TSS, that's a way that Microchip has increased their competitiveness against even some of the Western suppliers. But maybe highlight some areas where you have this competitive advantage, whether it's by end market or by platform, total integrated system software.

Question: Melissa Fairbanks - Raymond James - Analyst : Decades.

Question: Melissa Fairbanks - Raymond James - Analyst : I think Steve was also talking about on the call some of your opportunities in automotive like around Ethernet. That also came from one of those acquisitions, fit perfectly within the portfolio. And now all of a sudden, we're seeing this inflection points coming in the demand for those types of products. So.

Question: Melissa Fairbanks - Raymond James - Analyst : It's important to highlight that stuff because sometimes, those types of innovations get lost in the discussion. I think that kind of segues into my next question about pricing. The more content that you're able to capture on a board or around a lead product obviously helps support your content contribution. But then also helps support pricing. We have heard some of your peers talk about more recently now that at least the demand environment has somewhat stabilized, I wouldn't say it's normalized yet, channel inventories are starting to come down. There is an expectation that we return to normal annual price concessions. Are you starting to see that yet? Is that impacting maybe some of the inventory that you have on hand? Or I think Microchip was probably one of the more disciplined in not raising prices through the supply chain crisis. I could be wrong on that. But.

Question: Melissa Fairbanks - Raymond James - Analyst : I want to open it up just to see if anyone has any -- Yes. We have a question. Thanks, Bruce. Unidentified Participant I have one question on price is you mentioned low single digits (inaudible) is that just your new business that your? 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 05, 2025 / 2:50PM, MCHP.OQ - Microchip Technology Inc at Raymond James Institutional Investors Conference

Question: Melissa Fairbanks - Raymond James - Analyst : And I think it's important. There isn't a specific revenue target set to achieve that 65%, 40% gross and operating margin.

Question: Melissa Fairbanks - Raymond James - Analyst : We are surprisingly out of time. Unfortunately, we didn't get a chance to talk about the capital return strategy. I would recommend that people check out the presentation on the website. I think it's very important to highlight you are still committed to the dividend. You are still committed toward staying on the path of returning a 100% of free cash flow to shareholders. And that's another very important factor when looking at Microchip. Any closing remarks before we head downstairs for the break out?

Question: Melissa Fairbanks - Raymond James - Analyst : I think we covered a lot.

Question: Melissa Fairbanks - Raymond James - Analyst : Up into the right.