Microchip Technology Incorporated(MCHPP) - 2025 Q1 - Quarterly Report

Financial Performance - Net sales for the three months ended June 30, 2024, were $1,241.3 million, a decrease of 45.8$2,288.6 million in the same period of 2023[99]. - Net sales for the three months ended June 30, 2024, were $1,241.3 million, a decrease of 45.4$2,288.6 million for the same period in 2023[101]. - Total revenue for the three months ended June 30, 2024, was $452.2 million, while total revenue for the year ended March 31, 2024, was$2.80 billion[160]. - The company reported a total net loss of $28.4 million for the three months ended June 30, 2024, compared to a net income of$465.2 million for the year ended March 31, 2024[160]. Cost and Expenses - Cost of sales increased to 40.6% of net sales in Q2 2024, up from 31.9% in Q2 2023, leading to a gross profit margin decline from 68.1% to 59.4%[97]. - Operating income dropped to 17.7% of net sales in Q2 2024, down from 39.5% in Q2 2023, reflecting the impact of rising costs and declining sales[97]. - Research and development expenses rose to 19.5% of net sales in Q2 2024, compared to 13.0% in Q2 2023, indicating a significant increase in investment in innovation[97]. - Research and Development (R&D) expenses were $241.7 million, or 19.5$298.5 million, or 13.0% of net sales in Q2 2023[122][123]. - Selling, general and administrative expenses decreased to $150.5 million, or 12.1$203.6 million, or 8.9% of net sales in Q2 2023[125][126]. - Interest expense increased to $61.8 million in Q2 2024 from$47.2 million in Q2 2023, primarily due to higher debt balances and interest rates[129]. Market Conditions - The company is experiencing a weak macroeconomic environment, with customers reducing inventory levels due to business uncertainty and persistent inflation[87]. - The company anticipates ongoing fluctuations in operating results and gross margins due to uncertain global economic conditions and competitive pricing pressures[86]. - Inflation has not materially impacted operating results recently, but significant inflationary pressures could adversely affect profitability[162]. Product Performance - Mixed-signal microcontrollers accounted for 52.0% of net sales in Q2 2024, down from 56.9% in Q2 2023, with a 50.5% decrease in sales volume[102][103]. - Analog product line sales decreased by 47.8% in Q2 2024, representing 26.6% of net sales compared to 27.7% in Q2 2023[105][107]. - Other product line sales increased to 21.4% of net sales in Q2 2024 from 15.4% in Q2 2023, despite a 24.7% decrease in revenue[109][110]. Cash Flow and Financing - Net cash provided by operating activities was $377.1 million for the three months ended June 30, 2024, compared to$993.2 million for the same period in 2023, primarily due to a decrease in net income from $666.4 million[144]. - Net cash used in financing activities was$256.2 million for the three months ended June 30, 2024, significantly lower than $815.1 million for the same period in 2023[149]. - The company repurchased approximately 0.8 million shares for$72.7 million in the first three months of fiscal 2025, compared to 1.8 million shares for $140.3 million in the same period of fiscal 2024[150]. - The company has$288.0 million in outstanding principal amount of Commercial Paper as of June 30, 2024, down from $1.36 billion at March 31, 2024[149]. Investments and Future Plans - A multi-year$800 million capacity expansion plan at Fab 4 in Oregon and an $880 million plan for SiC and silicon production capacity are currently paused until business conditions improve[89]. - The company plans to invest between$125 million and $175 million in equipment and facilities over the next 12 months to support production capabilities for new products and technologies[146]. - The company is pursuing incentives under the CHIPS Act to enhance domestic manufacturing capacity, though the timing and amount of such incentives remain uncertain[155]. - The semiconductor industry is capital intensive, necessitating significant investments in capital equipment and facilities to remain competitive[155]. - The company plans to refinance certain existing notes as they mature, with financing dependent on market conditions and liquidity[155]. Inventory and Assets - Overall inventory levels were$1.31 billion at June 30, 2024, with 237 days of inventory compared to 224 days at March 31, 2024[117]. - As of June 30, 2024, total assets amounted to $9.97 billion, an increase from$8.86 billion as of March 31, 2024[158]. - Current liabilities, excluding intercompany, were $538.5 million as of June 30, 2024, down from$618.1 million as of March 31, 2024[158]. - Long-term debt increased to $6.17 billion as of June 30, 2024, compared to$5.00 billion as of March 31, 2024[158]. - The company has $750.0 million of variable interest rate debt, with a potential increase in annual interest expense of approximately$3.8 million for a 50-basis point rise in interest rates[161]. Tax Matters - The company received a proposed income adjustment from the Malaysian Inland Revenue Board that could result in income taxes and penalties up to $410.0 million if upheld[137]. - The company intends to vigorously defend its positions against tax assessments and believes the assessments are without merit[138]. Dividends - A quarterly dividend of$0.454 per share was declared on August 1, 2024, with an expected aggregate cash dividend of approximately $243.8 million for the September 2024 quarter[151].