Microchip Technology(MCHP) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for the December quarter were $1.026 billion, down 11.8$42.7 million [20] - Non-GAAP net income was $107.3 million, with non-GAAP earnings per diluted share at$0.20 [21] - Inventory balance at December 31, 2024, was $1.356 billion, with 266 days of inventory, up 19 days from the previous quarter [24] - Adjusted EBITDA for the December quarter was$274.9 million, representing 26.8% of net sales [28] Business Line Data and Key Metrics Changes - Revenue from microcontroller, analog, FPGA, and other businesses all experienced sequential declines [36] - The company is focusing on reducing inventory, with a target to decrease inventory balance by approximately $250 million by the end of fiscal year 2026 [11][24] Market Data and Key Metrics Changes - The company reported broad-based weakness across all major geographies: America, Europe, and Asia [36] - Distribution inventory was at 37 days, down three days from the prior quarter, indicating a sell-through of$118 million higher than sell-in [25] Company Strategy and Development Direction - The company is implementing a nine-point plan to evaluate and improve its operations, including resizing manufacturing footprint and reducing inventory [6][10] - A focus on strengthening customer relationships, particularly with the top 1,000 customers, is a key part of the strategy [15] - The company aims to provide above-market growth as excess inventory is consumed [40] Management's Comments on Operating Environment and Future Outlook - Management noted that substantial inventory destocking has occurred, but visibility remains low, and bookings are still low [38] - The guidance for the March quarter is between $920 million and$1 billion in net sales, with non-GAAP gross margin expected between 54% and 55% [39] - Management expressed confidence in the long-term business model and operating margins, but acknowledged the need to navigate through the current inventory correction [55][56] Other Important Information - The company retired $665.5 million in convertible bonds and issued$1 billion in investment-grade bonds during the December quarter [26] - The next debt maturity is a $1.2 billion bond maturing in September 2025 [27] Q&A Session Summary Question: Where are the hotspots for inventory by end market or product? - Management indicated that inventory is high across the board, with distribution inventory getting closer to historical levels, while direct customer inventory remains elevated [47][48] Question: What is the earnings power for Microchip Technology Incorporated over the next year? - Management refrained from providing specific earnings guidance but emphasized the focus on cash flow and operational efficiency [51][54] Question: Can you walk us through the gross margin and its expected recovery? - Management stated that gross margins are expected to improve as inventory levels decrease and operational efficiencies are realized [60][63] Question: What is the company's commitment to the dividend amid cash flow challenges? - Management confirmed a commitment to maintaining the current dividend level, viewing cash flow issues as short-term [152]