Capacity Expansion and Investment - In fiscal 2023, the company announced an $800 million capacity expansion plan at Fab 4 in Gresham, Oregon, and plans to invest $880 million to expand silicon carbide and silicon production capacity [85]. - The company plans to invest between $250 million and $350 million in equipment and facilities over the next 12 months to support new product growth [140]. - The semiconductor industry is capital intensive, and the company plans to evaluate significant investments in capital equipment and facilities [146]. Financial Performance - For the three months ended September 30, 2023, gross profit was 67.8%, an increase from 67.4% in the same period of 2022 [93]. - Operating income for the six months ended September 30, 2023, was 39.4%, compared to 36.1% in the same period of 2022 [93]. - Net sales for the three months ended September 30, 2023, were $2,254.3 million, an increase of 8.7% compared to $2,073.2 million in the same period of 2022 [96]. - For the six months ended September 30, 2023, net sales reached $4,542.9 million, reflecting a 12.5% increase from $4,036.8 million in the prior year [96]. - Gross profit for the three months ended September 30, 2023, was $1.53 billion, or 67.8% of net sales, compared to $1.40 billion, or 67.4% in the same period of 2022 [113]. Research and Development - Research and development expenses for the three months ended September 30, 2023, were 13.0% of net sales, consistent with the same period in 2022 [93]. - The company is focused on developing new mixed-signal microcontrollers, digital signal controllers, and other advanced products to maintain its competitive position [89]. - The company anticipates continued investment in new and enhanced products, which are significant for maintaining its competitive position [89]. - R&D expenses for Q3 2023 were $292.6 million, representing 13.0% of net sales, an increase of $24.0 million or 8.9% year-over-year [119]. - R&D expenses for the first six months of 2023 totaled $591.1 million, or 13.0% of net sales, up $53.5 million or 10.0% compared to the same period in 2022 [120]. Expenses and Cost Management - Selling, general and administrative expenses decreased to 8.7% of net sales for the three months ended September 30, 2023, down from 9.8% in the same period of 2022 [93]. - Selling, general and administrative expenses for Q3 2023 were $196.6 million, or 8.7% of net sales, a decrease of $5.8 million or 2.9% year-over-year [122]. - Selling, general and administrative expenses for the first six months of 2023 were $400.2 million, or 8.8% of net sales, an increase of $8.9 million or 2.3% compared to the same period in 2022 [123]. - Amortization of acquired intangible assets for Q3 2023 was $151.4 million, down from $167.5 million in Q3 2022 [125]. - Interest expense for Q3 2023 was $46.8 million, a decrease from $53.3 million in Q3 2022, primarily due to debt paydown [127]. Market Conditions and Sales Performance - The company experienced weakening business conditions globally, with customer requests to push out or cancel backlog expected to continue in the December quarter [82]. - Approximately 50% of net sales in the three months ended September 30, 2023, were attributed to distributors, up from 46% in the same period of 2022 [108]. - Sales in the Americas increased to $655.2 million (29.1% of net sales) for the three months ended September 30, 2023, compared to $525.1 million (25.3%) in the same period of 2022 [112]. - Sales in Asia decreased to $1,041.1 million (46.1% of net sales) for the three months ended September 30, 2023, down from $1,132.3 million (54.6%) in the same period of 2022, due to unfavorable conditions in the China market [112]. Cash Flow and Financing Activities - Net cash provided by operating activities for the first six months of 2023 was $1.61 billion, driven by higher net income of $1.33 billion [138]. - Net cash used in financing activities was $1.35 billion for the six months ended September 30, 2023, compared to $1.36 billion for the same period in 2022 [141]. - The company borrowed $750.0 million under the new 2025 Term Loan Facility with interest rates ranging from 1.125% to 1.5% [141]. - As of September 30, 2023, the principal amount of outstanding indebtedness was $6.10 billion, with $39.0 million borrowed under the Revolving Credit Facility [141]. - The company had $256.6 million in cash and cash equivalents as of September 30, 2023, an increase of $22.6 million from March 31, 2023 [137]. Shareholder Returns - In the first six months of fiscal 2024, the company repurchased approximately 6.0 million shares for $480.1 million, compared to 6.5 million shares for $442.4 million in the same period of fiscal 2023 [144]. - Cash dividends paid to stockholders in the first six months of fiscal 2024 totaled $431.6 million, up from $319.1 million in fiscal 2023 [142]. - A quarterly cash dividend of $0.410 per share was paid on September 5, 2023, totaling $222.7 million, with an expected aggregate cash dividend of approximately $238.0 million for the December 2023 quarter [145]. - The company has $2.15 billion remaining for stock repurchases under the authorized program as of September 30, 2023 [144]. - The company has $789.0 million of variable interest rate debt, with a potential $3.9 million increase in annual interest expense for a 50-basis point rise in interest rates [147]. Inflation and Economic Impact - Inflation has not materially impacted operating results recently, but ongoing inflationary pressures could adversely affect operating results if costs cannot be offset by price increases [148].
Microchip Technology Incorporated(MCHPP) - 2024 Q2 - Quarterly Report