Microchip Technology(US:MCHP)2024-01-31 16:00Financial Performance - For the three months ended December 31, 2023, net sales were 100% of total sales, with a gross profit margin of 63.4%, down from 67.8% in the same period of 2022 [101]. - Operating income for the three months ended December 31, 2023, was 30.0%, a decrease from 37.4% in the same period of 2022 [101]. - Net sales for the three months ended December 31, 2023, were $1,765.7 million, a decrease of 18.6% compared to $2,169.2 million in the same period of 2022 [103]. - For the nine months ended December 31, 2023, net sales increased by 1.7% to $6,308.6 million from $6,206.0 million in the prior year [103]. - Gross profit for Q3 2023 was $1.12 billion, or 63.4% of net sales, down from $1.47 billion, or 67.8% in Q3 2022 [120]. - The company experienced an adverse impact of $300.0 million on gross profit in Q3 2023 due to sales volume and product mix [121]. Research and Development - Research and development expenses increased to 15.1% of net sales for the three months ended December 31, 2023, compared to 13.0% in the same period of 2022 [101]. - R&D expenses for the three months ended December 31, 2023 were $266.0 million, or 15.1% of net sales, a decrease from $282.4 million, or 13.0% of net sales, in the same period of 2022 [128]. - R&D expenses increased by $37.1 million, or 4.5%, for the nine months ended December 31, 2023 compared to the same period last year, primarily due to increases in headcount and employee compensation [129]. - The company is committed to investing in new and enhanced products, focusing on mixed-signal microcontrollers, digital signal controllers, and FPGAs [97]. Production and Capacity - 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 [94]. - The company plans to reduce production levels and implement up to two weeks of shutdown days in global fabrication facilities due to weak macroeconomic conditions [91]. - The company has reduced planned capital investments through fiscal 2025 in response to the weak macroeconomic environment [91]. - The company plans to invest between $200 million and $300 million in equipment and facilities over the next 12 months to support new products and technologies [155]. Sales and Market Trends - Mixed-signal microcontrollers accounted for 56.3% of net sales in Q3 2023, with a decrease of 18.5% compared to Q3 2022, while increasing by 3.3% for the nine-month period [106][107]. - Analog product line sales decreased by 29.0% in Q3 2023 and 4.1% for the nine months, accounting for 24.4% and 26.7% of net sales, respectively [109][110]. - Other product line sales accounted for 19.3% of net sales in Q3 2023, remaining flat compared to Q3 2022, but increased by 6.2% for the nine-month period [112][113]. - Distributors represented approximately 44% of net sales in Q3 2023, down from 48% in Q3 2022, primarily due to inventory management efforts [114]. - Foreign customers accounted for approximately 75% of total net sales in both Q3 2023 and Q3 2022 [119]. Cash Flow and Financing - Net cash provided by operating activities was $2.46 billion in the nine months ended December 31, 2023, driven by higher net income of $1.75 billion [153]. - Net cash used in investing activities was $320.9 million in the nine months ended December 31, 2023, compared to $448.7 million in the same period of 2022 [154]. - Net cash used in financing activities was $2.09 billion for the nine months ended December 31, 2023, compared to $2.49 billion in the same period of 2022 [156]. - Cash dividends paid to stockholders were $669.0 million in the first nine months of fiscal 2024, up from $499.4 million in the same period of fiscal 2023 [156]. - The company repurchased approximately 7.4 million shares for $594.7 million in the first nine months of fiscal 2024, compared to 9.6 million shares for $671.9 million in the same period of fiscal 2023 [159]. Debt and Interest - As of December 31, 2023, the principal amount of outstanding indebtedness was $5.71 billion, with no borrowings under the Revolving Credit Facility [158]. - Interest expense decreased to $49.2 million for the three months ended December 31, 2023, down from $52.8 million in the same period of 2022 [138]. - The company has no interest rate exposure on $4.96 billion of fixed-rate debt, but a 50-basis point increase in interest rates would raise expected annual interest expense by approximately $3.8 million on $750.0 million of variable-rate debt [164]. Strategic Initiatives - The Preferred Supply Program was discontinued in February 2024 as industry capacity conditions improved, which had been initiated in February 2021 [92]. - The company maintains a strong technical service presence, which is considered essential for the continued development of the embedded control market [98]. - A Preliminary Memorandum of Terms was reached with the U.S. Department of Commerce for $162 million in CHIPS Act grants for two U.S. wafer fabrication facilities, subject to due diligence and negotiation [155]. - The company is pursuing incentives under the CHIPS Act to enhance domestic manufacturing capacity, though there is no assurance of receiving such incentives [163].