Microchip Technology(US:MCHP)2021-11-03 16:00Supply Chain and Manufacturing - The company anticipates that certain supply chain constraints will continue through calendar 2022 and possibly beyond [82]. - The expectation is that days of inventory at December 31, 2021, will be between 112 to 118 days [82]. - The company plans to continue operating manufacturing facilities at or above normal capacity if current supply constraints relative to demand persist [85]. - The company launched a Preferred Supply Program in Q4 of fiscal 2021, providing prioritized capacity for customers with a 12-month continuous backlog [97]. - The company expects wafer fabrication, assembly, and test constraints to persist through calendar 2022 and possibly beyond [97]. - The company has added assembly and test capacity to increase manufacturing capability [91]. Financial Performance - Net sales for the three months ended September 30, 2021, were $1,649.8 million, a 26.0% increase from $1,309.5 million in the same period of 2020 [102]. - For the six months ended September 30, 2021, net sales reached $3,219.2 million, up 22.9% from $2,619.2 million in the prior year [102]. - Gross profit margin improved to 64.8% for the three months ended September 30, 2021, compared to 61.7% in the same period of 2020 [100]. - Operating income for the three months ended September 30, 2021, was 25.2%, significantly higher than 17.3% in the same period of 2020 [100]. - Gross profit for the three months ended September 30, 2021 was $1.07 billion, or 64.8% of net sales, compared to $807.9 million, or 61.7% of net sales for the same period in 2020 [123]. - Gross profit for the six months ended September 30, 2021 was $2.08 billion, or 64.5% of net sales, compared to $1.61 billion, or 61.3% of net sales for the same period in 2020 [123]. Product Performance - Microcontroller product line accounted for 54.1% of net sales in the three months ended September 30, 2021, increasing from 53.7% in the same period of 2020 [108]. - Analog product line sales increased by 35.7% in the three months ended September 30, 2021, compared to the same period in 2020 [112]. - The average selling price of microcontroller products has remained stable, with expectations to moderate price declines through new product introductions [110]. - Sales in Asia accounted for 54.9% of total net sales for the three months ended September 30, 2021, compared to 55.5% in the same period of 2020 [120]. Expenses and Investments - R&D expenses for the three months ended September 30, 2021 were $246.2 million, or 14.9% of net sales, compared to $199.8 million, or 15.3% of net sales for the same period in 2020 [131]. - R&D expenses increased by $46.4 million, or 23.2%, for the three months ended September 30, 2021 compared to the same period last year [132]. - Selling, general and administrative expenses for the three months ended September 30, 2021 were $179.9 million, or 10.9% of net sales, compared to $144.7 million, or 11.1% of net sales for the same period in 2020 [134]. - Selling, general and administrative expenses increased by $35.2 million, or 24.3%, for the three months ended September 30, 2021 compared to the same period last year [135]. - Capital expenditures for the six months ended September 30, 2021, were $164.8 million, significantly up from $15.8 million in the same period of 2020, aimed at expanding production capacity and R&D [152]. - The company expects to invest between $350.0 million and $450.0 million in equipment and facilities over the next twelve months to support growth and in-house operations [152]. Cash Flow and Debt - As of September 30, 2021, the company had $255.3 million in cash, cash equivalents, and short-term investments, a decrease of $26.7 million from March 31, 2021 [149]. - Net cash provided by operating activities was $1.24 billion for the six months ended September 30, 2021, compared to $957.6 million for the same period in 2020, primarily due to higher net sales [150]. - Net cash used in financing activities was $1.06 billion for the six months ended September 30, 2021, compared to $931.7 million for the same period in 2020 [153]. - As of September 30, 2021, the principal amount of outstanding indebtedness was $8.41 billion, with $1.81 billion drawn from the Revolving Credit Facility [154]. - Long-term debt totaled $8.41 billion as of September 30, 2021, with $6.60 billion being fixed-rate debt and $1.81 billion being variable-rate debt [161]. - A 50 basis point increase in interest rates would increase expected annual interest expense by approximately $9.0 million [161]. - The company intends to maintain liquidity through existing cash balances and cash flows from operations for at least the next 12 months [160]. Health and Safety - The company believes that its actions to combat COVID-19 will help preserve the health of its team members and allow safe operations [90]. - The company is working with government authorities to ensure compliance with regulations and safeguard its workforce [91].