Microchip Technology Q3 Earnings Call Highlights

Core Insights - Microchip Technology reported strong financial results for the December quarter, exceeding prior guidance with net sales of $1.186 billion, a 4% sequential increase, and non-GAAP EPS of $0.44, which was $0.04 above the high end of previous guidance [3][4][7] Financial Performance - On a GAAP basis, the gross margin was 59.6%, with net income attributable to common shareholders at $34.9 million, or $0.06 per share [1] - Non-GAAP gross margin was reported at 60.5%, with operating expenses at 32% of sales and non-GAAP operating income at 28.5% of sales [2] - Cash flow from operations was $341.4 million, and adjusted free cash flow was $305.6 million, with total debt declining by $12.1 million sequentially [8] Inventory and Capital Management - Inventory levels normalized, with distributor inventory at about 28 days, and the company ended the quarter with $1.058 billion in inventory, down $37.6 million from the previous quarter [7][5] - The company is prioritizing debt reduction, with net debt to adjusted EBITDA ratio decreasing to 4.18 from 4.69 [8][5] Market and Product Developments - Management highlighted strong momentum in automotive and industrial connectivity, including a strategic collaboration with Hyundai Motor Group and design wins in PCIe Gen 6 expected to generate significant revenue [6][12][18] - The company is experiencing a broad-based recovery, with improving channel conditions and a narrowing gap between distribution sell-in and sell-through [15][14] Future Outlook - For the March quarter, Microchip guided net sales to be $1.26 billion ± $20 million, implying a 6.2% sequential growth and 29.8% year-over-year growth, with non-GAAP EPS guidance of $0.48 to $0.52 [19][23] - Management noted that while inventory reserve charges are expected to normalize, underutilization charges will persist, indicating a gradual process to improve margins [19][20]