Summary of Microchip (NasdaqGS:MCHP) FY Conference Call - November 18, 2025 Company Overview - **Company**: Microchip Technology Inc. - **Industry**: Semiconductor Key Points Demand Environment - Healthy bookings activity observed over the last several months, with July bookings being the highest in three years [10] - Bookings in September quarter grew by 10% compared to June quarter, with a book-to-bill ratio of 1.06 [12] - Current quarter guidance is slightly below expectations, with a forecasted revenue decline of 1% at the midpoint [11] - November bookings have remained strong, continuing the positive trend [13] Order Dynamics - Aging of bookings is noted, with orders translating into turns orders being lower than expected [11] - No significant push-outs of orders; instead, there is a trend of pull-in activity from customers [15] - Short lead times for products are maintained, with a backlog building into the March quarter [16] Production and Capacity Management - Underutilization charges were approximately $50 million last quarter, expected to decrease as production ramps up [22] - Inventory levels are high at 199 days, with a target of 130 to 150 days [21] - Gradual ramp-up of factory capacity is planned, with a focus on reducing inventory levels [41] Aerospace and Defense Sector - Aerospace and defense business has been steady, benefiting from high US defense budgets and NATO spending [24] - Microchip is the largest supplier of semiconductors to the Department of Defense, with growth opportunities in this sector [25] Data Center Opportunities - Microchip is expanding its presence in the data center market with a full-stack solution [28] - Introduction of a new Gen 6 product on a 3-nanometer process, expected to enhance power efficiency [29] - Data center business historically accounts for 15-20% of total revenue, with potential for growth [30] Gross Margin and Pricing Strategy - Gross margin is expected to improve from 56.7% to 58.2% at the midpoint of guidance for the December quarter [35] - Pricing is stable, with competitive pricing strategies for new designs [34] - Long-term target for gross margin is 60%, with expectations to reach this as early as the March quarter [36] Financial Health and Capital Allocation - Free cash flow is expected to cover dividends, with plans to pay down debt accumulated from previous dividend payments [46] - Current leverage is above desired levels, with a target of 1.5 times net debt to EBITDA [47] - Cash levels are low, with about $250 million on the balance sheet, and focus on debt reduction before considering dividend increases [48] Competitive Dynamics in China - Approximately 18% of revenue comes from China, with half attributed to multinationals and the other half to domestic consumption [50] - Microchip faces competition from local suppliers, particularly in standard microcontroller and analog products [54] FPGA Business Growth - The FPGA business, acquired through MicroSemi, is expanding into new markets beyond aerospace and defense [61] - High margins and growth opportunities are anticipated in the FPGA sector [62] Investor Communication - Emphasis on improving operating margins to reach a target of 40%, with current guidance at 25.7% [63] - Microchip is evolving beyond traditional microcontroller and analog markets, with significant growth opportunities in advanced technologies [64] Conclusion - Microchip is positioned for growth with strong demand in various sectors, effective management of production capacity, and a focus on improving financial health and margins. The company is committed to educating investors about its evolving business model and growth opportunities in advanced semiconductor technologies.