Microchip FY 1Q18 Earnings Call Notes

Steve Sanghi – Microchip Technology, Inc.

Strong business environment, inventories at the low end of normal

“we are continuing to see a very strong business environment for our products worldwide and have a number of company-specific demand drivers. Our bookings rate in the June quarter was extremely strong. Our inventories at Microchip as well as at the distributors are towards the low end of the normal range. Both inventories at Microchip as well as distributors declined further sequentially in the June quarter. While our manufacturing operations produced a lot more units in the June quarter, we shipped them all for growth and did not progress towards improving our inventory position.”

Lead times are not getting any longer

“While lead times are still longer than what we would like them to be, they’re not getting any longer and we appear to have created a soft landing so far without triggering any double ordering or panic from our customer base.”

Pricing discipline is improving

“The pricing discipline is improving and to a different extent with various manufacturers. I can’t mention it, the names of the competitors and specifically what they are doing, but we have seen some discipline on others also, some more than the others. Microchip has kind of led this charge in the last five years, and especially after the acquisition of Atmel, whose pricing was really below acceptable pricing, we have quite substantially corrected those pricing and we have seen others who were relatively undisciplined also make some correct moves in that direction.”

Not going to comment on the industry but we’ve engineered a soft landing

“I don’t have any comments on the industry. I resigned from that job two years ago. We’re just simply – I will comment on Microchip. And what I’m seeing is that by lead times really not going longer and taking almost a year to bring these lead times down, that we’re guiding to really by the middle of next year, we believe we already have engineered a soft landing and not creating any panic, not having runaway book-to-bill ratio, strong backlog, fair amount of unsupported product. But still largely good behavior on the part of customers and distributors. Inventory is still very low all over the board. Our distributor inventories are low. Our Microchip inventories are lowest in seven years. This is essentially engineering a soft landing.”

Competitors haven’t treated distributors as well

“But what we’re experiencing is currently, as a number of our competitors have defranchised either distributor completely or they have narrowed their margins and not giving them demand creation margin, we have seen these distributors put a tremendous attention and focus on Microchip and especially with a broadened product line sort of under the Microchip 2.0 initiative that we have, we are finding that distributors are finding the new Microchip 2.0 product portfolio to be so much more desirable and essentially being able to replace the number of other competitive companies where they have lost a franchise on, including microcontroller, analog, wireless, USB, Ethernet, wired products, USB, Ethernet and wireless, just really timing is just perfect for the distribution to grab onto our broad portfolio, and do a great job for us. So I think we are taking advantage of it right now.”