Microchip FY 4Q17 Earnings Call Notes

Steve Sanghi – Microchip Technology, Inc.

End market breakdown

“Based on fiscal year 2017 results, our largest market is industrial, with 35% of our business in this market. The second-largest market is automotive, with 25% of our business. Then comes consumer, with 24% of our business, computing with 9%, communication with 5% and, finally defense and aerospace, with 2% of our business. Over the last several years, our fastest-growing markets have been industrial and automotive, which together account for 60% of our business now. Additionally, our consumer exposure of 24% is not made up of mobile phone; it is made up of home appliances, security systems, thermostats, televisions, remote controls, power tools, drones, joysticks, headphones, furniture, consumer toys, et cetera.”

Seeing a very strong business environment

“We are seeing a very strong business environment for our products worldwide. Our bookings rate is extremely strong. As you know, we have not broken out our book-to-bill ratio in a long time, since it is largely misunderstood. However, to make you aware of the strength of our bookings, we are providing this indicator for one time.”

*Inventories are low and lead times extending

“Other inventories at Microchip as well as at our distributors are towards the low-end of the normal range, therefore we are starting to see some lengthening of our lead times. We’re starting to see challenges in fab, foundry, probe, assembly and test capacity. We have increased wafer starts in our three internal fabs and we’re adding capacity in our three back-end facilities. Despite all this, we are seeing significant business that we’re not able to support by the customer requested dates.”

There are only three uses of capital

“There are three uses of capital. There can be three different uses: using it in our own business in making investments, giving it as a dividend or using it as M&A, and you can call it maybe, fourth, stock buyback.”

We’re also seeing general strength in the economy

“Beyond that, we’re also seeing general strength in the economy, especially happened post-election in U.S. The whole world seems to be positive. You can talk to distributors and they are seeing strong bookings and a strong environment. Lead time for equipment is lengthening, lead time for packages, all sorts of things is lengthening. So those are some of the signs of what’s happening generally in the economy. But I think what we are seeing has really also a significant company-specific element on the top of that.”