Microchip CEO on U.S. expansion, earnings and AI

Interesting quarter. I mean I think some investors might be looking at bookings and orders which have been pretty solid. And then the June quarter revenue guidance, can you, can you talk a bit about that? Sure. Good morning, Paul. You know, we’ve been in a major inventory correction for the industry and for Microchip for several quarters and some of the leading indicators are giving us optimism about where the outlook for the second-half and the next quarter looks. But we have some remnants of continued inventory correction to get through this quarter. So that’s the difference between this quarter versus the outlook. Beyond that. Meantime, the margin guidance appears to be getting some, some applause. Can you talk about what’s what’s resulting in in decent environment on the margin front? Yeah. So you know at a what is the through of the this inventory correction, we’re still going to be forecasting 30% more than 30% operating margins and that comes with substantial controls of what we have done for our gross margins, that’s our manufacturing facilities, our operating expenses. That’s what people are doing across the world. In terms of both, we’ve done some pay cuts inside the company, everybody is on one, but we’re also cutting expenses for all the discretionary items that we have in our control and we’ve done better than we expected so far and that’s a great credit to the employees who have engaged and are you know very much part of the solution. You know one big piece of the semiconductor story of course has been the degree to which they’re bringing operations or building operations in the United States with the help of industrial policy, whether that’s Micron or Samsung or Intel. Have you been as aggressive on that front as you’ve wanted to be? Absolutely. So we are about 40% of our revenue is produced in factories that manufacture within the United States. We have been expanding these facilities over the last 3-4 years as the big you know boom and demand was there and there were many constraints and we were alleviating those. We have also got continued growth plans and expansion plans for which we have worked with the chips office on and we were one of the early recipients of what’s called a preliminary memorandum of terms. We are going through the diligence which is pretty much done. We got more negotiations to go. But yes, we do intend to expand in the US, create significant both capacity as well as jobs and that is all over a multi year phase that we bring the capacity on. I’d love to get your take on 2 pretty important verticals. One is where you think we are in the auto cycle regarding semis. And then obviously the conversation inevitably turns to AI and every CEO is sort of pushed to explain where they think they fit in that overall story. Talk about those two great questions. So on automotive, you know during the shortages automotive went into OverDrive to be able to secure supply but also to be able to secure inventory. And so there is inventory at multiple points in the chain, whether it is our distributor, their customers in the dealerships and various other places in the tier ones. And so a lot of that is unwinding. The number of cars being produced is not dramatically changing. There are some mixed changes between E VS and non E VS and all of that. But also cost of money has gone up over the last three years and I think the affordability of inventory has decreased. And so there is that unwind happening. It was later automotive was among the later segments to do it. So some of it is still leftover. Other segments have been earlier in their unwinded inventory. And with respect to, yeah, with respect to AI, you know I think our view is AI is going to be pervasive in many, many applications. Of course today a lot of the AI headlines are around the cloud and the training and learning that’s taking place there. And we we do participate with many of our products that are on those server platforms. But I think another important area for us is going to be AI at the edge and this is where you know it is taking place on the factory floor in the hospitals, in your, in our homes etcetera. And that is more inferencing and adjusting what takes place as it’s learning, but also very quickly making the adjustments that are needed there. It needs performance, it needs low power. We just announced an acquisition where there are some specific algorithms that allowed that to be able to be done better. And so it is an ongoing part of how do we approach AI at the edge while we continue to supply into AI in the cloud, right.