Greetings and welcome to the Microchip Q4 of Fiscal Year 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Bjornholt, Senior Vice President and CFO. Thank you, Eric. You may begin.

Thank you and good afternoon everyone. During the course of this conference call, we will be making projections and other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions and that actual events and results may differ materially. We refer you to our press release as of today, as well as our recent filings with the SEC, that identify important risk factors that may impact Microchip's business and results of operations. In attendance with me today are Ganesh Moorthy, Microchip’s President and CEO; Steve Sanghi, Microchip’s Executive Chair; Rich Simoncic, Microchip’s COO, and Sajid Daudi, Microchip’s Head of Investor Relations. I will comment on our fourth quarter and full fiscal year 2024 financial performance. Ganesh will then provide commentary on our results and discuss the current business environment as well as our guidance and Steve will provide an update on our cash return strategy. We will then be available to respond to specific investor and analyst questions. We are including information in our press release in this conference call on various GAAP and non-GAAP measures. We have posted a full GAAP to non-GAAP reconciliation on the investor relations page of our website at www.microchip.com and included reconciliation information in our earnings press release, which we believe you will find useful when comparing our GAAP and non-GAAP results. We have also posted a summary of our outstanding debt and our leverage metrics on our website. I will now go through some of the operating results including net sales, gross margin, and operating expenses. Other than net sales, I will be referring to these results on a non-GAAP basis which is based on expenses, prior to the effects of our acquisition activities, share-based compensation, and certain other adjustments…

Thank you, Eric, and good afternoon, everyone. Our March quarter results were consistent with our guidance with net sales down 24.9% sequentially and down 40.6% from the year ago quarter. As we endured through a major inventory correction. Non-GAAP gross margin came in as expected at 60.3% and non-GAAP operating margin was better than expected at 32.9% due to the strong expense control programs we had in place. However, as Eric mentioned, our tax rate was higher than expected and as a result our consolidated non-GAAP diluted EPS only met expectations at $0.57 per share. Our revenue decline resulted in March quarter EBITDA dropping and as a result our net leverage ratio rose to 1.57x. We expect our net leverage to rise modestly for a few quarters, as trailing 12-month adjusted EBITDA drops when replacing stronger prior year quarters, with weaker current year quarters. However, our cash generation capability remains strong and we are committed to our capital return plan. Our capital return to shareholders in the June quarter will increase to 87.5% of our March quarter adjusted free cash flow as we continue on our path to return 100% of our adjusted free cash flow to shareholders by the March quarter of calendar year 2025. Reflecting on our fiscal year 2024 results, it was a roller coaster year with a positive start that was followed by a major inventory correction. As compared to fiscal year 2023, revenue declined 9.5% to $7.6 billion. Non-GAAP operating margin was resilient at 43.9% as we took the actions required to respond to the major inventory correction. Capital return to shareholders through a combination of dividends and share buybacks in fiscal 2024 was $1.89 billion, representing a 15.4% growth as compared to fiscal year 2023. My thanks to our worldwide team for their support,…

Thank you, Ganesh, and good afternoon, everyone. I would like to provide you with a further update on our cash return strategy. The Board of Directors approved an increase in the dividend of 18% from the year ago quarter to a record [$0.452] (ph) per share. During the last quarter, we purchased a record $387.4 million of our stock in the open-market. We also paid out a record $242.5 million in dividends. Thus, the total cash return was a record $629.9 million. This amount was 82.5% of our actual adjusted free cash flow of $763.4 million during the December 2023 quarter. Our net leverage at the end of March 2024 was 1.57 times. Ever since we achieved an investment-grade rating for our debt in November 2021 and pivoted to increasing our capital return to shareholders, we have returned a total of $4.23 billion to shareholders through March 31, 2024, by a combination of dividends and share buybacks. During this period, our share buyback in the open market was approximately 30.4 million shares, representing approximately 5.7% of our shares outstanding. In the current June quarter, we will use the adjusted free cash flow level from the March quarter to target the amount of cash returned to shareholders. The adjusted free cash flow excludes amounts we collected from our customers for long-term supply assurance payments, these payments are refundable when purchase commitments are fulfilled. Our adjusted free cash flow for the March quarter was $389.9 million, so our target return to shareholders would be 87.5% or $341.2 million of that amount. However, as Ganesh mentioned, we did complete two small acquisitions in this June quarter. So we are reducing our share buyback amount to reflect the cash outlay for those deals. Thus, in the June quarter, our cash return to shareholders is expected to be $315.3 million, out of which dividends are expected to be approximately $243 million and our expected stock buyback will be approximately $72.3 million. Going forward, we plan to continue to increase our adjusted free cash flow to return to shareholders by 500 basis points every quarter until we reach 100% of adjusted free cash flow returned to shareholders through dividends and share buybacks. They will take three more quarters, and we expect that dividends over time will represent approximately 50% of our cash returns. With that, operator will you please poll for questions.

Thank you. Now we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question is from Vivek Arya with Bank of America Securities. Please proceed with your question.

Thanks for taking my question. Ganesh, you were suggesting June to be the bottom-line for September to grow sequentially because of green shoots. But to be fair, green shoots are suggested on the last call also. So what's the difference between the last call and this call and if you could help us maybe quantify what has been maybe the base of bookings increase year-on-year or quarter-on-quarter so far, so we can get sense for a base of recovery into September, and then maybe if I could also ask Eric on a related note is, 60% also the trough for gross margin, if June is the bottom, does it also mean 60% is the trough for gross margins? Thank you.

Great. Thank you, Vivek. I don't think we mentioned green shoots at the last earnings call, but we did say that one of our banking sessions that we were at. And that was the first time we began to see it was in the March time frame. And the momentum is picking up, right as we go through March and April and May. I mentioned what the bookings we are doing on a relative basis over that time. We can see how many more people are asking for pull-ins and expedites and all of that. So it's a qualitative view looking at how we integrate the last two or three months of where momentum is coming in, where the customer feedback is coming in that reflects our view that the June quarter is the bottom and September quarter is growth.

And then the follow-up question for me on that was on gross margin. And would I expect if June is the trough in revenue if gross margin would bottom-out. And I believe that to be the case. I mean, obviously, we haven't given guidance yet, and there's factors that apply to that, that we don't know yet in terms of product mix and where we'll be running our factories. But I think that we are bouncing along the bottom on gross margin.

Great. Thank you.

Thank you.

Our next question is from Chris Caso with Wolfe Research. Please proceed with your question.

Yes, thank you. Good afternoon. I guess the question is if there's any difference that you are seeing from any of the different end-markets? I mean, you talked about some of the booking stabilization improvement that you've seen. How would you characterize that among the different end markets?

I don't -- on the stabilization, I can't really point to a particular end market or doing better or not. I said in the aggregate, aerospace and defense and the AI segment of data center are both doing well. And so that part is pulling it up. On the others, there can be some industrial customers, who are still seeing weakness, others who are beginning to see the bottom and trying to come back in with rush orders that goes into the other end markets as well. So no particular end market trend that is distinguishable on the bottoming out of where their inventories are.

Thanks. As a follow-up, Eric you talked about perhaps if still things go well, June the trough and then June is likely the bottom for gross margins as well. As you go forward, as we pull our way out of this, what do you think would be the trajectory of gross margins? And I guess I asked that taking consideration the fact that your internal inventory is still high. So how would we think about gross margins in the context of recovery as you have to bring your own inventories down to normal?

So it does depend on the revenue trajectory and then how we would run our factories to respond to that. And so it's not a question that I can 100% answer today. But our cost structures are still in good shape. Average selling prices are absolutely hanging in there. So with that, we have confidence in our long-term model and our ability to get back there, but the trajectory and how we get there is going to very much be revenue dependent, which will drive certain actions to increase output from our factories. So I know that's not specifically answering your question, but I think that's the best we can do right now.

Okay, fair enough. Thank you.

Our next question is from Harlan Sur with JPMorgan. Please proceed with your question.

Good afternoon. Thanks for taking my question. Can you just talk about channel sell-through dynamics from your global distributors? In March, you mentioned sell-through $125 million higher versus sell-in. Is that a similar delta here in the June quarter? And if excess inventories at end customer of distributors are coming down, I would assume that distribution sell-through is starting to grow. Are you seeing that this quarter? And is this maybe what's also giving you confidence that June is the bottom?

So Harlan, thanks for the question. The level of inventory that is past what our distributors had that has been with our customers is not always visible to us. I think we can get some sense of that from what the distribution sell-through is. But there is also a second factor, which is some of those customers are also reducing the months of inventory they want to carry. So it's a multipronged answer to it. But what we can see is that distribution is part of the placing of additional orders on us. So they are seeing how they are managing their end customers, their inventory and placing incremental orders on us. So that must have some relevance to how they're viewing things, but I don't have a definitive answer on where sell-through is going to end up versus sell-in here in the June quarter, at least not at this time.

Thank you for that. And then just a quick follow-up. So direct customer shipments were almost 30% -- were down almost 30% sequentially, while [these shipments were] (ph) only down 20% sequentially in March. Does that suggest that excess inventories are maybe a bit more pronounced at your direct customers? And if your lead times are sub-eight weeks, you guys only have visibility through the end of this quarter. So what gives the Microchip team confidence that shipments to direct customers post June will be growing sequentially as you aren't looking beyond that and you don't really have visibility into their sell-through dynamics?

So we know and customers are placing backlog into the September quarter, into the December quarter. So there's not a single answer that everybody is following. And we can see that as the bookings are rising, they are placing them into the next three months to six months on a more predominant basis. So that level of where the momentum is coming in or how backlog is coming in is what gives us a sense of where the bottom is and how things are going to be as we into the September and December quarters.

Thanks Ganesh.

Thank you.

Thank you. Our next question is from Gary Mobley with Wells Fargo. Please proceed with your question.

Hi guys. Thanks very much for taking my question. I know you guys communicated that you held the OpEx lower than expected. And I think it's today, what -- $355 million on a non-GAAP basis. My question is, how long can you hold that down? And is there any claw-back provisions for the lost wages during this temporary salary cut? And I'm just trying to get a sense of how we should think about the OpEx increasing as revenue increase?

I'll start with the response and Ganesh can add to it if he wants to. So there is not a clawback in terms of what we're doing from a salary sacrifice for our employees. We have the shared sacrifice share reward program. And in the past, when we have implemented something like this that has worked out well for our employees that we keep everybody working on the things that are important to drive the revenue growth as the cycle turns upward and we've gained market share through that. And so we've had great financial results coming out of it and then been able to share those rewards with employees through higher bonuses and taking away the pay cuts at the appropriate time. So we are going to have to see how this plays out from a top-line revenue perspective. It would be my perspective that we will achieve the same types of results this go around with the actions that we've taken, but there's no promise to employees that they're going to get this money back. There's no retroactive claw-back that would be implemented.

This is a part of our culture that is not always as easily appreciable from an investor community. We have 98% of employees around the world that are participating in this voluntary. We have another 700 employees who have volunteered for a higher salary reduction than what we have requested from them. It's very difficult to quantify how powerful culture plays a role in these type of difficult situations and how much that the employees that are part of the solution. And of course, they are part of the shared rewards that come up as we get into better times as well. So this is very much of a program that has worked many times in the past and is another time we're applying it, and we expect it to be successful.

I think the other thing that I'd add is we know this is difficult for employees. The inflation still exists, and this is a challenge for employees. So it is not that we want to keep these in place. But at the time, with where we're guiding revenue for the current quarter of revenue and earnings it's appropriate. And we hope that we can restore these things back to normal salary levels as soon as possible.

Thank you for that color. This is my follow-up, I wanted to perhaps strike a more positive chord and ask about design win metrics for the fiscal year. I don’t know if you have those stats on handy with you, but maybe if you can just give us some qualitative or quantitative measure of the lifetime value of the design wins.

So we don't usually break that out and we have slightly different ways in which we look at this. What we do constantly look at is how is the design pipeline progressing. And in the course of 2023 in addition to all the work that we did, we also saw customers shifting their priorities from doing triage for some of the shortages that they were running into bringing back the innovation program that they had put on hold. And so if you put all of that together, the design win pipeline is strong. There’s a lot more design in activity in the last 12 months than there was in the prior 12 months, just simply because customer bandwidth was there to be able to run the development program that they were progressing with.

Thanks Ganesh.

Thank you.

Our next question is from Carlos Coronado with UBS. Please proceed with your question.

Hi, it's Tim on. So Ganesh, can you give us a sense of book-to-bill. It sounds like it was below one for March, but I just wanted to confirm that. And I know that you did say that orders are getting better month by month. But is the message that you think book-to-bill could be above one for the June quarter. So I'm just wondering if you can talk to book-to-bill? Thanks.

So book-to-bill was below 1. However, book-to-bill has never been an indicator for us of where the business is going as much as an indicator of where our lead times are. During the 2021, 2022 shortages, we had book-to-bill in many, many multiples of where they were at, reflecting the long lead times. Right now with short lead times that we have, we expect book-to-bill will be lower. But the bookings are rising, and I can't quite tell what May and June are going to complete. So I don't have a thing – but I -- we don't really look at book-to-bill as necessarily an indicator of where the growth is going to be. It's more a reflection of as lead times get short, people replace the booking consistent with the shorter lead times.

Got it. Okay. And then, Eric, one for you. So inventory was a little higher coming out of March then -- and I think some of us thought it would be. Can you talk about loadings in the factory and sort of how you're thinking about loadings into June? Are you just kind of drawing the line understand where you plan to bring down inventory on the balance sheet in June? And yes, just kind of talk about that and its impact on gross margin. Thanks.

Yes. So I'm honestly not quite sure where The Street had us modeled. We had talked about in our last conference call that inventory days are expected to be between about 225 to 230 days at the midpoint. We came in at 224. So I think we kind of deliver on what we told The Street we were going to do. In terms of utilization in the current quarter, we have been having some attrition in our factories. And because of that, we can start less wafers on a monthly basis than we can because we have a fewer number of employees. But it's -- in the big picture of things relatively modest. I don't think utilization will be significantly different than it was in the March quarter, maybe just modestly lower.

Well, thank you Eric. Thank you.

Thank you.

Our next question is from Tore Svanberg with Stifel. Please proceed with your question.

Yes, thank you. Let me move on from cyclical questions. And I have a question on 64-bit microcontrollers. You also had an AI acquisition in the quarter. Just trying to understand, Ganesh, your conversations with customers, we hear AI at the edge a lot, but it's hard for us to get true visibility on that. So -- when will Edge AI become a much more meaningful part of your revenues, what you think?

Our target markets for Edge AI predominantly in industrial, smaller extent, automotive, some in medical. The medical segment of industrial factory automation, all that. So they are designs in progress and they've been taking place over the last six months to 12 months. They probably will just state over 24 to 30 months of time. So it's in that time. There's some of it small amounts that are already taking place, but I think it becomes a more and more meaningful part as time goes on. And each of these either product line announcement or some of the acquisitions, which give us specific technologies, just accelerate where those designs can go and how our solutions can be differentiated from others providing similar solutions.

Great. And as my follow-up, you said that you're basically shipping below consumption. You're about $1 billion from your trough. Obviously, you're running inventory at a certain level. So you must have some idea where the consumption is. Is that a number you could share with us?

Not with any level of precision. I think any form of a take a four quarter revenue divided by 4 starts to get you into the ballpark. But even that is unclear, right? So I think that number will get clearer as people begin to book and buy at a level that they need to, excluding any quote just to get back to consumption. But there's not an easy way to make that number determinable. It's clearly between where our peak a year ago was in the June quarter to where you're seeing the guidance for this quarter.

That’s helpful. Thank you.

Thank you.

Thank you. Our next question is from Toshiya Hari with Goldman Sachs. Please proceed with your question.

Hi good afternoon. Thank you so much for taking the questions. I had two quick ones. First, on inventory, maybe for Eric. So how should we think about inventory management through cycle or longer term? I know you've got strategic inventory. I know you want to better service your customers on the way up. But when you think 12 months out, 18 months out, whether be in dollars or days, what are you managing the business to? And then quick follow-up on pricing. I think you mentioned that in the near term, pricing is holding up. But as you think about calendar '25, I think some of your peers have talked about pricing trends potentially reverting to pre-pandemic patterns down, call it, low singles. Is that a view that you would agree with or share? Or do you feel or think differently on pricing? Thank you.

Okay. All right. So on inventory days, longer term, our model is -- and this really hasn't changed from what we shared back in our Analyst and Investor Day that we're targeting 130 to 150 days. Now we're a long ways from that today, and I'm not going to put a time horizon on when we will get there, but that's still the goal, right? We think with that level in a more normalized environment, we can have short lead times and support our customers appropriately with that level. So I'll turn the pricing question over to Ganesh.

And I would add one more thing, which is we also have these last time buys that we put into place on very high gross margin product lines, and those will be additive and they are situational depending on when we're faced with that kind of situation. On the pricing itself, our pricing is predominantly a function of what we have to compete with at the point of design. And so in the near term, pricing is really driven by where designs were historically what we won them at. And a lot of these are products going into applications. that have long life cycles and they don't really change, unlikely consumer electronics or other end markets, they don't really every 9, 12 months change things out. We have products that have been in designs for five, seven, nine, 10 years in many cases as well. We are being competitive on new designs with pricing where we need to be, but we also have new products that we compete with. And so the most competitive new products are what we use to go fight in the most price-sensitive new design applications. And that's been historically how spend is not something new. And if we go back and look at 20 years of Microchip, that's how we've done it. And we have a lot of business that continues, that will be existing business at existing prices for a long, long time to come. And then we'll have new business at new pricing. And that new pricing, we expect will have good gross margins as time goes on.

Great. Thank you.

Thank you. Our next question is from Joshua Buchalter with TD Cowen. Please proceed with your question.

Hi guys. Thank you for taking my questions. I guess to start, maybe I can follow up on the previous one. You mentioned pricing hanging in overall, but competing more on new design wins. Have those -- are you observing those new design wins becoming any more price sensitive or more price competitive as the shortages have eased and we've entered this correction mode? Or sort of still normal operating and competitive conditions? Thank you.

New designs have always been highly competitive. It's where people are trying to work on winning platforms with multiyear implications. So it is in the couple of years of constraints, there were fewer new platforms, new designs that customers are doing. But in the sense of having to be competitive and the competitive intensity for new designs, yes, it is different from the last two years or three years, but it is consistent with what it has been over 20 years before that.

That's clear. Thank you. I appreciate the color there. And then for my follow-up, the CapEx guidance is obviously down meaningfully off of what was likely a peak two years ago. Could you maybe just speak to your confidence in having enough capacity both internally and perhaps more importantly, investment from your foundry partners at the process geometries that you ship your products on? Thank you.

Yes. So when we say -- it's a plan that we look at consistently, both short, medium and long term. We feel very confident with the internal capacity, both what is installed and underutilized, what is available and ready to go and then eventually what we might add to it. And then we work with our partners, both the foundries as well as the OSATs on their capacity planning across the horizon that they have. We're obviously a small piece of a much bigger pie there that they're running. But we don't have any particular capacity constraints that we're concerned about. It may change as demand begins to come back, and if in fact, there is a much sharper rise as some people are predicting. But for the moment, we're quite confident both in our internal, as well as our partner capacity for the business we're running.

Thank you.

[Operator Instructions] Our next question is from Chris Danely with Citibank. Please proceed with your question.

Hi, thanks guys. So now that we're yet another quarter into the correction and hopefully coming out of it, if we look at your total drop in terms of revenue, it is probably going to be like 45%, something like that. And that's worse than most of your competitors. So I guess, why do you think that is? Do you think that the PSP program encouraged a little double ordering? Is there some geographic or something else going on? Just looking for some for your take on why that's happened?

No, great question, Chris. When you look at peak to trough, it’s always a question of when does it start? And when does it bottom out, right? You've seen one of our peer group companies that try to do a peak to trough in one quarter. And you could say, boy, that was one way to do it. Our objective has always been to try to respond as the business is changing. And so we've had different end markets responding at different times. We had a lot of automotive and industrial. They were later in the cycle. And our mix is higher in some of those markets as well. And in this case, the downturn is substantially deeper than what anybody had expected on that. And that's probably a component of PSP that may have amplified some of those things, et cetera. But a lot of it has to do with we started later, and we are correcting stronger. And the end markets that we are predominantly represented in were the ones with the later in the cycle correction than perhaps those that are more consumer or phone or PC, that kind of exposure.

Got it. Thanks Ganesh.

You’re welcome.

Thank you. Our next question is from Vijay Rakesh with Mizuho Securities. Please proceed with your question.

Yeah. Just a quick question on the competitive landscape, I guess, especially as you look at kind of China supply. Is there any worry around them being aggressive on the microcontroller supply coming out from there? What are you seeing in those trends?

China has always been a competitor in many of the spaces that we're in. Their approach is a little bit different. They have a lot of their attention going into things that can be faster to market quicker. And those tend to take them into places like consumer electronics and the other areas that are faster designed in cycle, a lot of the power supplies for cell phones and those kind of things. Clearly, they are also making products that can go into other end applications. And that’s a competitive environment that is not different today. You could argue perhaps that there's a lot of attendant priority that they have. But we win with new products, we win with competitive solutions that we have. And we win by providing the customer with a solution that is better than what they can get otherwise. And that remains the way in which we've gone to market, and we'll continue to fight for new business in China and anywhere else.

Got it. And then as you look at the utilization, I don't know if you give a hard number there. But how do you see that playing out through the rest of the year? I know there's a lot of moving parts to that. But any way to look at what utilization looks like? I know you cut CapEx pretty significantly to so that should help.

Yes. So we don't break out a specific utilization in total, we have -- it varies very much by factory. We have had some attrition in employee headcount, which I mentioned in response to an earlier question that just makes it as we go by the months and aren't rehiring that capacity utilization would come down modestly. So I'm not expecting a huge change from March to June, maybe just a little bit lower. And then obviously, actions depending on what our outlook is on revenue and inventory will drive what the rest of the year looks like as we gain a little bit more confidence in understanding where the business is heading over the coming months.

Got it. Thanks.

Thank you. Our next question is from William Stein with Truist Securities. Please proceed with your question.

Great. It was interesting to see a couple of tuck-in acquisitions this quarter. I'm wondering if you could talk about the relative focus of that approach to capital deployment or, let's say, product development going forward relative to internal development?

So we have an internal development that works on the model that we have provided, which over the long term is the 68% gross margin, 23% operating expense, 45% operating margin. That allows for the prioritization of our internal activities and where we want to apply it for different opportunities that we have in front of us. From time-to-time, we find our external opportunities where the speed at which we could do something or the time that it would involve in trying to get to a solution can be a lot longer if we were to do it just organically. And there, we have applied these tuck-in acquisitions as a way to speed up what we're able to do, consistent with the direction that we are interested in or have been following for a while. And we've done about six or eight of them now in the last four or five years of time ever since. Microsemi was the last major public acquisition we did. We've done about six to eight smaller ones since then. And it always to speed up our agenda with a very tactical and a pinpoint strike on what the acquisition can do for the areas that we're driving growth in. And we will do more of those, as we continue on as well. Let's say we've always been public. That's an essential part of our strategy.

As a follow-up, it does sound that while you anticipate revenue to grow in September, I would imagine the inventory burn isn't done at the end of June. I wonder if you can maybe help us understand when we should expect a situation where your revenue is approximately the same as in demand? In other words, when the inventory reductions will be mostly done? Do you think that's -- have I misread you and that actually does happen in June? Or do you think it is more like September or even further out? Thank you.

So I will start with the response here. I mean I think the bottom-line is, well, with 125,000 customers, it is impossible to know when -- and all customers a majority of customers have kind of corrected in their inventory to what they think the right level is and that's somewhat a moving target as lead times adjust based on whatever point in the cycle that we're at. So we don't have a good answer to be able to answer your question there. We’ll obviously, give guidance for the next quarter, and we'll have more information that we can share at that time. But I think that from customers, this inventory correction is going to last beyond this quarter. I think that absolutely is the case.

Yes. I think many customers made their own mistakes on how they viewed their business, what they thought the prospects were. Many other customers were very thoughtful, continue to be strong players and where they're at. And as we gave you some indications of certain end markets where there is strength as well. So it's all over the place. And just as a preponderance of people who are done with their inventory correction and are now going back into buying for their consumption and/or into growth that they may be seeing. The weighted average begins to shift, and that's the weighted average that begins to shift in September.

Thank you.

Thank you.

Our next question is from David O'Connor with BNP. Please proceed with your question.

Hi, thanks for taking my questions. Two from my side. Maybe firstly just on the green shoots, can you talk about them from a geographical perspective? Is it mainly China driven? And now you're seeing that continue in Europe and the US? Or how would you describe it geographically?

Yes. So the green shoots are not limited to any one geography, not limited to any one end market. it's really across all of them. And as I mentioned, you're going to have in a geography or in an end market, both customers with continued pain and other customers who are starting to look at how to get back into growth mode and what they're doing. So no specific end market or geography leading to the green shoots.

Okay. Got it. Thanks for that. And then maybe just on the acquisition, the Neuronix Labs acquisition. It seems like it helps you address the AGI market with your [MCUs] (ph), can you maybe talk about the kind of content tailwind for your MCUs for AGI that this can generate? Or how much of your MCU portfolio are customers looking to add AI content in the next-gen products to kind of run those AGI models? Can you give us any more color on that would be helpful. Thank you.

I don't know if there's a numerical way to give you that. I think -- that's all I said. I believe that embedded customers are thinking about how AI can be used in delivering better solutions than what they have in the past. No different from -- if you go back in the chronology from 20 years, 25 years ago, people added intelligence first because you could make a product better with intelligent add it, then further out in time, people added connectivity as a way to now make it even better than just adding intelligence and then they added security thing. And now finally, I think AI is the next leg of how people will add capability to the products to make them better. So it's a journey, and there's going to be many customers who don't need to do anything with AI. Others who are seeing the opportunity, and we'll take advantage of that in the next generation of their products. But I think, you should think of it as a continuum of customers. They're all looking to innovate. AI gives them another opportunity in their platforms to be able to innovate and provide better products than their previous generations.

That’s helpful. Thanks Ganesh.

Thank you.

Thank you. Our next question is from Mark Lipacis with Evercore ISI. Please proceed with your question.

Thanks for taking my question. I think this is for Ganesh or Steve. I'm wondering what is the difference between the setup for Microchip's business over the next six months and the setup that you see at the bottom of every cycle? It seems like there's a lot of similarities, and I'm hoping you can tell me the difference. The similarities I see are -- there is some kind of demand shock or a big inventory build and then our customers and the supply chain downstream from them, recognize that, so they decide that they are going to supply themselves out of their own inventories, they cancel orders or they take orders down and then you don't get any visibilities. So you and your peers take your utilization rates down and sometimes do temporary fab shutdowns. And then your customers have an epiphany that they overcorrected on the downside and in three, four quarters from here everybody is taking their numbers up and everybody scrambled in to get components. So those are the similarities I see. What are the differences? And if you have a disagreement over those similarities, I'd love to hear that, too. Thank you.

Mark, I think you have answered your question. We couldn't say any better. You asked the question when you answered it, I think it's perfect.

Mark, I was going to welcome you back -- answer as well. And as you said, I think this is a cycle we've seen play out many times, and the elements that you answered or the elements that you proposed are there. I don't know if any differences in this one. Obviously, the length of the up cycle sometimes affects the depth of the down cycle. But other than that, the elements are very similar.

I was hoping you might say, well, the supply chain has learned or lessen over the last three years and recognize that you guys need to have visibility because there's a manufacturing cycle time. So is that -- is the supply chain not learned anything downstream from you? Is it -- we're just doing the same over and over again?

No. So yes, I had assumed that during the depth of the constraints with all the different discussions I was having with the senior executives at our customers that they would come out of this cycle with a better understanding of how semiconductor supply works and what they would need to be to be more strategic. But I have been surprised at how quickly people have forgotten and how quickly people have returned back to the way they used to think. Basically, they think semiconductors are like water in your tap. You turn on the tap and the water comes and you turn off the tap, and it goes away. And so I am of the belief that those lessons will have to be relearned again as we go through the cycle. And we'll see how the cycle goes. But no, there has not been any -- there are a few. But for the most part, those learnings have not carried forward.

So last is repeat off the bottom?

Yes. Mark, from time to time, some people have written or talked about industry has matured, and there will not be any cycles anymore. I think, all those predictions have been wrong. Industry has always been cyclic and will always be cyclic. I think our customers, our distributors, vendors, suppliers, they don't learn. And I think, people change new purchasing managers come in, new people come in. And as Ganesh described, the lessons I've forgotten very rapidly, leading just these cycles never going away. And this one was the most pronounced cycle, both on the upside and now we're seeing on the downside.

Yes. I was just going to make the point is I view this as inventory correction on steroids, right? I mean we had not seen our lead times for the vast majority of our products go to 52 weeks before and then they contracted over a period of 12 months down to these very short lead times that we have today.

Very, helpful. Thanks everybody.

Thank you Mark.

Thank you. Our next question is from Joe Moore with Morgan Stanley. Please proceed with your question.

Great. Thank you. Can you give us some color on the FPGA business. And I wonder, it sounded like some pretty good growth relative to the peers for the fiscal year. Can you talk about the trajectory of that? Have you seen -- it's obviously been a tough patch for FPGAs as well. Has that looked similar to the rest of your business? Has there been an outperformance relative to that? And can you talk about your market share prospects going forward in there?

Sure. So our FPGA business has, in fact performed better than our other businesses. And in part, it's because our FPGA business has historically had a large aerospace and defense component and continues to. Now we have, over the last four, five years, been creating the new design opportunities for FPGA in the longer term to grow in industrial and automotive and the historical end market strengths that Microchip had before we got the FPGA business. And so this -- it is not immune to market forces and where things are going to go. But it has got a better end market mix than some of our other businesses and therefore, has performed better. And of course, we are picking up designs that in the long term that are falling off of Erstwhile, Xilinx and Erstwhile [Ultera] (ph), as they take focus away from the mid care over many years that they have done or end-of-lifeing products, right? Those are all creating opportunities for our FPGA business. And so I am very, very optimistic about prospects for our FPGA business.

Great. Thank you.

Thank you. Our next question is from Christopher Rolland with Susquehanna. Please proceed with your question.

Hi guys. Thanks for the question. I guess, first of all, Ganesh, like in terms of this inventory, are there any products or markets that have surprised you either that they burn inventory and a normalized quicker than you expected or that this is going to take longer for these products or markets?

I think not so much my product, but I think if you look at specific customers, in many cases, even in the same market, right? So we can have an end market, say, industrial. And we have examples of certain customers who have burned through their inventory and they're back asking for new orders at expedited times. We also have other customers, same industry who are still burning through inventory and taking longer where it goes. So I think a lot depends on a customer, their market prospects, what did they do to create and grow their business and how well are they executing? And so that's really been the difference is that it's customer by customer, the stories are different.

Yes. Understood. And then if I'm hearing you correctly, you think June is the bottom. A lot of that is inventory based. I'd like an idea of how you're looking at the inventory position in September at your customers more generally? Do you think we can get back to seasonal trends in September and going forward? Or is there still this inventory drag overall?

No, I think there's going to be customers at different points in the correction cycle. Some will have corrected and moved on, others will still be correcting. So I think seasonality is perhaps one of the things which you need a level of normalcy for some period of time before you can say, okay. We now have all these variables that have been taken out. So I can't say we have seasonality in the September quarter. I can say that incrementally, on a weighted average basis, there are more customers who are going to be out of their inventory correction, but not that they're all done.

Great. Thank you Ganesh.

Our next question is from Tore Svanberg with Stifel. Please proceed with your question. Please proceed with your question.

Yeah, thank you. Just one quick follow-up. Ganesh, you said that you still need quite a bit of turns this quarter. Just wondering what is the churn's requirement? And how does that compare with the previous cycle troughs? Thank you.

So we are not going to break out the amount of turns that are required, but we do have turns and take to meet our guidance, and our guidance is obviously to have another down quarter. But lead times are short. We are getting these requests for pull-in. I don't have a good comparison to give you in terms of prior cycles. If this turns out to be the bottom for us, which we believe it will, we can probably give some commentary when we talk about our September guidance as we kind of hit and move through that bottom.

So one of the things which is more difficult to do is most people talk about turns in a normal environment where there isn't inventory out there. And it's harder to -- we can say, hey, the turns are x-percent from a historical basis. But when there is inventory, we know those turns aren't going to show up because people will burn though inventory before they begin to place it. And I think that's some of the hesitation we have and trying to provide some insight where we know there's a lot of uncertainty. What we have done is done the best of our assessment of what those are going to be, where they're going to be and build it into the guidance. And so I think that's the best way to think about it is that we have taken into account the risks that are present from inventory that would otherwise cause headwinds to turns in the quarter.

Very clear. Thank you.

Thank you. Our next question is from Vivek Arya with Bank of America. Please proceed with your question.

Hi, thanks for the quick follow-up. I just wanted to clarify what is the contribution of the acquisitions in the June quarter or in fiscal '25? And then, Ganesh, back to the September quarter, I think you did say that you expect it to grow. I understand that it's had to put a seasonal number on it. But based on what you have seen in prior downturns, just the fact that Microchip has gone down so much from peak to trough, should we also expect kind of sharper recovery back to when you do start recovering?

So to answer your first question, these are small tuck-in acquisitions. They're intended to accelerate our effort on design-ins and design-wins and all of that. So they don't have any revenue contribution in the June quarter or in the September quarter, for that matter. In terms of the revenue and what happens as the correction happens, yes. You should think that at some point, and I can't tell you is it in September or is it in December, you will see -- we will see a sharper recovery. That's how it has played itself out in many other cycles as well. And there are two stages to it. There's the first stage, which is just people needing to get back to -- they've burned through most of the inventory and they need to get back to at least buying to consumption. And then there is a second phase, which is what is the macro doing? And is the macro driving further growth for them above just what their flattened consumption line alone might tell us. And I think all of that, if you look forward into a likely environment over the next 12 months, should give us a sharper recovery.

Thank you.

This concludes our question-and-answer session. I would like to hand the floor back over to Ganesh Moorthy for any closing comments.

Great. I want to thank everybody for joining us on the call. I know we ran over a little bit. But I appreciate the questions, and we look forward to seeing and talking to many of you in the coming days as well as many of the conferences that are coming up. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.