Microchip Technology Earnings Call Nuggets: Business Improvement and the Extended Backlog

Microchip Technology, Inc. (NASDAQ:MCHP) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Business Improvement

Chris Caso – Susquehanna Financial Group: I wondered if you could give a little more color on some of the business improvement that you’ve seen. Where are you seeing that as a broad based? Is it at any particular customers? In particular, I was interested in the comment about the expedites that you were seeing. I don’t think that’s something we’ve seen, we’ve heard from your competitors, why you think your customer is expediting and I would assume given the inventory levels that the lead times are pretty low right now.

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Steve Sanghi – Chairman, President and CEO: Basically, the inventories have run down very low at the customers as well as at the distributors. The customers were probably accounting for either much deeper cycle in December or not as much recovery in this current quarter. So we are seeing a fairly strong expedite activity, which is driven by customers not having inventory and them not being able to find that inventory and distribution either. The strength is pretty broad based. We are pretty much seeing it from all geographies, including Europe and we’re seeing it in direct as well as distribution, and there doesn’t seem to be any specific market segment, vertical market or anything that it’s happening. We have pretty strong bookings across the board.

Chris Caso – Susquehanna Financial Group: I guess with respect to the fab loading, you had earlier talked about running that at lower levels through the June quarter is that still the plan? Have as some of the improvement you have seen, caused you to change that? Perhaps you can just remind us how we should expect as that fab loading increases we should start to see benefits on the gross margin line?

Steve Sanghi – Chairman, President and CEO: That’s a very good question Chris. We are asking the same question to ourselves. At this point in time we still have inventories higher than what we would like, total inventories and the majority of the excess inventory is sitting in the die banks. So at this current time we are ramping our back end facilities to move that inventory from die bank through assembly and testing to finished goods to keep the lead time short and meet the expedite requests and meet the increasing needs of the customers. We do not feel yet that we need to take any action in the fab because the die banks are quite healthy. Now as those die banks start to correct and overall inventory starts to adjust we will be watching it on really a monthly basis even more often and the rotating time off is very flexible. I mean it allows us on a moment’s notice to be able to increase the wafer start by simply asking the production staff to work more hours than what they are working today. That’s the beauty of it. We don’t have to hire people. We don’t lay off the people. They are all working. They simply are taking some furlough days off and they just simply come to work more hours which they would love it anyway. So as we start to make those changes, we will communicate to the investors and analysts. Today we are not prepared to really make any decision on it.

The Extended Backlog

James Schneider – Goldman Sachs: I was wondering, if we can maybe talk about the expedited orders or the increased backlog in maybe a different way. I think you talked about bookings into the June quarter as well. Can you maybe give us some kind of metrics about the longer dated order backlog into the June quarter, either in terms of how many more weeks further extended backlog that you’re seeing now than compared to normal or some other kind of metrics indicating coverage?

Ganesh Moorthy – EVP and COO: It’s a more qualitative assessment we are giving you at this point in time. Clearly as we look at how far into the quarter are we booked at this time of the quarter, we can see we are significantly higher booked into this quarter and we can see backlogs starting to fill into the next quarter as well. I will have a precise number to give you to say how far in that we are for next quarter.

James Schneider – Goldman Sachs: Then maybe if you could give us any kind of color on the end markets and which ones you expect to be up stronger or maybe less strongly into the March quarter, that would be helpful?

Steve Sanghi – Chairman, President and CEO: As I earlier mentioned, when Chris asked the question, I don’t think we are seeing any difference by end market nor we track them really as well as you would like to. Our business is largely horizontal. We serve into a lot of customers and lots of customers through distribution. So we are seeing pretty broad based strength but some large customers where we do business directly whether they are in the consumer segment or industrial segment or automotive segment or computing segment, we are seeing really pretty strong business bookings across the board.