Microchip's sales up 42 percent as chip lead times stretch

What happened

Microchip Technology reported net sales of $1.622 billion for the quarter ended 30 September, up 42.2 percent from a year earlier, in an 8-K filed Thursday 5 November. ^[1]

Sales were up 9.2 percent from the June quarter. Net income attributable to common stockholders was $373.6 million, against $13.9 million a year earlier, and gross profit was 65.9 percent of sales on the company's standard accounting basis and 66.5 percent after its adjustments. ^[1]

Why it matters

Chief executive Steve Sanghi said the quarter brought a pivot, from customers finishing their inventory clean-up to shortages in some areas, with book-to-bill, a ratio of new orders to sales, 'well above one'. ^{[1, 3]}

Sanghi said lead times, the wait between an order and delivery, were historically four to eight weeks for most standard products and are now six to 32 weeks. He said orders placed inside those waits are going unsupported in the quarter. ^{[3, 4]}

The next quarter

For the quarter ending 31 December the company guided net sales of $1.573 billion to $1.638 billion, between down 3 percent and up 1 percent from September. It said about $53 million of one-time revenue in September will not repeat, and that normal seasonality is a 3 to 5 percent drop. ^{[1, 3]}

It guided adjusted gross margin to 64 to 65 percent. Sanghi named the unfilled orders for high-margin products and lower use of its own factories as reasons, and said most major foundries and chip packagers plan another round of price increases starting in January. ^{[1, 3]}

Sanghi also said that 'data center is in the bubble'. The 24 design wins on its newest data center chips will go to production, he said, though volume 'could be slightly lower' than if the bubble were to continue. ^[3]

The balance sheet

Inventories were $1.117 billion on 30 September, against $1.035 billion on 31 March, and 184 days of inventory against 185. The 10-Q puts total debt at $5.55 billion in principal, and its balance sheet shows long-term debt of $5.517 billion against $5.496 billion in March. ^{[1, 2]}

The chief financial officer said net debt to adjusted EBITDA, a measure of debt against operating earnings, was 2.36 and is expected to keep falling through the fiscal year. Cash from operations was $419.2 million in the quarter. ^{[1, 3]}

What settles it next

The December quarter ends Thursday 31 December, and its results are not dated in the release. The quarterly dividend is payable Tuesday 8 December to holders of record on Monday 23 November. Sanghi gave no guidance for the March quarter, saying only that its backlog looks better than the December quarter's did at this point. ^{[1, 3]}

Who it reaches

Microchip (MCHP) is the direct subject: every figure above comes from its own filings or its call. It closed the Hailo purchase, an edge AI processor maker, on 17 September and Vorago Technologies on 8 October, which it expects to add about $4 million and $6 million to December-quarter sales. ^{[1, 3]}