Release Date: May 08, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q: Can you elaborate on the demand signals you're seeing and address concerns about potential pull-ins due to tariffs? A: Steve Sanghi, Executive Chairman of the Board: The demand signals began improving in early January, with bookings significantly higher each month compared to the previous quarter. This improvement is not related to tariffs, as semiconductors are largely exempt. The increase is driven by inventory depletion at customers and distributors, and new product designs turning into production.
Q: How is the recovery in demand distributed across your key end markets? A: Steve Sanghi, Executive Chairman of the Board: Aerospace and defense have notably increased, now comprising 18% of our business, driven by high defense budgets and increased NATO spending. Other markets like industrial, automotive, and consumer are also recovering, supported by inventory depletion and new product designs.
Q: What impact do tariffs have on your business, and how are you managing potential risks? A: Steve Sanghi, Executive Chairman of the Board: Direct tariffs on our products are negligible as we have moved production from China to other countries. Indirect effects on the global economy are uncertain, but we have modeled potential impacts and are prepared to adjust manufacturing accordingly.
Q: Can you discuss the margin leverage as revenue recovers and the impact of current headwinds? A: J. Bjornholt, CFO: Current headwinds include underutilization charges and inventory reserve charges. As revenue increases and inventory reduces, these charges will decrease, leading to significant margin leverage. We expect this improvement to become more pronounced as the fiscal year progresses.
Q: How do you view your market share dynamics in the microcontroller market, and do you expect to gain share? A: Steve Sanghi, Executive Chairman of the Board: We expect to gain market share as we recover. Our guidance for the June quarter reflects this, and we anticipate increased bookings and purchasing from microcontroller customers who have been sitting on significant inventory.
Q: What changes have you made to improve product development efficiency, and when will investors see the benefits? A: Richard Simoncic, Senior VP: We've introduced tools like the MPLAB AI coding assistant to enhance customer productivity, reducing development time by over 40%. These improvements aim to make Microchip products easier to design in, with benefits expected to materialize in the coming years.
Q: How are you addressing the competitive landscape in China, and what is your strategy for the China market? A: Steve Sanghi, Executive Chairman of the Board: We are revising our China strategy due to changes in the definition of "Made in China." We aim to provide Western-quality products under a local brand to meet customer preferences, and we are adjusting our production locations accordingly.
Q: Can you provide an update on your capital return program and the sustainability of your dividend? A: Steve Sanghi, Executive Chairman of the Board: We are committed to maintaining our dividend, supported by improved financial performance and cash flow. Recent actions, including a $1.45 billion mandatory convertible preferred transaction, have strengthened our balance sheet and reaffirmed our investment-grade rating.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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