Microchip Technology : Credit Suisse Confernce Presentation.120419

Credit Suisse 23rd Annual Technology Conference

Steve Sanghi, Chairman & CEO

microchip

December 4th, 2019

Forward Looking Statement Safe Harbor:

During the course of this presentation, we will make projections or other forward-looking statements regarding the future financial performance of the company (including our guidance) or future events, including our strategy, growth drivers, industry outlook, industry trends, market size and our financial model. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause our actual results to differ materially, including, but not limited to: any continued economic uncertainty due to monetary policy, political, trade or other issues in the U.S. or internationally, any unexpected fluctuations or weakness in the U.S. and global economies (including China), changes in demand or market acceptance of our products and the products of our customers; our ability to successfully integrate the operations and employees, retain key employees and customers and otherwise realize the expected synergies and benefits of our acquisitions (including our acquisition of Microsemi Corporation); the impact of current and future changes in U.S. corporate tax laws (including the Tax Cuts and Jobs Act of 2017), foreign currency effects on our business; the mix of inventory we hold and our ability to satisfy short-term orders from our inventory; changes in utilization of our manufacturing capacity and our ability to effectively manage and expand our production levels; competitive developments including pricing pressures; the level of orders that are received and can be shipped in a quarter; changes or fluctuations in customer order patterns and seasonality; the impact of any future significant acquisitions that we may make; our ability to obtain a sufficient supply of wafers from third party wafer foundries and the cost of such wafers, the costs and outcome of any current or future litigation or other matters involving our Microsemi business, intellectual property, customers, or other issues; the costs and outcome of any current or future tax audit or investigation regarding our business or the business of Microsemi, our actual average stock price in the December 2019 quarter and the impact such price will have on our share count; fluctuations in our stock price and trading volume which could impact the number of shares we acquire under our share repurchase program and the timing of such repurchases; disruptions in our business or the businesses of our customers or suppliers due to natural disasters (including any floods in Thailand), terrorist activity, armed conflict, war, worldwide oil prices and supply, public health concerns or disruptions in the transportation system; and general economic, industry or political conditions in the United States or internationally. For a detailed discussion of these and other risk factors, please refer to Microchip‘s filings on Forms 10- K and 10-Q. You can obtain copies of Forms 10-K and 10-Q and other relevant documents for free at Microchip‘s website () or the SEC‘s website (www.sec.gov) or from commercial document retrieval services. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date such statements are made. Microchip does not undertake any obligation to publicly update any forward-looking statements to reflect events, circumstances or new information after the date of this presentation or to reflect the occurrence of unanticipated events.

Use of Non-GAAPFinancial Measures: In this presentation, we have included certain non-GAAP financial information. Our non-GAAP adjustments include, where applicable, the effect of share-based compensation, expenses related to our acquisition activities (including intangible asset amortization, inventory valuation costs, severance and other restructuring costs, and legal and other general and administrative expenses associated with acquisitions including legal fees and expenses for litigation and investigations related to our Microsemi acquisition), IT security remediation costs, non-cash interest expense on our convertible debentures, losses on the settlement of debt, and gains and losses related to available-for-sale investments. Our determination of our non-GAAP measures might not be the same as similarly titled measures used by other companies, and it should not be construed as a substitute for amounts determined in accordance with GAAP. There are limitations associated with using non-GAAP measures, including that they exclude financial information that some may consider important in evaluating our performance. Management compensates for this by presenting information on both a GAAP and non-GAAP basis for investors and providing reconciliations of the GAAP and non-GAAP results. Reconciliations of certain of our non-GAAP and GAAP results are available on our website at .

©December 2019

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Q2FY20 Business Results & Q3FY20 Guidance

  • Q2FY20 net sales of $1.338B, up 1.1% sequentially and down 6.6% from a year ago quarter.
  • Non- GAAP gross margin of 62.24% near a record high.
  • Lowest distribution inventory in fifteen years except one quarter (FQ3 2013).
  • Record quarterly dividend declared of 36.65 cents per share.
  • Issued revised guidance on December 3, 2019 for net sales to be between down 3% to down 7% sequentially (prior guidance was down 2% to down 10% sequentially).
  • Revised guidance for non-GAAP diluted EPS to be between $1.19 and $1.30 per share (prior guidance $1.12 to $1.32 per share)

©December 2019

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Microchip Total Billings + Backlog: FQ3‘19, FQ4‘19 & FQ1‘20

©December 2019

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Microchip Total Billings + Backlog: FQ2‘20 Added

©December 2019

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Microchip Total Billings + Backlog: FQ3‘20 Added

©December 2019

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Six Megatrends

5G

Data Centers

ADAS/Autonomous

Driving

IoT

Electric Vehicles

AI/Machine Learning

©December 2019

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Microchip in 5G

5G Infrastructure

5G Enabled Markets

Radio & Small Cell

Precision Oscillators

Network Synchronization

SAW Filters

Power over Ethernet

Ethernet Switch/PHY

FPGA

Security

AC-DC,DC-DC

Baseband

Precision Oscillators

Network Synchronization

FPGA

Security

AC-DC,DC-DC

X-Haul

Ethernet PHYs w/ Security & Timing OTN / Ethernet Fronthaul Processors Precision Oscillators

Network Synchronization

FPGA

Security

AC-DC,DC-DC

©December 2019

Edge Compute

Medical Devices

FPGA / MPU / MCU

FPGAs

Flash/Storage Controllers

MPU / MCU

PCIe Switch

SAW Filters

Network Synchronization

Security

FPGA

AC-DC,DC-DC

Security

AC-DC,DC-DC

8

Automotive

Ethernet, PCIe ®

FPGA / MPU / MCU

SAW Filters

Timing

Security

AC-DC,DC-DC

Industry 4.0

Ethernet,

FPGA

MPU / MCU

SAW Filters

Timing

Security

AC-DC,DC-DC

Smart Home

MPU / MCU

SAW Filters

Security

AC-DC,DC-DC

Microchip in IoT

Smart Factory

Sensor & Actuators

AI/Machine Learning

Environmental sensors

Object Detection/

Motor Control

Identification

Machine Vision

Predictive Maintenance

Precision Analog/Power

Human Safety / OSHA

Security/Authentication

Data Protection/Encryption

Time Sensitive

Hardware Root of Trust

Networking

Secure Boot/Firmware Update

Secure Provisioning

EtherCAT ®

Clock/Timing

LoRa

5G

Asset Management

10Base T1S

Power over

Ethernet

Ethernet

LoRa®

Switches

CoaXPress®

Battery Management

Smart Home / Smart Building

Voice & HMI

Wireless

Voice/Audio Chips

Wi-Fi®

Touch Screens

LoRa

Capacitive Touch Buttons

Bluetooth ®

Graphics

zigbee ®

Proximity Detection

AI/Machine Learning

Security/Authentication

Facial Recognition

Data Protection/Encryption

Predictive Maintenance

Hardware Root of Trust

Secure Boot/Firmware Update

Sensor & Actuators

Secure Provisioning

Environmental Sensors

Motor Control

Camera Systems

Precision Analog/Power

Smart City / Smart Utility

Connectivity

Sensor & Actuators

LoRa

Environmental Sensors

Power over Ethernet

Motor control

DALI, DMX, 5G

GPS/ Micropositioning

Flow Meters

Lighting

Electric Meters

Precision Analog/Power

Lighting Control

Coordination

AI/Machine Learning

Security/Authentication

Object Recognition/

Data Protection/Encryption

Identification

Hardware Root of Trust

Predictive Maintenance

Secure Boot/Firmware Update

Advertisement Signage

Secure Provisioning

Road Signage

Waste Management

©December 2019

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Microchip in Data Center

Simplified IT

Wireless Maintenance

Graphical/Touch Displays

Front/Rear Panel I/O

System Management

Temp Sensing

Power/Current Sensing

Predictive Fan Control

BMC Lite/BMC Companion

GPIO Expansion

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Power Conversion

Digital Server Power Supply

Security/Authentication

Timing & Sync Solutions

AC-DC,DC-DC, PFC

Data Protection/Encryption

Network Synchronization

DEPA Controllers

Hardware Root of Trust

NTP & PTP Grand Masters

Power Modules

Secure Boot/Firmware Update

PCIe ® Gen4/5 Generators/Buffers

PWM/POL Controllers

Secure Provisioning

Atomic Clocks

PMIC

Authenticated Devices

GNSS Security

LDO/Switchers

Secure Debug

Crystal & MEMS Oscillators

©December 2019

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Storage & Compute Infrastructure

IO Controllers and Host Bus Adapters

RAID IO Controllers and RAID Adapters

SAS Expanders

PCIe Switches, Fabrics, and Retimers

Tachyon IO Controllers

Universal Backplane Management

Storage End Point Solutions

Flashtec™ SSD Controllers

Performance & Mainstream

Flashtec NVRAM Drives

Memory Infrastructure

Smart Memory Controllers

CXL/GenZ Controllers &

Bridges

Data Center Interconnect

Terabit Ethernet PHYs & OTN

Processors w/ Security &

400GE/FlexE

Microchip in Electric Vehicles

Electric Motor

Motor Control

Motor Position Sensing

Silicon Carbide

Temp Sensing

Regenerative Braking System

Inverter

Pedal Inductive

Sensing

DC/DC Converter

Silicon Carbide MOSFETs

Temp Sensing

MCU Control

©December 2019

eSound

DSP Processing

Networking

Power Monitoring

Temp Sensing

Thermal System/Compressor

Motor Control

Temp

Sensing

Networking

Battery Management System

Networking

Thermal Management

Power / Current Monitoring

On-Board AC Charger

Vehicle Charging Communication

Temp Sensing

Silicon Carbide

MCU Control

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Microchip in ADAS & Autonomous Driving

Lane Keep Assist

Lane Departure

Front Collision

Avoidance

Pedestrian Detection

Blind Spot Detection

Adaptive Cruise

Control

Sensor Processing

MCUs, MPUs & FPGAs

Oscillators

Memory

Power Management

Amplifiers

ADC & DAC

Thermal Management

Back up Camera

Adaptive Lighting

Surround View Camera

LED Matrix Lighting

Autonomous Parking

Automatic Emergency Braking

Parking Sensors

Traffic Sign

Recognition

Tire Pressure Management

Hands on Steering Wheel

Rain Sensor

Detection

Vehicle Computer/

Communications

ADAS Controller

LIN

PCIe ® Switch & Retimers

CAN& CANFD Controllers

FPGA & MPUs

802.3 Ethernet controllers

Power Management

10Base-T1S Ethernet TRx

Ethernet

100Base-T1S Ethernet TRx

Security/Trust Anchor

Network Synchronization

MEMS Clock

Security/Trust Anchor

CoaXPress ®

Memory

©December 2019

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Microchip in AI/Machine Learning

Smart Embedded Vision

FPGA: Performance / watt

MCU: Broad portfolio

Analog: Broad portfolio

Security: Best in class

Medical Vision Physical Security Machine Vision

Preventive Maintenance

MCU: Broad portfolio

Analog: Broad portfolio

Security: Best in class

Power Grid

HVAC

©December 2019

ML Training & Inference

PCIe ® switch: Low latency, high port count

Storage controller: Market leading portfolio

FPGA: Compute on the Edge

Network connectivity: Terabit Ethernet PHYs

Analog, Power, Security

Data Center

Automotive

Audio, Gesture Recognition and Control

memBrain™ Silicon IP

Audio processing Touch solutions MCU: Broad portfolio Analog: Broad portfolio Security: Best in class

Automotive

Smart City

Smart Home

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Annual End Market Demand*

Millions of Dollars

$6,000

$5,500

$5,000

$4,500

$4,000

19.8% CAGR

$3,500

$3,000

$2,500

$2,000

$1,500

$1,000

$500

$0

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

  • End market demand is defined as the net dollar amount of our products, licensing revenue and other services delivered to our direct (non-distributor) customers and by our distributors to their customers.

©December 2019

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Annual Non-GAAP Net Income & Diluted EPS Growth

$2,000

$1,800

Dollarsof

$1,600

$1,400

$1,000

$1,200

Millions

$800

$600

$400 $200 $0

©December 2019

$10.00

$9.00

23.0% Net Income CAGR

$8.00

$7.00

19.4% EPS CAGR

$6.00

$5.00

$4.00

$3.00

$2.00

$1.00

$0.00

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

Non-GAAP Net Income $

Non-GAAP Diluted EPS

15

Non-GAAP Financial Results, Guidance & Long-Term Model*

Actual Results

Q1 FY17

Q2 FY17

Q3 FY17

Q4 FY17

Q1 FY18

Q2 FY18

Q3 FY18

Q4 FY18

Q1 FY19

Q2 FY19

Q3 FY19

Q4 FY19

Q1 FY20

Q2 FY20

Net Sales

$844.0

$873.8

$881.2

$902.7

$972.1

$1,012.1

$994.2

$1,002.3

$1,216.8

$1,513.3

$1,416.0

$1,329.8

$1,322.6

$1,337.8

Gross Profit

$471.1

$499.9

$509.7

$534.7

$587.2

$617.8

$610.6

$618.4

$756.7

$933.7

$881.1

$826.9

$820.1

$832.7

Gross Margin

55.8%

57.2%

57.8%

59.2%

60.4%

61.0%

61.4%

61.7%

62.2%

61.7%

62.2%

62.2%

62.0%

62.2%

Operating Expenses

$240.0

$233.6

$220.6

$213.6

$222.9

$227.3

$218.9

$222.8

$283.2

$354.5

$351.1

$342.8

$341.6

$341.9

Operating Income

$231.1

$266.3

$289.1

$321.2

$364.3

$390.5

$391.7

$395.6

$473.5

$579.3

$530.0

$484.1

$478.5

$490.8

Operating Margin

27.4%

30.5%

32.8%

35.6%

37.5%

38.6%

39.4%

39.5%

38.9%

38.3%

37.4%

36.4%

36.2%

36.7%

Net Income

$194.0

$219.6

$246.5

$276.9

$319.1

$344.1

$341.2

$351.3

$405.8

$454.6

$405.6

$370.4

$357.6

$365.7

Diluted EPS

$0.84

$0.94

$1.05

$1.16

$1.31

$1.41

$1.36

$1.40

$1.61

$1.81

$1.66

$1.48

$1.41

$1.43

EBITDA

$264.1

$298.8

$321.3

$356.5

$395.6

$422.5

$425.9

$429.6

$537.5

$574.0

$556.3

$544.4

$537.1

$540.2

Q3 FY20 Guidance

Updated on 12/3/19

Original from 11/5/19

Long Term Model Including Microsemi

Net Sales

$1,244 – $1,298

$1,204 – $1,311

Gross Margin

63.0%

Gross Margin %

61.0% – 61.4%

61.0% – 61.4%

Operating Expense %

26.4% to 27.4%

26.2% to 28.0%

Operating Expenses

22.5%

Operating Margin

33.6% to 35.0%

33.0% to 35.2%

Operating Margin

40.5%

Diluted EPS

$1.19 – $1.30

$1.12 – $1.32

  • Amounts above are reflected in millions of dollars except for diluted EPS and percentages. Microchip does not utilize a GAAP long-term model. All figures are Non-GAAP except for net sales. Figures prior to Q4 FY19 and are measured off of end market demand (instead of GAAP net sales). In Q4 FY19, based on discussions with the SEC, Microchip changed to providing Non-GAAP guidance based on GAAP revenue. Excludes share-based compensation, acquisition related charges, and other items. A reconciliation of our GAAP to non-GAAAP results is available at .

©December 2019

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Summary

  • A consistent revenue grower with multiple growth drivers across six megatrends of the industry
  • High margin business model and shareholder friendly
  • Revised guidance to narrow the range and improve the mid point of the net sales and non-GAAP diluted EPS guidance
  • Premium long-termnon-GAAP financial model of 63% gross margin, 22.5% operating expenses and 40.5% operating income

©December 2019

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Thank You!

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Disclaimer

Microchip Technology Incorporated published this content on 04 December 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 04 December 2019 18:14:06 UTC

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