Okay, with that, good morning everybody. Welcome to the Goldman Sachs Communicopia Technology Conference. I'm Jim Schneider, the Semi-Content Analyst here at Goldman Sachs. My pleasure to welcome Microchip Technology with us today. We're happy to have CEO, Richard Simoncic, and Head of Investor Relations, Sajid Daudi, with us today. Welcome, guys. Hey, how's it going? You know, your quarterly reported back in early August. I thought your commentary was fairly constructive. You noted increased bookings, rising backlog levels in some pockets, lead times expanding, and reduced inventory in your balance sheet. I think you also talked about minimal polling activity. I'll ask you a few questions about the quarter and the trends that you're seeing right now. To lead off, you know your June quarter backlog, I believe, was ahead of the prior quarter. July bookings were the highest month in some time. How have you continued to see trends in your backlog and bookings since then, and how has linearity tracked since your last earnings call? Okay, just before I answer that, I may say some forward-looking statements. Please refer to our online documents for appropriate risk factors based on what I'm saying. Before I get going here, we definitely saw much better bookings last quarter. July was probably the highest bookings that we've seen in probably two years. August came in, although not as bad as it could have been. It looked more reasonable than we've seen in past August, where typically August is one of the worst bookings months. No commentary on September as of yet, but we have seen much better bookings in the July timeframe. Much better. Okay, very good. In terms of the end markets, which ones for fiscal 2026 do you see rebounding most quickly? Is that auto, industrial, defense, cloud, data center, et cetera? Which do you think could be more sluggish for some period of time? Right now, probably our top markets are AI, data center, infrastructure. We're seeing some of our Gen 4 PCIe switches pick up, our Gen 5 PCIe switches pick up. We're working on releasing our Gen 6 PCIe switch and retimer as well. We're also seeing connectivity in networking. Our growth in T1 connectivity has really garnered a great deal of design-in activity. When it comes to factory 4.0 automation, automotive, robotics, and humanoids, all of those need much higher connectivity speeds, and that's where Ethernet T1 comes into play. Interestingly enough, we used to always look at attach on a microcontroller as the mainstay, but we're seeing significant attach associated with our connectivity and networking products. That will generate quite a bit of growth going forward. I think one. Go ahead. The other area of strength that we're seeing is the aerospace and defense segment as well, which is about 18% per last fiscal year. Again, you know beyond just the spend that we're seeing from the U.S. side, even our NATO allies and NATO customers, or NATO, you know them spending their defense budgets is also helping that. That's another area. FPGAs, those products play into that segment pretty nicely and all carry a much kind of richer margin profile as well. Yeah, I think many people don't realize that Microchip supplies about 20% of semiconductors for all aerospace, defense, and space programs, right? For instance, Mars Rover has about 130 devices from Microchip. The James Webb Space Telescope, the only reason it's able to beam those brilliant pictures back to Earth the way it does is because we developed a driver technology that goes in there. When it comes to anything that leaves Earth's atmosphere or defense, that's where Microchip comes in. Our latest generation of high-performance space computer is octal RISC-V architecture. Most people would never think that the next generation space computer would come from Microchip. That should come from AMD, that should come from Intel, that should come from, but no, that's coming from Microchip and that's being designed into multiple platforms by a number of defense and aerospace customers around the world. Yeah, I think one exception to that broad end market improvement you think you noted on the call was automotive. That's been a controversial end market for a lot of companies. I'm just curious whether you're seeing any changes there and any kind of improvement or not. We don't play very much in China EV vehicles. Where we're focused is a lot of T1S connectivity. We're in a lot of microcontrollers that are on the edge in those automotives, automobiles, HMID. You know, when you look in a car and you see those beautiful touch panels that are across the dashboard, 90% of those touch panels all are using Microchip's HMID products. You know, when you look in that Mercedes and you've got that full wrap-around, that's Microchip Technology that enables all of that. We're seeing great growth in those particular areas. We're seeing a lot of design-in activity in the next generation of CAN and control. Every network and LIN are just not capable of the speeds and the amount of sensor interfaces that you have in those cars. That's where the next generation of Ethernet comes in. We're seeing a lot of design-in activity on those platforms too. Very good. Just one point on inventory. I think last quarter you talked about your inventory and balance sheet going down by a little over $120 million sequentially. Maybe give us a sense how much of that was distributor destocking, internal improvement, maybe give a sense of what you're seeing from an inventory perspective, both on your balance sheet and your customers. We are aggressively cutting overall inventory. We're manufacturing at about 50% of demand to bring that inventory demand down, to bring that overall inventory down significantly. That's what caused us to go from that 261 peak number by the end of September in the low 190s range. We'll start to slowly ramp up the factories again in the December quarter to match where actual demand is. We're bringing that inventory down very aggressively. There's just no value to having that high inventory there. For the same reason, we thought to have no visibility, right? When you have huge inventories or huge stockpiles of inventory, I think most people in their general mind think that's a good thing, right? What it does is it forces essentially customers to give you no backlog and no visibility as to what their needs actually are. That actually creates a bigger issue in semiconductors. You have to have the right balance of inventory. 261 days is just way too high. Yeah, makes sense. September quarter guidance calls for 195- 200 days of inventory. Great. Maybe one more short-term question before I move to some longer-term questions. In terms of your growth outlook and what you're seeing from China specifically, you just mentioned not so much on the EV side, but how do you think about the potential impact of the business based on sort of the macro challenges, the sort of terrorist regimes, and everything else that we're seeing right now? Maybe talk about how your overall China business is tracking. It's interesting, about 18% of our revenue is China. About 9% of that is shipped into trade zones and then shipped right back out, so there's really no tariff influence. We have about 4% or 5% that is more proprietary, major, you know, A to B converters, higher-end micros, connectivity devices, and that's not subject to getting a lot of pressure from within China semiconductor manufacturers. That leaves about 4%- 5% of product that's at risk, that's from built outside, that's brought into China, that's then consumed. We're working on different models to protect that overall revenue. China is probably the first country that corrected inventory early on, and China continues to improve in some ways. We don't play in China EV, but there are many other markets that are still growing within China. Okay, very good. Maybe pivoting to some more strategic issues. Since his return to the company, CEO Steve Sanghi has kind of laid out a nine-point strategic plan for the company. You made a lot of progress on those fronts. What do you see as the most important remaining steps for the overall company still to be completed? Maybe Rich, where are you focused on most in terms of operational objectives? We're still working to get the inventory back down to that 130- 150 days. What I'm mostly focused on is redeveloping our product strategy within microcontrollers. We've reorganized significantly the microcontroller groups in terms of bringing together in one organization, making sure that the connectivity and networking and data center businesses are properly funded to grow. Also have created a new AI/ML BU or business unit within the company to just really drive growth. We've got a number of business units that all need some type of accelerator or network processor built into those products. Rather than having each group independently do their own, we're working on a unified network processor and accelerator that can be used by five to eight BUs within the company. Quite a bit of work is going on in that area within Microchip. Okay, great. Maybe within the strategic review, the financial targets you sort of laid out, you talked about operating expense goals of 25% of revenue. Right now you're just above 30%. What does the path to 25% look like for Microchip? How fast can you get there? Keeping in mind the fact that Microchip historically has this kind of philosophy or culture of shared sacrifice in downturns and how you expect that to reverse or not in the upturn. We've already announced that we've gone too long without bonuses and we went very long on shared sacrifice. This reminds me of the 2001 inventory correction. Many of the people in this room were not even here then, but when you look at the last time the semiconductor industry got far ahead of its skis the way it did here, it was 2001. It took almost three years for the industry to find its bearings again. I know a lot of people are going to say that's a long time, but when an industry over-invests and gets too far ahead, it takes that much time to get back to where it needs to be to some degree. As we're getting to 25%, the difference between back then and today is there's probably a lot more productivity gains from AI implementation and operations. Microchip, we started our AI business operations implementation back in 2017. Whether it's AI, ML, deep learning, probably 87% of all orders placed on Microchip are actually auto-scheduled using deep learning, ML, product recommendations for customers. The reason why we get so much TSS is that's all AI generated and that's been being done for probably about five years. We're now working and moving into a lot of productivity improvements and software generation and design generation. We've been optimizing overall expenses for quite some time in investing in this area. We feel pretty confident about getting back to that 25% model. I would just maybe add to that as thinking about modeling. Use the March number, so that really factored in all the layoffs and everything. That's your baseline number. The variable piece of that OpEx line is the variable comp, which we have a lot of control. That will vary and be pretty disciplined. Very good. Maybe switching to some of the end market trends that you're seeing right now. You touched on before, Rich, about data center. That exposure has grown over time. It seems to be good business for you. We've also heard from others that it's a crowded space. Maybe talk about Microchip and what applications do you see and do you address most commonly? What's your competitive advantage there? We address Ethernet, USB hubs, our timing products, and our PCIe switches are the predominant products that we're pushing. We try not to chase, even though we are an analog power supplier, we try not to chase the power side of that business because that seems to be a jump ball from each generation to the next in terms of winners and losers. We focus on the connectivity portion of that. Connectivity, timing, and our microcontrollers are used for essentially power management within nodes. Security, we are the security root of trust for all of the GPUs that are produced. Our security devices are sold into all of those manufacturers today. Interesting. Has the emergence of generative AI really changed your focus in the market at all, or has it just made the market bigger with the same products you had before? I think it's just made the market bigger. It's interesting, with the AI, it's been around a long time and companies that didn't get on the AI bandwagon back in 2017, 2018, really are way behind because AI technology has been around for a long time. You should have been using it to help improve productivity for a long time. Gen AI just makes it more familiar to everyone. We brought Gen AI on as soon as we could behind our firewall and created the Bragg models for multiple functions within the company. It's really driving a lot of productivity. I think as more companies figure out the benefits to AI and the benefits to Gen AI, that market is just at its infancy. I think there's going to be tremendous growth as people start to really figure that out. I talk to a lot of friends of mine that are at different companies and I'm part of AI Venture Networks. So many companies are just still behind the learning curve on Gen AI and what it's good for and overall AI in particular. I think you'll probably find some of the people in this room still are not really using it effectively to do what they need to do on a daily basis. Guilty as charged. No, but maybe talk a little bit about the aerospace and defense. You called that one out tangentially before. It's been a good market for you. Maybe talk about what you think about that market and your exposure to it is underappreciated by investors. Why is it such a great opportunity for Microchip specifically? Lots of your competition. Microchip specializes in long-lived devices, right? That's where we focus, right? For instance, you mentioned before power. Why aren't we going into doing something within power in AI and data center? I don't consider that long-lived, right? That becomes jump ball at each generation. We are focused on the security aspect, the timing aspect, which has much more longer life to it. Within A&D, we have a lot of technology or knowledge in the area of radiation hardening and packaging and security that defense and aerospace customers really desire. We've got a 60-year heritage that we inherited from some of the acquisitions and relationships that are in thousands of programs that have been there for quite some time. We've got people that have, I don't know, a strong association with these customers and an extremely strong association with this marketplace in terms of what it needs. They are very devoted. I was just at the Paris Air Show meeting with all of our clients, and it was fascinating to see every product that we walked up to had Microchip in it to some degree. Everything, right? They were looking forward to our next generations of products and what HPSC could do for them. Most people don't even probably realize this, Microchip's been doing silicon carbide for probably 25 years in aerospace and space applications. We didn't use silicon carbide to go after cars and inverters. We used it to go after power cores and power supplies that are sitting in space for 25 years. That's been our focus, those long-lived applications. We have those relationships with those customers. They look to us for that knowledge and dependability. Within that, or maybe on top of that, FPGA, that's been a pretty strong grower for you. Maybe talk a little bit about where you're playing, where some of your competitors may not be playing, and why that's kind of a durable opportunity for Microchip. The original FPGAs were designed for extremely low-power applications. You have high compute with very low power. Typically, Microchip FPGAs draw 50%- 60% less power than all other FPGAs made. That was specifically designed that way or architected that way for, you know, space or defense applications, radios. Since we've acquired Microsemi, we've now positioned that entire product line in the industrial control into medical customers. One particular application is, you know, think of a probe in a medical application where you're doing an ultrasound on someone. That probe has an FPGA in there, probably 164 lanes of high voltage. That probe gets very hot with a technician using that particular ultrasound probe. If you replace that probe with a Microchip FPGA, you cut the power in half, and now that operator or technician can use that probe all day long without fatigue or issues. What we've done now is we've found markets that we serve, Microchip serves, and have slowly been working that technology into all of our industrial customers, our medical customers, and finding significant growth areas across the board. We look at the FPGA business, it's probably more than doubled since we bought Microsemi, and we continue to see more traction. Now what we're doing is we're moving up in the product range with our PolarFire 2 products, and we're also moving down in the product range, offering some lower-cost alternatives that we just announced, and then offering some alternatives for even on a very low end where customers can do more ASIC type of devices. Great. You touched on industrial, and obviously it's a very broad market across a bunch of submarkets. Maybe talk about, for Microchip's business, where you see the most traction and the most growth right now and over the next maybe a couple of quarters or so. I probably see the most design traction that we're seeing is in our connectivity and networking. Because all markets, because of the nature of whether it's humanoids, whether it's Industry 4.0, whether it's automotive, all of the interface and connectivity standards that have been out there for so long, CAN, LAN, RS232, RS485 are all obsolete now. You cannot move the amount of data around in an application with those old technology standards. Probably when we go to, when I'm going to visit customers next week, I'll be through all Europe. What customers want to talk to us about the most is, you know, what are we doing in AI? The second one is, you know, what are we doing in connectivity? That is customers' biggest issues that they're seeing right now. I want to pivot to operations for a second. You're near your heart, I'm sure. Maybe talk about the TSS approach that you've been taking for several years now. How has this strategy sort of unfolded for you? How does it differentiate you from your competitors? Maybe talk about, you know, if you can quantify market share gains or any kind of other quantitative metrics you can put to that in terms of the success of TSS. What we've done over time is, within the product definition itself, we call them anchors. When we come out with an anchor product, the first thing that we do, we have groups of people that look at, okay, what are the surrounding devices that can add to that overall solution? For instance, for FPGA, we just came out with a very sophisticated product family of power management ICs or PMICs that are specifically tailored for that product. Rather than having someone else create a PMIC or a power management IC, this device is made for that product line to optimize its overall performance. We have design where we design specific products to optimize the performance. We also have a recommender tool, an AI tool that we put online probably about six years ago that essentially, when a salesperson enters an account, they pick up an anchor device, let's say it's a smoke detector or a door lock. It immediately goes through our system and then with a 90% correlation factor presents to that salesperson all of the devices that should go with it, and then all of the associated documentation and then the highest probability of win ratio in terms of tracking it. When you have tens of thousands of products, each salesperson is not going to know what to sell in a particular account. What makes it all work is that recommender tool that recommends the appropriate device to sell. When we came out with, for instance, our T1 product line or T1S, we program or help that recommender tool or ground it in information that will recommend the associated devices. In our design-in activity on our T1 products, we are seeing more revenue in our Attach products than we actually are seeing in our T1 products, believe it or not. That's how that whole system works for us. Interesting. Relative to AI, you've talked about an AI coding assistant, which I don't think most people would think about in the microcontroller context. How long have you had this product internally? When you've related it to customers, what has the feedback been? It's kind of an interesting story. This started probably about two and a half years ago. I hate writing software. Personally, I'm a hardware person. We had our development tool group and I went to the, when these GenAI tools came out, I wanted to have him start working on a code generator to assist our customers. I went and I wrote some programs and I had him check them out and they were all perfect. Before that, I couldn't get him to do it. Since I was this hardware guy and I wound up writing a bunch of software, the Vice President of that group bought into it and then he started using it. At that time, we were using the public GenAI software and, you know, it hallucinated, it was okay, but it wasn't great. We brought it behind our firewall and we started creating RAG models and grounding it to eliminate hallucination. We grounded it, eliminated hallucination, and then we started using it internally for a thousand or so software developers. Once we did that, the amount of grounding that took place, the hallucinations essentially were non-existent. We then vectorized all of our data sheets and knowledge bases so that it was easy for the RAG model to consume that information and data. What we found was our internal software engineers were seeing about a 20%- 40% productivity improvement. In February, we decided to release it to our customers. Our customers started seeing the benefit. We vectorized all of our YouTube videos, all of our training videos. Now a customer is writing code, can bring up the information, it will actually auto-fill out the code, see what they're writing, auto-fill it out. If they are not familiar with how a microcontroller or something works, the code will actually recommend the YouTube video and will actually index to the exact 2:16 point that they mentioned what they want to know about in that video. All in one environment, they get the data sheets, help, video context, auto-generation of code, quality checks, testing, all in one application. The most recent release that we did this week or this month is going on, is we've added AI agents to it to actually take a lot of the functions and to work off of the programmer itself. We were the first to come out with it. I think it has to do because we've been working with AI since 2017, 2018, where we're not unfamiliar. We were very early with GenAI, putting it behind our firewall, grounding it, creating sandboxes, and then creating RAG models for people to use. We're pretty sophisticated in this area. Our customers are really starting to see the benefit of this. I know internally, we've absolutely seen the benefit of this. Interesting, interesting. Maybe switching topics a little bit to pricing. I realize you're not in the commodity business. You're focused on high margin, long-lived products. We have some interesting gyrations during COVID, big changes in pricing, and your competitors have added a lot of capacity operationally over the last several years. Maybe talk about how you think about the analog side of the portfolio in terms of forward pricing trends you're expecting over the next couple of years, more longer- term. Obviously, we reduce pricing on our products, but pricing doesn't change that much that quickly. Pricing is typically on the next design that takes place. You've got designs that were put in production 20 years ago, 10 years ago, 15 years ago. The ability for those customers to move or redesign those products is somewhat limited. Really, the battle is always on the newer designs. What happens is as you get the newer designs, they're much more competitive, but you've got this whole long tail of older designs that are at much higher prices. It becomes a blend over time. That's where we put that forecast of single-digit ASP reduction over time. It gets back to a more normal design approach as we go forward. That's more of like a go-forward perspective on new designs, but it's a mixed effect in terms of. It's a mixed effect. There are some price reductions on old designs, but that's not that much. Most customers, you know, let's say someone comes in with this much cheaper device. They go and they said, "Okay, I'm going to redesign this." They find that the engineers that worked on it 10 years ago just don't exist anymore. The design files don't exist anymore. It may have been designed on an older EDA platform. To resurrect that, they have to actually convert that to the newer EDA platform for them to actually redesign that particular product. You can never really, one of the things I've learned over time, it's very difficult to buy already existing sockets in a design. In fact, whenever I develop new product lines at Microchip over the years, and I develop a lot of new product lines, my target is not to go after what's already designed. I tell salespeople, "Don't waste our time with what's already designed in. Let's just focus on new designs, new activities, and here is why." That's where the money is, rather than wasting time trying to do build back and try to convince a customer to redesign something. It just doesn't work. Yeah, makes sense. Maybe probably time for one more question, but I wanted to sort of ask you, with respect to manufacturing footprint in your strategy, I mean, you have production capacity in the United States. You also have outsourced capacity, which resides mainly in Asia, I think. Some of your competitors have been very vocal about doing a lot more onshore U.S. capacity. Now we have a tariff regime in place that incentivizes U.S. production. Maybe talk about your manufacturing strategy long term, vis-a-vis your competitors, and then your understanding about Microchip's applicability to the new tariff regime that was recently announced. About 18% of our revenue, probably look at it this way, about 18% of our revenue is A&D. That's almost all done onshore, right? Assembly, testing, manufacturing, we've got a number of fabs that do that. We've got quite a bit of analog and microcontrollers that are done onshore. Our foundry partners have built out, you know, whether it's TSMC or Global Foundries, are in the middle of building or have built fabs onshore. We fit that because we do a lot of our production already onshore at Microchip. I think we've said before that about 45% of our revenue in terms of wafers is 40%- 45% is done onshore. Our number is actually a little better when we start to look at assembly and test. We take wafer foundries that build onshore. Very good. I think with that, we're pretty much out of time, but thank you very much, Rich and Sajid, for being here. Thank you.