Microchip Technology Incorporated (MCHP) Earnings Call Transcript & Summary

We're going to get started now. Thank you so much. I'm Tim Arcuri. I'm the semi and semi equipment analyst here at UBS. Very pleased to have Microchip for this next session. We have Eric Bjornholt, who's VP and CFO; and we have Sajid Daudi as well with us, who runs IR. So Eric is going to say a few things, and then we'll have Q&A.

Okay. Thanks, Tim, and good morning, everybody. During the course of this discussion, we'll be making certain forward-looking statements about the future financial performance of Microchip. I refer you to our filings with the SEC that identify important risk factors about the company. So just a quick overview of where we're at. Microchip has grown very well over the last 2 years, at the midpoint of our guidance for the current quarter, which is to be up 4% sequentially. Microchip would be up 22.7% year-over-year, record gross margins, record operating margins on a non-GAAP basis. We are actually just getting to our target model on gross margin. The midpoint of guidance this quarter is 67.9%. And we are below our operating expense model, and so operating profit is actually above the long-term model that we just introduced back in November of last year at our Analyst and Investor Day. So the company is doing great, generating a lot of cash. We have been moving towards more of a cash return strategy with our shareholders. We introduced that again at our Analyst and Investor Day last year. We are, this quarter, returning 60% of last quarter's free cash flow to investors through a combination of dividend and share buyback. Our dividend is growing at about 9% sequentially on a quarterly basis, so about a 40% CAGR. And the subtract answer on the capital return from the dividend is then the share buyback, which today is higher than the dividend. So we're executing quite well. We are in a position today where we have a ton of backlog on the books. We are still very much supply constrained on various technology nodes. An item that we have highlighted to investors is that we had unsupported backlog ending the September quarter, and we define that as backlog that customers would have liked to have shipped to them in the September quarter that we can't ship until a later quarter. That was greater than the revenue we actually shipped in the September quarter. So that gives you an idea of how behind we are in terms of what customer demand is versus what the supply side of the equation is. So executing quite well. I'm sure you have a lot of questions, and I'll turn it over to Tim to go into his Q&A.

Thanks a lot, Eric. Thank you. So yes, let's just start with something that you initially said. Obviously, the company was built with M&A, but you're now moving to more of a cash flow return approach. And you're going to be at 1.5x levered pretty soon. You'll move from 60% capital return up to ultimately 100%. How does that look? Is it going to -- is the Board going to decide and you think you'll move there all at once? Or will it be a gradual move to get to that 100%?

Yes, it's a good question and we've been getting that question from investors. So I think some investors have in their minds that as soon as we get to 1.5x levered, which is probably just 2 quarters away, we ended last quarter at 1.84x levered, that in a couple of quarters we'll be there. And so if it takes 2 quarters, we've been increasing that capital return by about 2.5% per quarter. Today, we're at 60%. So let's say we're at 65% when we get there. The Board -- it's really a Board decision that they will think through, and we'll communicate more thoroughly to investors. But you shouldn't think that we hit that 1.5x, and automatically, we go to 100%. I think it will be an acceleration to get there. But whether it happens over 2 quarters, 4 quarters, et cetera, the Board will figure that out. But we're -- the bottom line is we're moving very quickly to get to 1.5x, and then we'll move rapidly from where we are at that point to 100% free cash flow return, a combination of dividend and share repurchase.

Great. Can we talk about industrial for a moment? There's a lot of mixed signals going on in that end market. You look at macro, ISM is now below 50%. The new order component of the ISM was down a lot when the number got reported last week. Yet the industrial customers still sound pretty good, and they sound pretty optimistic. You're still very optimistic about your business. Can you just talk about the tone that you get from those customers? Obviously, you look at the macro just like we do. And maybe can you help us sift through what the macro is telling us will happen versus what's happening now?

Yes. So industrial is our largest end market. That, which we combine our aerospace and defense business, is about 40% of our business. And it's a very solid, sticky business, and it has been significantly supply constrained. We manufacture most of our products on trailing edge technologies that are either constrained internally or at the foundries. And so with that, customers are behind or we're behind to what customers require. That's a very strong and sticky market for us that we've won a lot of designs on for many, many, many years. And the great thing about industrial is you can get a product designed in today, and it will sell for 20 years, right? So this is just a fantastic sticky business. But it's supply constrained. And I think that's the biggest disconnect that the investment community has right now is between trailing edge versus leading edge technology on the process side, where you can get capacity on the leading edge of technologies in many capacity corridors today as much as you want. That's not where Microchip's products are produced. It's on the trailing edge, and that's where our industrial and other customers are still very constrained with us.

And so you think -- as you kind of look at the macro, are you concerned that your industrial business falls off? Or you think just given the -- given how constrained things are at those nodes, you're not really worried that that business will fall off, that it could actually buck the macro?

So it is absolutely possible that it bucks the macro. I mean, we are very aware of the things that all of you are seeing in terms of rising interest rates and inflation and the possibility of recession. But again, for us right now, it's all about the supply side and getting as much supply as we can to support the customers. So we're not immune from these things, but I think the other thing to note is that in many of these applications that we sell into, the content is growing, right? And so we think that our focus on selling Total System Solutions, which I'm sure we'll talk about in some of your questions before, selling more and more to each customer and some of the mega trends that we're focused on that include industrial, these are durable long-term trends for growth for the industry and for Microchip, and we're maximizing our exposure there.

Can we talk about the systems aspect? How much -- what portion of your revenue today is in a system configuration? And where do you think that's going to head? Because that is definitely a change for the company that makes your trajectory is potentially different this time versus what it's been in the past.

Yes. So maybe I can just step back for just a second there. And so when Microchip started its acquisition strategy back in the 2010 time frame, we were subscale in revenue. We were less than $1 billion in revenue. And we were known to be a microcontroller company. We had some pieces of analog and some other pieces of the portfolio, but we were subscale in the portfolio also. And so through a series of acquisitions, combined with our organic growth, we grew from less than $1 billion in revenue to the $8 billion-plus revenue company we are today. And we've added the components that we need around the microcontroller to be very successful in selling what we call Total System Solutions, or TSS, to our customers. And essentially, that's just not selling the microcontroller, it's the analog, it's the connectivity, it's the timing, it's security, et cetera, to complete the customer's board. And so we're being very effective in that. Another central chip on the board can either be a microprocessor, which we have in the portfolio, or an FPGA. And all these things have all these other components that go around it. So we approach every customer opportunity for us and be able to complete their solutions and be a more valuable, sticky supplier to them by selling them more. So TSS has been a growing trend for us. We don't break out a specific metric for you because it tends to be slow moving, because, I think, as I mentioned before in industrial, we could have designed something in 1995, and we're still selling that product to that industrial customer today. But in the next design that comes up, whether it's in industrial or one of the other end markets, we want to position ourselves as not just being the microcontroller company, but all these other pieces of the portfolio. We've got some good slides on our website that kind of show a typical customer board and all the things that we supply. And our customers really value that approach. We come to them with working reference designs. And our goal is to be a supplier of all those components to them. It speeds their time to market; it makes their investment in R&D much quicker and more effective.

Got it. Can we talk about PSP? It's something that you guys instituted this time. It's something that probably is going to be a one-and-done program, but there was a lot of reasons why you're doing it now. And can you just talk about -- PSP is over half the backlog, but then by the time that you get inside the quarter, PSP is -- almost everything shipping in that quarter is PSP. So can you talk about what PSP has done for you, some of the advantages that it's brought to you during this cycle? And I know you gave a number on the call, you said that 4.5% of backlog was canceled. I got some questions post-call that that's really more like 10% of the non-PSP stuff. So the stuff that can be canceled, it's more like 10% of the stuff that can be canceled, which is not an insignificant number. So can you sort of talk about PSP? What that does for you? And maybe what's happening -- the customer behavior outside of PSP, is it dramatically different than what's inside of PSP?

Sure. So just to level set for everybody, what PSP is, it's our Preferred Supply Program. It gives customers priority of supply that sign up for the program. And in exchange for that, they get -- Microchip gets 12 months of noncancelable, nonreschedulable backlog. And every month or week that rolls by, a customer needs to place another order to fill up that rolling 12 months. And so one of the questions we've been getting on PSP is this just must be backlog that is going to build inventory for customers. We don't view it that way. We think our PSP backlog is significantly better backlog than what we would have had otherwise. If we just had a 90-day cancellation window, we'd have a mountain of backlog sitting in month 4 that customers would just continuously push out or cancel and we wouldn't know what to invest in. And so it's been a win-win program. Customers that have participated in that program have got better supply from us. They've continued to place orders under that program. They aren't falling out of the program. And we think as they see macro softness, right, we've been having questions from investors on macro softness all calendar year, that they gradually adjust their orders to adjust to what they see long term in their business. So it's been a great program for us. I think the words that you used is that it was a one-and-done program. I'm not sure about that. There is so many customers throughout semiconductors that were caught short on supply during this upcycle. And many of these customers sell end equipments or end products that are very high value, whether it be an automobile, data center or a medical product that has a high value, and they have lost any benefit that they've had from having just in time in the past by not getting the supply that they need. So the PSP program was introduced because it was what customers were asking for. Can we modify that program over time if lead times come in or whatever to make it a good program for customers and they'll stay with it? We can potentially do that. But right now, it's still a very popular program. We have well in excess of 50% of our backlog with PSP. Today, customers have been serviced well for it. And actually, some of our larger customers participating in PSP program have now entered into 5-year long-term supply agreements for us. So extending that PSP essentially to 5 years. Now they don't have to commit to the specific orders under those programs until kind of 12 to 18 months of delivery, and it will pick up a year out in time. But that shows the value that customers are seeing by having these longer-term programs in place, and PSP is still very popular today.

Got it. And can you talk about the behavior inside of PSP and outside of PSP? The 4.5% number is not large, but when you consider relative to what can be canceled, it actually is quite -- you could argue it's a more significant number.

Sorry for not answering that in my first response. So we did quantify on our last conference call that about 4.5% of backlog had been canceled by customers. And that's kind of on a rolling 90-day basis. We looked at it again last week, and that percentage really hasn't changed. And we have such a large amount of backlog that it makes no difference in current quarter, next quarter revenue. I mean, these are very small numbers because our backlog is really, really high compared to where it's been historically. We've got a mountain of backlog that we need to work through. It's not impacting that unsupported backlog that I mentioned before in terms of what customers need now that we can't supply into the future. So in many cases, if somebody is canceling, there's another customer lined up that would want that product.

So you don't think that the fact that it's some double-digit percentage of what can be canceled? There's so much unsupported anyway that that's not a number that should concern people?

It is not a number that investors should be concerned about. And I guarantee you that if we didn't have the PSP program, that we would have a much higher level of cancellations because our backlog wouldn't have been meaningful, right? It would have been -- our backlog would have been higher, but it all would have been sitting, again, outside the 90-day cancellation window, and customers would have just pushed it out or canceled it.

Got it. Can you also talk about lead times? We hear quoted lead times, and then sometimes I hear examples of customers saying that, yes, the quoted lead time -- and this is not a Microchip comment, this is just a general comment. Yes, the quoted lead time is X, but I'm able to get my product much faster than that quoted lead time. So can you talk about your lead times? And have they come in at all?

So lead times have not changed significantly. There are some capacity corridors that are freeing up more capacity. So as you can imagine, with weakness that the industry has seen in cell phone and consumer PC, that does free up some capacity at foundry. For us to be helpful and for our customers to be helpful, it has to free up capacity at the certain process techno that we are manufacturing at the foundry. So lead times are still very extended for a large portion of our product line. But we have some products that are available in 12 weeks or less. That's a much smaller piece of the portfolio, and many products that still have a year-plus lead times.

Got it. Maybe we could talk about gross margins. I know, Sajid, you've shown on the website, you've shown that historically, there has been roughly 300 basis points downside to gross margin. How to sort of think about that? I know that you're -- currently, internal manufacturing is about 40%. So that would say $3.2 billion worth of revenue is made internally. The rest is foundry partners. But how do you think about the 300 basis points of downside relative to revenue? It depends on magnitude, it depends on duration, how long things would last. But is there a way to connect that 300 basis points to either a duration or a magnitude of downside of revenue? What would it take for margin to go down 300 basis points or to go down more than 300 basis points?

Sure. Maybe I'll start, and Sajid can add to it. So the charts that Sajid created looked at 15 years of history. They show what the semiconductor industry has done over that time frame and then how Microchip's gross margins, operating margins and free cash flow have performed over those cycles. And what you'll see during that time period is gross margins have fallen about 300 basis points at certain times. What I would say is we were doing large amounts of acquisitions during this time period, too. We had a higher percentage of our products that were manufactured internally at certain stages of that versus where we are today because of the acquisitions that we've done. And also, as an example, in the last downturn, we were pretty highly levered. And so we were not willing to invest in inventory at that time period post the Microsemi acquisition. Today, the balance sheet is in a much different where if we saw a downturn for a few quarters, we just keep running the factories. We build inventory. Our products have very long life. There's really no inventory obsolescence risk that we face. And so that will allow us to moderate any impact on gross margin, I think, to a better degree than we've done over this 15-year period that's shown about a 300-basis-point decline. So that's what I'll start with. Would you add anything to that, Sajid?

Yes. No, I think that captures it well. And I think the bigger point in that is that the imputed implied dilutive margin acquisitions that we were doing during that period. So we should do better, hopefully.

Yes. The other thing these charts show is the impact on operating margin, which has been a little bit more than the impact on gross margin. But today, we are under our operating expense target, and that is with paying variable comp bonuses, which we pay on a quarterly basis at higher levels than we ever have in our company history. Hiring environment has been challenging. We want to incentivize our employees to stay, and OpEx has been quite low in spite of these high variable comp programs. And so if we hit a soft spot in the cycle, we can back off from those programs dramatically and keep operating margins high and free cash flow high.

Is there an aspect this time -- because 60% of your revenue now is foundry. Is there an aspect of commitments that have been made to foundry? So let's say, revenue was down 10%. You would obviously pull that from foundry, which would mean that foundry would come -- your foundry or the volume that's being done with the foundry would come down 20%-plus if your revenue was down 10% because foundry is more than half of your volume. Are there long-term volume commitments there that would sort of create maybe a little more margin risk? Or do you think that you could still pull back? If revenue did come down, you could pull back from foundries without breaching some commitment that you've made to them?

Okay. So two things on that. So our manufacturing capabilities are not really fungible between what we do internally and what we do at the foundry. There are a few what I would call customer-owned technologies where Microchip manufactures both at a foundry and internally. But that's a much smaller piece of the revenue. Typically, if we are using a TSMC, UMC, Global Foundries, that's where the product is manufactured. So we don't really have the ability to say, "Hey, we're going to cut back on foundry and just do that internally." We don't have those capabilities. We don't have any 12-inch manufacturing capabilities internally. All that is external. And again, this piece that we can flex between the two is small. So in terms of long-term commitments with foundries and other suppliers, we've done some of those, but we are not concerned about having to take a charge. We think that we've done this in a way that is appropriate for both ourselves and the foundries where we're not going to be overextended. And we're fortunate that we don't run -- there's no single product at Microchip that's more than about 0.5% of revenue. And so we tend to run many, many customers, many different products on different process technologies and can flex our requirements on manufacturing because of that pretty easily.

Got it. Great. One thing that was really new on the call last time was that you're considering a 300-millimeter fab. So let's talk about that for a few minutes. You would need -- probably need a process license from a foundry to do that. And I think you said that you wouldn't even consider that whether or not CHIPS Act funds that would be available. But can you talk about sort of the decision tree around whether you do a fab or not? It would seem like it would probably -- to me, seem like a partnership with a foundry partner because they have the process IP. And they're also wanting to invest, so maybe they solve the problem without you even having to build your own fab. So can you just talk through the puts and takes and the decision tree around whether you do this or not?

Sure. Yes, so on our last earnings call, Ganesh talked about our evaluation of, could a 300-millimeter factory makes sense for us? Again, we don't do any 12-inch internal today. It's all outsourced to the foundries. And the challenge, there's a couple of challenges with a 300-millimeter factory. One is we don't own any process technology or IP that our products are manufactured on in 12-inch today. And so we would, if we were to have a 12-inch factory, need to take a license or multiple licenses from our foundry partners in order to bring those products in-house. The best answer for Microchip, the easiest answer is that our foundry partners make these investments for us, right? That's the easiest answer, and that's what we've been reliant on the foundries historically. There are certain process technology nodes where the foundries have not been investing significantly that are very important to Microchip on a long-term basis. And on 12-inch, that's -- there's a multitude of -- it's 40-nanometer, 65-nanometer and 90-nanometer. Today, we only go down to about 110-nanometer internally, and that's on 8-inch in our factories. So we need to find the right answer long term for our customers. The CHIPS Act has made the potential of doing a 300-millimeter factory that Microchip owns potentially more affordable. Again, we're evaluating that today. We'd have to combine that with 300-millimeter IP license from a foundry partner or more than 1 foundry partner. And potentially, we could have a partner, another semiconductor company, that could be involved in a project like that for us. But we'll figure this out over the coming months. CHIPS Act has only been around for a couple of months. We're evaluating it. It makes it potentially more doable for us. But these factories have a large flywheel that go along with them, so the costs are quite large. Let's say, if we were to build out with tools a 300-millimeter factory that we could utilize, it would probably be a $5 billion investment over a decade. And CHIPS Act fund, a partner being in with us could make it affordable. Ultimately, we'd like the foundries to solve the problem for us.

And do you think, regardless of what you did, it would still sit within your existing CapEx portion of sales, your existing model? Do you think that you could do it within that envelope?

Yes. It's possible. So again, this would be $5 billion spent over 10-plus years. And again, having some of that offset with government funding, state and local funding, a partner funding, a piece of it. So there's a lot of different permutations and combinations of what this could look like. And we'll let investors know over the coming months how that evaluation goes.

Got it. And I know you're -- so currently, you're 40% internal. I think the plan is to get to 45%. But yet those nodes are very tight. And so getting equipment on those nodes is actually very tight, too. So can you talk about sort of the trajectory to go from the 40% to the 45% and sort of how that changes the model, if at all?

Yes. So we laid out that 45% target at our Analyst Investor Day a year ago. And we haven't made a lot of progress in a year on that. We're still about 40% internal. We've talked about an 8-inch process technology license that we took from one of our foundry partners that we're bringing into our Oregon factory. That is happening, and that will be manufacturable in 2023. So that will help us on that route to 45%. But you should view that as that's a gradual change. It was kind of a 5-year target, rough target, and we're making the proper investments to do that. And some of it depends on what our internal technologies grow at from a revenue perspective versus external. But that's the general target to get from 40% to about 45%, and that's within our CapEx model. And on the assembly and test side, we have some a little bit more aggressive goals, and we were about 60% internal today on assembly and test. We'd like to take assembly to 70% over time and final test to about 80%. And we've been at those levels in our history, but our acquisitions have taken those percentages down.

Got it. Can we talk about pricing? It's obviously a hot topic when people think about you and your peers. And there's this perception that you've massively benefited from pricing. And that as the Fed sort of forces inflation out of the whole global economy that you and your peers start to feel the knife going the other way on pricing. But it really hasn't driven that much of your revenue growth. So can you talk about pricing and sort of how you have thought about it? Many of your foundries are even talking about raising pricing next year, too. So it doesn't seem like pricing for you is going to come down. I mean, if anything, you'll keep pushing pricing up to match what your foundries are doing with you.

Yes. So we've had a lot of increases in our supply chain costs. It could be in labor. It could be in the cost for us to facilitate our factories. It used to be that we could go buy 8-inch equipment on the used marketplace at 30%, 40%, 50% of the dollar. That equipment does not exist today. So when we are ramping our 8-inch factories, we're buying new equipment. And so our costs are going up internally. Foundries are seeing the same thing, right? They are -- the equipment prices are up. They're investing in new capacity. It used to be that the trailing edge capacity would come online when they would move from -- the foundries would move from a certain process technology node down to the next node and then what would be used to manufacture Microchip and our peers' products would be a fully depreciated factory from the foundries. And that opportunity just has not opened up because capacity hasn't been invested in to the same extent that it has been needed because the growth has been so high. So it's a challenge. We do think that foundries are going to raise prices again in 2023. We actually haven't implemented a price increase in this fiscal year. Our fiscal year began in April. We did a couple last fiscal year. And we said that the majority of our revenue increase in the last fiscal year was driven by volume, not pricing. So we're trying to be fair with customers. But as we get cost increases in, we will pass those on to customers, margin them up for Microchip margin. These are not gross margin percentage accretive transactions on pricing, but they do increase gross margin dollars.

Got it. I'm getting a question from the audience about PSP. And really what it relates to is the churn inside of PSP. So if you're a PSP customer, you can't cancel. But there are PSP customers that are rescheduling when they want that product. So can you sort of quantify or characterize, is churn increasing in PSP? Is it a common occurrence that you would see churn? Or when a PSP customer has said that they want that product, they're taking that product, so the churn is not really a significant portion of PSP at this point?

Yes. So there's very little churn in PSP because it's noncancelable, nonreschedulable. So when it -- it's not just noncancelable, it's nonreschedulable. So the only time that we will consider rescheduling a PSP customer is if there is another customer that wants that product so we can help the PSP customer by allowing them to push that order out and allowing another customer to take that product earlier. We will do that. That's a manual process, and we have had some of those requests, but they've been pretty few and seldom that we've had those requests. The PSP backlog is very solid.

Got it. And then back to my question about industrial. Do you -- how much analysis do you do in terms of what the inventory situation is at your customers? Because obviously, people, we can all pull public data from other industrial companies, and we can pull public downstream data; we can look at their inventories. And obviously, their inventories are actually growing a lot. But to some degree, they also want to have just-in-case inventory versus -- given what's happened to them the last 3, 4 years. So what is your assessment of inventory downstream? And maybe how should we think about where you want to take your own inventories?

Yes. So unlike distribution, where we get inventory reports at least monthly from the distributors, we don't get that from our direct customers. So essentially, it is the salesperson that is calling on the customer or a distributor salesperson that's calling on the customers that it is their requirement to talk to the customer about volumes, right? And we've had so many escalation calls that's been spend more, I can't get enough inventory than I have too much inventory. But when there's changes in volume that don't make sense, right, the salesperson is having a discussion with the customer that, hey, your volume went from 20,000 units a month to 35,000 units a month, what's driving that, right? What's happening in your marketplace? Or it went from 20,000 down to 5,000, what's happening? So those discussions are being had. But we've been so supply constrained and putting out so many fires in terms of getting customers parts just so they can keep manufacturing up and running. We don't think that there's really been a significant ability for customers to build inventory. Now that being said, we service 125,000 customers. Do we have customers that are probably over inventory? Sure. With that many customers, that's bound to be the case. But we've been supply constrained for a long time now, and the supply constraints aren't going away anytime soon. So we think the customer inventory at the end customer still is relatively low. But to your point, will some customers choose proactively to hold more inventory over time? I think they will, right? I mean the value of the end product that they're selling is too much to underinvest in $10 or $20 of microcontrollers or analog products versus selling an end product that is thousands of dollars. So I think that that mindset probably will have a permanent change for some customers and some industries at least.

Got it. I'm actually getting another question here. Can you talk more about sort of longer-term growth drivers, TAM expansion and maybe also segments that maybe have little to no growth and sort of just frame the growth model for the next 5 to 7 years?

Okay. So we laid out this 10% to 15% CAGR using fiscal '21 as a baseline. And we're on track for that. Obviously, fiscal '22 and fiscal '23, which we're in the middle of right now, have been good years for us. So we're off to a good start on that, and we've factored in a recessionary period on the low end, that 10% of that range. And on the higher end, that represents kind of no recession. We're tracking well for that. We're still very confident in hitting those numbers. Long term, over the next 5 to 10 years, the biggest growth drivers for us are going to be based on the megatrends and TSS. And for megatrends, we talk about IoT, we talk about data center, electric vehicles, ADAS, et cetera, communicate -- 5G. And all these things are durable, long-term trends, and our new product introductions and our sales force are very focused on addressing these. We think our product portfolio is very strong today. And if you put TSS on top of that in terms of selling more and more chips into each individual customer opportunity, we think that we are definitely going to be able to outgrow the industry and provide very nice growth for our investors.

And did you quantify what portion of that $10 million to $15 million is TSS? Have you quantified that?

We have not, right? I mean TSS tends to be a relatively slow-moving metric, too, right, because you've got these designs that have been out there for 20 years that don't get redesigned. It's the new designs where it's important, and that's where we're seeing significant traction in the new design win funnel.

Got it. Maybe we have about 5 minutes left, and I'm going to ask you the question that I struggle with myself, which is, when I look at the stock and I look at the valuation of the stock versus some of your peers, it still is a little -- it's a huge gap, obviously. You're growing free cash flow close to what some of your top peers are. Free cash flow margin is not that far away from what some of your top peers are. I mean, obviously, there's the leverage and the debt, which is an issue, but that's also coming down a lot. So when you talk to investors, what do you think is the primary reason why the stock trades where it does? And as you look out the next 5 years, what are people missing? Because there is still this massive gap between you and your peers?

Yes. So I think some of that is historical, right? I mean, Microchip, over the last dozen years, has done a lot of acquisitions. We haven't done anything significant for the last 4.5 years, and we've been very specific with investors that, "Hey, we aren't going to go lever up the balance sheet and do another significant acquisition." But there's some of that that I think still weighs on the stock a little bit. And that -- and we just really introduced our capital return story, I'll call it, a year ago, and we've been very consistent in that. The debt has come down significantly. We haven't got to our target model yet in terms of debt. But as I said, I think we're going to be there in two quarters. And so we'll be at 1.5x levered moving rapidly from where we are in capital returns today to 100%. And then when you compare us to some of our higher-quality analog peers, I think you're going to see the margin structure is similar, the free cash flow is similar, the capital return will be similar. I personally don't think it deserves a discount that it's getting. But these things take time. Again, the capital return story is still relatively new. We're in an environment today where investors are very nervous about the cycle and recessionary fears and things like that. So we're going to just keep beating the drum, executing, continuing to grow and increase the cash flow and the returns. So I think it will work out over time. Sajid, you talked to a lot of investors, anything you'd add to that?

No, I think timing is largely a big component of it. And people still kind of see us from an older lens of Microchip, and it's starkly changed today to a whole different company, and more into different multiple, I think.

And just to kind of wrap things up along those lines, what's going to be different this time? I mean, PSP, I think, will create more of a soft landing for you. You've got a much better end market mix than you did 5, 6, 7 years ago. What -- are those the primary things that will make this time different where you'll be able to manage through this with a soft landing versus, in the past, maybe things were kind of a little harder landing?

I think those 2 things are true, and then we've got a much stronger balance sheet, right? So last cycle, we were not willing to build inventory. If we get a soft spot, we will be willing to build inventory, and that will just keep margins -- gross and operating margins quite high.

Great. I think we're about out of time. But thank you.

All right. Thanks, everybody.

Thank you very much.

Thank you, everybody.