Microchip Technology Incorporated (MCHP) Earnings Call Transcript & Summary

All right. Great. We'd like to get started. Good afternoon, everyone. Thank you for joining us. My name is Toshiya Hari. I cover the semiconductor space at Goldman Sachs. Very pleased, very excited to have the team from Microchip with us this afternoon. We have Eric Bjornholt, Senior Vice President and CFO; and we have also Sajid Daudi, from the Investor Relations team. I have a bunch of questions, but I believe, Eric, you wanted to make some opening remarks.

Yes. Thanks for hosting us today and good afternoon, everybody. So first of all, before I start, I want to highlight that I'll be making certain forward-looking statements in this discussion and refer you to our SEC filings that highlight important risk factors about the company. So Microchip has had a really good last couple of years. We posted record revenue, record gross and operating margins last quarter. Free cash flow has been fantastic. We've been on this journey moving away from acquisitions that we did from 2010 to 2018 kind of -- finishing with the Microsemi acquisition in 2018 and have really built a semiconductor company focused on the embedded control environment where we can provide complete solution sets to our customers that we call TSS or Total System Solutions. So what you've seen over the last 5-plus years is organic growth. We've been gaining a lot of share. The business model has changed dramatically. Our leverage has come down and we are moving towards 100% free cash flow return to our shareholders between now and March of 2025. We're returning 72.5% this quarter based on last quarter's free cash flow and then in 6 quarters, we'll be at 100% free cash flow return. So it's a much different company. Our gross and operating margins are doing extremely well. Two years ago, a little over 2 years ago at our Analyst and Investor Day, we set an operating model target of 45% non-GAAP operating margins. Last quarter, we posted 48.1%. We'll do the same this quarter at the midpoint of our guidance. So really functioning very well and the growth of the company has been significant. We think we're focused on the right areas of growth in the marketplace and combining our focus on these Total System Solutions that I mentioned on some of the fastest-growing mega trends in the industry. We think we will continue to allow us to gain share as we move forward but we are facing some headwinds in the business today. We've highlighted that in our last investor call and I would say that China is quite weak for us. We have customers that are self-identifying inventory positions with us and we're working through them to allow a pushout of those orders, and that will absolutely impact our December quarter. We talked about the December quarter having amplified seasonality for us and typical December quarter is down 3% or 4%. And we think it will be worse than that. So we're working with customers. Lead times are coming down rapidly but what we've seen since our earnings call that the environment really has not gotten any better and we've seen some of these requests for push out and whatnot continuing to grow. So we're working through that as lead times come down, but we're very focused on managing to a soft landing, which for us would mean continuing high gross and operating margins. We've said that we don't see a situation where our non-GAAP operating margins could fall below 40% and our free cash flow will be quite high. So with that, I'll turn it over for questions.

Great. Thank you so much for that, Eric. That's a great overview. So I guess maybe kicking off with a couple of near-term questions and you somewhat covered this, but 4 or 5 months ago, when you gave guidance for the June quarter, you had noted at the time that September was unlikely to be down and you're guiding or you did guide September down to 1% at the midpoint, which is pretty marginal but directionally down. So I guess my first question is, which end markets, which GOs are driving that? Is it broad-based? Or would you be able to sort of highlight a couple of things that are driving the incremental weaknesses?

So I would say the largest area of weakness that we've seen has absolutely been China. So we were expecting coming out of the COVID lockdowns, coming out of Chinese New Year that the June quarter would be a strong quarter for us. Typically, June is very strong in China coming off a weaker March and that just did not develop. So what happened is the sell-through activity through distribution was really low and China distributors built inventory. So that was probably the biggest negative surprise that we saw but we also are seeing some signs of weakness in industrial and automotive in Europe. The German economy has posted 2 consecutive quarters of negative GDP. So technically, you could say that they're in recession. Some of that is probably associated with the weakness in China because it's a heavy export economy, but we're seeing that trickle down to our broader range of industrial and automotive customers.

Got it. And I do have a couple of geopolitical questions later on in the session. But just for context, China in terms of consumption of your products, for context, how big is that business for you today?

Yes. So last fiscal year, last completed fiscal year, China was about 21% of our revenue based on what we ship into China. And our gut feel is about half of that is designed outside of China for consumption outside of China. And so we're probably looking at about 10% of revenue that is for domestic consumption. And there's a relatively high percentage of that, that is going to be highly proprietary. The customer has to use Microchip for the solution that they're driving and so maybe you're left with half of that or 5% of the revenue that's really kind of subject to domestic type competition in China.

Got it. Got it. Okay. And I guess that was sort of my follow-up question. When you talk about some of the incremental softness in China, is that purely a market dynamic? Or is the competition at role -- playing a role there as well?

Competition is really no different today than what we've seen historically. Most of our competition is from the larger competitors. Obviously, China is investing heavily in semiconductors and some of that is being invested on the trailing edge technologies. So microcontroller and analog and other things but it is very hard to compete -- for a new competitor to compete with the Microchip or some of our larger competitors that have hundreds of thousands of SKUs in the portfolio and give customers options in terms of what they're purchasing. Particularly when you're serving the end markets that have longevity like we have, those new competitors in China might typically be focused on something that's kind of high-volume consumer oriented and that's not typically where Microchip plays with the product lines that we have and the gross margins that we drive.

Got it. And the December quarter outlook as of today being sub-seasonal relative to, I guess, relative to seasonality. Is the weakness there pretty much the same dynamics as China and industrial and automotive in Europe? Or is there something else layering in?

It is that. And I just think that we had this preferred supply program. We still have it in place where customers were giving us 12 months of noncancelable, nonreschedulable backlog and the end markets that many of our customers are servicing have weakened over that time period. And so there are many customers that are either in an over-inventory position or potentially heading to an over-inventory position with the backlog that they have in place. And that's what's driving these discussions about pushing out orders.

Right. Okay. That makes sense. Eric, you've been in this business for a very long time. You've seen many, many cycles. As you sort of compare and contrast this cycle, this downturn with other cycles? What are some of the similarities? What are some of the fundamental differences?

So maybe start with the largest difference is we have never seen the gap between supply and demand that we had entering the cycle. And that caused huge kind of undercapacity situation. That capacity got allocated to markets that were strong at kind of the start of COVID and that would have been medical work from home-related activities and then people got caught short on inventory when the end market environment was actually pretty healthy. And that just caused lead times to stretch out and caused customers to have to place orders beyond what they were used to. And we had 52 week lead times for a large portion of our product line. And so today, lead times are normalizing, but they still have a ways to go. We ended last quarter or started this quarter with average lead times of just below 26 weeks. And those are coming down rapidly, but what that tells you is that the booking activity is quite low, but many of our customers had 9 or 12 months of backlog with us, and they just don't need that anymore with lead times where they're at and where they're heading to just ordering patterns have changed. We will get back to a situation where we have much more turns to take in a quarter than we have for the last 2 years, but that would be a normal operating environment for us, but not something that we've seen for the last 2 years.

Got it. And I'm sure you guys get this question from investors as well, but the one we get all the time is because the recent upturn was so strong for so long, should we be bracing for a longer and/or deeper downturn? I don't expect you to guide beyond December, but how do you, at a high level, think about that?

So I'm not even going to guide for December, but anyway, this was an extended up cycle. We don't know. I mean, typically, we would say an inventory correction or a cycle might last 2 or 3 quarters on the downside. And that would be our expectation, but the honest answer is we really don't know at this point in time. With lead times falling, bookings being low, we're going to have to see an inflection point at some point in time where we start getting those short-term orders coming in to fill up the backlog and that's unknown at this point.

Okay. That's fair. PSP is a program/topic that comes up in our conversations with investors. Just to level set, can you take us back to 2021 when you guys introduced and implemented the program. What was the catalyst? What was the customer response? And how has it played out relative to your expectations and how you had planned it back then?

Okay. So PSP is our preferred supply program. We introduced it in February of 2021 based on customer feedback that they were looking for a way to give them more surety of their supply. And so we developed a program in conjunction with our customers, where customers would give us 12 months of noncancelable, nonreschedulable backlog, and they would, every month or every week that roll by, put more backlog on us to fill up that 12 months. And that allowed us to know that we had solid backlog. We knew where to go invest. We knew what orders to place with our foundry partners. We knew what equipment we had to purchase. We knew what hiring we needed to do. We knew what raw materials we need to have and that allowed our supply chain to be more predictable for our customers and it was different. A customer in the past might have had 13 weeks of backlog where others may have had 52 weeks. And forecasting out 52 weeks in time. Some customers can do that with pretty good accuracy because their businesses are very stable. And others can. So they're making some guesses. And we know that customers manage that program in a way where some of them only gave us 9 months or they gave us 12 months of backlog, but you could see months 10, 11 and 12 had less backlog than a normal run rate and so I think customers naturally kind of hedge themselves in that. But over time, it's been a really good program. Customers that have participated in the program has been service better than those who did not. And I think we've built a lot of customer loyalty through that program. Now what can happen is when the environment changes, right? And customers have 52 weeks of backlog and their end market changes, they might be faced with an over-inventory situation or at least an over-backlog and can Microchip help them do that. And ultimately, it comes down to a discussion is it can't be a heads the customer wins and tails Microchip loses in that discussion. So it has to be, hey, we've gone out and made commitments and because of that, you have skin in the game customer just like Microchip does and how can we find a reasonable working solution. Sometimes that might be the customer opens up a new design opportunity for us that we didn't have before and we work with them to manage their inventory situation over time. But most of these customers, again, have been served very well but we've made changes now. Now the PSP program is no longer a 12-month program. It's a 6-month program, which is more in line with -- and that's for new orders starting in August, but that's more in line with where our lead times are. So it makes sense and I suspect as lead times continue to fall down, that PSP as a percentage of our backlog will continue to fall. But there's going to be customers that want to continue to participate in a program like that because they've been serviced well. And some of those customers are actually entering into long-term supply agreements with us that cover a longer period of time, the 12 months covered by PSP. So it's a mix based on customer and end market. But these long-term supply agreements are typically with customers who are selling an end product that has a really high value compared to the content of semiconductors or the Microchip content in their system, and they just want to make sure they don't get cut short.

Got it. Got it. I guess my follow-up question was, if I'm a customer and if I'm able to cancel and/or reschedule, what's my downside and signing up for PSP. But to your point, you're landing at a sort of a compromise, if you will, where customer is giving up something as well.

Yes. And let me make it clear that we are not giving in on the noncancelable piece of the program, right? So it's just the reschedulable piece that we are working with customers with when they're self-identifying, they have an issue.

Okay. Got it. And the shift from 12 months to 6 months, this was fairly recent.

Yes, it just happened in August.

Got it. Got it. Okay. That makes sense. So we touched on lead times a little bit. At the start of the year, I think you were at 52 weeks -- plus -- not roughly. And currently, you're around 26.

Yes, we're under 26.

Under 26 now. And what's sort of a comfortable kind of steady-state lead to average lead time for a business like Microchip?

I mean it's always going to be a range, right, based on how deep our portfolio is. We could have a product that's in stock and can ship to you tomorrow and another product that still has a 52-week lead time. But we've actually posted a letter on our website to our customers saying that by the end of the calendar year, you could say, call it, the start of next calendar year, we expect 80% to 90% of our standard products, general MCU, analog products that have 4- to 8-week lead times.

And again, it was fairly recent. Okay. Yes. Got it.

And that's where customers' expectations of where lead times should be. And so if we have a softer December, we will build some die bank from our factories, get that inventory position, so it's through the wafer fab and probe process. And then when we get an order from a customer, can turn it through the assembly and test process pretty quickly, and that's what customers have been accustomed to historically.

Got it. Okay. That makes sense. Shifting gears a little bit on pricing of your products across the market, it's been a tailwind for your business over the past couple of years. What are your expectations for pricing going forward, particularly in light of what you've just sort of described from a demand perspective? And is it sort of -- from a cost perspective, could there be continued sort of inflationary pressures as well? That sort of force you to price up, if you will.

Yes. So just what's happened over the last 2 years is there's been so much inflationary pressure on the business with higher capital costs, higher labor costs, but we've seen, our foundry partners have seen, our subcontractors have seen, and those costs have all come through to our bill of materials. And we have marked those costs up for a Microchip like margin and pass those on to our customers and been very transparent about that. So we haven't gauged customers. We probably could have charged 2x, 3x in certain cases, what we charge to customers because they were such -- in such need of the product. We didn't do that, right? So we were transparent. My expectation is generally that pricing will be flat on a go-forward basis, but there still is pretty heavy inflation in the economy. And if we have that rising pressure, we may have to pass on price increases to our customers. That's not our intention in the current fiscal year to have a price increase. We've heard of other competitors talk about potential price increases in 2024. We would like to avoid that, but it depends on what the situation is going to be. If our foundries raise prices on us by 20%, we're not going to eat that. Our customers will eventually pay for that. But hopefully, that's not the case.

Right. And the timing, which you sort of gained visibility on things like that at the year-end, beginning of next year?

Sometimes the foundry negotiations go like that. Others, it's just a contract-by-contract basis or a PO-by-PO basis with our suppliers. And we do not want to be in the business of raising prices on our customers on a regular basis. It's very disruptive to them. And so what we've done historically over the last couple of years is kind of accumulate those costs and roll those out to a broad set of products at a given point in time. Again, that's not our intention for this next year.

Got it. Okay. That's helpful. You're assuming a 10% to 15% revenue CAGR on a through-cycle basis. I guess, one, what was embedded from a pricing perspective in that 10% to 15% to the extent you had explicit sort of assumptions there. And as you think about the mega trends, I know you're exposed to all sorts of verticals, you're very broad-based. But if there are 1 or 2 or 3 things that you really focus on and highlight and invest in, what are they?

Okay. So on the revenue CAGR, we outlined this in November of 2021 at our Analyst Day and we said using fiscal '21 as a baseline, we expected 10% to 15% growth for the next 5 years, so through fiscal '26. Fiscal '22 and fiscal '23 were both great years, growth years for us. So we're confident in saying that, but it is not what we said the long-term growth rate forever and ever as of Microchip, right? What we said at the Analyst and Investor Day is that we would expect to outgrow the market, we'd be about 2x what the market growth would be. And we're focused, bringing to your question on mega trends, we're focused on these areas of the market that we think have legs behind them, our fastest-growing areas of the market for many years to come. And those are 5G data center advanced driver assist, EV, Sustainability. So all these things are -- have lots of good trends behind them. I can't say that we're more excited about one versus the other. Some are larger than others today. The data center and the industrial IoT piece is the larger pieces of the business. But if you measure from fiscal '21 to fiscal '23, our last completed fiscal year, Microchip in total grew about 55% over that time period, and the mega trends grew 109%. So 2x the company growth rate. They now represent at the end of fiscal -- fiscal '23, about 45% of overall revenue.

Got it. And then maybe from a device-type perspective, FPGAs and silicon carbide, obviously, 2 businesses that are in different stages of their maturity, but maybe expand on those 2 and what kind of role they play within the context of the overall portfolio.

Okay. So FPGA, we broke out the revenue for that in fiscal '23. It's about a $550 million business. It grew over 30% that fiscal year, I think it had another record quarter in the June quarter. So it's performing very well. You kind of think about Microchip playing in the mid-range of FPGAs. This business came to us through the Microsemi acquisition in 2018, originally was the Actel business that Microsemi acquired. And it's done extremely well. Under Microsemi, it had a very much of an aerospace and defense focus, and they had expanded into industrial and I think communications. We're continuing to emphasize those markets, taking it into markets where Microchip has a larger exposure than Microsemi had historically. And we see tons of opportunities. We're introducing new products. We get lots of questions about a competitor encroaching on us from the low end and then we've got our high-end competitors in AMD and Intel. And we think we sit very well in the midrange, but we're introducing new products that can expand our served available market. And again, we've got a lot of new opportunities in FPGA that the Microchip team has opened up to the Microsemi team and it's worked both ways. I mean we've got new opportunities for general microcontrollers and analog products that we didn't have prior to Microsemi, and that was one of the synergies we were hoping for from the acquisition that have really come to fruition. So it's been really good.

I want to talk about or even just on the FPGA side, just to add one point is it's really helped kind of have that choices customers need, right? So when you're looking at product choices, that becomes a building block of when you kind of start a design, right? So it plays really nice with the TSS side. And then silicon carbide, same thing like we're making kind of classic Microchip way, where we're going to enter the market, study it and look for areas where we can excel and establish ourselves. And so slightly different from some of the competitors right now. We're not as vertically integrated. There's areas of opportunities that we're seeking. There's some auto opportunities, but we think there's a pretty big opportunity in the industrial side as well and continuing to kind of make good progress there.

Okay. And that's primarily a device business correct, that I see?

Yes.

Okay. Got it. Okay. Both you guys talked about TSS and obviously, that's been a big focus for the company as you've shifted away from acquisitions to more organic growth. How has that differentiated you vis-a-vis the competition? And then how has that resonated with your customers over the past couple of years?

So it really makes us a more value-added supplier to our customer. As Sajid kind of alluded to, the initial decision that a design engineer is making when building their system tends to be around the brains of the system, which can be a microcontroller or microprocessor, an FPGA and ASIC. We have those things in our portfolio. And that gives us a very good first look into what the engineer is trying to achieve in their system. And we can position the rest of the portfolio, whether it's analog, timing, security, memory, connectivity, whatever it is around that. And ultimately, we are -- we benefit the design engineer because we speed their time to market. They're not messing around with how the heck am I going to get X, Y, Z competitors part to interact with the other competitors part and so if we make the design process easier for them, they want to work for us, and we might not have the lowest overall bill materials, but the cost to bring that solution to market is cheaper and it's faster in working with a single supplier. So it's working great. We can see that the number of parts per system that we're selling to customers is increasing. And that's a relatively slow-moving metric when you think about we sell into many applications that might last for 10, 15, 20 years. But on new opportunities, our business units, our sales organization are all focused on working together to get the best customer answer and the right Microchip solution. So there's not competition between the business units. They're all working together to drive the right answer for the customer.

Right. And the customer relationships and the designs have to be stickier, right?

They are.

They are about long term.

Yes.

Okay. All right. On geopolitics, obviously, the backdrop continues to be a challenging 1 for you guys and for everyone. You said China was roughly 20%, both local and export. Has the evolution in the U.S.-China relationship sort of impacted how you think about the Chinese market and your strategy around that? Or has that not really changed?

To some degree, in terms of our footprint from a subcontracting perspective of manufacturing that gets on there. We don't have any of our own manufacturing in China, but some of our subcontractors are there that is deemphasized to some extent. When we are looking at investing resources, we want to do that where we have the largest bang for the buck longer term from a technical sales perspective. And so we probably made some slight modifications there. Really hasn't changed anything in terms of product direction and things like that. But on the edge, I think it's probably modified our investment decision to some degree. The restrictions in terms of blocking from trading with certain customers has had an impact on us. Many times, that's not with a direct customer of ours, but it might be a customer of one of our customers that they now can't sell into the end system that was being produced because of an export control that's been put in place. And that was kind of invisible to investors over the last couple of years when we had so much backlog and more demand that we can service. But Ganesh highlighted that on our last earnings call that, that has had a direct impact on our business and even though it hasn't been visible, it's not immaterial.

Okay. And I guess we talked a little bit about the competitive landscape in China. When we talk to companies in the region, I feel like low-end microcontrollers and power semis are the 2 areas where just from a sheer number of company perspective. It feels like there's a growing ecosystem, if you will. I guess you mentioned there isn't a ton that goes on between you guys and local players, but from a low-end microcontroller perspective, should we be worried? Are you guys concerned? Are you guys paranoid how do you stack against some of the local guys.

So I would say we don't have our head in the sand, right? We know that China is making heavy investments in semiconductors, but to build a business that can compete with the product depth that we have. It takes a long time, right? We built this business over 3-plus decades and our competitors have to. And so there's going to be pinpoint areas where we might see some competition. I would say more of that is going to be on the consumer side of the business, where we are in consumer appliances, but outside of that, really not a lot of consumer. And so I think it's relatively muted. And then we sell a lot of products that are high-end complex chips that they just don't have the capabilities today. But longer term, they're going to continue to invest. And so like I said, we don't have our heads in the sand. But today, we see the competition as minimal, but we expect it will likely grow over time.

Got it. Okay. Maybe I'll pause here and see if get a mic. Go back, please.

For your auto business, comparing the sort of the leading auto chip suppliers compared to some of the commentary from you and TI. It seems like there's been a little bit more softening at your business than it has with theirs. And I wondered if you had any thoughts around why?

So I don't have a lot of insight into what some of the guys you're referring to are seeing, right? We have 17% of our business that is automotive. Of that, we've got about 3% that is EV-related. And so I know EV is still pretty strong, but it's a relatively smaller piece of our business. And so that could explain some of it. It could just be -- it could explain differences that companies have had in lead times over the last period of the last couple of quarters. But overall, we are seeing some softness in the automotive market. We aren't seeing softness from a design perspective. We're still getting designed in. The content in vehicles is going to grow over time. But I think what's probably happened is the auto guys really got caught short early on in the pandemic because they just stopped buying and then that capacity got allocated elsewhere. And so now there's been a period of time where they've gone from no inventory to building up some buffer inventory, right, because they don't -- I don't think most of them want to be kind of just in time anymore over what's happened last time. And I think there's been some catching up that's happened, but I have no way of really comparing what we're seeing versus a competitor.

I know you guys have been allowing pushouts. Is there like a maximum period that you're allowed to push out for? Is it like 1 year or 2 years? Or how would you best think about that?

Yes. So a 1-year or a 2-year push out would be a very long push out. If you think about it, in PSP, we were asking originally for 12 months of backlog. And so that should really be mostly the extent of backlog that people have. Now there are certain cases where lead times are a little bit longer than that or customers gave us more visibility. But most times, we're talking about a quarter or 2 of push out. But there's no firm rule on that. Again, it's an individual customer situation that we have to assess the situation that the customer is in and what potential benefit can Microchip get by allowing a push out because, again, it can't be that Microchip takes all the pain. When the customer knew when they placed this order that it was not only noncancelable, it was reschedulable. So we're giving it on the rescheduled piece, and I would like to see some benefit in return.

Maybe a question on gross margins. Currently, in the 67%-ish range. As you kind of go through this correction, I'm guessing you're cutting production internally, you're cutting wafer purchases at your foundry suppliers. How should we think about the resiliency? You talked about 40% and above operating margin -- to the extent you're willing to share how gross margins play out over the coming quarters, that would be helpful.

Okay. So our stance on inventory and how we're running our internal factories today is that we're continuing to run our internal wafer fabs pretty hard because we -- right now, actually, our die bank is lower than we'd like it to be. Our externally stores inventory from foundries is a bit higher than we'd like it to be. When foundry capacity freed up in the December and March quarters, we didn't know if that was a short-term thing, if it was a long-term thing, but we took advantage of that because we had a lot of unsupported business where we were trying to catch up on and because of that, we built some foundry inventory. The internal inventory is still relatively low. So we want to build that up. And honestly, if we cut production in our wafer fabs, the majority of the costs are fixed. So you can't take out a large percentage of the costs. Maybe you can take out 20% or 25% of the cost. So what we're going to do, at least the plan of record today is continue to run our internal fabs pretty hard, build die bank, make that investment in inventory, which we didn't do in the last cycle because our balance sheet situation was much different. We were more highly levered. We were very working capital focused. Today, looking at cash flow, it makes more sense build the inventory, get it through die bank and then that inventory is ready to service customers when the next upturn occurs. And the next upturn will occur guys. It is going to happen. This industry is going to grow and so the Microchip. So that's the plan for now. What we typically see peak trough in the gross margin side is 200 basis points to 300 basis points. Our non-GAAP gross margins in the current quarter, midpoint of guidance are 68.1%. So quite high and if we had 200 basis points or 300 basis points fall from that, we think on the operating margin line, it would be about a 400 basis points or 500 basis points decline. We're well positioned on that point, too. I know this wasn't your question, but I'm just going to finish my thought on that. Was we've been paying bonuses at a very high level for the last couple of years because the results have been so good. It's been a challenging labor environment for us and so people have been working really hard. But that's something that we -- it's a lever that we can pull very easily is take these quarterly bonuses from a high level to 0 overnight when we face a more difficult quarter, and that will help us manage through that, but still keep everybody employed, keep our new product introduction on track and servicing our customers.

And I think that was a lever pulled earlier on in the pandemic, if I recall correctly.

We did but the difference then is we were not paying bonuses at the same high rate that we are today. So that gives us more flexibility. And even with that, our operating expenses as a percentage of sales is well below our target model today. So we're in a good spot.

Got it. Okay. Makes sense. And then I guess from a capital allocation perspective, you laid it out clearly and you guys talk about every quarter, so I think it's out there. But what's been sort of the investor feedback and how you deploy capital?

I'd say generally, it's been good. I mean you have a certain set of investors that prefer dividend versus buyback. So there's always that discussion. And our view is today is that the buyback is higher than dividend. The dividend is on a solid growth trajectory. I think last fiscal year, it was growing at 9% every quarter sequentially, so about a 40% growth rate. So far this fiscal year, the Board is increasing at 7% per quarter and expect that will likely continue, but that's a board decision that happens each quarter. And the subtract answer, when you look at adjusted free cash flow times the percentage we're returning minus dividend, that's the buyback. This quarter, that's $339 million or $340 million of stocks that we're buying back at what we think are good prices. There's a valuation disconnect between Microchip and some of our high-quality analog peers, and we think that gap should close. And so we are very happy to be buying back stock at the prices where the stock is trading today.

We do have 30 seconds. I felt like that was a good place to end. But anything else that we should have touched on? Or anything you want to highlight before we let you go?

I don't think so. I think we touched on it all. Thanks, everybody. Appreciate it.

Thank you so much.