Microchip at TD Cowen Conference: Strategic Goals and Challenges

Published 28/05/2025, 19:08
Microchip at TD Cowen Conference: Strategic Goals and Challenges

On Wednesday, 28 May 2025, Microchip Technology Inc. (NASDAQ:MCHP) presented at TD Cowen’s 53rd Annual Technology, Media & Telecom Conference 2025. The company outlined its strategic vision while addressing both achievements and challenges. Key highlights included operational restructuring and ambitious margin targets, alongside challenges in customer relationships and global manufacturing adjustments.

Key Takeaways

  • Microchip aims for a 65% non-GAAP gross margin and a 40% operating margin.
  • The company has completed the early closure of Fab two in Arizona.
  • Customer relationships have improved, with 90% of issues resolved.
  • Focus areas include connectivity, FPGA business, and Aerospace & Defense.
  • Microchip is monitoring tariffs and adjusting manufacturing strategies.

Financial Results

  • Gross Margin Target: 65% (Non-GAAP)
  • Operating Margin Target: 40% (Non-GAAP)
  • Current Quarter OpEx Guidance: $356 million (Non-GAAP, no variable compensation)
  • Inventory Reduction Target: $350 million for the fiscal year
  • Underutilization Charge: $55 million per quarter
  • Inventory Reserve Charges (December): $82 million

Operational Updates

  • Fab two in Arizona was closed ahead of schedule, leading to expected cash savings.
  • Business units have been restructured, combining the 8-bit and 32-bit microcontroller divisions.
  • Customer relationship issues from the preferred supply program have been largely resolved, with 90% of affected relationships repaired.
  • Distribution inventory stands at 33 days, within the historical range of 17-47 days.

Future Outlook

  • Microchip expects to outgrow the industry average, focusing on connectivity, FPGA business, and Aerospace & Defense.
  • Operating expenses as a percentage of sales are expected to decrease over time.
  • Inventory corrections are anticipated by the end of the fiscal year.
  • Small acquisitions remain a possibility to enhance growth.
  • Key growth businesses are expanding at twice the rate of Microchip’s overall growth.

Q&A Highlights

  • Customer Relationships: 24% of surveyed customers reported improved relationships during COVID, while 12% reported negative impacts, with 90% of issues now resolved.
  • Tariffs: Microchip is cross-qualifying wafer production to mitigate potential tariff issues, with less than 4% of production in China.
  • China Strategy: The company is not focused on building products within China.
  • NASA Contract: Microchip secured a contract to develop a 64-bit microcontroller for future spaceflights.

For more detailed insights, please refer to the full transcript below.

Full transcript - TD Cowen’s 53rd Annual Technology, Media & Telecom Conference 2025:

Unidentified speaker, Conference Host, T. D. Cowen: All right. Good morning, and, thank you for coming to T. D. Cowen’s fifty third Annual TMT Conference. Really pleased to be joined by Rich and Eric from Microchip.

Guys, thank you for participating in our conference.

Eric Bjornholt, Microchip: Thanks for having us.

Unidentified speaker, Conference Host, T. D. Cowen: I think to start, maybe we could walk through an update on what Steve’s vision is having come back into the CEO role and maybe an update on where we’re at and some of the key points in the nine point plan that he’s outlined.

Eric Bjornholt, Microchip: Sure. So I’ll start by giving the typical disclaimer that during the course of this discussion, we might be making forward looking statements about the future financial performance of Microchip and I refer you to our SEC filings, Our 10 ks was just filed last week that identify important risk factors about the company. So Steve has been back for about six months now. He unveiled his nine point plan to The Street and we went through that in detail on March 3. There’s a number of pretty significant steps that are being taken in there.

Firstly, he was focused on inventory management. And so we’ve done some restructuring on our manufacturing footprint. And with that, we closed our Fab two manufacturing facility in Arizona just a couple of weeks ago. That was well ahead of schedule. We had previously said kind of September and so we pulled it in, got the bridge build done and now we’re starting to get those cash savings today.

Eventually, they will result in lower inventory and better margins in the future by taking out that facility. So that was a big thing. He’s focused on a lot of things related to are we focused on the right markets. So we did a full business unit by business unit review and there were some changes that came out of that. An example of that is we combined our eight bit and 32 bit microcontroller divisions.

We’re excited about that. We had a bit of a product gap on the low end of 32 bit and that’s being addressed very rapidly. So that’s being done. Rich has details on all the other kind of restructurings that were done within the business units, but those were all implemented at this point in time. We were very focused on customer relationships.

During the up cycle, customers didn’t feel that they were treated fairly in all cases. We had this preferred supply program that essentially pushed inventory on them later in the cycle when they didn’t really need it any longer. And those were based on non cancelable, non reschedule orders, which we backed off from, but we had some damaged relationships that we needed to address, and we’ve done that. And, we feel after going through that process that the customer relationships are in really good position. Made some small tweaks to our distribution program on top of that, and we unveiled our new long term business model, which is a 65% non GAAP gross margin target and a 40% non GAAP operating margin target, and we’ve got clear sight to get there.

So that’s kind of high level summary, but I think we went through this reduction in force that we announced in early March. That’s been implemented. I would say that morale in the company is pretty high, after that, which you might be surprised at, but I think the company is in a good position. We’ve seen the bottom at this point in time. We’re guiding for nice growth this quarter, and we think that this up cycle has legs behind it for us.

So with that, I’ll turn it back over for your questions.

Unidentified speaker, Conference Host, T. D. Cowen: No, thank you for a super comprehensive overview there. Maybe we start with the manufacturing side. So you closed Fab two. Are there any more changes you think you need to make to the manufacturing network as you think about the next they’re analog fab. They should be in service for thirty years.

Like how do you view any changes in your what you think is the right mix of microchips manufacturing over the next few years? And maybe you could talk about the redundancies you have in place to go through as you go through these fab transitions.

Rich Simoncic, Microchip: So Fab two was largely landlocked. It our smallest fab. There was really no expansion room within that facility where we had huge campuses in our Colorado and our Oregon fab. So we had lots of room for expansion there, lots of room in diverse clean rooms for analog growth or specialty A and D products growth. And so we had lots of space there.

So and 70% of the products that were in Fab two are already cross qualified into other fabs. So in terms of adjusting inventory, it made the most sense because we had the most we had the largest ability to grow fab space in those other two locations. And also within those other low two locations, we’ve got the most diversity in terms of analog capacity. And you guys are fab light. You’re sort

Unidentified speaker, Conference Host, T. D. Cowen: of, think, sixty-forty internal, external mix. Is that the right ratio for Microchip going forward? And in particular, you’ve, in the past, talked about you’ve explored the idea of going down a 300 millimeter fab. Is that possibility off the table and it’s just not the right move for you guys?

Rich Simoncic, Microchip: It’s not the right move for us because of the diverse product portfolio. It just doesn’t make economic sense in terms of ramping it and getting the flywheel moving on that to have that payback in terms. So we’ve instead worked different fab arrangements with our foundry partners. To our foundry partners, Microchip is a very important partner because we also supply memory technology or flash technology that’s used by almost every major foundry. So we’re a very strategic partner with relationship.

Unidentified speaker, Conference Host, T. D. Cowen: Okay. And Eric, you mentioned the customer relationships that you’re you’ve been managing over the last six months. Where are we in that? Like what’s the status update on how your customers are feeling now?

Eric Bjornholt, Microchip: Go ahead, Rick.

Rich Simoncic, Microchip: Yeah. Yeah. All right. Rick, again? Yeah.

We surveyed about 6,700 of our direct customers. About twenty four percent of those customers, the relationship actually was improved over the COVID period, and twelve percent it was negatively affected. So we focused on about roughly about 800 customers. I have spent personally a lot of time on the road working with them to work through those different issues that we had with them. In fact, I was with one CEO of a company here yesterday and having dinner with them and working through relationship issues here in New York.

We spent a lot of time, almost all of those have been repaired, almost 90% of those have been repaired. So we really think this was overdone in terms of a concern or a worry, and this is largely behind us.

Unidentified speaker, Conference Host, T. D. Cowen: I guess zooming out, I mean, it’s been a very strange five years for the analog industry. And as you’re going to your customers and having these conversations, if we zoom back pre COVID, I mean, are there big changes you think you need to make from a go to market or how engage with your customers looking forward? I mean, seems like many are deemphasizing the channel, for instance. Is that something that you see happening more so going forward?

Rich Simoncic, Microchip: So we’ve made some channel changes in terms of relationship to make sure that they’re aggressively going after new customers. I think the biggest change that we’re making going forward is how you have that relationship with customers. The whole idea of that PSP or most semi almost all semiconductor companies had some level of a PSP type program where you had long term, non cancelable, unreturnable, that does not work for customers. And so we’re working with a lot of our top customers to come up with alternatives to those strategies that were employed during COVID. And we’ve got this whole program where we’re working on know your customer much better.

Even in the face of tariffs, we employed a very different process where we’re meeting face to face with all of our top customers and discussing the effect of tariffs and what that means and how do we handle it together, what do we do together. And so we, you know, the customer relationships are much more in focus now.

Unidentified speaker, Conference Host, T. D. Cowen: And another point you mentioned in the plan, Eric, was the resizing the employee base. You mentioned that the employees feel they are feeling excited and feeling good about Microchip. From an OpEx standpoint, how should we think about that tracking going forward with revenue? Are most of the cuts done? Is there more to come?

I mean, you guys took a lot out of variable comp over the last few years. I’d be curious to hear how you’re thinking about that as we hopefully get into a better environment.

Eric Bjornholt, Microchip: Yes. So the OpEx cuts are done at this point in time. Our guidance for the current quarter and kind of OpEx dollars on a non GAAP basis is about $356,000,000 And you should really view that, that’s kind of the low point. That has no variable comp assumed in it. And clearly, the results have been there, there shouldn’t be bonuses being paid.

But eventually, those will need to come back into the model. We’ll need to make investments as the business grows. So what I would expect is, as we move forward and revenue is growing, that OpEx as a percentage of sales continuously comes down, so grows at a rate clearly quite a bit less than revenue as we’re very focused to get to that 25% of sales OpEx number long term.

Unidentified speaker, Conference Host, T. D. Cowen: Okay. And then from the inventory standpoint, how much more work is there to do from that standpoint, both on books and in the channel? How do you how far are we from shipping to end demand? And I guess, how much better does end demand have to be to get to the point where you’re shipping more directionally in line with actual pull from your customers?

Eric Bjornholt, Microchip: So we still have a ways to go. We quantify every quarter what the difference between distribution sell through or sell out versus our sell in or what our GAAP revenue, our revenue reporting is. And last quarter that was about $103,000,000 Now that is on what I consider a pretty depressed level of sell through because our distributors, customers have been draining inventory also. We can’t quantify that. I would suspect as we move through this fiscal year, that will end in March, that the difference between sell through and sell in essentially converge on each other over the course of the fiscal year.

It was $103,000,000 difference last quarter. I expect that to decline as we go through the year. So I think customer and distribution inventory will be corrected as we go through this year for the most part at what stage it’s at is different by customer and distributor. I think distributor is getting closer to being corrected because we can see those and having discussions with distributors, they were at thirty three days of inventory ending last quarter. That’s been a wide range over time, ranging from 17 at kind of the peak of the last cycle when nobody could get inventory to as high as forty seven days in the past.

So it’s kind of in the middle of the range. I’d expect it will come down a little bit more from here, but it’s getting closer. End customer inventory, it’s hard to forecast that out. But again, everybody has been correcting and lead times are short. So I think they will continue to correct until they get to that right level.

And I expect it to be sometime this year.

Unidentified speaker, Conference Host, T. D. Cowen: Are there any geographies or end markets that are better or worse off and where you think you’re further along?

Eric Bjornholt, Microchip: In the inventory correction? Yes. I don’t think so. It was very broad based, right? Lead times stretched out across the board and customers protected themselves by buying inventory.

So my perception is that it doesn’t really vary by end market.

Unidentified speaker, Conference Host, T. D. Cowen: Got it. All right. Switching to a more fun topic. You did mention leaning into more attractive secular growth. What does that mean for Microchip?

By what do you have to do to the is there are there wholesale changes from a technology standpoint you need to make? Or is this more about just focusing your sales effort on the right sockets and where you have the opportunity to participate in content growth, but also synergistic content growth that can pull in more microchip parts across your MCU, FPGA and analog portfolio?

Rich Simoncic, Microchip: So there’s a big focus on connectivity,

Eric Bjornholt, Microchip: So

Rich Simoncic, Microchip: when we looked at overall new markets to grow, and when you look at wired and wired Ethernet and two wire Ethernet, Microchip is a leader within those marketplaces, going back to when we acquired the technology from SMSC and we’ve significantly grown that business. That business in itself drags in a lot of other business from the company, analog, it drags in microcontrollers, timing products. And so that has substantially been growing. The other business has been growing and doing very well has been our FPGA business. And that has a drag on effect from a lot of our other product lines.

And A and D has continued to be a large focus for us and Microchip is still the world’s largest supplier of semiconductors to A and D. Anything that leaves earth’s atmosphere or defense programs, you know, significant content from microchip. You know, whether it’s the India moon shot spaceflight that landed on the south side of the moon, significant contact from microchip or any other things that leave Earth’s orbit. So that particular part of our business went from about 11% revenue, although revenue down to about 18%. So that really has not seen any real reduction and continues to grow.

Unidentified speaker, Conference Host, T. D. Cowen: And I think when people think about your Aerospace and Defense business, in particular, the space part, usually think of their radiation hardened FPGAs for Microsemi. Are there FPGAs pulling in other parts of your microcontroller and analog family into those sockets? And how should we think about that growing?

Rich Simoncic, Microchip: No, that actually very much so is pulling in other products. So we’re doing a rad tolerant or or RAD hard testing on some of those. And then some of those products that are RAD hard or RAD tolerant for new defense applications or new space applications, we’re derating a number of those devices for those applications as well.

Unidentified speaker, Conference Host, T. D. Cowen: And so I think when you add it all together, your the six megatrends are about half the business today? About half. How should we think about that mix in, you know, three or four years out? What’s if we get to a normalized environment, how much more are those businesses going to grow compared to the legacy end markets?

Rich Simoncic, Microchip: Yes. So in March, we had shown that it’s been growing about 2x microchips overall growth rate. We’ve readjusted some of those marketplaces. We got rid of five gs, molded some of ADAS into connectivity and networking. Now as we look at Industry four point zero and reindustrialization of Western marketplaces, all of those are using the latest connectivity technology that we offer.

So that will continue to outpace the rest of Microchip’s growth.

Unidentified speaker, Conference Host, T. D. Cowen: And on the newer product standpoint, you guys introduced a 64 bit microcontroller, I think it was about a year ago. Yep. What’s the, I guess, key applications and go to market there? Because that’s a pretty transformational product that I think will probably take some evangelism on your guys’ part because people aren’t used to dealing with a 64 bit microcontroller. So I’d be curious to hear, yeah, how you’re thinking about why you felt the need to to bring that product to market and given it’s been so long that microcontroller family the microcontroller business is very mature and, you know, nobody’s really scaled the 64 bit microcontroller yet.

So, you know, fascinating

Rich Simoncic, Microchip: development is most people aren’t aware that Microchip won the next generation of space computer with NASA. So NASA hasn’t upgraded their space computer in probably twenty five years. We won that contract and we started developing an Octal core 64 bit risk controller or CPU or processor for

Eric Bjornholt, Microchip: It’s actually a microprocessor.

Rich Simoncic, Microchip: Oh, microprocessor for future spaceflight. We’ve then taken that development and what we’re doing in that particular area and offered a number of other product offerings, again, derated for other marketplaces. So we’re seeing uptake in that is industrial control, medical applications, now places that need accelerators or AIML or edge compute functions built in. Those are the areas where we see that uptake on that 64 bit product.

Unidentified speaker, Conference Host, T. D. Cowen: And Nisor, how big can that be within your microcontroller franchise? And I mean, should we expect to hear you talking more about MPUs going forward as there seems to be more pull from many embedded applications for more high performance embedded processing?

Rich Simoncic, Microchip: So you’ll probably hear us talking about more compute as we go forward. So when it comes to FPGAs in compute type functions or edge compute functions and 64 bit in edge compute functions on the risk side, you’ll hear us talking about that more.

Unidentified speaker, Conference Host, T. D. Cowen: And so I think on the last earnings call, you guys mentioned that you felt like during COVID accelerated the move from eight bit to 32 bit. And so I kind of jumped over and skipped to 64. But how do you feel about the competitiveness of your 32 bit franchise? Because microchips historically had very high share in eight bit, less so in ’32.

Rich Simoncic, Microchip: Yeah. So we still have very high share in eight bit. But strategically, what was missing, the way we had our BU structure set up at the company, we had people working on higher end 32 bit products and then we had eight bit and there was no overlap between those two product areas. One of the items that we recognize in the deep dive is we’ve consolidated those organizations to offer customers a very seamless transition from eight to 32 bit from a product line standpoint. And we’ve also combined the even more importantly, the software development and tools groups between eight bit and 32 bit to offer a seamless common platform that allows customers to move from one to the other.

Unidentified speaker, Conference Host, T. D. Cowen: So you spent a lot of time talking about new products and attractive secular growth trends. To oversimplify it, if we step back, I mean, what’s the right growth profile for microchip through cycle acknowledging that it’s been really hard to figure out a normalized growth rate the last several years?

Eric Bjornholt, Microchip: I’d say the way we’ve framed it is industry plus, right? I mean we’re coming off a very steep downturn, right, where we have underperformed. I mean we outperformed on the upside. Clearly, there was over shipping that was happening when customers were building inventory. And because of that, we’ve outperformed on the downside, I guess we should call it underperformed on the downside.

But yes, there’s definitely going to be a bounce that we get from that. Steve and Rich don’t like the word bounce, but essentially, we should see an

Rich Simoncic, Microchip: acceleration That is not in the vocabulary. Thought about translate those such things.

Eric Bjornholt, Microchip: But I think we’re really set up well to show outperformance here. And once we return to whatever that normalized revenue run rate is, we would expect to be able to outgrow the industry.

Unidentified speaker, Conference Host, T. D. Cowen: Okay. In the vein of returning to normal, I’m going to ask you about the very not normal times right now. There’s a lot of uncertainty. You guys were pretty clear in your earnings call, you’re not seeing any evidence of pull ins. What gives you the confidence that, you know, your customers are not pulling parts now?

And and I mean, how are you engaging with the customers? Like, it’s a again, it’s a really challenging time to be a semiconductor company and and a customer of a semiconductor company. So like how are those conversations? Are people seized up? Or are they nervous?

Rich Simoncic, Microchip: Or are they acting normal? We got in front of this. At the same time, we were having these conversations to just repair relationships. We’ve changed that whole conversation with our customers. So the minute that this whole tariff thing started getting in front of us, we set up senior level, c level meetings with all of our top customers.

And so I’ve been in c level meetings, you know, since February at all of these top customers even yesterday, you know, trying to understand and make sure that people aren’t overreacting. Right? What happened during COVID and any semiconductor cycle is when human emotions come in and people overreact. And so what we tried to do is have rational conversations to make sure that there was no overreaction or doing things that were unrealistic in terms of not meeting what was actually happening in the business world. And our customers are not pulling in.

Service 120,000 customers. Could there be some fringe of customers that are doing some of that? Very well could be, right? That’s just human behavior. But at all larger accounts, we’re not seeing that behavior.

Eric Bjornholt, Microchip: Okay. And the benefit that we’re seeing, obviously, we’ve talked about an increase in bookings activity that we’re getting. That is not just short term. We are seeing our backlog build quarters out in time, and that’s a helpful sign that, hey, this upturn we’re seeing has legs behind it.

Unidentified speaker, Conference Host, T. D. Cowen: Yes. I believe on the call, you said each month of the year had been, better than the previous one. The debt’s still holding?

Eric Bjornholt, Microchip: So I don’t think we said that exactly, but what because book bookings can be a little bit up and down, but they have been materially higher every month in calendar year 2025 than anything we saw in calendar ’20 ’20 ’4. And you shouldn’t take that, that bookings are falling. Bookings in May are still trending very, very well.

Unidentified speaker, Conference Host, T. D. Cowen: Okay. Got it. On that topic as well, I mean, Steve had some pretty pointed comments about his views of some of the tariff situations that are, I guess, potentially happening. How do you see the industry reacting? And how are you guys positioned in an environment where we sort of get into a China and U.

S. Versus everybody else environment? Can you talk about your China for China strategy and also how you’re positioned to deal with tariffs from a manufacturing standpoint?

Rich Simoncic, Microchip: Yes. So, you know, what we’ve done is we’ve opened up portals for all of our customers to have visibility as to where everything is manufactured. Okay. And so all of our customers know where it’s manufactured. Meaning they can see where it’s fabbed, where it’s assembled, where it’s tested, so utmost clarity.

You know, about 37% of our wafers are built in The US fabs. Where we we think there may be potential issues, we’re cross qualifying that outside The U. S. Where we think we have issues where it’s built overseas, we’re cross qualifying it in The U. S.

And so in some cases where we can, where we have a lot of dual sourced product, we’re making sure that we can cross qualifying it in two locations.

Unidentified speaker, Conference Host, T. D. Cowen: And is that proactive on your part? Or are you seeing customers that are already looking into that level of granularity

Rich Simoncic, Microchip: or not Proactive on our part, depending on where it’s going to fall, right? You might as well start planning. We from a built in China standpoint, less than 4% of our revenue is built in China. So we started that transition many, many years ago. So not much of our product wafer fab, only about less than 4% is assembled in China and much less than that is actually fabbed in China.

Unidentified speaker, Conference Host, T. D. Cowen: And what’s your view on the necessity of a China for China strategy? And and, you know, would you envision partnering more aggressively with local foundries there going forward?

Rich Simoncic, Microchip: Know what, we still are a technology provider in some cases with flash technology. We have built some products there. It is not a big focus for us to build lots of product within China.

Unidentified speaker, Conference Host, T. D. Cowen: Okay.

Rich Simoncic, Microchip: And when we do focus on sales within China, it’s mainly for external shipment out of China. We don’t focus on a lot of local demand for our products from a designing perspective in China.

Eric Bjornholt, Microchip: Okay. And we talked a bit about a China for China strategy back on our March 3 call. And I would say that we are waiting for these tariff rules to kind of be finalized before we really put our foot on the gas pedal and move forward aggressively on that. Let’s see where the rules are going to fall, and then we can adjust our business accordingly as it makes sense.

Unidentified speaker, Conference Host, T. D. Cowen: Got it. Makes sense. And I guess from a demand standpoint, it seemed like there was, I don’t know, sustained optimism that that China demand was hanging in. Is that what you guys have observed the last few quarters? Again, any changes in your China customer base over the last few months, acknowledging that it’s a small portion of your mix?

Rich Simoncic, Microchip: Not a significant change. Most of our China Distributors have a lot of our business in China goes through distribution. Most of them have corrected overall most their distribution levels have corrected for the most part, and what we’re seeing is reordering of certain CPNs or certain part numbers that we haven’t seen them order in quite some time because they had high distribution inventory.

Unidentified speaker, Conference Host, T. D. Cowen: And there’s been perpetual concern of local competition. Any changes there? Like are you seeing are there certain sockets that you feel like China has is more advanced versus some others? Or are you not really seeing the impact at all?

Rich Simoncic, Microchip: We’ve always had we have more competition today than ever before, but we have to be competitive, right? And so like I said, we’re not focused so much on local consumption. We’re focused mostly on

Eric Bjornholt, Microchip: Okay. And we’ve said pretty consistently that a large portion of our customer base values the broad portfolio, right, which the China competition doesn’t have today. Take a microcontroller as example, they don’t want to customer doesn’t want to come to market or start their design process with a company that might have 20 products in their portfolio and then they get feedback from their customer base that they need to add features and they get stuck, right? And so that’s the advantage that Microchip and our large competitors have that we have these broad portfolios that give customers options, right? And if you’re building a high volume consumer application, it probably doesn’t matter because that China competitor can target that and bring them the product.

But in our industrial, automotive, data center clients, are looking at that optionality and need the surety that we’ve got a product platform that they can carry them where they need to be.

Unidentified speaker, Conference Host, T. D. Cowen: Okay. And maybe for Eric. You guys obviously your gross margins now are well below where they historically have been for reasons that you’ve been pretty forthcoming with. Can you walk through what’s the path to get back towards your target model range in the 60 plus range? What levers, I guess, term and then longer term do you have to structurally improve margins?

Eric Bjornholt, Microchip: Yes. So we’ve made the structural changes that we needed to make in rightsizing the fab footprint, which we already talked about, And we’ve got roughly about a 55,000,000 underutilization charge per quarter that’s hitting and that’s not changing this quarter. But the larger piece that’s impacting our gross margin today is inventory reserve charges that we take from an accounting perspective. We broke those out for the December of being like $82,000,000 and they haven’t gone down from And what’s going to happen, we’ve forecasted at The Street that we expect our inventory dollars to fall by about $350,000,000 this fiscal year. And so the pool of inventory that is subject to reserve is coming down and our revenue is increasing.

And so we expect those reserve charges to fall off pretty dramatically, not this quarter, but as we move past this, we expect those reserves. So that will be the first benefit that we start to see in our gross margin is a much lower inventory reserve charge. And then by the way, all this product that we’ve written off over the last five or six quarters, most of this product is product that is going to sell at some point in the future. And when it does, it might be written off when it gets to die form, so it’s not a finished good. So it might not sell at 100% gross margin, but we’ll able to eventually sell at a supercharged gross margin.

I don’t know if that’s going to start happening in six months or three years, but it’s going to happen.

Unidentified speaker, Conference Host, T. D. Cowen: Okay. As we bump up on time, last question. I mean Microchip has been historically a consolidator in the industry. Right now, you know, you’re kind of in protection mode and focusing on capital returns. But, I mean, should we think of consolidate like the consolidation phase as done from Microchip standpoint?

Or on the flip side, are there assets that you have acquired that you could look to monetize going forward? There’s going

Rich Simoncic, Microchip: to be small acquisitions that we’re doing. We just completed the small acquisition last two weeks ago. And so there’s always going to be some M and A activity or acquisitions or technologies that we’re going to acquire and bring into the fold. So I wouldn’t rule out M and A transactions or technology acquisitions for Microchip. But subscale generally?

Yeah, generally subscale. Okay. Yeah. Are pretty we, you know, between the different technologies, we pretty much have the major technologies that we need to complete the applications that we’re targeting.

Unidentified speaker, Conference Host, T. D. Cowen: All right. Well, we are out of time. But gentlemen, thank you so much for joining us again this year. We really appreciate it.

Rich Simoncic, Microchip: Okay.

Unidentified speaker, Conference Host, T. D. Cowen: Thank you. Thank you.

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