About Ganesh Moorthy
Ganesh Moorthy, CEO of Microchip Technology, has described the company as being in a "major inventory correction" that has persisted for several quarters. In late 2024, Moorthy stated that the weakness is most pronounced in the industrial and automotive sectors, particularly in Europe and North America. He noted that while aerospace, defense, and the AI segment of data centers remain strong, he could not point to a particular end market that is improving. Moorthy characterized the situation as a "classic inventory correction amplified by macro concerns," adding that the company is shipping "substantially below consumption." He stated that the company expects the inventory correction to continue through the current quarter, but expressed optimism about the second half of the year based on some leading indicators.
Moorthy has outlined the company's response to the downturn, which includes running factories at lower utilization and implementing a company-wide salary sacrifice, with the highest reductions at the senior levels. He stated that the company is focused on preserving gross operating margins and cash flow, and that despite the trough of the correction, Microchip was still forecasting operating margins above 30%. Moorthy also discussed the company's plans for U.S. expansion, noting that Microchip is working with the CHIPS Program Office as an early recipient of a preliminary memorandum of terms and intends to create additional capacity and jobs in the United States over a multi-year period. He described the CHIPS Act as good for the industry and for America, enabling critical investments for economic and national security.
Source: AI-verified profile updated from Ganesh Moorthy's recent appearances.
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Transcript (11 segments)
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Interviewer0:00
Quarter comes in a bit below guidance. Join us on CNBC. This is my Microchip CEO. Some people might be looking at bookings and orders and the June revenue guidance. Can you talk a bit about that?
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Ganesh Moorthy0:17
Good morning, Carl. We have been in a major inventory correction for Microchip for several quarters. Some leading indicators are giving us optimism about where the outlook for the second half and next quarter looks. We have some remnants of continued inventory correction to get through this quarter. That's the difference between this quarter versus the outlook beyond that.
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Interviewer0:41
Meantime, the margin guidance seems to be getting some applause. Can you talk about what's resulting in a decent environment on the margin front?
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Ganesh Moorthy0:50
Yeah, so at what is the trough of this inventory correction, we're still going to be forecasting 30% — more than 30% operating margins. That comes with substantial controls to what we have done for our gross margins, our manufacturing facilities, our operating expenses. That's what people are doing across the world in terms of both pay cuts inside the company, but we're also cutting expenses for all the discretionary items we have in our control. And we've done better than we expected so far. That's a great credit to the employees, who have engaged and are very much part of the solution.
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Interviewer1:26
You know, one big piece of the semiconductor story, of course, has been the degree to which they're bringing operations or building operations in the United States with the help of industrial policy, whether that's Micron or Samsung or Intel. Have you been as aggressive on that front as you've wanted to be?
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Ganesh Moorthy1:44
Absolutely. So, we are about 40% of our revenue is produced in factories that manufacture within the United States. We have been expanding these facilities over the last three, four years as the big boom in demand was there and there were many constraints and we were alleviating those. We also have continued growth plans and expansion plans for which we have worked with the CHIPS Office on. We were one of the early recipients of what's called a preliminary memorandum of terms. We are going through the diligence, which is pretty much done. We have more negotiations to go. Yes, we do intend to expand in the U.S., create significant capacity as well as jobs. That is all over a multiyear phase of bringing capacity up.
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Interviewer2:26
I would love to get your take on two important verticals. One is where you think we are in the auto cycle regarding semis, and the conversation turns to A.I. and every CEO is pushed to explain where they think they fit in that overall story. Talk about those two.
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Ganesh Moorthy2:45
Great questions. On automotive, during the shortages, automotive went into overdrive to secure supply and also to be able to secure inventory. So there is inventory at multiple points in the chain, whether it is our distributor, customers in the dealership, and other places in the tier 1s. A lot of that is unwinding. The number of cars being produced is not dramatically changing. There are mixed changes on EVs and all of that, and cost of money has gone up over the last three years. I think the affordability of inventory has decreased. There's that unwind happening. It was later — automotive was among the later segments to do it. Other segments have been earlier in the unwind of inventory.
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Interviewer3:34
And on A.I.?
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Ganesh Moorthy3:35
With respect to A.I., our view is A.I. is going to be pervasive in many, many applications. Of course, today a lot of the A.I. headlines are around the cloud and training and learning that's taking place there. We do participate with many products on those server platforms. Another important area is going to be A.I. at the edge. This is where it is taking place on the factory floor, in the hospitals, in our homes, et cetera. And that is more inferencing and adjusting of what takes place as it's learning but also quickly making the adjustments needed there. It needs performance, it needs power. We just announced an acquisition where there are specific algorithms that allowed that to be done better. So, it is an ongoing part of how we...
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Interviewer4:25
I would love to get your take on two important verticals. One is where you think we are in the auto cycle regarding semis, and the conversation turns to A.I. and every CEO is pushed to explain where they think they fit in that overall story. Talk about those two.
