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 (10 segments)
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Interviewer0:01
Microchip had an EPS beat, revenue in line with expectations but guidance came in low. Joining us is Microchip's chief. Appreciate you coming on to talk about it. Is it as simple as weakness in auto and industrial? Is it that kind of macro backdrop?
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Ganesh Moorthy0:20
That's really the largest component of what we see, and geographically we have more weakness in Europe and in North America as well, and both of those are dominated with industrial and automotive markets.
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Interviewer0:34
And to what degree is it getting offset by other end markets?
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Ganesh Moorthy0:39
Certainly we have a good, strong stable business in aerospace. The data center, particularly for AI, has been strong for some time. We do expect September and December data center is stronger as well. It is good to see all of data center strengthening.
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Interviewer1:03
What does it tell you about the last few months where you had major industry players trying to argue we were seeing cycle bottoms? Is that getting erased?
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Ganesh Moorthy1:20
Depending on your exposure, you might have more or less of that recovery baked in. We have seen the macro, and you can look at the PMI that came out yesterday, look at Europe. It's like 15, 20 months in a row of weak PMI indicating the industrial base, manufacturing across the board is weak. And so that is taking longer, and any inventory that might exist is taking longer as well. The macro is weaker than three or four months ago.
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Interviewer1:55
At what point do you have to start having tougher discussions about efficiencies that you haven't already had?
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Ganesh Moorthy2:04
So we've already been on that since the early part of this year. We've had factories running much lower in terms of utilization, we've had the entire company on a salary sacrifice with the highest at the highest levels. Everybody is on a pay sacrifice at this point in time, and control on the discretionary. What has held up is we are able to bring costs down at a decent rate while we work on things outside of our control to do as well as we can.
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Interviewer2:44
I know we usually have you on to talk industry, but it's such an important day, all these big discussions about the economy and the trajectory of rates. Have you begun to offer playbooks of what might improve if real rates were brought down?
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Ganesh Moorthy3:04
Absolutely. The first leg of the upcycle will just be inventory draining to the point people need to start buying who are close to the consumption. We're substantially below consumption what we're shipping today. The second leg is just industry recovering as interest rates and improvements of the cycle play out, and both drags are ahead of us and in different scenarios for us. These cycles do end. We're at close to bottom if not at bottom at this point in time, and the cycle ahead will get stronger in coming times.
