Ganesh Moorthy
President and Chief Executive Officer at Microchip Technology
Thank you, Eric, and good afternoon, everyone. Our December quarter results were well above the midpoint of our revenue guidance, marked by our disciplined execution as well as our resilient end markets. Net sales grew 4.6% sequentially and 23.4% on a year-over-year basis to achieve another all-time record of $2.17 billion. The December quarter also marked our ninth consecutive quarter of growth. Non-GAAP gross margins came in above the high end of our guidance at a record 68.1%, up 38 basis points from the September quarter and up 202 basis points from the year ago quarter. Non-GAAP operating margin also came in above the high end of our guidance at a record 47.5%, up 62 basis points from the September quarter and up 283 basis points from the year ago quarter.
Due to a rapid increase in net sales over the last two years, operating expenses at 20.65% were 185 basis points below the low end of our long-term model range of 22.5% to 23.5%. Our long-term operating expense model will continue to guide our investment actions to drive the long-term growth, profitability and durability of our business. Our consolidated non-GAAP diluted earnings per share was at the high end of our guidance at a record $1.56 per share, up 30% from the year ago quarter. Adjusted EBITDA at 51% of net sales and adjusted free cash flow at 34.6% of net sales were both very strong in the December quarter, continuing to demonstrate the robust cash generation capabilities of our business. As Eric mentioned, we have excluded $385 million of long-term supply assurance payments made by customers from our adjusted free cash flow calculation since these payments are refundable when customers fulfill their purchase commitments.
Net debt declined by $701.2 million, driving our net leverage ratio down to 1.56 times exiting the December quarter. During the December quarter, we returned $409.8 million to shareholders in dividends and share repurchases, representing 60% of the prior quarter's free cash flow. We expect to get below 1.5 times net leverage by the end of the March quarter. And as Steve will share with you later, the Microchip Board has decided to increase the rate at which capital will be returned to shareholders starting in the June quarter. My heartfelt gratitude to all our stakeholders who enabled us to achieve these outstanding results and especially to the worldwide Microchip team whose tireless efforts and strong sense of ownership are what enable us to navigate effectively in the midst of turbulent times.
Taking a look at our net sales from a product line perspective, our Microcontroller net sales was sequentially up 3.5% in the December quarter and set another all-time record. On a year-over-year basis, our December quarter microcontroller net sales were up 25.6%. Microcontrollers represented 56.3% of our net sales in the December quarter. Our analog net sales were sequentially up 5.9% in the December quarter and also set an all-time record. On a year-over-year basis, our December quarter analog net sales were up 21.2%. Analog represented 28% of our net sales in the December quarter. In the December quarter, our FPGA net sales also achieved a new record. While our overall business remained strong in the December quarter, the consumer appliance end market was weak as was our overall business in China.
Our China business was initially impacted by COVID lockdowns and then subsequently impacted by the rapid transmission of COVID when lockdowns were lifted. Both actions adversely impacted our customers' operations during the December quarter, resulting in inventory at many customers and distributors being higher than normal. In response to the weaker business environment in China, and a small but increasing number of other customers who have inventory and requested pushouts, we took action in the December quarter to delay or redirect some shipments and plan to do more of the same in the March quarter. This is designed to reduce customer and channel inventory overbuild, but will also increase the inventory on our balance sheet in the near term. In the medium term, we expect this will give us a better chance to achieve a soft landing and position us well to respond to a stronger demand growth as the macro environment improves.
As a result of the uncertain macro environment and the multiple quarters worth of backlog in our books, most of which is noncancelable, our bookings have slowed down, as we expected. Given the circumstances, we view the booking slowdown as a positive, which will serve to preserve the quality of new backlog that gets placed. Our unsupported backlog, which represents backlog customers wanted to ship to them in the December quarter, but which we could not deliver in the December quarter, remained well in excess of the actual net sales we achieved. Unsupported backlog did decline slightly for the first time in nine quarters, and we are continuing to work hard to further reduce our unsupported backlog as well as our lead times to more manageable levels. While we have seen an increase in request to push out or cancel backlog, these requests remain a small fraction of the very large backlog we have over multiple quarters, and hence, they have not had a material effect on our business.
Despite supply gradually improving, we expect to have supply constraints through much of 2023. However, in order to achieve a more healthy and sustainable business environment, we are driving to bring average lead times down to 26 weeks or less by the time we get to the second half of 2023, and we will be publishing a customer letter to this effect shortly. We believe there are three reasons why Microchip's business is demonstrating more resilience in the midst of the weakness seen by some other semiconductor companies. First, on the demand side, the industrial, automotive, aerospace and defense, data center and communications infrastructure end markets, which make up approximately 86% of our net sales remains solid.
The consumer end market, which is about 14% of our net sales, is experiencing some weakness, but is dominated by home appliances, which are comparatively more resilient. There are some signs that the data center end market could see some headwinds in 2023 although our business remains strong based on the market share gains we have had. Hence, our overall demand remains quite durable because of the end market mix we have consciously gravitated towards over the years. Second, on the supply side, a vast majority of our products are built on specialized technologies requiring trailing edge capacity. This is the capacity that has been most constrained over the last two years which still remains constrained and where there was less opportunity to overship to consumption.
And last but not least, our laser focus on organic growth through total system solutions and higher-growth megatrends from multiple years is giving us increased design win momentum, further share gains and a result in revenue tailwind. If you review Microchip's peak to trough performance through the business cycles over the last 15-plus years, you will observe our robust and consistent cash generation, gross margin and operating margin results. The investor presentation posted on our IR website has details of our performance through the business cycles. We remain cautiously optimistic about navigating to a soft landing for our business, and expect our cash generation, gross margin and operating margin to once again demonstrate consistency and resiliency through the cycle.
Last quarter, we mentioned that Microchip was in the early stages of considering building a 300-millimeter U.S.-based fab for specialized trailing edge technologies. After a detailed analysis, we have concluded not to move forward with this project and that our business objectives would likely be better achieved through our relationships with our foundry suppliers with lower execution risk and a better return on invested capital. The CHIPS Act is already making a positive impact on our business. through the investment tax credit, which started on January 1, and with impending capacity expansion grants that we will be seeking with several of our U.S. semiconductor factories. We believe the CHIPS Act is good for the semiconductor industry and for America as it enables critical investments, which will help even the global playing field while being strategically important for American economic and national security.
Now let's get into the guidance for the March quarter. Our backlog for the March quarter is strong, and we have more capacity improvements coming into effect. However, we are also taking active steps to help customers with inventory positions to selectively push out some of their backlog. Taking all the factors we have discussed on the call today into consideration, we expect our net sales for the March quarter to be up between 1% and 4% sequentially. Further, we expect sequential net sales growth again in the June quarter. At the midpoint of our net sales guidance, our year-over-year growth for the March quarter would be a strong 20.6%. We expect our non-GAAP gross margin to be between 68.1% and 68.3% of sales. We expect non-GAAP operating expenses to be between 20.6% and 20.8% of sales.
We expect non-GAAP operating profit to be between 47.3% and 47.7% of sales. And we expect our non-GAAP diluted earnings per share to be between $1.61 per share and $1.63 per share. At the midpoint of our earnings per share guidance, our year-over-year growth for the March quarter would be a strong 20% despite a much higher tax rate than the year ago quarter. Finally, as you can see from our December quarter results and our March quarter guidance, our Microchip 3.0 strategy, which we launched 15 months ago is firing on all cylinders as we continue to build and improve what we believe is one of the most diversified, defensible, high growth, high margin, high cash generating businesses in the semiconductor industry.
Our Board of Directors and leadership team operate just as long-term owners of the business would, thoughtfully making the key investments in people, technology, capacity, culture and sustainability required to thrive in the long term while being prudent, pragmatic and nimble about whatever short-term adjustments may be required. We are confident we will effectively navigate through whatever macro business challenges may unfold in 2023.
Let me now pass the baton to Steve to talk more about our cash return to shareholders. Steve?
