Ganesh Moorthy
President & Chief Executive Officer at Microchip Technology
Thank you, Eric, and good afternoon, everyone. Our June quarter results were consistent with our guidance with net sales down 6.4% sequentially as we continue to navigate through a major inventory correction. Non-GAAP gross margin came in just under the midpoint of our guidance at 59.9%, while non-GAAP operating margin was at the midpoint of our guidance at 31.5% as we continued our strong expense control programs. Our consolidated non-GAAP diluted earnings per share came in $0.01 ahead of guidance at $0.53 per share.
Our sequential revenue decline resulted in June quarter adjusted EBITDA dropping. And as a result, our net leverage rose to 2.02 times. We expect our net leverage to rise modestly for few more quarters as trailing 12-month adjusted EBITDA drops when replacing stronger prior year quarters with weaker current year quarters. However, our cash generation continues to be solid and we remain committed to our capital return plan. Our capital return to shareholders in the September quarter will increase to 92.5% of our June quarter adjusted free cash flow as we continue on our path to return 100% of our adjusted free cash flow to shareholders by the March quarter of calendar year 2025.
My thanks to our worldwide team for their support, hard work and diligence as we continue to navigate a difficult environment and focus on actions that we believe position us well to thrive in the long-term. In early July, we announced our entry into the 64 -bit embedded microprocessor market with a suite of products, development tools and other support requirements to address high performance embedded processing applications, including AI-enabled edge solutions. This extends our strong 32-bit embedded microprocessor portfolio to higher performance and increased capabilities, while preserving Microchip's historically strong ecosystem of leading development tools to make adoption easy for embedded system design engineers. Microchip is the only company to offer the widest embedded control and processing platform from 8 to 64-bit as well as FPGAs with a common development tool ecosystem that's empowering customers to innovate and reuse their work across a wide spectrum of markets and applications.
Now for some color on the June quarter and the general business environment. All regions of the world and most of our end-markets exhibited varying degrees of weakness. The exceptions were aerospace and defense, which was stable and the artificial intelligence subset of data centers, which continued to be strong. Our business in Europe and America, which are dominated by industrial and automotive markets were particularly weak on the heels of a very weak March quarter. Our broad base of customers continue to manage their inventory tightly and adjust their business plans in the midst of a weak macro-environment for manufacturing, high interest rates, very short lead times and an uncertain business outlook. This combination of factors we believe is driving inventory destocking as well as reductions in target inventory levels in multiple areas. At our direct customers, at contract manufacturers, and at distributors who buy from us. At our indirect customers who buy through our distributors and in many cases at our customers' customers.
The early signs of green shoots in our business we saw in February, March and April have continued to progress, although at an uneven pace with bookings up sequentially in some months and relatively flat sequentially in other months. Although quarterly bookings grew close to 50% in the June quarter as compared to the March quarter, overall bookings were still below where we would like to see them. Bookings, however, continue to age over a shorter period of time and we continue to see many requests for expedites of new orders and shipment date pull-ins for previously placed orders. Requests for cancellations and pushouts continue to subside.
Our average lead times continue to be about eight weeks or less, while the short lead times are resulting in reduced near-term visibility as customers delay placing orders since they have high confidence that supply is readily available. We also believe short lead times during a period of business uncertainty are the best way to help customers navigate the environment successfully and improve the quality of backlog placed with us. We have adjusted our operational systems to adapt to this uncertain environment and pre-position semi-finished and finished goods inventory as best as we can to accept and ship the turns orders we need this quarter. Given the severity of the downcycle, our factories around the world are continuing to run at lower utilization rates in order to help control inventory levels.
Our internal capacity expansion actions remain paused. We expect our capital investments in fiscal '25 and likely in fiscal '26 as well will be low as we will use the inventory we have invested in as well as our underutilized capacity to support the next up-cycle. We are also prepared for the long-term growth of our business. On the one-hand in partnership with our foundry and outsourced assembly and test partners and on the other hand, for our internal factories with the optionality of deploying capital, which we have purchased, but not yet placed into service. While neither we nor our customers know the shape of the recovery in the coming months, we do expect it to arrive as it has in all prior semiconductor cycles. And we believe we are well-prepared for the things we can control to exploit whatever the market recovery looks like.
On the CHIPS Act front, we continue to work through a number of challenges with the CHIPS Office and other government departments in regards to the grants. While the investment tax credit process has been relatively straightforward and we are greatly appreciative of this benefit. The journey to receive grants has taken much longer and been more complicated than we expected. Recall, we announced a preliminary memorandum of terms in early January 2024 and supported the completion of diligence by March. Given that we align extremely well with the US government's goals of shoring up semiconductor supply for national security and industrial security, it would be unfortunate if a pragmatic agreement on the conditions attached to the grants cannot be reached. We continue to persevere through the challenges by collaborating with the chips office, while remaining resolute that whatever agreement we reach must also be consistent with our business values.
Before we get into our guidance, a note about the strength of our design-in activity. After two plus years of dealing with shortages and redeploying their innovation resources towards mitigating the impact of shortages, our customers over the last year plus have returned to prioritizing their innovation projects. The result is a strong design-in pipeline for us across all end-markets, megatrends and key customers, amplified by our total system solutions approach to take advantage of our broad portfolio of solutions. The impact of this growing design pipeline is muted in the current environment where excess inventory gets most of the attention and design-in activity takes time to gestate into production. But design-win momentum is the engine of long-term growth that we have always focused on and which we expect will drive above market long-term growth.
Now let's get on into our guidance for the September quarter. While we continue to see a number of green shoots in our business indicators, we do need turns orders within the quarter to meet our guidance. Operating in a high turns environment has historically been normal for Microchip, but is challenging to predict during abnormal times as we are in today. We are, however, forecasting strong signs of growth in our data center business beyond the artificial intelligence subset, after several quarters of weakness, this is effectively another green shoot. Taking all the factors we have discussed on the call today into consideration, especially the very low backlog visibility we have faced with, we expect our net sales for the September quarter to be between $1.12 billion and $1.18 billion. We expect our non-GAAP gross margin to be between 58.5% and 59.5% of sales. We expect non-GAAP operating expenses to be between 30% and 31% of sales. We expect non-GAAP operating profit to be between 27.5% and 29.5% of sales, and we expect our non-GAAP diluted earnings per share to be between $0.40 and $0.46.
This multiyear semiconductor cycle for Microchip and for the overall semiconductor industry has been like none other we have seen. It started with COVID related supply-and-demand disruptions in the March quarter of 2020, which then continued for many months. This was followed by extreme product shortages and result in supply chain challenges later that year and for several quarters thereafter. And finally, a substantial inventory correction over the last several quarters. We recognize that on a peak-to-trough basis, our revenue decline has been sharper than many of our competitors. Some of this variance reflects the differences in end-market exposure as this cycle has impacted different end-markets at different times. Some of the variance is due to differences in non-cancelable, non-reschedulable programs implemented by us and our competitors.
And finally, some of the variance is driven by differences in the relative size of business transacted either directly or through the channel. While peak to trough revenue performance is relevant, we believe a better longer-term indicator is a comparison of the cumulative revenue generated through the entire cycle. Assuming the December quarter of 2019 was the last unaffected or normal quarter, Microchip's cumulative revenue over the next 19 quarters, inclusive of our guidance for the September 2024 quarter when indexed to the December quarter of 2019 shows very comparable performance between us and our competitors. This is of course, excluding the impact of acquisitions for everyone. The revenue peaks and troughs were different for each company. We believe for the factors that we mentioned earlier. However, when we looking -- when looking at the cumulative 19 quarter revenue, essentially the area under the revenue curve is what that would represent. While the journey for each company was different, the destination was very similar after 19 quarters. This would suggest that Microchip may be positioned for a sharper growth in the coming quarters, although we're not ready to predict the shape of that recovery at this time.
My point is that rather than be focused on peak to trough the performance alone, it seems prudent to consider the area under the curve of cumulative revenue performance as well. We believe the fundamental characteristics of growth, profitability and cash generation of our business remain intact. We are confident that our solutions remain the engine of innovation for the applications and end-markets we serve. We remain committed to executing our strategic imperatives, which we believe will deliver sustained results and substantial shareholder value.
And finally, at a time of macro uncertainty, we remain focused on the things we can control to create long-term shareholder value.
With that, let me pass the baton to Steve to talk more about our cash generation to shareholders. Steve?
