Microchip Technology Inc (NASDAQ: MCHP) Q3 2021 earnings call dated Feb. 04, 2021
Corporate Participants:
J. Eric Bjornholt — Senior Vice President and Chief Financial Officer
Ganesh Moorthy — President and Chief Operating Officer
Steve Sanghi — Chairman of the Board and Chief Executive Officer
Analysts:
Unidentified Analyst — — Analyst
Toshiya Hari — Goldman Sachs — Analyst
Vivek Arya — Bank of America — Analyst
Craig Hettenbach — Morgan Stanley — Analyst
Gary Mobley — Wells Fargo — Analyst
Chris Caso — Raymond James — Analyst
Harlan Sur — J.P. Morgan — Analyst
Ambrish Srivastava — BMO Capital Markets — Analyst
Chris Danely — Citigroup — Analyst
Harsh Kumar — Piper Sandler — Analyst
Janet Ramkissoon — Quadra Capital — Analyst
Denis Pyatchanin — Needham & Company — Analyst
Christopher Rolland — Susquehanna — Analyst
Presentation:
Operator
Good day, everyone and welcome to Microchip’s Third Quarter Fiscal 2021 Financial Results Conference Call. [Operator Instructions]
At this time, I would like to turn the call over to Chief Financial Officer, Eric Bjornholt. Please go ahead.
J. Eric Bjornholt — Senior Vice President and Chief Financial Officer
Thanks, Chloe, and good afternoon, everyone. During the course of this conference call, we will be making projections and other forward-looking statements regarding future events or the future financial performance of the Company. We wish to caution you that such statements are predictions and that actual events or results may differ materially. We refer you to our press releases of today, as well as our recent filings with the SEC that identify important risk factors that may impact Microchip’s business and results of operations.
In attendance, with me today are Steve Sanghi, Microchip’s Chairman and CEO; and Ganesh Moorthy, Microchip’s President and COO. I will comment on our third quarter financial performance and Steve and Ganesh will then give their comments on the results and discuss the current business environment as well as our guidance. We will then be available to respond to specific investor and analyst questions.
We had an unintentional posting of our earnings release on our website shortly before the normally scheduled timing today. Once we determine this occurred, we moved quickly to get the releases sent out over our normal distribution processes. We are including information in our press release and our conference call on various GAAP and non-GAAP measures. We have posted a full GAAP to non-GAAP reconciliation on the Investor Relations page of our website at www.microchip.com, which we believe, you will find useful when comparing our GAAP and non-GAAP results. We have also posted a summary of our outstanding debt and our leverage metrics on our website.
I will now go through some of the operating results including net sales, gross margin and operating expenses. Other than net sales, I will be referring to these results on a non-GAAP basis, which is based on expenses prior to the effects of our acquisition activities, share-based compensation and certain other adjustments as described in our press release. Net sales in the December quarter were $1.352 billion, which was up 3.3% sequentially and above the mid-point of our quarterly guidance. We have posted a summary of our GAAP net sales by product line and geography as well as our total end-market demand on our website for your reference.
On a non-GAAP basis, gross margins were a record at 63%, operating expenses were 23.2% and operating income was a record 39.8%. Our factory underutilization charges decreased from $12.2 million to $3.7 million sequentially, as we continue to ramp our factories to respond to the strong business conditions. We expect that continued to ramp our factories to lead to no underutilization charges in the March quarter. Non-GAAP net income was $444.9 million. Non-GAAP earnings per diluted share was $1.62, $0.05 above the mid-point of our guidance.
On a GAAP basis, in the December quarter, gross margins were a record at 62.6% and include the impact of $6.4 million of share-based compensation expense. Total operating expenses were $600.2 million and include acquisition intangible amortization of $231.6 million, special charges of $4.3 million, $5.4 million of acquisition-related and other costs, and share-based compensation of $44.8 million. The GAAP net income was $36.2 million or $0.13 per diluted share and was adversely impacted by $142.1 million loss on debt settlement associated with debt refinancing activities in the quarter. Our December quarter GAAP tax expense was impacted by a variety of factors, notably, the tax benefit recorded on the convertible debt exchange transactions occurring during the period.
Our non-GAAP cash tax rate was 4.25% in the December quarter. We expect our non-GAAP cash tax rate for fiscal thousand one to be about 4.8% exclusive of the transition tax, any potential tax associated with restructuring the Microsemi operations into the Microchip global structure, and any tax audit settlements related to taxes accrued in prior fiscal years. We have many tax attributes and net operating losses and tax credits, as well as US interest deductions that we believe, will keep our cash taxes low in the future.
Our inventory balance at December 31, 2020, was $666.1 million. We had 120 days of inventory at the end of the December quarter, which was flat to the prior quarter’s level. Inventory at our distributors in the December quarter were at 26 days, which is a record low level and down from 30 days at the end of the prior quarter. In the current environment, it is quite challenging for Microchip or its distributors to increase days of inventory. Into the December quarter, we exchanged $1.086 billion of our 2025, 2027 and 2037 convertible subordinated notes for cash, shares of our common stock and a new convertible bond that matures in 2024. While these transactions did not impact the overall level of debt on our balance sheet, we believe that these convertible exchanges will benefit stockholders by significantly reducing share count dilution to the extent our stock price appreciates over time, which Steve will comment on further in his prepared remarks.
In calendar year 2020, we reduced the amount of convertible bonds on Microchip’s balance sheet by approximately $2.9 billion. In the December quarter, we also issued a $1.4 billion senior secured bond with a maturity date of February 15, 2024, at an interest rate of 0.972%, and used the proceeds from that transaction to pay off our term loan B, which we were paying an interest rate of about 2.15%.
Our cash flow from operating activities was $509.7 million in the December quarter. As of December 31st, our consolidated cash and total investment position was $372.7 million. We paid down $289.7 million of total debt in the December quarter. But please remember that this is inclusive of the cash paid for our various debt financing activities in the quarter, including putting a capped call in place for our newly issued convertible bond.
Over the last 10 full quarters, since we closed the Microsemi acquisition and incurred over $8 billion in debt to do so, we have paid down $3.24 billion of debt and continued to allocate substantially all of our excess cash beyond dividends to aggressively bring down this debt. We have accomplished this despite the adverse macro and market conditions during most of this period, which we feel is a testimony to the cash generation capabilities of our business, as well as the ongoing operating discipline we have. We continue to expect our debt levels to reduce significantly over the next several years.
Our adjusted EBITDA in the December quarter was a record $593.4 million, and our trailing 12-month adjusted EBITDA was $2.271 billion. Our net debt to adjusted EBITDA excluding our very long-dated convertible debt that matures in 2037 and is more equity-like in nature, was $3.93 [Phonetic] at December 31st, 2020, down from $4.04 [Phonetic] at September 30th, 2020. But please note that the amount of the 2037 bonds will be reduced by $407.7 million during the December quarter as part of the financing transactions, which has impacted this metric.
Our dividend payment in the December quarter was $96 million. Capital expenditures were $21.4 million in the December 2020 quarter. We expect between $50 million and $60 million in capital spending in the March quarter, and overall capital expenditures for fiscal ’21 to be between $87 million and $97 million. In last quarter’s conference call, we explained that our capital expenditure plan for fiscal ’21 had increased, as we more rapidly prepared for growth in our business, as well as actions we were taking to increase our internal capacity in the face of constraints our outsourcing partners are experiencing. Our fiscal ’21 capital expenditures are coming in lower than we indicated last quarter due to longer equipment lead times and deliveries pushing out due to overall industry conditions.
We continue to add capital to maintain and operate our internal manufacturing operations, support the production capabilities for our new products and technologies, as well to selectively bring in-house some of the wafer fabrication, assembly and test operations that are currently outsourced. We expect these capital investments will bring gross margin improvement to our business and give us increased control over our destiny during periods of industry-wide constraints. Depreciation expense in the December quarter was $40.3 million.
I will now turn it over to Ganesh to give us comments on the performance of the business in the December quarter. Ganesh?
Ganesh Moorthy — President and Chief Operating Officer
Thank you, Eric, and good afternoon, everyone. Let’s start by taking a closer look at microcontrollers. Our microcontroller revenue performed well with revenue sequentially up 3.3% as compared to the September quarter. On a year-over-year basis, our microcontroller revenue was up 5.9%. We continue to introduce a steady stream of innovative new microcontroller solutions, including the first safety-certified capacitive touchscreen controllers for the home appliance market, the first Trust&GO Wi-Fi module delivering powerful 32-bit microcontroller functionality and verifiable identity, the industry’s highest density secured Ethernet switching solution for hyperscale data centers and telecom service providers, and last but not least, three new broad market 8-bit microcontroller family to extend our leadership in this product line. Microcontrollers overall represented 53.7% of our revenue into the December quarter.
Moving to analog. Our analog revenue also performed well and was sequentially up 3.1% as compared to the September quarter. On a year-over-year basis, our analog revenue was up 2.6%. During the quarter, we continued to introduce a steady stream of innovative analog products too, including the first cryptographic companion device supporting in-vehicle network security solutions, a new family of configurable 12-bit digital-to-analog converters, the first highly integrated radiation-hardened motor controller, and finally, a family of low latency PCI Express 5.0 and Compute Express Link retimers. Analog represented 27.6% of our revenue in the December quarter.
Our FPGA revenue was down 8% sequentially as compared to the September quarter. On a year-over-year basis, our FPGA revenue was up 7.1%. As we caution on our prior conference calls, FPGA revenue does have some lumpiness associated with them because of the large exposure to the aerospace and defense market and the associated purchasing patterns.
During the quarter, we announced a radiation-hardened fourth-generation FPGA family and a low power radiation-tolerant fifth-generation PolarFire FPGA family. FPGA represented 7.3% of our revenue in the December quarter. Our licensing, memory and other product line, which we refer to as LMO was up 13% in revenue, as compared to the September quarter, with strength in licensing revenue-driving this growth. LMO represented 11.4% of our revenue in the September quarter.
A quick note about our product line reporting. Given the relatively smaller size of our FPGA product line at about 7% of our revenue, as compared to our microcontroller and analog product lines, we have decided that starting in calendar year 2021, we will no longer break out the FPGA product line separately. Our FPGA products remain important to our overall total system solutions goals. We continue to make significant investments in our FPGA products and expect those investments will help drive our long-term growth and total solutions initiatives. Going forward, we will combine our FPGA revenue with our LMO, our licensing, memory and other revenues into a new category that we just called other.
From an end market standpoint, we continue to see the automotive, industrial and consumer markets strengthen further in the December quarter, approximating a V-shape recovery in the second half of calendar year 2020 as compared with the first half. The end markets have benefited earlier in the year from the work from home related demand surge, namely computing, communications and data center remained at more normal demand patterns as a surge we saw in the June quarter dissipated. The Huawei ban which was in effect for all of the December quarter, and represented 1% to 2% of our overall revenue, had a more pronounced negative impact on our data center business, where it was a more meaningful percentage of that business.
Finally, demand for our products that go into the office environment, which we refer to as enterprise demand remained weak as most businesses remain predominantly with work from home policies, thus deferring enterprise spending for the office environment. The supply chain constraints that started in the September quarter continued to grow through the December quarter, a robust overall business environment accentuated by rising demand from the automotive, industrial and consumer markets, combined with low levels of inventory in the distribution channel, resulted in constraints in practically all of our internal and external factories.
In September, we have been ramping our internal factories, as well as investing in capital additions to further extend our internal capacity. We have also worked with our supply chain partners to increase our fab assembly and test capacity allocation. However, based on the current strength of the business environment, we expect that the constraints we are currently seeing unlikely to continue through much of calendar year 2021 and possibly into calendar year 2022.
As a result, we have seen our lead times stretch out for many of our products where the constraints are most acute. We have also experienced increases in material and subcontracted manufacturing costs, and have taken steps to secure capacity for 2021. Steve will discuss more in his prepared remarks about our actions to address the current environment of increase in manufacturing cost and seemingly insatiable demand.
Let me now pass it to Steve for comments about our business and our guidance going forward. Steve?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
Thank you, Ganesh, and good afternoon, everyone. Today, I would like to first reflect on the results of the fiscal third quarter of 2021. I will then provide guidance for the fiscal fourth quarter of 2021.
The December quarter represented the shift of the business cycle back to revenue growth with a 3.3% sequential growth in a quarter where ordinarily, we would see 3% sequential decline from typical seasonal factors. December quarter revenue also grew over prior year’s December quarter by 5%. We started ramping our internal factories in September, as well as investing in capital additions to expand our internal capacity. We also started working with our supply chain partners to receive more allocation from wafer foundries and assembly test subcontractors. These efforts improved product availability in the December quarter, but still constrained to some of the revenue upside.
We delivered a record non-GAAP gross margin of 63%, helped by a significant reduction in factory underutilization and better overhead utilization from revenue growth. We also achieved a non-GAAP operating margin of 39.8%, an all-time record and getting very close to and an emotional 40% mark. We also hit a record EBITDA of $593.4 million, despite revenue not yet a record, yet showing the robust strength of our business model. Our consolidated non-GAAP EPS was $1.62, $0.05 above the mid-point of our guidance. This was also our 121st consecutive quarter of non-GAAP profitability.
Now, I will discuss our guidance for the March quarter. Our bookings were exceptionally strong in the December quarter and were an all-time record. We received bookings both for short-term as well as into the future quarters. The backlog is also an all-time record. Please remember that bookings, as well as the backlog, is what is shippable in the next 12 months. The backlog for the March quarter is the strongest starting backlog I’ve ever seen. Our bookings have remained strong in January. On the operational side, the December quarter was constrained by product availability. We will have more internal and external capacity in the March quarter since we have had multiple months to ramp. Although, I believe that wafer fab, as well as back-end constraints, are here to stay with us through calendar year 2021.
In response to the business environment, we have taken three actions. First, in the middle of December, we changed our cancellation and pushed out terms with our customers and distributors. The standard terms used to be that an order cannot be canceled or pushed out once it is within 45 days of shipment. We changed our standard terms so that an order cannot be canceled or pushed out within 90 days of shipment effective January 1, 2021. We gave customers a couple of weeks to adjust their backlog before it went firm for 90 days. In response to our change in terms, we did not see any unusual cancellations or push-outs which indicates to us that the backlog was firm and needed by our customers. That gave us a solid backlog for the March quarter which cannot be canceled or pushed out. Therefore we can batch process the orders and use our manufacturing assets most efficiently, knowing that what we build will get shipped.
The second action we took was that we sent a letter to our customers on January 4, 2021, informing them of the business environment. We also informed them that we are seeing broad-based cost increases and some aggressive commercial terms from our supplier base, and we must pass these cost increases to our customers through a broad-based price increase.
The third action we took just this morning, we posted a letter on our website and sent it to our customers and distributors, announcing a new program called the Microchip Preferred Supply Program, or PSP. This program offers our customers the ability to receive prioritized capacity in the second half of 2021 and first half 2022. The program has the following elements. The customers participating in this program will have to place 12 months of orders which will be non-cancelable and non-reschedulable. The capacity priority will begin for shipments in July 2021.
The program will not be a guarantee of supply, however, it will provide the highest priority for those orders which are under this PSP program. And the capacity priority will be on a first-come-first-serve basis until the available capacities booked. We will, of course, reserve a portion of our capacity for new customers, small long-tail customers and new designs. We expect that a significant portion of our capacity will be booked under this new program with a large committed non-cancelable backlog for 12 months, Microchip will be in a stronger position to make capacity and raw material commitments to our suppliers by capital equipment with confidence, hire employees and ramp up manufacturing, and manufacture products more efficiently.
Taking all these factors into consideration, we expect our net sales for March quarter to be up between 5% to 10% sequentially. The March quarter guidance at the mid-point would represent record GAAP net sales with the prior record being in the September quarter of 2018. The September quarter of 2018 based on GAAP sell-in revenue recognition was $1.432 billion. Some of you may still carry a sell-through base number of $1.513 billion for September 2018 in your historical financial model spreadsheets. The March quarter will also be limited by product availability on many product lines. Our guidance assumes working through a myriad of capacity constraints, qualifying incremental equipment installed, qualifying alternative subcontractors in some cases, and still dealing with a risk of production constraints with a new wave of COVID cases plaguing the planet, and at the same time, ramping of vaccinations.
For the March quarter, we expect our non-GAAP gross margin to be between 63.3% and 63.7% of sales, which would be a new all-time record. We expect non-GAAP operating expenses to be between 23.2% and 23.6% of sales, and we expect non-GAAP operating profit percentage to be between 39.7% and 40.5% of sales. We expect our non-GAAP earnings per share to be between $1.67 per share to $1.79 per share. We also expect to pay down another approximately $350 million of our debt in the March quarter.
Finally, I want to cover one other area, which is our future cash return strategy. At the rate, we’re paying down debt, we expect to break and net leverage of 3 [Phonetic] within a year and continue to decrease from there. At that time, we expect to begin distributing more of our substantial amount of free cash flow to the investors in the form of dividends and stock buybacks.
Regarding buybacks, through multiple tranches of convertible debt buyback, we have essentially bought a substantial amount of stock back from the future. This is because as the stock price rises and exceeds the conversion price of the debt, convertible debt dilutes the share count and converts back prevents future dilution as the stock price rises. Our first convert buyback was in March 2020 when Microchip stock price was about $71. Since then, we have done four other buyback transactions at various stock prices.
By doing these various buyback transactions, we have purchased the total of $3.525 billion in face value of our convertible bonds. For the transactions from March 2020 to September 2020, we issued a total of about 20.4 million shares of our common stock to the investors for — in the money value of their bonds. If these bonds have remained outstanding until an assumed stock price of $140 per share, the stock price about now, the dilution would have been about 26.4 million shares, thus our repurchases had the impact of creating the savings of about 6 million shares worth $840 million savings to our investors at $140 per share. This calculation does not include our November 2020 transaction, which was very recent and executed at $133.47 per share, so it is not yet accretive. Therefore, while we have not done any open-market stock buybacks in the last year, our convert transactions have had the impact of a buyback of approximately 6 million shares. At some point in the future, we expect to start pure stock buyback from the open market.
We are also initiating a path to higher dividends and not waiting until our leverage, which is a given number before the dividend starts to increase. In this regard, we announced today that the Board of Directors has approved a dividend increase of 5.8% sequentially to $0.39 per share, up from $0.3685 previously. We expect to continue to increase dividends quarterly as part of our cash return strategy.
Given all of the complications of accounting for our acquisitions, including amortization of intangibles, restructuring charges and inventory write-up on acquisitions, Microchip will continue to provide guidance and track its results on non-GAAP basis, except for net sales, which will be on a GAAP basis. We believe that non-GAAP results provide more meaningful comparison to prior quarters, and we expect that the analysts — and we request that the analysts continue to report their non-GAAP estimates to first call.
With this, Chloe, will you please poll for questions? Chloe, operator?
Questions and Answers:
Operator
Certainly. [Operator Instructions] And we’ll take the first question at this time. Caller, please go ahead.
Steve Sanghi — Chairman of the Board and Chief Executive Officer
Not able to hear you. May be you are on mute.
Unidentified Analyst — — Analyst
Steve, can you hear me?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
Yes, now.
Unidentified Analyst — — Analyst
I apologize. I didn’t hear my name get called — certain [Phonetic] caller. Apologize for that. Just really quickly. We’ve lived through multiple times of you sending out customer letters, and we kind of have an understanding of how the market responds to that. I’d be kind of curious, the preferred supplier agreement that you talked about in your opening remarks, is this the first time that you have done that? And if it’s not, what’s been the historical response to programs like this?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
So the Preferred Supply Program is brand new. I have not ever implemented it in my 42 years of career, and I’ve never seen anybody else do that too. The program is largely a response to the current environment because bookings level is just so strong and people are booking parts out in time. The industry seems to be 30% plus sure to really what the capacity requirement is. And many of our customers have been asking, what can they do if they give us longer-term demand — longer-term orders, will that give them parts? Would they give them better support?
Now, customers can give us longer-term orders, but if the orders are cancellable or reschedulable [Phonetic] after 90 days, which was the case prior to the program, then I could have lot of orders for September and December, and could buy capital, hire people to ran, but just before I get there, people could cancel. If there was a double ordering, people were asking more than they need and they cancel part of the orders. So there is often the problem always and you guys ask the question, is there any double ordering or whatever?
And this program basically eliminates all that. It asks the customers to place 12 months of backlog, which is the non-cancelable, non-schedule — reschedulable, so I can take that one to the bank, buy raw material, do batch processing, grow the capacity and give them preferential supply. So this is the first time we have implemented it as just the need of the time.
Unidentified Analyst — — Analyst
And I know it was just this morning, but what do you expect the intended response to be from your customers?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
Well, a small number of customers who already have feedback through the day, including a couple of distributors, the response is positive. They will place such orders. I don’t expect any customer to place their entire that backlog on every product on the PSP program, because customers themselves have some programs where they are solid that the demand is good, they have a good market share on that particular design, but some others could be, some new programs where the demand is yet not known. So I think customers will really take lot of their products and put it on PSP and some others that they won’t.
Unidentified Analyst — — Analyst
Perfect. Thank you, guys.
Steve Sanghi — Chairman of the Board and Chief Executive Officer
Welcome.
Operator
We’ll take the next question that comes from Toshiya Hari. Please go ahead.
Toshiya Hari — Goldman Sachs — Analyst
Hi. Good afternoon. Thanks so much for taking the question. Steve and Ganesh, given the current supply and demand situation, what are your thoughts on pricing across your microcontroller and analog business? And if you can kind of speak to gross margins on the back of that, that would be helpful. And I guess sort of related to that, given the Preferred Supply Program, how should we think about the economics of that program? Thank you.
Steve Sanghi — Chairman of the Board and Chief Executive Officer
So we sent a letter to our customers on January 4, really informing them first of the business environment and also informing them that we were seeing broad-based cost increases and some very aggressive commercial terms from other suppliers who were facing similar issues from their suppliers, really up and down the supply chain. And we must pass these cost increases to our customers through really a broad-based price increase.
So after writing that letter, then we need to really develop that program and we’ve got several 100,000 SKUs, and going through the price increase on, in which part and how much and passing on to the customers, working through their contracts and long-term prices and stuff like that. So all that really has been implemented at this point in time. We aren’t breaking out what portion of the guidance is price increase, that’s going to relatively difficult. But the price increases have already been made effective.
As far as the economics of the PSP program, the economics of the PSP programs really are in having a committed non-cancelable, non-reschedulable backlog on the books that we can build it in batches, buy raw material ahead if we want it, increase the inventory if you wanted to serve that, and build it when — whenever we have a lull, essentially that’s where the economics are to be able to serve the customers better who joined the program, and Microchip not be subject to ordering more than they need and double ordering because they’re not going to double order and order more than they need if they cannot reschedule or cancel. So that’s where the economics are. There is no price change with that. Price program is totally separate.
Toshiya Hari — Goldman Sachs — Analyst
Thank you.
Steve Sanghi — Chairman of the Board and Chief Executive Officer
I hope that answers your question.
Toshiya Hari — Goldman Sachs — Analyst
Thanks.
Operator
We’ll take the next question that comes from Vivek Arya. Please go ahead.
Vivek Arya — Bank of America — Analyst
Thanks for taking my question. And Steve you used this phrase significant revenue growth in calendar ’21, and you’re starting the year at about 10% year-on-year growth. Is that a significant number? Is it something higher than that? And more importantly, what kind of growth can your supply chain support this year?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
Well, you know, I — I know, you must have noted what I said. I thought I talked about — the question really was that Street had 7% growth; do you expect something higher than that? And my answer was, yes. So whatever anybody interpreted, I don’t know what significant means. And I can’t really give you a number for the growth for the year, although I think the revenue is more constrained by capacity than the demand, at least now and for the next several quarters, which leads to your second question, what can — what kind of growth the supply chain support?
I think one of the problem that we are dealing with is that the supply chain is not stable. We are finding that some retail subcontractor will commit that they can do x number of parts per week. And as we get there, they will change that number. They would lower that number or push it out by a couple of weeks. So what happened? Well, what happened was they got a de-commitment from their supply. They didn’t get some bundles they were expecting. They couldn’t hire some people. Somebody tested positive for COVID, so they had to send 50 people home who had come in contact with it.
So you know, there is no slack in the system. Everything that gets built, get shipped. There is absolutely no slack in the system. So any perturbation, there was an earthquake in Taiwan, we had a car that hit our substation in fab in Oregon, they knocked out about three to four days — partial knock out, not complete. None of those things are amicable because all factories are working seven days a week, full board, so any delay in equipment just leads to de-commitment.
So I think those are all the myriad problems we are dealing with in adding equipment, adding people, qualifying additional subcontractors, getting our customers through qualification. Automotive are the hardest customers to qualify production in a different plant or to approve a change. And in the last six months, we have been so successful in getting even all the automotive customers that they would buy the product from this alternative assembly side or test side, and all that. So we’re getting help in that area, but it’s still a very, very complicated process to put it all together, and therefore, we’re not willing to dollarize the number or what percentage we could grow, not yet.
Vivek Arya — Bank of America — Analyst
Thank you.
Operator
We’ll take the next question that comes from Craig Hettenbach. Please go ahead.
Craig Hettenbach — Morgan Stanley — Analyst
Yes. Thanks. Steve, just a question on distri inventory of 26 days, when would you expect that to perhaps get back to kind of within normal ranges? And any trends you could share just by geography in terms of distri resales?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
So distribution would love to grow the inventory in this environment to serve the end customers better. But this inventory can’t grow. There is just not enough product available to grow the inventory because the product keeps getting shipped out. Another point I would like to make is that our inventory, as well as distributor inventory, is calculated based on last 90 days of sales, so it’s based on the prior quarter. So essentially, if you — the real value of the inventory is to support the future.
So if you take our guidance and take the midpoint of that guidance, let’s say, and calculate the days of distributor inventory or Microchip inventory, based on that guidance then the inventory numbers are extremely low, but they’re calculated as we report, which is a standard convention based on the prior 90 days, in a very stable environment, flat sales, it doesn’t matter. But in a significant growth, the real inventory is actually much lower than the numbers we are reporting. And we don’t think it’s going to grow. I think our internal inventory will drop this quarter, we expect by several days, and distribution will do the same.
Craig Hettenbach — Morgan Stanley — Analyst
Got it. And then just a follow-up for Ganesh on the total system solution, any progress there, I think if you can share with us in terms of developments?
Ganesh Moorthy — President and Chief Operating Officer
Sure. So it’s not a one-quarter progress. It’s a multi-quarter activity that we’ve had. The processes that it needs to be put in place have been there, new processes are going in. It is reflected in how we see the design activity taking place. Some of this we’ve shared anecdotally in some of the conferences. We will share some more this coming quarter as well. But I think the power of the whole coming together putting all the different parts of Microchip on a customer’s board is very much strong and alive, and a key part of our growth strategy.
Craig Hettenbach — Morgan Stanley — Analyst
Got it. Thank you.
Operator
We’ll take the next question that comes from Gary Mobley. Please go ahead.
Gary Mobley — Wells Fargo — Analyst
Hey, guys, thanks for taking my question. So I know you started the December quarter with your distributor inventory levels slightly below average. And it looks like you under shipped into the channel by about $26 million in the December quarter. Is that how we should think about perhaps what — how much higher your revenue could have been if you had available production capacity and whatnot a similar amount as we look out into the March quarter?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
Well, we had unsupported orders for every geography, for every product line, for direct as well as for distribution. So just picking a number that the distribution inventory went down by and just seeing that’s the revenue we missed for the December quarter, will not be accurate. We’re not breaking out the number, but the total amount of revenue that we missed also was also from direct and essentially in every geography.
Gary Mobley — Wells Fargo — Analyst
Okay. As my follow-up, I wanted to ask about your philosophy towards M&A. When you get to that magical net leverage ratio of less than 3 times, is that — should we take that to mean that you’re also open to some M&A transactions at that point as well?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
I think we have spoken extensively about this in the past, saying that we believe — there was an era of M&As, in the last 12 years or so, we did 16, 17, 18 acquisitions, a few large ones public and lots of them small, private, and all that was intended to scale the Company 10x or so, and now we are over $5.4 billion company, and really not have a scale disadvantage to our competitors. I think we have achieved that.
And today, we have a product line with which we can complete a customer’s entire solution and essentially have all the parts built out of Microchip products and other than registers and capacitors and connectors and battery, everything else is really made from Microchip. So today, there is not that need for M&A and no getting holds. So we are really building our strategy going forward on organic growth built from really large amount of success in providing total system solutions to the customers. There could be a tuck-in acquisition here and there, you know, private, small or really buying some people which is a technology pipeline or something like that, but there is really no plan currently for doing any kind of large acquisition, even after we reach a certain leverage.
Gary Mobley — Wells Fargo — Analyst
Appreciate it. Thank you.
Operator
We’ll take the next question that comes from Chris Caso. Please go ahead.
Chris Caso — Raymond James — Analyst
Yes. Thank you. The first question is about some of the capacity additions that you’re undertaking now. Could you talk about one, the direction of capex over the next couple of quarters as you try to address these — some of these supply constraints? How long does it take to get the capacity in place? And then lastly, to what extent are you looking to address these constraints through internal means as opposed to getting them through outsourcing? What’s going to be the quicker and more sustainable path to getting some more product to your customers?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
Eric, you want to take the capex question?
J. Eric Bjornholt — Senior Vice President and Chief Financial Officer
Sure. So we have indicated that in the very short term for the March quarter, we’re expecting to stand between $50 million and $60 million on capex. We’ve kind of given general guidance to the Street that longer term, we expect our capex as a percentage of net sales to be somewhere between 3% and 4%. This quarter, we’ll be going through our annual operating plan for our next fiscal year, and we’ll provide kind of a more detailed forecast in fiscal ’22. But I wouldn’t be surprised if we’re on the high end of that range for next fiscal year. We’ve been well below it for the last two fiscal years, and so — clearly, the demand environment is driving that.
And I’ll start with the second piece of the question, and Steve, again asking [Phonetic] onto it. But we have been making significant investments in assembly and test expansion, and actually this last quarter, we did 55% of our assembly in-house, that’s up significantly quarter-on-quarter, and we did 57% of our final test in-house. So these metrics tend to be slow-moving, but we are making progress on that, and it’s allowing us to take a little bit more control of our own destiny. So with that, I’ll turn it back to Steve.
Steve Sanghi — Chairman of the Board and Chief Executive Officer
So I think one of your question implies that what portion of the capex we were spending for internal versus external. And I think 100% of our capex is really being applied to grow the capacity internally. The external capacity growth we’re getting it just by getting larger allocation, negotiating for a larger piece of the total capacity by after foundries and subcontractors. We’re not really spending our capex dollars in growing their capacity. But our capacity is growing significantly outside also. But overall, as Eric mentioned, especially in the assembly and test area, a large portion of the capacity growth is happening inside.
Chris Caso — Raymond James — Analyst
All right. As a follow-up, given the strongly better than seasonal March, the fact that you’ve got a backlog that’s difficult to fill all of that. How do we think about seasonality through the rest of the year? And they’re always different difficult questions right now, but any kind of qualitative comments that you can provide would be helpful.
Steve Sanghi — Chairman of the Board and Chief Executive Officer
I think seasonality has been difficult to define for Microchip for some time because of all these acquisitions and especially, with Microsemi, the end market mix changed so much that we said, if we got a year or two years of stable environment, then one could figure out what the seasonality would be. And we haven’t gotten that stable environment. First was the US, China trade, then last year was COVID, and this year is just runaway growth for capacity constraints. So in this environment, it’s not the seasonal factor that’s changing which you can or can not do, it’s a combination of how much capacity you can grow, what the overall demand is. So I can’t really comment much on seasonality in this kind of environment.
Chris Caso — Raymond James — Analyst
Thank you.
Operator
We’ll take the next question that comes from Harlan Sur. Please go ahead.
Harlan Sur — J.P. Morgan — Analyst
Good afternoon, and thanks for taking my questions. Maybe as a follow-up to the last question. And I know the difficulties and complexities in quantifying full year revenue generation potential, but maybe more near-term. I assume that the team is almost fully booked for the June quarter. Maybe you guys can confirm that, and that would include any unchecked delinquencies from March. In June, we could argue about seasonality, but typically June is up sequentially. So your foundry wafer requirements are probably already fixed for June given the lead times from your foundry partners. But wondering if you guys would be able to bring on, you know, and qualify additional wafers in assembly and test capacity in time to support higher levels of revenues from where you are here in March, if it plays out that way in June?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
So you can’t qualify different fabs in a matter of three months or six months depending on what the process and products are, it’s a much longer effort. So lot of the capacity growth is really coming out of growing capacity where the processes are already installed. We got, some processes are installed outside as well as inside, and most of the other — majority of our processes either run outside or run inside. And when they run outside, they usually only either run in one foundry or the other foundry, so there’s really no process that runs in three or four different foundries. They may run in three or four different fabs of the same foundry, like the TSMC could run in three different fabs of TSMC, but it doesn’t run in TSMC as well as global as well as UMC or something.
So the capacity growth is largely coming from where the processes are already installed from a fab standpoint. From an assembly test endpoint, yes, we’re qualifying additional alternate assembly sub-contractors, which could give additional capacity. But there also, majority of the growth in assembly as well as test is coming from buying capital and installing in three of Microchip’s large facilities, two in Thailand and one in Philippines. They are basically doing record amount of assembly and test every day, and capacity is rising every week, every month, every quarter for the rest of the year.
Harlan Sur — J.P. Morgan — Analyst
My question is…
J. Eric Bjornholt — Senior Vice President and Chief Financial Officer
So there was a — a second comment there from Harlan, talking about or kind of implying that June quarter is fully booked, and that is not the case. June quarter isn’t fully booked, March quarter isn’t fully booked. It can be fully booked on certain products and you may be even ask [Phonetic] and expand on that a little bit.
Ganesh Moorthy — President and Chief Operating Officer
Yeah. I mean even for this quarter, we have strong backlog, but we have some terms yet to take, and there is terms to take for the June quarter. As Eric mentioned, there are certain product lines, which can be much closer to being booked up. And that’s typically, it is starting at a much higher backlog than a normal quarter would be, but there is still work to be done. And there’s capacity coming online, which will help us some of the growth, both that’s helping this quarter as you can see versus December and some more into June.
Harlan Sur — J.P. Morgan — Analyst
Okay. So you answered my — well, that’s going to be my third question or was my third question in that which is irrespective of how the demand plays out if June quarter backlog ends up suggesting a higher June quarter, you guys would have the capabilities in place foundry or internal to drive higher revenue level sequentially in the June quarter?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
Absolutely, yes.
Harlan Sur — J.P. Morgan — Analyst
Okay. Thank you, Steve. Thank you. Ganesh.
Steve Sanghi — Chairman of the Board and Chief Executive Officer
Welcome.
Ganesh Moorthy — President and Chief Operating Officer
You’re welcome.
Operator
We’ll take the next question at this time that comes from Ambrish Srivastava. Please go ahead.
Ambrish Srivastava — BMO Capital Markets — Analyst
Hi. Thank you. One the near-term, and then I have a longer-term, Steve, and really just wanted to make sure I understood that part. On the near-term, the Preferred Supply Program you started just this morning. But does the guide for March, does it include the change in cancellation from 45 days to 90 days? Is that part of — has that been implemented long enough to reflect in the March guide?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
So that was told to the customers in early December or maybe it was the middle of December, around maybe 8th or 10th December. And we gave them then the following three weeks or so to make any changes to the backlog they wanted to make, and on January 1, the backlog will go hard for the 90 days. So there were very few changes made. There were just meaningless very small changes. So as of January 1, then whatever was on our books for the March quarter, it became firm, so no changes to be made. And that backlog position for the March quarter was very strong, and strong as we have ever seen in our careers.
As Ganesh answered earlier and Eric answered, that doesn’t mean the March quarter was fully booked because you always have products where this product available and customers and distributors can continue to come and buy those products for the lead time is still fairly short and shippable within the quarter. But a very large number of products were also completely booked and nothing available for March, and some products even nothing available for June. So the impact of that 90 days was effective on January 1.
Ambrish Srivastava — BMO Capital Markets — Analyst
Got it.
Steve Sanghi — Chairman of the Board and Chief Executive Officer
And then as you go, as you finish the month of January, then the backlog is now hard for February, March, April. By the end of February, the backlog will be hard for March, April and May. So that was the 90-day program. The PSP program is an entirely new program. The 90-day program was applicable to all customers worldwide, direct or distribution. The PSP program is a customer adoption. It’s not — we can’t force them to give us one year of backlog, so that was an option given to the customer, so they can have an ability to get preferred supply support if they would give us 12 months of non-cancelable backlog, which helps us in bringing capacity online and buy capital and hire people with confidence, and it gives them preferential capacity. So there is something in it for both.
Ambrish Srivastava — BMO Capital Markets — Analyst
Got it. [Indecipherable]
J. Eric Bjornholt — Senior Vice President and Chief Financial Officer
Just want to make sure this is clear — I want to make sure this is clear that has zero impact on the March quarter.
Ganesh Moorthy — President and Chief Operating Officer
Or the June quarter, for that matter.
Ambrish Srivastava — BMO Capital Markets — Analyst
Got it.
Steve Sanghi — Chairman of the Board and Chief Executive Officer
Yes. The preferential just…
Ambrish Srivastava — BMO Capital Markets — Analyst
Yeah, I understand. I just want to make sure…
Steve Sanghi — Chairman of the Board and Chief Executive Officer
…hold in. The PSP program support starts from July. Now, the order, they can replace it now for 12 months. But if they come up with a whole bunch of new orders for March, April, May, June, they can’t get the supply ripped off from other people who we have placed the backlog before. So PSP capacity support does not begin until July.
Ambrish Srivastava — BMO Capital Markets — Analyst
Got it. I wasn’t confused about PSP. I just wanted to make sure that the March quarter is — it sounds like you were able to pull together a lot of internal and external to guide to what you did, and it also has some back — or some solidity, I lack of a better word, because of the 90 days that you started in December. That’s what I wanted to understand because there is a concern about double booking. That sounds like the way you have framed it and the way you’re running the business at this point, it seems like you have quite a lot of visibility on that.
My longer-term question, Steve, and thanks for addressing that. Your business model is transforming and you have been talking about M&A being less of a priority given where the valuations are and focus on organic. So the question — and you addressed it by saying the buyback, even though not directly, you have been bringing down dilution. What was the point you made on dividend? I missed that. What’s the formula that you have in place for dividend growth?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
We don’t really have a formula in place. We just — Board will meet every quarter and decide the dividend for every quarter. In the current quarter, we grew the dividend by 5.8%, and you couldn’t expect that Board will grow the dividend every quarter. And that’s really our commitment. We told you in the last couple of quarters that we will build a glide path towards higher dividend, and this is a glide path towards a higher dividend.
So if you accumulate the increase in dividend for four, five, six quarters, then by the middle of 2022, you already would have a significantly higher dividend after seeing six increases of the kind we just did. That’s really what we’re trying to do to get to higher dividends, and by that time, leverage would have come down and such — that higher dividend will really be supportable at that point in time both — from the cash flow, and still have enough cash available to keep bringing the debt down further.
Ambrish Srivastava — BMO Capital Markets — Analyst
Got it. Thank you.
Operator
We’ll take the next question that comes from Chris Danely from Citi. Please go ahead.
Chris Danely — Citigroup — Analyst
Hey, thanks, guys. I guess just a little bit of color on the capacity constraints and shortages. So, Steve, you talked about it being in the automotive, industrial and consumer sectors or end markets. Most of your competitors are just saying, automotive. Would you expect this to spread to those other end markets for your competitors and other folks in semis? And then what — when do you remember these shortages being this bad? We have to go back to like 2010 or 2000?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
I do not remember shortages being this bad ever. So this is just like this is a Six Sigma event in terms of shortages, call it a Black Swan event, although that’s more meant for negative. See, I don’t really know what other competitors are seeing what. But our capacity for automotive products and industrial products and consumer products is really common. It runs at the same fabs, the same processes, sometimes they have the same parts that we can ship into an automotive or ship into an industrial, so the capacity constraints would really be shared by all markets.
Now the largest increase in demand has been automotive, wherein the June quarter, automotive demand went to 20% of normal because all the factory shut down. And as that demand has gone back to 95% of normal or 100% of normal, that’s 5x increase in auto demand. So they are seeing sort of there were shortages, because they didn’t place their orders, they didn’t really guide towards having this stronger V-shape recovery, so their [Indecipherable] are worse than that, but the capacity is common.
Chris Danely — Citigroup — Analyst
Okay. Thanks.
Steve Sanghi — Chairman of the Board and Chief Executive Officer
There is also a fact that in automotive, $1 part can prevent a $40,000 car from shipping. In industrial, $1 part could just prevent $1,999 power drill from that shipping. So the hard factor is quite different, so therefore the noise from automotive and the escalations of the management team and the pressure and all that is really of a different level.
Operator
We’ll take the next question that comes from Harsh Kumar. Please go ahead.
Harsh Kumar — Piper Sandler — Analyst
Yeah. Hey, guys, first of all, congratulations on the tremendous guide, I guess, just a sign of what you’re seeing. And Steve, I had two [Technical Issues] I wanted to go back to our hall and the stock [Phonetic] about earlier. As you get over year supply issues, let’s say whether it’s June or July, am I incorrect in thinking based on your kind of what you mentioned in the press release of having a very strong year? As you are able to supply, should we not expect the second half that is better or stronger? Or help me think about linearity from here. And then for Eric, the question is on gross margin. If I’m not mistaken, you’re at your target or very close to it. With no M&A, would there not be a capacity [Phonetic] to think about that gross margin as you get more and more efficient.
Steve Sanghi — Chairman of the Board and Chief Executive Officer
So I think taking the question of capacity, you mentioned somehow that we catch up by June, July. We don’t expect to catch up on demand capacity balance for the balance of the calendar year 2021, and could possibly go into 2022. I mean we already know that the demand on lots and lots of products succeeds where we have no product available. If you place an order today, we were shipping you in September, October. And people are booking September, October, November, fast. And with the PSP program, we’re going to get backlog all the way through next January, February. So I don’t think the capacity issue is getting sold in the next four, five, six months. I think we’re talking a 12-month at least to solve that — to really have the capacity get in balance. And I don’t remember the other part of your question for Eric.
Harsh Kumar — Piper Sandler — Analyst
The other one was gross margin.
J. Eric Bjornholt — Senior Vice President and Chief Financial Officer
I’ll take — yeah. I’ll take the gross margin question. So we did actually update our long-term targets for gross and operating margin back in December, we took the gross margin target of 65% and the operating margin target of 42%. So we essentially achieved what was our prior target of 63% on the gross margin with the last quarter results, and are guiding at the midpoint to about 63.5% this quarter. So gross margin was absolutely going to highlight over the last couple of years, and we’re continuing to do all the right things to be efficient in our operations to drive improvements. And I’m not sure if you have more follow-up on that, but we definitely have outlined five or six things that are going to help us continue to make improvement on gross margin into the future, and we can go through that separately If you’d like, Harsh?
Harsh Kumar — Piper Sandler — Analyst
I appreciate the clarification, Eric. And I’m good. Thank you.
Operator
We’ll take the next question that comes from Janet Ramkissoon. Please go ahead.
Janet Ramkissoon — Quadra Capital — Analyst
Yeah. Nice creativity, guys with preferred new program. I was going to ask a question about the margins as well. It just seems to me that if you have a lot of visibility and you could procure supplies in a more timely and efficient manner, and you just plan better generally speaking, as you go — as you exit 2021, you should be in a position where you would hit those target margins — you could hit those targets margins a lot sooner. Am I correct in thinking that, Steve? Or is there something I’m missing?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
Well, the PSP program doesn’t really do anything to the margin, and historically it could make us more efficient if we get a large amount of backlog, lots and lots of customers pick up on that offer, and then we can build the product more efficiently. It could help a little bit on the cost side of the equation. But PSP program wasn’t launched to drive margins. It was launched to get a firm customer backlog that we can be confident of growing our capacity and not have any double ordering or excess ordering in that backlog, which could go away when we get there. So that’s why it was launched. It was not launched for margin. And I don’t think it’s going to have a lot of impact on margin.
Now as we are growing through this growth period, you have three or four things happening. Number 1, all the underutilization is going away, and most of it has gone away in March, but some could be going away in June. Number 2, as the incremental capacity is being added, the incremental capacity usually is more productive because you’re not adding the entire — every machine, you’re adding bottlenecks here and there. So when you add debt capacity, the incremental margin through and for every dollar of revenue tends to be better, and if you go back in the prior cycles and calculate incremental margin to get some idea.
The third being, we are bringing some products, both in fab and assembly and test from outside to inside, and those moves are accretive, there could be something else. The impact of price increase, I think is going to be relatively benign because we largely launch that to offset the cost increases. But you can’t always increase the price on a product. We have seen the cost increase. We got to look at the product whether there is a competitive element there or it’s a proprietary product, so the price increase and cost increase don’t completely match product-by-product. But overall, we might get some benefit and certainly in revenue, probably not in margin.
Janet Ramkissoon — Quadra Capital — Analyst
That’s very helpful. Thanks very much. Great quarter.
Steve Sanghi — Chairman of the Board and Chief Executive Officer
You are welcome.
Operator
We’ll take the next question at this time, it comes from Denis Pyatchanin. Please go ahead.
Denis Pyatchanin — Needham & Company — Analyst
Hi. Thanks for taking my question. I’m here to ask a question on behalf of Raji Gill. Is there any chance you could provide us with some more color on the various kind of end-market gross margins, kind of how those move throughout the last quarter? So you know, if you maybe you can break it out by your reporting segment?
J. Eric Bjornholt — Senior Vice President and Chief Financial Officer
We don’t break out gross margin either by end market or by product line. So we reported at the Company level and that’s all we have.
Denis Pyatchanin — Needham & Company — Analyst
I see. And if you want — as a follow-up. How do you expect kind of the recent investments into the internal capacity to impact your margins over the next three quarters? Would you say that there is going to be a noticeable impact of the internal capacity coming online? And has that been factored into your guidance? Or do you expect that to maybe hit towards the — kind of the end of the calendar year?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
So I think — go ahead.
J. Eric Bjornholt — Senior Vice President and Chief Financial Officer
I think these come — no, I’m going to say, I think these come on slowly. They’re not going to make big quarter-to-quarter changes in what they’re at. Directionally, each of them is a small step in the roadmap that we have said we want to improve our gross margins through the long-term target. But I would not be looking for quarter-by-quarter. These are making big changes in the gross margin of the Company overall.
Denis Pyatchanin — Needham & Company — Analyst
I see. And that was all. Thank you.
Operator
We’ll take the next question that comes from Christopher Rolland from Susquehanna. Please go ahead.
Christopher Rolland — Susquehanna — Analyst
Thanks for the question, guys. Just two quick ones from me and then I’ll get off. I guess, Steve, first of all, PSP. Ultimately, what percent of revenue do you expect to go through the PSP program versus other? And then secondly, as you bring some internal capacity home, even on the wafer side, does this bring up a conversation about a 300-millimeter fab or not? Is that — at what point does that become of interest to Microchip?
Steve Sanghi — Chairman of the Board and Chief Executive Officer
So I think the first part of your question, what portion of the revenue we expect to go through PSP, we really have no idea. It’s never been done before. It is being launched by taking on questions from many large customers saying, what can you do to make sure I get capacity support in the second half from delinquent. Now, you’re not giving me everything I need, so how can I ensure that I get that in the future?
And so we came up with this program and saying if you commit that your orders for that next 12 months and non-cancelable and non-reschedulable, then we will go with confidence, bill that product and give you preferential support. So we do not know what the uptake would be and we’re just purely guessing. We just launched it this morning, and have gotten three or four inputs since then, one from a major distributor and few from customers. One customer, I talked to personally. So I think this is the heart of the pearl. So that’s that.
And the other part of your question was the 300 millimeter. There is no plan to do any 300 millimeter inside. And we continue to have two large 8 inch fabs and one large 6 inch fab and a number of small 4 inch sort of fabs that we are transitioning product away from those 4 inches to a 6 inch and 8 inch fabs. The 12 inch capacity continues to be at our foundries for any foreseeable future.
Christopher Rolland — Susquehanna — Analyst
Thanks, guys.
Operator
There are no further questions at that time, and that ends our question-and-answer session for today. I’d now like to turn the conference back over to Mr. Sanghi. Please go ahead.
Steve Sanghi — Chairman of the Board and Chief Executive Officer
Yeah. I want to thank everyone for attending the call. And also I want to say that this is my last call as CEO. As many of you know, Ganesh Moorthy would be the CEO starting March 1. I would still attend the call. I will stay engaged with investors, but Ganesh will take the lead role. And if some of you are expecting to find a softer version of Steve, you may not get that. Internally, he is faster than I am, but we’ll see externally how Ganesh acts. So thank you all. Bye-bye.
Operator
[Operator Closing Remarks]