MICROCHIP TECHNOLOGY INC

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•The future impact on our business in response to the COVID-19 pandemic or other public health concerns;

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•The future impact on our business in response to public health concerns;

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•Fluctuations in our analog product line;

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•The possibility of future pricing fluctuations in our analog product line;

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•Our expectations regarding investments in our manufacturing capacity;

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•Our expectations regarding investments and the timeline of expansions of our manufacturing capacity;

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•Our expectation regarding the treatment of our unrecognized tax benefits in calendar year 2023;

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•Our expectation regarding the treatment of our unrecognized tax benefits in the next 12 months;

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•Our belief that our culture, values, and organizational development and training programs provide an inclusive work environment where our employees are empowered and engaged to deliver the best embedded control solutions;

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•Our belief that our culture, values, and organizational development and training programs will continue to provide an inclusive work environment where our employees are empowered and engaged to deliver the best embedded control solutions;

Previous wording

We begin our Management's Discussion and Analysis of Financial Condition and Results of Operations with a summary of business and macroeconomic developments followed by a summary of our overall business strategy to provide an overview of the goals and overall direction of our business. This is followed by a discussion of the Critical Accounting Policies and Estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. We then discuss our Results of Operations for the three and nine months ended December 31, 2023 compared to the three and nine months ended December 31, 2022, followed by an analysis of changes in our balance sheet and cash flows, and discuss our financial commitments in the section titled "Liquidity and Capital Resources."

Current wording

We begin our Management's Discussion and Analysis of Financial Condition and Results of Operations with a summary of business and macroeconomic developments followed by a summary of our overall business strategy to provide an overview of the goals and overall direction of our business. This is followed by a discussion of the Critical Accounting Policies and Estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. We then discuss our Results of Operations for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, followed by an analysis of changes in our balance sheet and cash flows, and discuss our financial commitments in the section titled "Liquidity and Capital Resources."

Previous wording

While strong customer demand for our products outpaced capacity in fiscal 2023, many of our customers felt the effects of slowing economic activity, increasing business uncertainty, persistent inflation and higher interest rates in the March 2023 quarter which continued through the first nine months of fiscal 2024. During the December 2023 quarter, business conditions globally were weaker than expected as our customers continued to respond to the effects of increasing business uncertainty and slowing economic activity. As a result, we continued to receive requests to push out or cancel backlog resulting from customer actions to reduce inventory levels and we expect such weak business conditions to continue in the March 2024 quarter. To help manage our inventory levels due to these adverse economic conditions, during each of the March 2024 and June 2024 quarters, we are reducing production levels and implementing up to two weeks of shutdown days in our global fabrication facilities. Consistent with the weak macroeconomic environment, most of our factory expansion activity remains paused and we have reduced our planned capital investments through fiscal 2025.

Current wording

During fiscal 2024, many of our customers felt the adverse effects of slowing economic activity, increasing business uncertainty, persistent inflation and higher interest rates and we received requests to push out or cancel backlog resulting from customer actions to reduce inventory levels. Although we began to see evidence of improvements in our business in the March 2024 quarter which continued in the June 2024 quarter, such as a decrease in customer requests to push out or cancel backlog while bookings increased and the number of expedites and shipment pull in requests grew, overall the macroeconomic environment remained weak in the June 2024 quarter. With the exception of certain markets we serve including aerospace and defense, and the artificial intelligence subset of data centers our customers continued to reduce inventory levels, driven by business uncertainty, ample supply, and shorter product lead times. We continue to prioritize our efforts to manage our high inventory levels, and our global production facilities continue to run at lower utilization rates. Consistent with the weak macroeconomic environment, most of our factory expansion activity remains paused and we have reduced our planned capital investments through fiscal 2025. We are unable to predict the timing or impact of any such slowdown on our business.

Previous wording

Our manufacturing operations include wafer fabrication, wafer probe, assembly and test. In fiscal 2023, we announced our intent to expand our production capacity in the U.S. In particular, we have continued our multi-year $800 million capacity expansion plan at Fab 4 in Gresham, Oregon and we plan to invest $880 million to expand our silicon carbide (SiC) and silicon production capacity, including the production of 8-inch wafers at Fab 5 in Colorado Springs, Colorado. The ownership of a substantial portion of our manufacturing resources is an important component of our business strategy, enabling us to maintain a high level of manufacturing control, resulting in us being one of the lowest cost producers in the embedded control industry. By owning wafer fabrication facilities and our assembly and test operations, and by employing statistical techniques (statistical process control, designed experiments and wafer level monitoring), we have been able to achieve and maintain high production yields. Direct control over manufacturing resources allows us to shorten our design and production cycles. This control also allows us to capture a portion of the wafer manufacturing and assembly and testing profit margin. We outsource a significant portion of our manufacturing requirements to third parties and the amount of our outsourced manufacturing has increased in recent years due to our acquisitions of Microsemi and other companies that outsourced all or substantial portions of their manufacturing.

Current wording

Our manufacturing operations include wafer fabrication, wafer probe, assembly and test. In fiscal 2023, we announced our intent to expand our production capacity in the U.S. In the first three quarters of fiscal 2024, we continued our multi-year $800 million capacity expansion plan at Fab 4 in Gresham, Oregon and $880 million plan to expand our SiC and silicon production capacity, including the production of 8-inch wafers at Fab 5 in Colorado Springs, Colorado. In the fourth quarter of fiscal 2024, we paused our expansion efforts until business conditions warrant expansion. The ownership of a substantial portion of our manufacturing resources is an important component of our business strategy, enabling us to maintain a high level of manufacturing control, resulting in us being one of the lowest cost producers in the embedded control industry. By owning wafer fabrication facilities and our assembly and test operations, and by employing statistical techniques (statistical process control, designed experiments and wafer level monitoring), we have been able to achieve and maintain high production yields. Direct control over manufacturing resources allows us to shorten our design and production cycles. This control also allows us to capture a portion of the wafer manufacturing and assembly and testing profit margin. We outsource a significant portion of our manufacturing requirements to third parties and the amount of our outsourced manufacturing has increased in recent years due to our acquisitions of Microsemi and other companies that outsourced all or substantial portions of their manufacturing.

Previous wording

There were no changes to our critical accounting policies and estimates during the first nine months of the fiscal year ending March 31, 2024 compared to our "Critical Accounting Policies and Estimates" as previously described in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2023.

Current wording

There were no changes to our critical accounting policies and estimates during the first three months of the fiscal year ending March 31, 2025 compared to our "Critical Accounting Policies and Estimates" as previously described in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2024.

Previous wording

The decrease in net sales in the three months ended December 31, 2023 compared to the three months ended December 31, 2022 was primarily due to adverse economic conditions, including slowing economic activity, increasing business uncertainty, persistent inflation and higher interest rates. The increase in net sales in the nine months ended December 31, 2023 compared to the nine months ended December 31, 2022 was primarily due to our ability to satisfy our backlog of customer orders as more capacity became available during the first and second quarters of fiscal 2024. Additionally, semiconductor industry conditions have resulted in increased costs throughout our supply chain, which we have been generally passing on to our customers in the form of price increases. Our price increases were implemented at various times and in various amounts throughout fiscal 2023 with respect to our very broad range of customers and products. These price increases also contributed to the increase in net sales during the nine months ended December 31, 2023 compared to the nine months ended December 31, 2022. Due to the complexity of the implementation of the price increases and the changes in product, geographic and customer mix, we are not able to quantify the impact of the price increases on our net sales. Due to the size, complexity and diversity of our customer base, we are not able to quantify any material factor contributing to the changes other than the net demand fluctuations in the end market we serve. See our "Business and Macroeconomic Environment" discussion above for further information on our business outlook.

Current wording

The decrease in net sales in the three months ended June 30, 2024 compared to June 30, 2023 was primarily due to adverse economic conditions, including slowing economic activity, increasing business uncertainty, persistent inflation, higher interest rates, and shorter product lead times, which factors resulted in many customers having higher levels of inventory. Due to the size, complexity and diversity of our customer base, we are not able to quantify any material factor contributing to the changes in net sales. See our "Business and Macroeconomic Environment" discussion above for further information on our business outlook.

Previous wording

Other factors that we believe contributed to changes in our reported net sales for the three and nine months ended December 31, 2023 compared to the three and nine months ended December 31, 2022 and which are drivers of long-term trends in our net sales but which factors we are not able to quantify include:

Current wording

Other factors that we believe contributed to changes in our reported net sales for the three months ended June 30, 2024 compared to June 30, 2023 and which are drivers of long-term trends in our net sales but which factors we are not able to quantify include:

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•customers’ increasing needs for the flexibility offered by our programmable solutions; and

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•customers’ increasing needs for the flexibility offered by our programmable solutions;

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•increasing semiconductor content in our customers’ products through our TSS product portfolio.

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•increasing semiconductor content in our customers’ products through our TSS product portfolio; and

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We sell a large number of products to a large and diverse customer base and there was not any single product or customer that accounted for a material portion of the change in our net sales in the three and nine months ended December 31, 2023 or the three and nine months ended December 31, 2022.

Current wording

We sell a large number of products to a large and diverse customer base and there was not any single product or customer that accounted for a material portion of the change in our net sales in the three months ended June 30, 2024 or the three months ended June 30, 2023.

Previous wording

Our mixed-signal microcontroller product line represents the largest component of our total net sales. Mixed-signal microcontrollers and associated application development systems accounted for approximately 56.3% and 56.7% of our net sales for the three and nine months ended December 31, 2023, respectively, compared to approximately 56.3% and 55.9% of our net sales for the three and nine months ended December 31, 2022, respectively.

Current wording

Our mixed-signal microcontroller product line represents the largest component of our total net sales. Mixed-signal microcontrollers and associated application development systems accounted for approximately 52.0% of our net sales in the three months ended June 30, 2024 compared to approximately 56.9% of our net sales in the three months ended June 30, 2023.

Previous wording

Our analog product line includes analog, interface, mixed-signal and timing products. Our analog product line accounted for approximately 24.4% and 26.7% of our net sales for the three and nine months ended December 31, 2023, respectively, compared to approximately 28.0% and 28.3% of our net sales for the three and nine months ended December 31, 2022, respectively.

Current wording

Our analog product line includes analog, interface, mixed-signal and timing products. Our analog product line accounted for approximately 26.6% of our net sales in the three months ended June 30, 2024 compared to approximately 27.7% of our net sales in the three months ended June 30, 2023.

Previous wording

Our other product line includes FPGA products, royalties associated with licenses for the use of our SuperFlash and other technologies, sales of our intellectual property, fees for engineering services, memory products, timing systems, manufacturing services (wafer foundry and assembly and test subcontracting), legacy application specific integrated circuits, and certain products for aerospace applications. Revenue from these services and products accounted for approximately 19.3% and 16.6% of our net sales for the three and nine months ended December 31, 2023, respectively, compared to approximately 15.7% and 15.8% of our net sales for the three and nine months ended December 31, 2022, respectively.

Current wording

Our other product line includes FPGA products, royalties associated with licenses for the use of our SuperFlash and other technologies, sales of our intellectual property, fees for engineering services, memory products, timing systems, manufacturing services (wafer foundry and assembly and test subcontracting), legacy application specific integrated circuits, and certain products for aerospace applications. Revenue from these services and products accounted for approximately 21.4% of our net sales in the three months ended June 30, 2024 compared to approximately 15.4% of our net sales in the three months ended June 30, 2023.

Previous wording

Net sales related to these services and products remained flat in the three months ended December 31, 2023 compared to the three months ended December 31, 2022 and increased 6.2% in the nine months ended December 31, 2023 compared to the nine months ended December 31, 2022. Net sales during these periods were primarily affected by adverse economic conditions, and by our available capacity for our products and our price increases. Net sales of our other product line can fluctuate over time based on general economic and semiconductor industry conditions as well as changes in demand for our FPGA products, licenses, engineering services, memory products, timing systems, and manufacturing services (wafer foundry and assembly and test subcontracting).

Current wording

Net sales related to these services and products decreased 24.7% in the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The decrease was primarily due to adverse economic conditions, including slowing economic activity, increasing business uncertainty, persistent inflation, higher interest rates, and shorter product lead times, which factors resulted in many customers having higher levels of inventory. Net sales of our other product line can fluctuate over time based on general economic and semiconductor industry conditions as well as changes in demand for our FPGA products, licenses, engineering services, memory products, timing systems, and manufacturing services (wafer foundry and assembly and test subcontracting).

Previous wording

Distributors accounted for approximately 44% and 48% of our net sales in the three and nine months ended December 31, 2023, respectively, and approximately 48% and 47% of our net sales in the three and nine months ended December 31, 2022, respectively. The decrease in net sales to distributors in the three months ended December 31, 2023 compared to the three months ended December 31, 2022 was primarily due to efforts by our distributors to manage their inventory levels. With the exception of Arrow Electronics, our largest distributor, which made up 12% and 10% of our net sales in the nine months ended December 31, 2023 and in the nine months ended December 31, 2022, respectively, no other distributor or direct customer accounted for more than 10% of our net sales in the nine months ended December 31, 2023 or in the nine months ended December 31, 2022. Our distributors focus primarily on servicing the product requirements of a broad base of diverse customers. We believe that distributors provide an effective means of reaching this broad and diverse customer base. We believe that customers recognize Microchip for its products and brand name and use distributors as an effective supply channel.

Current wording

Distributors accounted for approximately 47% of our net sales in the three months ended June 30, 2024 and approximately 48% of our net sales in the three months ended June 30, 2023. With the exception of Arrow Electronics, our largest distributor, which accounted for 11% of our net sales in the three months ended June 30, 2024 and in the three months ended June 30, 2023, no other distributor or direct customer accounted for more than 10% of our net sales in the three months ended June 30, 2024 or in the three months ended June 30, 2023. Our distributors focus primarily on servicing the product requirements of a broad base of diverse customers. We believe that distributors provide an effective means of reaching this broad and diverse customer base and that customers recognize Microchip for its products and brand name and use distributors as an effective supply channel.

Previous wording

Generally, we do not have long-term agreements with our distributors and we, or our distributors, may terminate our relationships with each other with little or no advance notice, with the exception of certain orders placed under our original Preferred Supply Program or otherwise designated as non-cancellable. The loss of, or the disruption in the operations of, one or more of our distributors could reduce our future net sales in a given quarter and could result in an increase in inventory returns.

Current wording

Generally, we do not have long-term agreements with our distributors and we, or our distributors, may terminate our relationships with each other with little or no advance notice. The loss of, or the disruption in the operations of, one or more of our distributors could reduce our future net sales in a given quarter and could result in an increase in inventory returns.

Previous wording

At December 31, 2023, our distributors maintained 37 days of inventory of our products compared to 24 days at March 31, 2023. Over the past ten fiscal years, the days of inventory maintained by our distributors have fluctuated between approximately 17 days and 40 days. Inventory holding patterns at our distributors may have a material impact on our net sales.

Current wording

At June 30, 2024, our distributors maintained 43 days of inventory of our products compared to 41 days at March 31, 2024. Over the past ten fiscal years, the days of inventory maintained by our distributors have fluctuated between approximately 17 days and 43 days. Inventory holding patterns at our distributors may have a material impact on our net sales. Due to the relatively high level of inventory days, we have accommodated efforts by our distributors to manage their inventory levels.

Previous wording

Americas sales include sales to customers in the U.S., Canada, Central America and South America. Sales to foreign customers accounted for approximately 75% of our total net sales in each of the three and nine months ended December 31, 2023 compared to approximately 77% of our total net sales in each of the three and nine months ended December 31, 2022. The decreases in Asia net sales in the three and nine months ended December 31, 2023 compared to the three and nine months ended December 31, 2022 were due to unfavorable business conditions and weakening demand in the China market. The changes in net sales in the Americas and Europe in the three and nine months ended December 31, 2023 compared to the three and nine months ended December 31, 2022 were primarily due to adverse economic conditions, and were offset by our available capacity due to the weakening demand environment in Asia. Substantially all of our foreign sales are U.S. dollar denominated. Our sales force in the Americas and Europe supports a significant portion of the design activity for products which are ultimately shipped to Asia.

Current wording

Americas sales include sales to customers in the U.S., Canada, Central America and South America. Sales to foreign customers accounted for approximately 76% of our total net sales in each of the three months ended June 30, 2024 and June 30, 2023. Our net sales in all geographies decreased in the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to adverse economic conditions, including slowing economic activity, persistent inflation, higher interest rates, and shorter product lead times. Substantially all of our foreign sales are U.S. dollar denominated. Our sales force in the Americas and Europe supports a significant portion of the design activity for products which are ultimately shipped to Asia.

Previous wording

The primary reason for the decrease in gross profit in the three months ended December 31, 2023 compared to the three months ended December 31, 2022 was an unfavorable net impact of sales volume, product mix and average gross profit per unit of $300.0 million in the three months ended December 31, 2023. The primary reason for the increase in gross profit in the nine months ended December 31, 2023 compared to the nine months ended December 31, 2022 was a favorable net impact of product mix and average gross profit per unit of $96.2 million in the nine months ended December 31, 2023. The net impact of product mix and average gross profit per unit may fluctuate over time due to the mix of sales volumes of lower or higher margin products, changes in selling prices, and fluctuations in product costs. We are not able to separately quantify these impacts on our gross profit. The net impact to our gross profit from inventory reserve charges was an adverse impact of $20.9 million and $25.0 million in the three and nine months ended December 31, 2023, respectively, compared to the three and nine months ended December 31, 2022. The gross margin impact of changes in licensing revenue, which has no associated cost of sales, was an adverse impact of $20.2 million and $42.7 million in the three and nine months ended December 31, 2023, respectively, compared to the three and nine months ended December 31, 2022. The impact of unabsorbed capacity charges in the three and nine months ended December 31, 2023 was not material.

Current wording

The primary reason for the decrease in gross profit of $754.1 million in the three months ended June 30, 2024 compared to June 30, 2023 was an unfavorable net impact of sales volume, product mix and average gross profit per unit in the three months ended June 30, 2024. The net impact of product mix and average gross profit per unit may fluctuate over time due to the mix of sales volumes of lower or higher margin products, changes in selling prices, and fluctuations in product costs. We are not able to separately quantify these impacts on our gross profit. The net impact to our gross profit from inventory reserve charges was an adverse impact of $19.9 million in the three months ended June 30, 2024 compared to June 30, 2023. The gross margin impact of changes in licensing revenue, which has no associated cost of sales, was an adverse impact of $11.6 million in the three months ended June 30, 2024 compared to June 30, 2023. The impact of unabsorbed capacity charges was an adverse impact of $36.0 million in the three months ended June 30, 2024 compared to June 30, 2023. In the three months ended June 30, 2023, we operated at or above normal capacity levels. Unabsorbed capacity charges are expensed as incurred when we operate our manufacturing facilities below normal levels.

Previous wording

Our overall inventory levels were $1.31 billion at December 31, 2023, compared to $1.32 billion at March 31, 2023. We maintained 185 days of inventory on our balance sheet at December 31, 2023 compared to 169 days of inventory at March 31, 2023. Our inventory level was slightly lower as a result of our efforts to balance manufacturing production, customer demand and inventory levels. Our inventory levels are impacted by timing of shipment activity in the quarter, the timing of receipt of raw materials, foundry wafers, and strategic last time buy materials and completion of finished goods.

Current wording

Our overall inventory levels were $1.31 billion at June 30, 2024, compared to $1.32 billion at March 31, 2024. We maintained 237 days of inventory on our balance sheet at June 30, 2024 compared to 224 days of inventory at March 31, 2024. Our overall inventory level was flat as a result of our efforts to balance manufacturing production, customer demand and inventory levels. However, our days of inventory increased significantly due to lower net sales. Our inventory amounts are impacted by timing of shipment activity in the quarter, the timing of receipt of raw materials, foundry wafers, and strategic last time buy materials and completion of finished goods.

Previous wording

We operate assembly and test facilities in Thailand, the Philippines, and other locations throughout the world. Approximately 59% and 58% of our assembly requirements were performed in our internal assembly facilities during the three and nine months ended December 31, 2023, respectively, compared to approximately 59% during each of the three and nine months ended December 31, 2022. Approximately 72% and 71% of our test requirements were performed in our internal test facilities during the three and nine months ended December 31, 2023, respectively, compared to approximately 68% and 67% during the three and nine months ended December 31, 2022, respectively. The percentage of our assembly and test operations that are performed internally fluctuates over time based on supply and demand conditions in the semiconductor industry, our internal capacity capabilities and our acquisition activities. We believe that the assembly and test operations performed at our internal facilities provide us with significant cost savings compared to third-party contractor assembly and test costs, as well as increased control over these portions of the manufacturing process. We plan to continue to invest in assembly and test equipment to increase our internal capacity capabilities and transition certain outsourced assembly and test capacity to our internal facilities.

Current wording

We operate assembly and test facilities in Thailand, the Philippines, and other locations throughout the world. Approximately 68% of our assembly requirements were performed in our internal assembly facilities during the three months ended June 30, 2024, compared to 58% during the three months ended June 30, 2023. During the three months ended June 30, 2024, approximately 66% of our test requirements were performed in our internal facilities compared to 69% during the three months ended June 30, 2023. The percentage of our assembly and test operations that are performed internally fluctuates over time based on supply and demand conditions in the semiconductor industry, our internal capacity capabilities and our acquisition activities. We believe that the assembly and test operations performed at our internal facilities provide us with significant cost savings compared to third-party contractor assembly and test costs, as well as increased control over these portions of the manufacturing process. We plan to continue to selectively invest in assembly and test equipment to increase our internal capacity capabilities and transition certain outsourced assembly and test capacity to our internal facilities.

Previous wording

We rely on outside wafer foundries for a significant portion of our wafer fabrication requirements. Approximately 64% and 65% of our net sales came from products that were produced at outside wafer foundries during the three and nine months ended December 31, 2023, respectively, compared to approximately 63% during each of the three and nine months ended December 31, 2022. These percentages may vary from quarter to quarter based on supply and demand conditions in the market.

Current wording

We rely on outside wafer foundries for a significant portion of our wafer fabrication requirements. Approximately 63% of our net sales came from products that were produced at outside wafer foundries during the three months ended June 30,

Previous wording

We anticipate that our gross margins will fluctuate over time, driven primarily by capacity utilization levels, the overall product mix of mixed-signal microcontroller, analog, FPGA products, memory products, and technology licensing revenue and the percentage of net sales of each of these products in a particular quarter, as well as manufacturing yields, fixed cost absorption, and competitive and economic conditions in the markets we serve. We continue to transition products to more advanced process technologies to reduce future manufacturing costs.

Current wording

We anticipate that our gross margins will fluctuate over time, driven primarily by capacity utilization levels, the overall mix of products sold during the period, as well as manufacturing yields, unabsorbed capacity charges, and competitive and economic conditions in the markets we serve. We continue to transition products to more advanced process technologies to reduce future manufacturing costs.

Previous wording

R&D expenses for the three months ended December 31, 2023 were $266.0 million, or 15.1% of net sales, compared to $282.4 million, or 13.0% of net sales, for the three months ended December 31, 2022. R&D expenses for the nine months ended December 31, 2023 were $857.1 million, or 13.6% of net sales, compared to $820.0 million, or 13.2% of net sales, for the nine months ended December 31, 2022. We are committed to investing in new and enhanced products, including development systems software, and in our design and manufacturing process technologies. We believe these investments are significant factors in maintaining our competitive position. R&D costs are expensed as incurred. Assets purchased to support our ongoing research and development activities are capitalized when related to products which have achieved technological feasibility or that have alternative future uses and are amortized over their expected useful lives. R&D expenses include labor, depreciation, masks, prototype wafers, and expenses for the development of process technologies, new packages, and software to support new products and design environments.

Current wording

R&D expenses for the three months ended June 30, 2024 were $241.7 million, or 19.5% of net sales, compared to $298.5 million, or 13.0% of net sales, for the three months ended June 30, 2023. We are committed to investing in new and enhanced products, including development systems software, and in our design and manufacturing process technologies. We believe these investments are significant factors in maintaining our competitive position. R&D costs are expensed as incurred. Assets purchased to support our ongoing research and development activities are capitalized when related to products which have achieved technological feasibility or that have alternative future uses and are amortized over their expected useful lives. R&D expenses include labor, depreciation, masks, prototype wafers, and expenses for the development of process technologies, new packages, and software to support new products and design environments.

Previous wording

R&D expenses decreased $16.4 million, or 5.8%, for the three months ended December 31, 2023 over the same period last year. R&D expenses increased $37.1 million, or 4.5%, for the nine months ended December 31, 2023 over the same period last year. The primary reason for the decrease in R&D expenses in the three months ended December 31, 2023 over the same period last year was due to lower employee compensation costs. The primary reason for the increase in R&D expenses in the nine months ended December 31, 2023 over the same period last year were increases in headcount and employee compensation, as well as higher product development costs.

Current wording

R&D expenses decreased $56.8 million, or 19.0%, for the three months ended June 30, 2024 over the same period last year. The primary reason for the decrease in R&D expenses were lower employee compensation costs.

Previous wording

Selling, general and administrative expenses for the three months ended December 31, 2023 were $172.2 million, or 9.8% of net sales, compared to $202.9 million, or 9.4% of net sales, for the three months ended December 31, 2022. Selling, general and administrative expenses for the nine months ended December 31, 2023 were $572.4 million, or 9.1% of net sales, compared to $594.2 million, or 9.6% of net sales, for the nine months ended December 31, 2022. Our goal is to continue to be more efficient with our selling, general and administrative expenses. Selling, general and administrative expenses include salary expenses related to field sales, marketing and administrative personnel, advertising and promotional expenditures and legal expenses as well as costs related to our direct sales force, CEMs and ESEs who work remotely from sales offices worldwide to stimulate demand by assisting customers in the selection and use of our products.

Current wording

Selling, general and administrative expenses for the three months ended June 30, 2024 were $150.5 million, or 12.1% of net sales, compared to $203.6 million, or 8.9% of net sales, for the three months ended June 30, 2023. Our goal is to continue to be more efficient with our selling, general and administrative expenses. Selling, general and administrative expenses include salary expenses related to field sales, marketing and administrative personnel, advertising and promotional expenditures and legal expenses as well as costs related to our direct sales force, CEMs and ESEs who work remotely from sales offices worldwide to stimulate demand by assisting customers in the selection and use of our products.

Previous wording

Selling, general and administrative expenses decreased $30.7 million, or 15.1%, for the three months ended December 31, 2023 over the same period last year. Selling, general and administrative expenses decreased $21.8 million, or 3.7%, for the nine months ended December 31, 2023 over the same period last year. The primary reason for the decreases in selling, general and administrative expenses was lower employee compensation costs.

Current wording

Selling, general and administrative expenses decreased $53.1 million, or 26.1%, for the three months ended June 30, 2024 over the same period last year. The decrease in selling, general and administrative expenses was primarily due to lower employee compensation costs.

Previous wording

Amortization of acquired intangible assets for the three and nine months ended December 31, 2023 was $151.3 million and $454.2 million, respectively, compared to $167.4 million and $502.5 million for the three and nine months ended December 31, 2022, respectively. The primary reason for the decreases in acquired intangible asset amortization was due to the use of accelerated amortization methods for assets placed in service in previous fiscal years.

Current wording

Amortization of acquired intangible assets for the three months ended June 30, 2024 was $123.0 million, compared to $151.5 million for the three months ended June 30, 2023. The primary reason for the decrease in acquired intangible asset amortization was due to the use of accelerated amortization methods for assets placed in service in previous fiscal years.

Previous wording

During the three and nine months ended December 31, 2023, we incurred special charges and other, net of $1.1 million and $4.6 million, respectively, primarily related to restructuring of acquired and existing wafer fabrication operations to increase operational efficiency. During the three and nine months ended December 31, 2022, we incurred special charges and other, net of $6.5 million and earned special income and other, net of $6.1 million, respectively. The special charges and other, net incurred during the three months ended December 31, 2022, primarily related to restructuring of acquired and existing wafer fabrication operations to increase operational efficiency. The special income and other, net earned during the nine months ended December 31, 2022, primarily related to a favorable resolution of a previously accrued legal matter, partially offset by restructuring costs of acquired and existing wafer fabrication operations to increase operational efficiency.

Current wording

During the three months ended June 30, 2024, and the three months ended June 30, 2023, we incurred special charges and other, net of $2.6 million and $1.7 million, respectively, primarily related to restructuring of acquired and existing wafer fabrication operations to increase operational efficiency.

Previous wording

Interest expense in the three and nine months ended December 31, 2023 was $49.2 million and $143.2 million, respectively, compared to $52.8 million and $156.4 million, respectively, for the three and nine months ended December 31, 2022. The primary reasons for the decreases in interest expense was due to the cumulative pay down of our debt offset by higher interest rates on our outstanding debt.

Current wording

Interest expense in the three months ended June 30, 2024 was $61.8 million compared to $47.2 million for the three months ended June 30, 2023. The primary reason for the increase in interest expense in the three months ended June 30, 2024 compared to the same period last year was due to higher debt balances and higher interest rates on such outstanding debt balances in the three months ended June 30, 2024.

Previous wording

During the nine months ended December 31, 2023, and December 31, 2022, we recognized losses of $12.2 million and $8.3 million, respectively, related to the settlement of a portion of our outstanding 2015 Senior Convertible Debt, our 2017 Senior Convertible Debt, and our 2017 Junior Convertible Debt.

Current wording

During the three months ended June 30, 2023, we recognized losses of $9.1 million related to the settlement of approximately $5.6 million in principal amount of our 2015 Senior Convertible Debt, approximately $25.9 million in principal amount of our 2017 Senior Convertible Debt and the outstanding principal amount of $6.5 million of our 2017 Junior Convertible Debt.

Previous wording

Our provision for income taxes is attributable to U.S. federal, state, and foreign income taxes. A comparison of our tax rates for the nine months ended December 31, 2023 and December 31, 2022 is not meaningful due to the amount of pre-tax income, and income tax expense recorded during the prior period.

Current wording

Our provision for income taxes is attributable to U.S. federal, state, and foreign income taxes. A comparison of our tax rates for the three months ended June 30, 2024 and June 30, 2023 is not meaningful due to the amount of pre-tax income, and income tax expense recorded during the prior period.

Previous wording

We are subject to taxation in many jurisdictions in which we have operations. The effective tax rates that we pay in these jurisdictions vary widely, but they are generally lower than our combined U.S. federal and state effective tax rate. Our domestic blended statutory tax rate in each of the nine months ended December 31, 2023 and December 31, 2022 was approximately 22%. Our non-U.S. blended statutory tax rates in the nine months ended December 31, 2023 and December 31, 2022 were lower than this amount. The difference in rates applicable in foreign jurisdictions results from a number of factors, including lower statutory rates, tax holidays, financing arrangements and other factors. Our effective tax rate has been and will continue to be impacted by the geographical dispersion of our earnings and losses.

Current wording

We are subject to taxation in many jurisdictions in which we have operations. The effective tax rates that we pay in these jurisdictions vary widely, but they are generally lower than our combined U.S. federal and state effective tax rate. Our domestic blended statutory tax rate in each of the three months ended June 30, 2024 and June 30, 2023 was approximately 22%. Our non-U.S. blended statutory tax rates in the three months ended June 30, 2024 and June 30, 2023 were lower than this amount. The difference in rates applicable in foreign jurisdictions results from a number of factors, including lower statutory rates, tax holidays, financing arrangements and other factors. Our effective tax rate has been and will continue to be impacted by the geographical dispersion of our earnings and losses.

Previous wording

In May 2023, we received a proposed income adjustment from the Malaysian Inland Revenue Board (IRB) for fiscal 2020. In December 2023, we received a Notice of Assessment from the IRB asserting the same proposed income adjustment. If the adjustment is upheld by the highest court that has jurisdiction over this matter in Malaysia, it could result in income taxes up to $360.0 million, exclusive of interest and penalties, which may result in additional material exposure. The disputed amounts largely relate to the characterization of certain assets. Depending on the outcome of the IRB audit, we may need to adjudicate this matter in Malaysia, and if we do, we may be required to pay the assessment and then, upon a series of favorable court rulings, request a refund of the amount. The timing of adjudicating this matter is uncertain but could commence in the next 12 months.

Current wording

In May 2023, we received a proposed income adjustment from the Malaysian Inland Revenue Board (IRB) for fiscal 2020. In December 2023, we received a Notice of Assessment from the IRB asserting the same proposed income adjustment. If the adjustment is upheld by the highest court that has jurisdiction over this matter in Malaysia, it could result in income taxes and penalties up to $410.0 million. The disputed amounts largely relate to the characterization of certain assets. Depending on the outcome of the IRB audit, we may need to adjudicate this matter in Malaysia, and if we do, we may be required to pay the assessment and then, upon a series of favorable court rulings, request a refund of the amount. The timing of adjudicating this matter is uncertain but could commence in the next 12 months.

Previous wording

In August 2022, the U.S. government enacted the Inflation Reduction Act into law. The Inflation Reduction Act includes a new corporate alternative minimum tax (Corporate AMT) of 15.0% on the adjusted financial statement income (AFSI) of corporations with average AFSI exceeding $1.00 billion over a three-year period, as well as a 1% excise tax on the net fair market value of stock repurchases made after December 31, 2022. The Corporate AMT is effective beginning in fiscal 2024. Based on currently enacted tax laws, we do not expect the Inflation Reduction Act to have a material impact on our tax expense, cash taxes, or effective tax rate.

Current wording

In August 2022, the U.S. government enacted the Inflation Reduction Act into law. The Inflation Reduction Act includes a new corporate alternative minimum tax (Corporate AMT) of 15.0% on the adjusted financial statement income (AFSI) of corporations with average AFSI exceeding $1.00 billion over a three-year period, as well as a 1% excise tax on the net fair market value of stock repurchases made after December 31, 2022. The Corporate AMT is effective beginning in fiscal 2024. The Inflation Reduction Act did not have a material impact on our tax expense, cash taxes, or effective tax rate for the period ending June 30, 2024 and year ending March 31, 2024.

Previous wording

As of December 31, 2023, 25 countries have enacted various aspects of the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting Project to ensure that multinational enterprises pay a GMT. In 24 of those countries, the GMT is effective for tax years beginning in our fiscal 2025. Based on currently enacted law, the impact of GMT on the fiscal 2025 results is not expected to be material.

Current wording

As of June 30, 2024, 31 countries have enacted various aspects of the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting Project to ensure that multinational enterprises pay a GMT. In 26 of those countries, the GMT is effective for tax years beginning in our fiscal 2025. As of June 30, 2024, the impact of GMT on the fiscal 2025 results is not material.