Home Latest Microchip Technology (MCHP) Q2 2022 Earnings Call Transcript | The Motley Fool

Microchip Technology (MCHP) Q2 2022 Earnings Call Transcript | The Motley Fool

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Microchip Technology (MCHP) Q2 2022 Earnings Call Transcript | The Motley Fool

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Microchip Technology (NASDAQ:MCHP)
Q2 2022 Earnings Call
Nov 04, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to Microchip’s second quarter fiscal 2022 financial results. As a reminder, today’s call is being recorded. At this time, I’d like to turn the call over to Microchip’s chief financial officer, Mr. Eric Bjornholt.

Please go ahead.

Eric BjornholtChief Financial Officer

All right. Thank you, 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 release 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 Ganesh Moorthy, Microchip’s president and CEO; Steve Sanghi, Microchip’s executive chair; and Sajid Daudi, Microchip’s head of investor relations, who just joined us over the course of the last month. I will comment on our second quarter fiscal year 2022 financial performance. Ganesh will then provide commentary on our results, discuss the current business environment, as well as our guidance.

And Steve will provide an update on our cash return strategy. We will then be available to respond to specific investor and analyst questions. We are including information in our press release and in this 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 and included reconciliation information in our press release, 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 our 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 September quarter were $1.65 billion, which was up 5.1% sequentially and up 26% compared to the September quarter of 2020.

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 65.3%, and operating income was a record 42.5%. Non-GAAP net income was a record $605.6 million. Our non-GAAP cash tax rate in the quarter was 6%.

Non-GAAP earnings per diluted share are on a split adjusted basis exceeded the midpoint of our guidance and was a record $1.07. This reflects our recent two-for-one stock split that was effective for stockholders of record on October 4, 2021. On a GAAP basis, in the September quarter, gross margins were a record at 64.8% and include the impact of $9.1 million of share-based compensation expense. Total operating expenses were $652 million and include acquisition intangible amortization of $215.7 million, special charges of $10.2 million, $2.8 million of acquisition-related and other costs and share-based compensation of $46.6 million.

GAAP net income was $242 million or $0.43 per diluted share and was negatively impacted by the GAAP loss on the convertible debt exchanges that we executed in the quarter, which were not included in our guidance. Our September quarter GAAP tax expense was impacted by a variety of factors, most notably the tax benefit recorded on the convertible debt exchange transactions that I just mentioned. Our inventory balance at September 30, 2021, was $713.6 million. We had 112 days of inventory at the end of the quarter, which was up one day from the prior quarter’s level.

Our levels of raw materials and work in progress increased in the quarter, which helps position us for the increased production we are expecting from our internal factories. We are ramping capacity in our internal and external factories so we can ship as much as possible to support customer requirements. Inventory at our distributors in the September quarter was at 19 days, which is a record low level and down from 20 days as of the end of the prior quarter. In the September quarter, we exchanged a total of $263.6 million of our 2025, 2027 and 2037 convertible subordinated notes for cash and shares of our common stock.

We used cash generation during the quarter to fund the principal amount of the convertible debt exchanges, and we believe that these transactions will benefit stockholders by significantly reducing share count dilution to the extent our stock price appreciates over time. The principal amount of convertible debt on the balance sheet at September 30 was $999.2 million, compared to $4.481 billion at the beginning of calendar year 2020, putting our overall capital structure in a much better long-term position. Our cash flow from operating activities was $611.7 million in the September quarter. Our free cash flow was $533.2 million and 32.3% of net sales.

As of September 30, our consolidated cash and total investment position was $255.3 million. We paid down $415.6 million of total debt in the September quarter. And over the last 13 full quarters since we closed the Microsemi acquisition and incurred over $8 billion in debt to do so, we have paid down over $4.4 billion of debt and continue 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 much of this period, which we feel is a testimony to the cash generation capabilities of our business, as well as our ongoing operating discipline.

We continue to expect our debt levels to reduce significantly over the next several years. Our adjusted EBITDA in the September quarter was a record at $762.5 million or 46.2% of net sales. Our trailing 12-month adjusted EBITDA was also a record at $2.72 billion and 45% of net sales. 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 2.99% at September 30, 2021, down from 3.34% at June 30, 2021.

Our dividend payment in the September quarter was $121.2 million. Capital expenditures were $78.5 million in the September quarter. Our expectation for the December 2021 quarter’s capital expenditures is between $70 million and $90 million. Our capital expenditures for fiscal year 2022 are now expected to be between $350 million and $400 million.

As a reminder, our fiscal year 2021 capital expenditures came in lower than originally planned due to longer equipment lead times and deliveries pushing as a result of overall industry conditions. We continue to add capital equipment to maintain, grow and operate our internal manufacturing operations to support the expected growth of our business. We expect these capital investments will bring gross margin improvement to our business and give us increased control over our production during periods of industrywide constraints. Depreciation expense in the September quarter was $43.7 million.

I now — I will now turn it over to Ganesh to give his comments on the performance of the business in the September quarter, as well as our guidance for the December quarter. Ganesh?

Ganesh MoorthyPresident and Chief Executive Officer

Thank you, Eric, and good afternoon, everyone. Our September quarter results continue to be strong, with the revenue growing 5.1% sequentially to achieve another all-time record at $1.65 billion. September quarter revenue would have been even stronger but for constraints due to some of our capacity improvements coming in later than we wanted. On a year-over-year basis, our September quarter revenue was up 26%.

Non-GAAP gross margin was another record of 65.3%, up 50 basis points from 64.8% in the June quarter and above the high end of our guidance as we continue to ramp our internal factories and benefit from improved fixed cost absorption, as well as product mix changes. Non-GAAP operating margin was also a record at 42.5%, up 80 basis points from 41.7% in the June quarter and above the high end of our guidance. Our consolidated non-GAAP EPS was a split adjusted record $1.07 per share and was up 37.6% from the year ago quarter. Adjusted EBITDA at 46.2% of revenue and free cash flow at 32.3% of revenue were both very strong, continuing to demonstrate the robust profitability and cash generation capabilities of our business.

This, in turn, enabled us to pay down another $415.6 million in debt and bring our net leverage ratio down to 2.99 in the September quarter. With the progress we have already made and progress we expect to continue making in bringing down our debt and leverage ratio, we believe we are well-positioned to achieve an investment-grade rating in the coming months. The September quarter marked our 124th consecutive quarter of non-GAAP profitability. I would like to thank all our stakeholders who enabled us to achieve these outstanding and record results in the September quarter, and especially thank the worldwide Microchip team whose tireless efforts not only delivered our strong financial results, but also supported our customers to navigate a difficult supply environment and who work constructively with our supply chain partners to find creative solutions in an extremely constrained and challenging environment.

Taking a look at our revenue from a product line perspective. Our microcontroller revenue was sequentially down 0.9% as compared to the June quarter, in part due to the very strong shipments in the June quarter, when this business was sequentially up 10.7% and in part due to supply constraints in the September quarter. On a year-over-year basis, our September quarter microcontroller revenue was up 27.1%, and microcontrollers represented 54.2% of our revenue in the September quarter. Our analog revenue was sequentially up a strong 13.6% as compared to the June quarter, setting another record in the process.

On a year-over-year basis, our September quarter analog revenue was up 35.8%. Analog represented 29.8% of our revenue in the September quarter. During the quarter, we completed our acquisition of Iconic RF, a Belfast, Northern Island-based small, early stage private company. Iconic RF makes innovative high-performance gallium nitride and gallium arsenide, monolithic microwave integrated circuits, focused on the aerospace and defense market and we believe will further strengthen our position in this market.

Revenue contribution from Iconic RF is not material. The purchase price was in the mid-single-digit million range, with possible future performance-based earnouts. This acquisition is akin to acquiring intellectual property along with domain experts to help us accelerate our business agenda in specific laser-focused areas. Taking a look at our revenue from a geographic and end market perspective.

Americas was up 12.5% sequentially. Europe was up 4.8% sequentially, which is better than typical seasonal performance for the September quarter. Asia was up 2.1% sequentially. All end markets were strong and supply constrained.

Business conditions continue to be exceptionally strong through the quarter with record bookings and backlog for products to be shipped over multiple quarters. Our Preferred Supply Program, or PSP, continues to grow and be over 50% of our aggregate backlog and 100% of our backlog in the most constrained capacity product areas. Demand far outpaced the capacity improvements and increased shipments we achieved in the quarter. As a result, our unsupported backlog, which customers want to ship in the September quarter, which we could not deliver in the September quarter continued to climb significantly as compared to the prior quarter’s level.

This is the fifth consecutive quarter that our unsupported backlog for product requested in a given quarter has grown despite our quarterly revenue having grown 26% in the September ’20 first quarter as compared to the year ago quarter. We continue to experience constraints in all of our internal and external factories and their related manufacturing supply chains. During the September quarter, we experienced and were adversely impacted by COVID-related disruptions in our packaging and testing operations in Asia as the Delta variant adversely impacted many of these countries. We took additional steps to protect our employees in these countries and work with our partners as they took mitigation steps.

We also work closely with our supply chain partners who provide wafer foundry, assembly, test and materials to secure additional capacity wherever possible. It is a challenging environment for our factories and our partners’ factories to hire, train and retain employees to support the planned manufacturing ramps. Despite all this, through all the actions we have taken to increase capacity, we expect we will be in a position to support revenue growth for at least each of the next four quarters. This extends by one more quarter, which we stated in our August conference call as the September quarter results are now behind us.

We now expect that manufacturing constraints will persist through much of 2022 and possibly beyond that. We believe our backlog position, especially the proportion of PSP backlog is giving us a solid foundation to prudently acquire constrained raw materials, invest in expanding our factory capacity and hire employees to support our factory ramps. Our capital spending plans are rising in response to growth opportunities in our business, as well as to fill gaps in the level of capacity investments being made by our outsourced manufacturing partners in technologies they may consider to be trailing edge, but which we believe will be workhorse technologies for us for many years to come. In the September quarter, we were able to secure a license from one of our wafer manufacturing partners for a key trailing edge technology that runs on eight-inch wafers, which we expect to have qualified and in production by 2023.

This licensed technology is still growing for us, and we expect it will be a workhorse technology for at least 10 to 15 more years. We believe our increase in capital spending will enable us to capitalize on growth opportunities, improve our gross margins, increase our market share and give us more control over our destiny for trailing edge technologies. We will, of course, continue to utilize the capacity available from our outsource partners but our goal is to be less constrained by their investment priorities in areas where they don’t align with our business needs. Now let’s get into the guidance for the December quarter.

Our backlog for the December quarter is very strong, and we have more capacity improvements coming into effect. Taking all the factors we have discussed on the call today into consideration, we expect our net sales for the December quarter to be up between 4% and 8% sequentially, much stronger than normal seasonality, which is usually down 2% for the December quarter. Our guidance range assumes capacity additions, as well as continued capacity constraints, some of which we expect to work through during the quarter and others that will carry over to be worked in future quarters. At the midpoint of our revenue guidance, our year-over-year growth for the December quarter will be a strong 29.3%, accelerating from the 26% year-over-year growth in the September quarter, 19.8% year-over-year growth in the June quarter and 10.6% year-over-year growth in the March quarter.

For the December quarter, we expect our non-GAAP gross margin to be between 65.8% and 66.2% of sales. We expect non-GAAP operating expenses to be between 22.3% and 22.7% of sales. We expect non-GAAP operating profit to be between 43.1% and 43.9% of sales. And we expect our split adjusted non-GAAP diluted earnings per share to be between $1.14 per share and $1.20 per share.

Given all 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 a 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 request that analysts continue to report their non-GAAP estimates to first call. Finally, as previously announced, we will be holding our Investor and Analyst Day on November 8 in New York, which will also be simultaneously webcast for those who cannot attend in person. At the event, we will be providing details about our long-term expected growth rate, updated gross and operating margin targets, as well as more specifics about our strategy for capital return, revenue growth and manufacturing.

We hope you will be able to join us for this important and informative event. Let me now pass the baton to Steve to talk about our cash return to shareholders. Steve?

Steve SanghiExecutive Chairman

Thank you, Ganesh, and good afternoon, everyone. Today, I would like to reflect on our financial results announced today and provide you further updates on our cash return strategy. Reflecting on our financial results, I continue to be very proud of all employees of Microchip that have delivered another exceptional quarter and making new records in many respects, namely record net sales, record non-GAAP gross margin percentage, record non-GAAP operating margin percentage, record cash flow from operations and record adjusted EBITDA. Reflecting on our journey of debt and leverage ratio since the acquisition of Microsemi three-plus years ago, I note the following.

First, we financed the Microsemi acquisition by adding $8.1 billion of debt, which increased our net leverage ratio in the June 2018 quarter to 4.95%, which we know was a concern for many of you. In the last three-plus years, we have paid down a cumulative $4.4 billion of debt and brought our net leverage ratio down to 2.99%. We allocated substantially all of our excess cash generation beyond what we pay to shareholders and dividends to pay down significant debt every quarter. Number two, within the last six months, based on the debt paydown and the continued strong cash and adjusted EBITDA generation of our business, both Moody’s and Fitch changed their rating outlook from stable to a positive outlook.

And now last quarter, with very strong debt paydown and getting to a leverage ratio of below 3.0, we believe we will receive an investment-grade rating in the coming months. Regarding our capital return strategy, we are continuing to provide more cash return to the shareholders. Just today, we announced a dividend of $0.232 per share. Our dividend is reflective of Microchip’s two-for-one stock split that was effective last month.

This is our fourth consecutive quarter with a large dividend increase, increasing the dividend by 6.2% sequentially and 25.9% over a year ago quarter. And in the coming quarters, we expect to continue with more actions to increase the cash return to shareholders. We plan to give you more information about our capital return strategy next week at our investor and analyst day. We hope to see you all there.

With that, operator, will you please poll for questions?

Questions & Answers:

Operator

Thank you. [Operator instructions] We’ll take our first question from John Pitzer with Credit Suisse. Please go ahead.

John PitzerCredit Suisse — Analyst

Yeah, good afternoon, guys. Thanks for letting me ask the questions, and congratulations on the solid results. I guess, Ganesh, I wanted to get into a little bit more detail about the difference between your sort of microcontroller business being down sequentially and analog being up. It’s — you’re down is a lot less than TI’s and you’re up is a lot more than TI’s, but it’s sort of the same dynamic that they saw in their September quarter.

And they kind of highlighted the fact that perhaps customers were sort of requesting less expedited orders and maybe there was a little bit of a cooling off. I’m just kind of curious, when you look at that gap, what was the big driver in the quarter? And as you look at the December guide, would you expect the microcontroller business to start to show some accelerating growth?

Ganesh MoorthyPresident and Chief Executive Officer

It’s a great question. I think they are just quarter-to-quarter timing. If you look at our June quarter results, microcontrollers were super strong in that quarter. We had more constraints that hit the microcontroller business in the September quarter.

I wouldn’t look at anything on a one-quarter basis. Both businesses, microcontrollers, as well as analog are doing extremely well, and I expect both of them will have nice growth as we go through the December quarter. There is no customer slowdown on one product line or the other product line. They’re all constrained.

They all have a substantial unsupported, exiting the quarters.

John PitzerCredit Suisse — Analyst

Perfect. Thank you.

Operator

We’ll take our next question from Gary Mobley with Wells Fargo. Please go ahead.

Gary MobleyWells Fargo Securities — Analyst

Hey, everybody. Thanks for taking my question. I look forward to catching up with everybody next week. I wanted to ask about the backlog and your ability to fill that backlog over the next four consecutive quarters.

I appreciate your commentary about how the capital equipment you planned — intend to put in place is supported of four quarters of sequential revenue growth. But what is the risk of not receiving the capital equipment because of long lead times or lead times or the inability to get desired capacity from partners? And is this roughly 6% sequential revenue growth supported by more capacity, indicative of how you see it unwinding for those remaining three quarters or so?

Ganesh MoorthyPresident and Chief Executive Officer

So firstly, the 6% growth is a December quarter midpoint of guidance that we have. We’re not making predictions for quarters beyond the December quarter. What we do see is enough capacity coming online. We have line of sight to what we’re doing internally.

We have line of sight to what we’re working with our partners so that we expect that every quarter, for the next four quarters, including December in it, will have the opportunity for supply side growth. And right now, there’s enough and more demand for all those quarters. It’s really a matter of bringing the supply on and we don’t see any major risks in being able to bring capacity on. There’s always timing of pieces of equipment for a given factory, but they’re all comprehended in the way we’re thinking about it.

As we have gone along through this year, almost every month, we’ve been able to bring on something incremental in the capacity, which is why you’ve seen every quarter, we’ve been able to show growth — sequential growth in each of the quarters.

Gary MobleyWells Fargo Securities — Analyst

Appreciate that color, Ganesh. With the ability to supply being the main constraint of revenue, is it fair to say that over the next four quarters, it’s going to be hard to build distributor inventory anywhere above the 20-day level roughly where it sits today?

Ganesh MoorthyPresident and Chief Executive Officer

We don’t know. We expect it’s going to be difficult just judging by what we see as the intensity of the demand, what we see as a sell-through and what’s going on. But it’s hard to tell what exactly distribution inventory will be that far out in time. I don’t know, Eric, if you have any more insight.

Eric BjornholtChief Financial Officer

I really don’t. I mean just — and Ganesh mentioned it earlier, but our unsupported backlog, I mean, that’s — it’s both split between direct and distribution. So distributors would love to have more products, and we’re just not able to supply at this point in time. So I think it will be challenging, but it’s hard to predict.

Gary MobleyWells Fargo Securities — Analyst

Appreciate it, guys. Thanks.

Operator

We’ll take our next question from Vivek Arya with Bank of America Securities. Please go ahead.

Vivek AryaBank of America Merrill Lynch — Analyst

Thanks for taking my question. There is some debate whether the Preferred Supply Programs or some of your peers call them NCNR programs. Are they really enforceable or dependable because some of your competitors have chosen not to use them as much? So I’m just curious to get your perspective, why is there so much debate on use of these programs? What is their enforceability and dependability because ultimately, your products are going in end markets that need products from your competitors as well. So if those markets are not doing as well, then how enforceable, right, are your contracts? So just any — how should we think about the fact you have this PSP backlog as to how dependable the forward outlook is? Thank you.

Ganesh MoorthyPresident and Chief Executive Officer

Firstly, I don’t know all the different programs different people have and so I won’t try to contrast with what we’re doing. What we know in talking to many of our key customers who really, by the way, drove how we designed and implemented this system, the PSP program, is that it is one seen as highly valuable. Two, that it has grown over time. And three, it continues to not only be strong but people want to extend that PSP outlook.

We have 12 months as our standard backlog requirement for it. There are people placing beyond 12 months on us. And I think everybody is recognizing that the semiconductor content in the products that they’re making are extremely important to their achieving the innovation in their products, their growth objectives and therefore, are much more in the mode of making sure that they have that thought through in the demand they place on us. And because it is noncancelable, I also expect and I believe every one of them is putting thought into where to have PSP backlog and where not to have PSP backlog, given by the strength of their business and the views they have for their growth.

Vivek AryaBank of America Merrill Lynch — Analyst

Thank you.

Operator

We’ll take our next question from Tore Svanberg with Stifel. Please go ahead.

Tore SvanbergStifel Financial Corp. — Analyst

Yes. Congratulations on the solid results. I was hoping you could talk a little bit about the end markets, especially in relation to delinquencies. Are there any areas where the delinquencies are more or less?

Ganesh MoorthyPresident and Chief Executive Officer

It’s hard to find one where there is no delinquency at this point. If I judge by the number of customer escalations I get involved and calls that I have to be able to respond to, it’s in every segment. Clearly, what the news plays out has got a higher component of automotive. But it’s absolutely not the only place where there are constraints.

Constraints are in industrial, in communications, infrastructure, in data center, in the home appliances and even in parts of defense and aerospace. And so all end markets are finding that there is need and there is a demand in excess of what they had thought of a year ago. And we see these constraints in all end markets.

Steve SanghiExecutive Chairman

I would like to add that automotive tends to have the largest megaphone. So they make the most noise and people think that the constraints are the biggest in automotive. That is definitely not true. We’re seeing similar constraints in the industrial market and consumer markets and other places, but just automotive gets talked about more.

Tore SvanbergStifel Financial Corp. — Analyst

Thank you.

Operator

We’ll take our next question from Pradeep Ramani with UBS. Please go ahead.

Pradeep RamaniUBS — Analyst

Hi. Congratulations on a great quarter. Thanks for taking my question. I had a little bit more of a longer-term question.

I guess lead times for at least the 32-bit MCU seemed to be still stretching and they’re well beyond 32 weeks is what I’m hearing. But if you look into 2022, how would you sort of paint the picture for investors around where — I mean, where lead times head to by, say, mid 2022? Do you get a sense that in the current market scenario that lead times might not compress much at all in 2022? Or can you help us sort of gauge that a little bit more?

Ganesh MoorthyPresident and Chief Executive Officer

There’s two sides to that equation. There’s one side of that equation, which is supply. And the other side of that equation is demand. If you look a year ago where we were to where we are today, despite having brought significant supply online, we are further behind in terms of the constraint or the unsupported that we have.

And that’s because demand grew even faster than the supply then. I don’t know how 2022’s demand picture. We have a good sense of our own supply and what we’re doing, but how the demand picture will change and when that will change, I don’t know. But at this point in time, if you judge by how much unsupported did we have every quarter exiting each quarter, we’ve had five quarters in a row where we produced more, but had more unsupported, exiting the quarter.

And I’m fully expecting that exiting December, it will be the sixth consecutive quarter where that’s going to happen.

Pradeep RamaniUBS — Analyst

Great. Thank you.

Operator

We’ll take our next question from Matt Ramsay with Cowen. Please go ahead.

Matt RamsayCowen and Company — Analyst

Thank you very much, guys. Good afternoon. I wanted to ask a little bit about the pricing environment, and that’s been topical given the big supply/demand imbalance in the industry. Ganesh, maybe you could talk a little bit about the comments that you made about having support for growth over the next four quarters from here, how much of that is based on supply coming online? And how much of that is based on, I guess, better pricing or passing through higher input costs in terms of pricing? And whatever pricing you’re putting in place right now, how durable do you feel that is as supply and demand maybe converge down the line? Thank you.

Ganesh MoorthyPresident and Chief Executive Officer

So it’s a multivariable equation. It’s hard to break out exactly what is from price and what is from capacity. We do have — clearly, what we’re doing on the capacity side of adding more wafer is to be able to run either in our fabs or our partner’s fabs, adding more assembly and test capacity. And so there is a significant amount of unit growth that we’re expecting going into 2022 and into 2023.

The pricing for us is largely to be able to pass along cost increases that we have seen and to make sure that — and we usually will bunch them rather than try to do it on a regular basis. And so we wait to see how cost increases are coming into us, bunch it together at some point in time and then pass on the price increase. But the exact mix of price increase versus unit thing, I don’t have. There is a significant amount of unit growth going into next year.

As far as what happens further out in time, I don’t get the sense that input costs are going down, and that pricing has to come down out in time. Things like the labor costs that have been going up. I mean, those are in — they’re not coming back down. A lot of the costs for material and equipment is requiring companies, not just us, but even our supply chain to have significant capital spending to be able to not just expand factories, but build brand-new factories and the cost structures many involved there are quite significant as well.

So it is my belief that these price increases are here to stay and at least is to stay for a fair amount of time into ’22 and ’23.

Matt RamsayCowen and Company — Analyst

Very clear. Thank you.

Operator

We’ll take our next question from Harlan Sur with J.P. Morgan. Please go ahead.

Harlan SurJ.P. Morgan — Analyst

Good afternoon, and congratulations on the solid results and execution. Macro trends in China have been somewhat mixed. Obviously, building and construction activity has been muted. Industrial activity seems to be relatively OK.

Consumer is mixed. And the team has really great real-time visibility on all the end markets in China. Have you guys seen any slight inflections in China demand? Or is the supply/demand gap just so wide that you’re not able to provide enough supply even if things have down shifted a bit?

Ganesh MoorthyPresident and Chief Executive Officer

It’s a little early to put all that together, some of the power changes were really in the late September time frame, the effects of Evergrande or any of the other ones, when it percolates down to the rest of the chain that’s involved there takes some time. There is no discernible end market color we have to provide on China. We continue to have enough demand in excess of supply that even if some of that demand were to soften, we still have a lot of unsupported demand for China today.

Harlan SurJ.P. Morgan — Analyst

OK. Thank you.

Operator

[Operator instructions] We’ll take our next question from William Stein with Truist Securities. Please go ahead.

William SteinTruist Securities — Analyst

Hi. Great. Thank you for taking my question, and I’ll add my congratulations, especially on the outlook. One of the great things that Microchip has done over time is that you were very early on to recognize that similar to the industrial — let’s say, industrial companies, acquisitions in semis could provide great opportunities for both cost synergies but also revenue synergies.

I’m hoping you might use this time to update us on your integration of Microsemi. It’s been a couple of years. And I wonder if the current strong environment has either delayed or accelerated the synergies. Is there a lot more to go that maybe we all forgot about because demand has been so good? Thank you.

Ganesh MoorthyPresident and Chief Executive Officer

The integration of Microsemi is substantially complete. There’s some small amounts on the business systems, and maybe I’ll let Eric speak to it.

Eric BjornholtChief Financial Officer

Yeah. So I mean there’s still some business system integration to go. I would say from a cost perspective or synergy perspective, it’s relatively small. The things that we continue to work on, which are ongoing stories are going to be TSS or total system solutions for the products that we’ve acquired from Microsemi, and the sales and business units are working very hard on that, and we’re getting good traction.

And the other piece is ongoing manufacturing integration, which just takes time. And some of that is bringing more assembly and test in-house and some of it will be looking at some of the smaller factories over time and how that can play out to bring some cost improvements to us over multiple years. But other than that, most of the benefit is in the P&L already.

Ganesh MoorthyPresident and Chief Executive Officer

And Steve may want to speak, too. We, last quarter, shared with you where we were from a combined company earnings per share versus what we had said three years ago. So maybe, Steve, you want to speak to that?

Steve SanghiExecutive Chairman

Yeah. So if you recall, back in May, June of 2018 when we acquired Microsemi, we guided to a run rate in earnings per share of $2 per share, three years out. So now we are three years out, it’s three years and one quarter, and we just announced earnings of $1.07, which is split adjusted to $2.14 pre-split versus the $2 guidance we had given as a target three years ago. So we essentially have completely delivered on that promise.

In the middle of substantial issues for most of that period, including an inventory correction in the late 2018, followed by U.S.-China trade tensions, which affected our industrial business, consumer business and others followed by 2020, the year of COVID, which also created a lot of issues and all the COVID constraints, some of them are continuing followed by a strong demand cycle that we’re seeing right now. So a combination of all these things, we still have delivered on that promise.

Ganesh MoorthyPresident and Chief Executive Officer

Plus the Huawei ban and various others.

Steve SanghiExecutive Chairman

The Huawei ban and many other smaller companies that have been banned from being shipped to.

Ganesh MoorthyPresident and Chief Executive Officer

So it’s done outstanding for us. And I think all the results we had hoped for and more have been delivered.

William SteinTruist Securities — Analyst

Yup. Thank you.

Operator

We’ll take our next question from Chris Danely with Citi. Please go ahead.

Chris DanelyCiti — Analyst

Hey, thanks, guys. I was just wondering about lead times. How do you think your lead times compare versus the competitors? And does the difference in lead times, does that drive any share shifts? Do you think it will drive any share shifts?

Steve SanghiExecutive Chairman

So Chris —

Ganesh MoorthyPresident and Chief Executive Officer

Go ahead.

Steve SanghiExecutive Chairman

Sorry. So Chris, I think lead time is not one number for the company across our 100,000-plus SKUs, we have products that are available in four weeks, and there are products that are not even available in 52 weeks. So people talk about in average lead time terms, but I don’t think it’s really very meaningful. It’s like putting one foot in icy water and other foot in boiling water and creating the average and think the person is comfortable.

We have lots and lots of products where the product is available earlier, but we have lots and lots of products, which are not available even in a year. We do not know the lead time of every single competitor on every single part because their situation is similar where the lead times are different across products. But given all that, I think when you look at the totality of results, our year-over-year growth compared to many of our competitors and our last quarter and the current quarter guidance, it clearly shows we’re gaining share. I think that we can see.

Now do we have customers from other companies who are not able to get products coming to us for help? Yes, lots and lots of them. Are we able to help them all? No, but we’re able to help some of them or many of them. You could also have a situation where somebody who’s not able to get product from us seeking product from one of our competitors. That’s only natural.

And I’m sure they’re able to help some of them if they happen to have a product which is available in shorter lead time. So — but when you take all the puts and takes, you got to, at the end of the day, look at the overall growth where we are exceeding what we are seeing from the competition, especially in the two markets of microcontrollers and analog, and we’re gaining share in both.

Ganesh MoorthyPresident and Chief Executive Officer

And Chris, as we win those customers, coming over to us because we are able to help them, we’re also getting long-term commitments from them to stay with Microchip beyond the cycle.

Chris DanelyCiti — Analyst

Yeah. Thanks, guys. That’s very helpful.

Steve SanghiExecutive Chairman

Thanks.

Operator

We’ll take our next question from Toshiya Hari with Goldman Sachs. Please go ahead.

Toshiya HariGoldman Sachs — Analyst

Hi. Good afternoon. Thank you for taking the question. I wanted to ask about PSP.

Is there a skew or are there any patterns by device type or end market? Is the uptake of PSP stronger, for example, MCUs versus analog versus FPGA or by end market? And I guess, more importantly, customers who are not signing up for PSP, what’s typically the reason or the rationale? Is it pretty much just wanting the flexibility? Or is it something around pricing? Just curious why some customers opt to not sign up. Thank you.

Ganesh MoorthyPresident and Chief Executive Officer

So the PSP by product line isn’t particularly different. By end market, certainly, there are end markets with more demand certainty, more demand durability. There are certain customers who have more financial capability to go behind the commitments that they’re making with PSP. And those customers and those end markets do have a higher proportion of the PSP backlog that we have.

What given customers’ rationale for not doing it can be any number of things, either the markets or the financial strength could also be their view of do they — don’t they need to be in the program. I can tell you that everybody who has signed up for PSP is getting priority and is seeing results that are to their benefit in a highly constrained environment where demand far exceeds supply, and we’re leaving unsupported going out of every quarter.

Toshiya HariGoldman Sachs — Analyst

Thank you.

Ganesh MoorthyPresident and Chief Executive Officer

You’re welcome.

Operator

We’ll take our next question from Ambrish Srivastava with BMO. Please go ahead.

Ambrish SrivastavaBMO Capital Markets — Analyst

Hi. Thank you very much. Ganesh, I’m going to put my lack of knowledge on full display here on the unsupported backlog. So there’s always a lot of concern when lead times get stressed out and we are in such tight environment for so long.

So you’re referring to the unsupported backlog as one of the reasons why you say your visibility is so high. Is this included in your book-to-bill? Is this noncancelable? Why is it the right metric to look at? Could you please explain that?

Ganesh MoorthyPresident and Chief Executive Officer

Yeah. So let me separate two different things for you. We have backlog over multiple quarters. Orders placed on us and they can be asked for delivery in March and June, this quarter, etc.

Unsupported that I’m referring to is what was requested in a given quarter that we could not ship, meaning if we could ship at all, that would have added to the revenue within the quarter. That’s what we said at a record level exiting September and actually has been growing for five quarters at this point in time. And I expect it will be at another record level exiting the December quarter. So unsupported just represents the current quarter of backlog that somebody would like to have shipped to them, but which we are unable to ship to them.

So you can see what we report our revenue, which is what we actually shipped. What you don’t see is what people wanted in the quarter that we could not ship. And then the — that continues to remain as backlog that ships into whenever it is that we can ship. And then there’s other backlog, which is in addition to that that goes all the way to one and two years, depending on what program customers are on.

Does that make sense?

Ambrish SrivastavaBMO Capital Markets — Analyst

But there’s no — it does. That’s helpful. But there’s no noncancelable term to this, right? It’s just what you could not fulfill. So it could be canceled down the road just like any other backlog, which is over multiple quarters, right?

Ganesh MoorthyPresident and Chief Executive Officer

So our standard noncancelable window is 90 days. So almost by definition, if somebody was asking for product in this quarter that we could not fulfill, it is all noncancelable. PSP adds a second dimension of 12 months of noncancelable on a rolling basis that customers would have. So PSP backlog, which is significantly over 50% is all 12 months of noncancelable, plus anything non-PSP in the next three months is also noncancelable.

Ambrish SrivastavaBMO Capital Markets — Analyst

Got it. Got it. Got it. OK.

That’s helpful.

Eric BjornholtChief Financial Officer

And maybe just to make sure this is clear. The unsupported backlog is both PSP backlog and non-PSP backlog. So there’s a lot of unsupported that is in the PSP program, we just can’t meet the commitment, the requested committed date, if it helps.

Ambrish SrivastavaBMO Capital Markets — Analyst

OK. I’ll barely pass — yes, I’ll barely pass the exam now, but OK.

Steve SanghiExecutive Chairman

Note, Ambrish, is that we don’t even have enough supply to meet all the PSP needs. There is a sufficient even PSP backlog which is unsupported in the current quarter and will continue to be unsupported for several quarters. We’ll ship the last quarter and supported this quarter, but some of the current quarter backlog will not be supported this quarter, we will support it next quarter. So some of the capacity corridors by product, by technology, by fab are so constrained that PSP backlog is over 100% of that capacity.

And that is not cancelable over the next 12 months.

Ambrish SrivastavaBMO Capital Markets — Analyst

Yup. Appreciate you taking the time. Thank you.

Operator

We’ll go next to Chris Caso with Raymond James. Please go ahead.

Chris CasoRaymond James — Analyst

Yes, thank you. Good evening. Two quick questions on pricing. And first, a clarification on the PSP program.

And when the customer places the order on the PSP program, is there a firm pricing commitment with that order such that to protect it against further price increases? And if so, does that create a risk view of your input cost increase over the next year when that product is on the books? And then just longer term, do you feel that there is a structural element to these input cost increases? So the fear is at one point demand will eventually slow and we’ll catch up with supply and demand and cost will start to come down again. Do you feel that that’s not likely to happen? And if so, why?

Ganesh MoorthyPresident and Chief Executive Officer

So to your first question, the PSP program is a priority for delivery. It has nothing to do with pricing. Pricing is what we would need to make adjustments to when there are reasons to make those adjustments based on input costs going up. So there is no guarantee of fixed pricing being part of the PSP program.

On your second question with respect to input costs, there are certain input costs, which are structurally in for example, labor costs that go in. Now perhaps in time, as factories scale and size, they would get amortized over more units. But right now, labor cost is going up and you don’t take labor cost down when the cycle begins to change. Now a material cost and maybe some of the material costs could be more driven by what the cost of the commodity involves popper , etc., are going to be, and we don’t know how those will change.

And then there are equipment costs as we buy them where we have in the past, to grow our capacity, typically been buying used equipment at discounted prices. In the current environment where all fabs are full, all capacity is full, that is not an available option to us. So we are paying more expensive — or buying more expensive equipment to be able to outfit the capacity growth that we need and that will, of course, stay in structurally as well. But scale will help with some of that cost and how it gets amortized.

But I don’t fundamentally think pricing is going to change given all these moving parts. And that’s the general sense I get from all of our supply chain partners and how they’re thinking about it and what the input variables are to them as they look at what pricing they’re going to be doing.

Eric BjornholtChief Financial Officer

Maybe I can just expand a little bit on Ganesh’s first point on pricing just to explain how it works. So if we have a price increase, a customer has five days once that price increase goes out to make the decision, do they want to accept that price increase or not. And if they don’t accept the price increase, it comes back to Microchip and it — does Microchip choose to ship it at the lower price or do we reallocate that capacity when there’s so much capacity on the books when customers are screaming for product to another customer. And what we’ve seen when we’ve had price increases is that there has been hardly any customers that cancel their orders or choose not to accept the price increase because they understand the situation on the supply side.

Chris CasoRaymond James — Analyst

Very interesting. Thank you.

Eric BjornholtChief Financial Officer

Thanks, Chris.

Operator

We’ll take our next question from Christopher Rolland with Susquehanna. Please go ahead.

Christopher RollandSusquehanna International Group — Analyst

Hey, guys. Just following up on that as well. And Ganesh, you may have already answered this, but we are hearing about pricing increases from a bunch of your competitors across microcontroller and analog. And some of this is input costs, but some of this is also opportunistic.

So I guess my first question is how you guys feel about that and whether you have a plan around pricing moving forward. And then, Steve, I always love your big picture thoughts. So as it relates to pricing, the more pricing power that’s enacted here when this all ends, does this pricing revert? Or is there something structural and you think it might be more sticky this cycle versus other cycles, just given that there are fewer competitors out there than in past decades.

Ganesh MoorthyPresident and Chief Executive Officer

OK. So — and I’m trying to remember — what was the first part of the question again?

Christopher RollandSusquehanna International Group — Analyst

The first part is pricing increases from your competitors. Do you guys have a plan there? And then thoughts on bigger picture on pricing and sticking.

Ganesh MoorthyPresident and Chief Executive Officer

So we view pricing as a strategic exercise, not a tactical exercise. We don’t subscribe to trying to raise prices just because we can. These are proprietary products. Our customers are entrusting us to be able to make their designs two years before they go to production.

And they need to have the understanding that pricing will be thought of in a long-term perspective. And so we do the changes this year — we did the changes this year only because of the significant increase in input costs. But on an ongoing basis, we do not view pricing as something to tactically go change. It’s not a commodity product like memory products might be.

These are proprietary products with strategic engagements and long-term relationships with customers, and their trust that we expect to be able to maintain. I’ll let Steve answer the second half.

Steve SanghiExecutive Chairman

So my feeling is that the pricing, wherever the pricing has increased, I do not see that pricing coming down longer term on the proprietary products. On some of the commodity products, if there’s a lot of supply becomes available and there’s a competition who’s able to ship a DRAM or flash or NAND, those pricing may come down. But I don’t see pricing on our microcontroller products, analog products, connectivity products, 98% of what we make is largely proprietary. Those prices will come down.

Because when you look at the components of the pricing, the — I don’t see that fabs are going to lower the wafer cost outside fabs because they’re making huge investments because of shortage, and that equipment is being placed in now and what would be the reason to lower the price later. The — if the commodity prices come down, there’s a small component of the overall cost where that will come down. And as Ganesh mentioned earlier, the labor costs are not likely to come down, the assembly test costs are not likely to come down, our internal fabrication and other costs are not going to come down. We’re paying more for the equipment and that structurally stays in the cost structure.

So I don’t really see that the price increases that we’re passing on to the customers are temporary in nature, nor are we giving that kind of impression to our customers. I think they’re largely there to stay. Could there be a minor adjustment here and there if there was a significant cost downwards from the input cost perspective, then it’s possible, but I don’t really see it.

Christopher RollandSusquehanna International Group — Analyst

Helpful answers. Thanks, guys.

Operator

We’ll take our next question from Harlan Sur with J.P. Morgan. Please go ahead.

Harlan SurJ.P. Morgan — Analyst

Yeah, thanks for letting ask a follow-up. The gross margin expansion has been very impressive and I know you’ll be providing your long-term margin targets next week. But more near term, if I look at the December quarter guide and the last three reported quarters, you guys’ incremental gross margins are in a pretty tight range, right, 74% to 77% fall-through, very strong, very predictable. So given that you’re at full utilization and will be so at least through most of next year, is this how we should think about the gross margin expansion on incremental revenue growth kind of near term, around 75% fall through?

Eric BjornholtChief Financial Officer

Yeah. We’re never really comfortable providing that metric, right? Where it’s a complex equation with many, many factories and lots of input cost changes and whatnot, labor cost increases. So we are being as efficient as we can. Obviously, PSP backlog having so much backlog in place allows our factories to be efficient in what they’re doing, and we do expect gross margin to continue to rise, but don’t want to take away from our messaging that we’re going to give at the Investor Day next week on what the gross margin target is going to be.

Ganesh MoorthyPresident and Chief Executive Officer

We also have outside manufacturing, right? So it does not have some of the same factory benefits as when we do it inside. So there’s a lot of different pieces of this puzzle. And so I would not draw a straight line through whatever equation that you had for the last three, four quarters. I think there are many more puts and takes and we’ll give you more guidance on kind of how we see things for the longer term.

But we have had good success in the last three, four quarters that you’ve seen in the results we’ve posted.

Steve SanghiExecutive Chairman

And even the inside factories, the gross margin goes up — incremental gross margin is much higher when you’re going from underutilized factories to full utilization. Once you’re at full utilization and you’re adding capital, which you’re adding depreciation, then you’re shipping that product, the incremental gross margin is not as high as you would think. Remember, we also ship first in, first out. So even when the factory becomes full, underutilization goes away, you’re still shipping product, which you built earlier when they utilize — the increasing capital wasn’t added.

So now we’re adding incremental capital to grow the capacity and that depreciation comes in, so therefore, the incremental gross margin still — incremental gross margin is better than the average because you’re utilizing the factory better, the management, fixed infrastructure, the ecosystem, the water, the air, everything else, you’re using it more efficiently. So there is incremental gross margin, which is higher than corporate. But your metric of what it has been in the last four quarters may not stay.

Harlan SurJ.P. Morgan — Analyst

Perfect. OK. Looking forward to next week. Thank you.

Operator

We’ll take our next question from David O’Connor with Exane. Please go ahead.

David O’ConnorExane BNP Paribas — Analyst

Great. Good afternoon, and thanks for squeezing me in here. Maybe just one follow-up, Ganesh, to your comment earlier in your prepared remarks about a license for wafer manufacturing technology on an eight-inch. What was the — just wondering what [Inaudible] for that, why you need to take that license now? Was it some large design win? Or was there some change in the technology road map that really requires this or even anything around the end market where that is going and how significant it could be? That would be helpful.

Thank you.

Ganesh MoorthyPresident and Chief Executive Officer

Yes, so it’s an eight-inch trailing-edge technology that we see having lots of legs for many years in key end markets and with key customers that the products are built on. The appetite to invest there or the priority to invest there did not rise to the level to make that investment from our partners. And so we worked to get it licensed and to be able to do it ourselves. Very consistent with what we said last time and this time that we will be increasing our capacity investments in trailing edge technologies where our partners do not see the same opportunity to invest, but we see that opportunity and priority for what we do.

So that’s all that it represents.

David O’ConnorExane BNP Paribas — Analyst

That’s helpful. Thank you.

Operator

We’ll take our next question from Nik Todorov with Longbow Research. Please go ahead.

Nik TodorovLongbow Research — Analyst

Thanks. Yeah. Good afternoon, everyone, and congrats on the results. Ganesh, your comment that the growth in unsupported backlog, I think it implies that your bookings continue to accelerate or at least they’re outgrowing your billings.

A, is that correct? And b, if that’s the case, why do you think you continue to see such acceleration or outgrowth in your bookings? And does that imply that you’re seeing increasing number of expedites? Because I’m assuming that also ties up to how many — how much product customers are asking for the current quarter.

Ganesh MoorthyPresident and Chief Executive Officer

So you have a number of questions on what you asked and not all of them necessarily are linked. So first of all, bookings have been strong, remains strong, but we also have so much backlog in front of us that bookings are not necessarily the best indicator for where strength of the business is. Unsupported can come both from a business that is something which is booked inside of the quarter. But more often than not, what is happening is that people are pulling in their requirements.

So it’s already backlog we have and people would like to get it sooner than what we can provide it to them. And so a lot of factors that go into that unsupported. But the bottom line is that whatever we are able to produce and the growth that we’re able to deliver, despite it being 26% year over year is far from what is required to meet what customers are telling us they want in a given quarter. And that keeps squeezing out and we keep shipping more every quarter, and we’ll squeeze some more out in the subsequent quarters that we can’t ship into this quarter.

And it just reflects how demand is continuing to outstrip — or the demand growth is continuing to outstrip the supply growth for multiple quarters, and we do not see a bending of that curve through much of 2022.

Nik TodorovLongbow Research — Analyst

Got it. Thanks. Good luck.

Operator

We’ll take our final question from John Pitzer with Credit Suisse. Please go ahead.

John PitzerCredit Suisse — Analyst

Yeah, guys. Thanks for letting me ask a follow-up. I had two quick ones. Eric, just on the capex you guided for this year.

I’m just kind of curious how we should think about next year, especially given the exit trajectory? And then Ganesh, you guys are really kind enough to give us both kind of a revenue number and an end market demand number. I’m just kind of curious of how to think — how we should think about the relationship between the two because this quarter, it did look like your revenues were above end demand. And I’m just trying to understand what that means, especially in light of how constrained you seemed to be in the business.

Eric BjornholtChief Financial Officer

So I’ll start with capex. So capex, as I indicated, is the forecast is between $350 million and $400 million for fiscal ’22. In our Investor and Analyst Day next Monday, we will give you some parameters in terms of how to think about capex and percentage of revenue on a go-forward basis. But again, not going to take away from that messaging today.

So we haven’t given a fiscal ’23 forecast as of yet. And overall, it will depend on what the shape of the demand picture looks like and how our capacity is coming in and what is needed in the business to support customers.

Ganesh MoorthyPresident and Chief Executive Officer

You want to talk about end markets or do you want me to do that?

Eric BjornholtChief Financial Officer

Go ahead.

Ganesh MoorthyPresident and Chief Executive Officer

So for multiple quarters, you’ve seen that the end market demand has been higher than the GAAP revenue that we’ve had. The difference this quarter is small. Distribution inventory still continue to decline by one day in this case. There’s nothing meaningful in that number for this quarter.

John PitzerCredit Suisse — Analyst

Perfect. Thank you.

Steve SanghiExecutive Chairman

Well, it’s basically constrained by distribution inventories. They don’t have much to ship. What they have left is really all slower-moving slugs, they need a lot of new product from us to be able to increase the end market demand. And in some cases, I guess some of the product has been prioritized to PSP customers, and there is more direct PSP backlog than the distribution backlog.

Significantly more direct customers have gone PSP than through distribution. So therefore, much more of the product has been skewed toward direct to customers and distribution would like more, but there is no capacity. So I think that’s the limit.

John PitzerCredit Suisse — Analyst

That makes a lot of sense, Steve. I think we’re all learning that perhaps supply chains are a little bit more complex than we once thought.

Steve SanghiExecutive Chairman

Yeah. Exactly.

Operator

Ladies and gentlemen, this does conclude today’s question-and-answer session. At this time, for closing remarks, I’d like to turn the conference back to Mr. Moorthy. Please go ahead.

Ganesh MoorthyPresident and Chief Executive Officer

Well, thank you, everyone, for attending. We look forward to providing you a lot more insight on Monday when we had the investor and analyst meeting. And we will be doing some of the circuit during the quarter as well for other investor meetings. Thank you.

Operator

[Operator signoff]

Duration: 68 minutes

Call participants:

Eric BjornholtChief Financial Officer

Ganesh MoorthyPresident and Chief Executive Officer

Steve SanghiExecutive Chairman

John PitzerCredit Suisse — Analyst

Gary MobleyWells Fargo Securities — Analyst

Vivek AryaBank of America Merrill Lynch — Analyst

Tore SvanbergStifel Financial Corp. — Analyst

Pradeep RamaniUBS — Analyst

Matt RamsayCowen and Company — Analyst

Harlan SurJ.P. Morgan — Analyst

William SteinTruist Securities — Analyst

Chris DanelyCiti — Analyst

Toshiya HariGoldman Sachs — Analyst

Ambrish SrivastavaBMO Capital Markets — Analyst

Chris CasoRaymond James — Analyst

Christopher RollandSusquehanna International Group — Analyst

David O’ConnorExane BNP Paribas — Analyst

Nik TodorovLongbow Research — Analyst

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.



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