The year 2021 has been a tough year for everyone. Industries across the globe were shut, companies were barely floating above the economic ocean, in fact, and this year had pushed the whole world almost 2 to 3 years backwards, when all we were aiming was to achieve the things new and unheard-of milestones. The unprecedented outbreak of Covid 19 had a fierce impact on all the sectors of the global economy. Businesses that were hoping to expand and grow were now barely surviving, and no sector remained untouched from the horrors of the pandemic.
However, things are changing their course now. As the whole world is rapidly moving forward with vaccination drives, the blanket of the outbreak is being pushed away. Businesses and industries are going back to Normal, but with a ‘New Normal’. They are optimistic to recover the damage that has been made by the pandemic and foreseeing a brighter future for their operations.
ELE Times Sub Editor and Technology Correspondent Sheeba Chauhan got an opportunity to have a profound conversation, with Ganesh Moorthy, President & Chief Executive Officer Microchip Technology Inc. where he reflected back upon 2021, and discuss the optimism for the next year, and provide an outlook for 2022, for their respective industry.
Excerpt:
ELE Times: Looking back on 2021, what are your thoughts on how Microchip and the overall semiconductor industry has performed?
Ganesh Moorthy, President & Chief Executive Officer, Microchip Technology Inc.- 2021 was a strong year for the industry and record year for Microchip. In the face of significant supply constraints, Microchip ramped production to meet the growing demand. In CQ4’21, we are on track to ship 29.4% more than we shipped in CQ4’20! Demand though grew even faster and Microchip and the industry remain supply constrained as we approach 2022.
ELE Times: What are Microchip’s business outlook and plans in 2022, and what are your key strategies and approach to drive growth?
Ganesh Moorthy, President & Chief Executive Officer Microchip Technology Inc.- Microchip expects that 2022 will also be a strong growth year with supply constraints persisting through most of the year, despite us bringing on more supply to try and satisfy demand. Our short-term growth strategy is to increase capacity to satisfy demand. Our mid to longer term growth strategies are to focus on designing total system solutions for our customers which take advantage of our broad portfolio of devices. We want to provide more product in every design we are engaged in and focus on major market megatrends to give us even faster growth. The major megatrends for Microchip are 5G infrastructure, IoT/edge computing, data center, electric vehicles, Advanced Driver Assistance Systems (ADAS) and Artificial Intelligence (AI)/Machine Learning (ML).
ELE Times: The semiconductor industry seems to be at a notable juncture. Major new pandemic-induced demand spikes have collided with what had already been strong and rapidly growing demand for semiconductors. What kind of market challenges and opportunities are created for the company and how will it mitigate the former while capturing the latter?
Ganesh Moorthy, President & Chief Executive Officer Microchip Technology Inc.- Our challenge in the near term is to grow capacity prudently to meet the strong demand we already see in the form of customer orders. Our opportunity in the mid to longer term is to capitalize on our broad product portfolio to provide total system solutions for all applications and markets, and to ensure we are well positioned to take advantage of the six megatrends mentioned above.
ELE Times: How significant is the current supply/demand imbalance in the semiconductor industry?
Ganesh Moorthy, President & Chief Executive Officer Microchip Technology Inc. –It is the worst I have seen in 40 years. In fact, I think the imbalance we have seen between supply and demand has never been this acute in all my history in the industry, and it has continued to worsen over the last nine months. The rate at which new orders are coming in is outpacing the capacity that we can bring on board. It is a constraint we will see through most of 2022, and possibly into 2023.
ELE Times: What are the different factors behind the current global chip shortage? Is it a strictly short-term, conjunctural phenomenon, or could it repeat itself? What could be done to make the industry more resilient?
Ganesh Moorthy, President & Chief Executive Officer Microchip Technology Inc.- The trade and tariff issues between the U.S. and China in late 2018 and 2019 created a reduction in demand as the cost increase from the tariff could not be absorbed by manufacturers or passed along to customers. This resulted in a reduction in demand. The pandemic in 2020 created a further contraction in demand through the first 3 quarters of 2020 and low business confidence that demand would recover for a long, long time. The collective reduction in demand and expectation that demand would not recover for a long time resulted in a significant reduction in inventory and capacity by many semiconductor manufacturers. When demand returned strongly in the 4th quarter of 2020, it was a perfect storm that happened precisely when supply and inventory were at their lowest point. Manufacturers started to increase production in the 4th quarter of 2020, but it takes time to get factories re-started running at peak levels, and it takes 5 – 6 months of manufacturing cycle time to see increases in output. In the meantime, demand continued to grow faster than supply, resulting in an acute and continuing imbalance between supply and demand.
ELE Times: How has Microchip worked with customers and supply chain partners to address these supply/demand imbalance issues?
Ganesh Moorthy, President & Chief Executive Officer Microchip Technology Inc.- First, we launched our Preferred Supply Program or PSP to provide customers with supply priority beginning six months after their order in exchange for at least 12 months of non-cancellable orders. Customer response to the program has exceeded our expectations with direct customers and distributors alike. For the second straight quarter, our PSP backlog is over 50% of our aggregate backlog at the end of the September quarter and 100% of our backlog in the most constrained capacity product areas. Additional PSP backlog continues to come in every week. This gives us a solid foundation to prudently acquire constrained raw materials, invest in expanding factory capacity, and hire employees to support our factory ramps. We are making incremental capacity decisions for our internal factories where possible based on the strength of our backlog, especially our non-cancellable PSP backlog.
We have also worked closely with our supply chain partners, who provide wafer foundry, assembly/test, and materials to secure additional capacity wherever possible.
ELE Times: Do you agree with the opinion that the semiconductor shortage is probably going to last at least 4-6 quarters simply because the demand is so strong, and we’re going to have to work our way through it?
Ganesh Moorthy, President & Chief Executive Officer Microchip Technology Inc.- I believe that is about the right timespan for this to correct itself. Clearly, it will not be corrected during most of 2022, but more likely some time in 2023 although I’m not quite sure. The imbalance is so large, and continues to grow, so it’s going to take a while for it to correct.
ELE Times: Microchip products are found everywhere – from children’s toys to aerospace, toasters to automobiles and medical equipment. It probably has one of the most diversified product portfolios in the semiconductor industry as it has steadily reinforced its microcontroller leadership while adding complementary offerings through R&D and strategic acquisitions. What kind of business decisions and external factors have driven Microchip to this level of diversification, and what comes next?
Ganesh Moorthy, President & Chief Executive Officer Microchip Technology Inc.- Microchip’s purpose is empowering innovation that enhances the human experience by delivering smart, connected and secure technology solutions. We have done this for many years by creating innovative solutions, delivering tools, software and reference designs at low cost to make it easy to design with our devices and to ensure we can support customers through all stages of their design, development and manufacturing. The decision to have a combination of broad-based solutions and some vertical market solutions has allowed us to serve many end markets. Finally, the decision to have good channel partners has been an important way in which we have served small- and medium-sized customers globally.
ELE Times: How has Microchip navigated the COVID-19 pandemic to the benefit of employees, customers and other stakeholders this past year? How will Microchip continue to do so in 2022 as we enter the next phases of the pandemic with the threat of new variants and an uncharted path to the virus eventually becoming endemic?
Ganesh Moorthy, President & Chief Executive Officer Microchip Technology Inc.- Microchip will continue to adapt quickly as we see how COVID-19 evolves in 2022. Our priority is to keep all our employees safe, serve our customers who see opportunity as a result of COVID-19 and do our part to help the world return to normalcy – whatever that will be.
Contributing Author:
Microchip Technology Inc.
Sheeba Chauhan | Sub Editor | ELE Times
