Microchip Technology (MCHP) Q1 2021 Earnings Call Transcript

Microchip Technology (MCHP 2.42%)
Q1 2021 Earnings Call
Aug 04, 2020, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to Microchip's first-quarter fiscal 2021 financial results conference call. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Microchip's president and chief -- excuse me, Microchip's chief financial officer, Eric Bjornholt. Please go ahead, sir.

Eric Bjornholt -- Chief Financial Officer

Thanks, Brandon, and good afternoon, everyone. During the course of this conference call, we will be making projections and other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions and that actual events or results may differ materially. We refer you to our press releases of today, as well as our recent filings with the SEC that identify important risk factors that may impact Microchip's business and results of operations.

In attendance with me today are Steve Sanghi, Microchip's chairman and CEO; and Ganesh Moorthy, Microchip's president and COO. I will comment on our first-quarter financial performance, and Steven and Ganesh will then give their comments on the results and discuss the current business environment, as well as our guidance. We will then be available to respond to specific investor and analyst questions. We 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, 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 leverage metrics on our website. I will now go through some of the operating results, including net sales, gross margin, and operating expenses. Other than net sales, I will be referring to these results on a non-GAAP basis, which is based on expenses prior to the effects of acquisition activities, share-based compensation, and certain other adjustments as described in our press release.

Net sales in the June quarter were $1.31 billion, which was down 1.3%, sequentially and above the midpoint of our upwardly revised guidance from June 2, 2020, when net sales were expected to be flat to down 6% sequentially. We have posted a summary of our GAAP net sales, as well as end-market demand by product line and geography on our website for your reference. On a non-GAAP basis, gross margins were strong at 61.7%. Operating expenses were at 23.1%, and operating income was an outstanding 38.6%, all better than the high end of our upwardly revised guidance.

Non-GAAP net income was $401.9 million, non-GAAP earnings per diluted share was $1.56 and $0.03 above the high end of our upwardly revised guidance from June 2. On a GAAP basis, in the June quarter, gross margins were 61% and include the impact of $6.4 million of share-based compensation and $2.8 million of COVID-19 shelter-in-place restrictions on manufacturing activities. Total operating expenses were $580 million and include acquisition intangible amortization of $235.4 million, special charges of $0.3 million, $6 million of acquisition-related and other costs and share-based compensation of $36 million. The GAAP net income was $123.6 million or $0.48 per diluted share.

Our June quarter GAAP tax benefit was impacted by a variety of factors, including tax reserve releases associated with the statute of limitations expiring, deferred tax adjustments related to intercompany movements of intellectual property rights, offset by tax reserve accruals associated with the outcome of the Altera case during the period and other matters. The non-GAAP cash tax rate was 6% in the June quarter. We expect our non-GAAP cash tax rate for fiscal '21 to be about 6%, exclusive of the transition tax, any potential tax associated with restructuring the Microsemi operations into Microchip global structure, and any tax audit settlements related to taxes accrued in prior fiscal years. We have many tax attributes and net operating losses and tax credits, as well as U.S.

tax interest deductions that we believe will keep our cash tax payments low. The cash tax payments beyond the June 2020 quarter associated with the transition tax are expected to be about $245 million and will be paid out over the next six years, including a payment that we made in July 2020 of $23.2 million. We have posted a schedule of our projected transition tax payments on the Investor Relations page of our website. Our inventory balance at June 30, 2020, was $657.2 million.

We had 117 days of inventory at the end of the June quarter, which was down five days from the prior quarter's levels and right in the middle of our publicly stated inventory target of 115 to 120 days. Inventory at our distributors in the June quarter were 30 days, compared to 29 days at the end of March. We believe distribution inventory levels for Microchip are still low compared to the historical range we have experienced over the past 10 years, which is between 27 and 47 days. The cash flow from operating activities was $501.8 million in the June quarter.

As of June 30, the consolidated cash and total investment position was $380.2 million. We paid down $394 million of total debt in the June quarter. And over the last eight full quarters, since we closed the Microsemi acquisition and incurred over $8 billion of debt to do so, we have paid down $2.62 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 most 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 June quarter was $562.2 million, and our trailing 12-month adjusted EBITDA was $2.154 billion. Our net debt to adjusted EBITDA, excluding our very long-dated convertible debt that matures in 2037 and is more equity-like in nature, was 4.24 at the end of June 2020, down from 4.46 at the end of March 2020. Our dividend payment in the June quarter was $90.4 million.

Capital expenditures were $9.5 million in the June 2020 quarter. We expect about $15 million in capital spending in the September quarter and overall capital expenditures for fiscal 2021 to be between $50 million and $70 million. We continue to add capital to maintain and operate our internal manufacturing operations, support the production capabilities for new products and technologies, as well as to selectively bring in-house some of the assembly and test operations that are currently outsourced. We expect these capital investments will bring some gross margin improvement to our business, particularly for the outsourced Atmel and Microsemi manufacturing activities that we are bringing into our own factories.

Depreciation expense in the June quarter was $41.1 million. I will now turn it over to Ganesh to give his comments on the performance of the business in the June quarter. Ganesh?

Ganesh Moorthy -- President and Chief Operating Officer

Great. Thank you, Eric, and good afternoon, everyone. Let's start by taking a closer look at microcontrollers. In a weak macro environment, our microcontroller business performed better than we expected.

On a GAAP basis, our microcontroller revenue was sequentially down 1.3% as compared to the March quarter, while from an end-market demand standpoint, our microcontroller business was sequentially down 2.8%. On a GAAP year-over-year basis, our microcontroller business was up 1.2%. We continue to introduce a steady stream of innovative new microcontroller solutions, including the industry's smallest automotive-grade maxTouch controller family, the first functional safety-ready AVR microcontroller family with a peripheral touch controller, the Switchtec advanced fabric generation four PCIe Switch family, which enables complex fabric topologies with greater scalability, lower latency, and higher performance and traditional PCIe switches. And last but not least, the Adaptec SmartRAID 3100E RAID, which stands for redundant array of inexpensive disks adapters designed to provide reliable hardware rate protection for customer data in cost-sensitive end applications that require no power and high performance.

Microcontrollers overall represented 54.9% of our end-market demand in the June quarter. Now moving to analog. On a GAAP basis, our analog revenue was sequentially up 0.7% as compared to the March quarter. While from an end-market standpoint, our analog business was sequentially down 0.7%.

In both scenarios, our analog business performed better than we expected in the midst of a weak macro environment. On a GAAP year-over-year basis, our analog business was down 4.2%. During the quarter, we continued to announce and introduce a steady stream of innovative analog products, including an expanded portfolio of over 25 transient voltage suppressor vertical rays and a 32 channel, high-voltage analog multiplexion, further enabling miniaturization of medical ultrasound applications. Analog represented 28.1% of our end-market demand in the June quarter.

Our FPGA revenue, on a GAAP basis, was down 10.3% sequentially as compared to the March quarter. From an end-market demand standpoint, our FPGA business was sequentially down 6.5%. Our FPGA business in the June quarter had one significant aerospace customer who were shut down hard due to COVID-19 restrictions for pretty much the entire quarter, resulting in lower-than-expected results. Despite this customer being unlikely to resume production in the September quarter, we are expecting the FPGA business to sequentially grow meaningfully in the September quarter.

On a GAAP year-over-year basis, our FPGA business was down 4.6%. During the quarter, we continued to introduce a steady stream of innovative FPGA products, including the vector blocks accelerator software development kit, which enables developers to take advantage of Microchip's all fire FPGAs to easily create low-power neuro network applications. FPGA represented 6.7% of our end-market demand in the June quarter. Our licensing, memory, and other product line, which we refer to as LMO, was flat as compared to the March quarter from an end-market demand standpoint.

During the quarter, we introduced a new Phase Noise Analyzer, designed for engineers and scientists who rely on precise and accurate measurements of frequency signals generated for 5G networks, data centers, commercial and military aircraft systems, space vehicle, communication satellite, and metrology applications. LMO represented 10.4% of our end-market demand in the June quarter. An update regarding coronavirus and its impact on our operations. Most of our nonfactory employee base continues to work from home.

Our global teams have been highly engaged, collaborative, and productive under the circumstances, resulting in strong customer engagement for new designs and effectiveness in our new product development programs. We would like to thank our teams worldwide for adapting as needed to changing conditions while continuing to deliver results. Our manufacturing operations, especially those in the Philippines and our outsourced partners in Malaysia, worked through various constraints throughout the June quarter and delivered increased output as reflected in our better-than-expected results. By the end of the June quarter, we had dug out of most of the delinquencies in our shipments that accumulated in April and May when unpredictable constraints from government mandates were in effect.

Our customers and our supply chain partners also endure some constraints of their factories and logistics, primarily during the month of April and May. As we progress through May and June, we experienced many short lead time orders from customers, some of which we could not support in the quarter, primarily due to three factors. First, customers whose business has strengthened due to COVID-19 conditions like from work-from-home initiatives and medical devices; second, the partial recovery in May and June of some customers' business, which experienced a sharp decline in the March-April time frame, automotive being the biggest example of that in some industrials; and third, unrealistic expectations from some customers that orders placed with short lead time can be supported by the slack in the supply chain. We are working with our customers to improve the visibility of their backlog so that we may serve them better.

Given the current market dynamics, we are providing some qualitative insights into our principal end markets. Now before we provide commentary for the June quarter, we would first like to share with you our best estimate for our fiscal year '20 revenue by end market. With over 120,000 customers served by Microchip and given the complexity of our customer base, it is laborious to collect this data and we only do so every few years. We remind you that this data is only estimated, and it is not something we can track with high accuracy.

Based on our analysis done in the June quarter for the fiscal-year '20 revenue, industrial remained our largest end market of 28% of revenue. Computing and data center was next at 18% of revenue; followed by automotive, 15% of revenue. Communications at 14% of revenue, consumer at 13%; and finally, aerospace and defense at 12% of revenue. With that backdrop to provide context, here are some end-market trend insights for the June quarter that we'd like to share with you.

Data center and computing continued to show strength from the shift to work-from-home requirements. However, we anticipate that these segments may revert to more normal demand patterns in the coming months as the search requirements start to dissipate. Automotive car sales and production in China recovered nicely to grow sequentially and year over year, benefiting our China automotive business. Our automotive business everywhere else had a very poor quarter as April and May were adversely impacted by widespread automotive factory shutdowns.

We began to see recovery in June and believe that the worst for automotive is behind us. Medical devices necessary to treat COVID patients, like ventilators, respirators, oxygen monitors, portable ultrasound machines, they were all strong. In addition to a host of other hospital equipment needed for increased patient loads, medical devices for elective procedures such as hearing aids, pacemakers, defibrillators, some of the large ultrasound MRI machines, those experienced a slowdown as individuals and hospitals delayed elective procedures. Even within the broad-based industrial and consumer markets, which were generally weak, we did see pockets of strength related to COVID-19.

In consumer, the strengths that are related to gaming, home improvement, and hobbyist projects for people shelter at home. In industrial, the strengths were related to UV disinfection system, air filtration systems, infrared temperature scanners, and a generally increasing trend toward touch rate controllers. Let me now pass it to Steve for comments about our business and our guidance going forward. Steve?

Steve Sanghi -- Chairman and Chief Executive Officer

Thank you, Ganesh, and good afternoon, everyone. Today, I would like to first reflect on the results of the fiscal first quarter of 2021, I will then provide guidance for the fiscal second quarter of 2021. The June quarter demonstrated what the best of Microchip culture and its people represent. Our global team of operations, business units, sales and marketing, and support groups all came together in the middle of a global pandemic, while working with a pay-cut and delivered a superb quarter.

I'm proud of how rapidly the Microchip team adapted to the new constraints we faced so that our employees would be safe, our customers could be well-served and our supply chain partners engaged to help ensure mutual success despite the challenges we faced. Despite the COVID-19 pandemic challenges, we delivered net sales of $1.31 billion that was down only 1.3%, sequentially and down only 1% from the year-ago quarter. Our original net sales guidance was to be down 6% sequentially at the midpoint. In early June, we revised it to be down 3% sequentially at the midpoint, and we ended at down only 1.3% sequentially.

These are exceptional results against the backdrop of simultaneous supply and demand dislocations. We also delivered outstanding non-GAAP gross margin of 61.7%, 90 basis points above the midpoint of our original guidance from May 7, 2020, and non-GAAP operating margin of 38.6%, 260 basis points above the midpoint of our original guidance. And we did all this while reducing our days of inventory from 122 days to 117 days. I am particularly proud of producing 38.6% operating margin at near the bottom of the business cycle amid a global pandemic.

Our consolidated non-GAAP EPS was $1.56, $0.21 above the midpoint of our original guidance and $0.12 above the midpoint of our revised guidance. On a non-GAAP basis, this was also our 119th consecutive profitable quarter. In the June quarter, we paid down $394 million of our debt. Our total debt payment since the end of June 2018 has been about $2.62 billion, bringing our net leverage ratio down to 4.24.

The pace of debt payments has been strong despite the weak and uncertain business conditions, underlining the strong cash generation characteristics of our business, as well as our active efforts to continue to squeeze working capital efficiencies. Now I will discuss our guidance for the September quarter. After a strong March and April, our bookings were soft in May and June. But the bookings we received in May and June had a much higher mix of near-term requirements as the customers and distributors did not have the visibility to place longer-term orders.

While the near-term aged to bookings filled up the June quarter, it left the September quarter backlog on July 1, 2020, to be down 8% compared to the backlog for June quarter on April 1, 2020. We also left a large amount of backlog unsupported out of the June quarter because those requirements came inside of our lead time, and we were not able to ship them according to customer request aids. This all prompted us to write a letter to our customers and distributors, first informing them of the business environment and our cycle time to build their products. Then we ask them to place at least 12 weeks of backlog for their requirements.

We also informed our customers and distributors that if they ask for expediting of an order, we would need to charge an expedite service fee given the disruptive nature of such orders. Through the letter, we are just trying to encourage customers to give us more visibility so that we can better meet their requirements. The expedite charges have never been material in terms of our overall revenue. With another month under our belt now since the letter, we have seen some of the customers and distributors respond.

The rate of bookings has increased. Our backlog for the September quarter is still well below the backlog for June quarter at the same point in time, but we believe that the stronger bookings now compared to weak bookings of May and June will continue to improve the September quarter backlog compared to June quarter. From an end market standpoint, as you heard during Ganesh's remarks, we have several cross-currents, contributing strengths and weaknesses at the same time. The common denominator among them is whether COVID-19 was a tailwind or a headwind during the quarter for a given end market.

The diversity of our end-market exposure, which we consider to be a strength, gives us the ability to capitalize on whatever strength there are during challenging market conditions. Taking all these factors into consideration, we expect our net sales for September quarter to be between flat to down 8% sequentially. A relatively broad guidance range is to help account for the lack of visibility and uncertainty associated with the evolving COVID-19 situation. Based on the much better-than-expected financial results in the June quarter, we gave our employees half of their June quarter salary sacrifice back in the form of a bonus.

However, we have maintained the salary cuts in the September quarter due to continued uncertainty. Our inventory at 117 days is now right in the middle of our 115 to 120 days target. Hence, we are also adjusting the factory schedules and removing the rotating time off. For September quarter, we expect our non-GAAP gross margin to be between 61.2% and 62.2% of sales.

We expect non-GAAP operating expenses to be between 23.2% and 24.2% of sales. We expect non-GAAP operating profit percentage to be between 37% and 39% of sales. We expect our non-GAAP earnings per share to be between $1.30 per share to $1.52 per share. We also expect to pay down another approximately $300 million of our debt in the September quarter.

We believe that despite the near-term pandemic-driven challenges, we are confident in the strength and diversity of the businesses and end markets we are in to achieve long-term growth in excess of the average semiconductor market growth. 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 non-GAAP basis except for net sales, which will be on GAAP basis. We believe that GAAP results provide more meaningful comparison to prior quarters, and we request that the analysts continue to report their non-GAAP estimates to first call. With this, operator, will you please poll for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] The first question will come from Vivek Arya with Bank of America Securities. Please go ahead.

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Thanks for taking my question. Steve, I think you mentioned bookings somewhat improved in July. Historically, what do August and September bookings do? And what are your assumptions in giving guidance for this quarter? Are you assuming that the bookings trend kind of stays where it is? Does it get better? Does it get worse? I'm just trying to frame the guidance versus some historical trends and what your assumptions are for what the environment does in the remaining months of the quarter?

Steve Sanghi -- Chairman and Chief Executive Officer

So Vivek, first thing I would say is that you should not really be looking at any past trends because this is just not a normal environment. Our bookings and backlogs and expedites and customer requests are really all driven by end market by end market, what the effect of COVID-19 is and what the visibility of the customers and distributors are. So really just absolutely -- bookings in a quarter would be stronger if you go into it with a weaker backlog, and the bookings often will be -- in turns would be lower if you have a strong backlog that all depends on lead time and visibility. So we went into the start of this quarter with basically -- dramatically decreased visibility by our distributors and customers.

Therefore, we started the quarter with a very, very weak backlog. If you recall, the June quarter, we started the June quarter on April 1 with a very strong backlog. From -- coming from March and the turn of China from the new Chinese New Year and all that. And then the bookings during the June quarter actually declined through May and June, which was a reverse of what happens in a normal year because June is a very strong quarter and bookings accelerate from April to May to June, it was totally different this time.

So again, in July, August and September, July bookings were up significantly from the June run rate. June was very low. And August is just starting, but looking at just a couple of days of bookings for August, they're also pretty good and even higher than the July average. So our expectation is that August and September bookings would be strong.

And near-term turns still from those bookings will be significant, which will make up for how the quarter looks against the same point in time versus June. It will improve, and that's really what is included in our guidance.

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

Thank you. The next question will come from John Pitzer with Credit Suisse. Please go ahead.

John Pitzer -- Credit Suisse -- Analyst

Hi, Steve. Thank you for letting me ask a question. you said in your prepared comments that backlog heading into September is down about 8% from the comparable time period heading into the June quarter. But if I go back 90 days ago, you didn't believe that backlog.

And at least your initial guidance for June took a fairly significant haircut to kind of the backlog and bookings. I'm just kind of curious, can you help us understand relative to the normal backlog coverage you have to your guide, how does sort of the September guidance look today?

Steve Sanghi -- Chairman and Chief Executive Officer

So same thing, John. I think in this pandemic-driven environment, throw all the old graphs away because you will reach a wrong conclusion. If you recall, on April 1, our backlog was quite strong. And the guidance we gave -- I think our backlog, Eric, was it up 9%, do I recall it correctly?

Eric Bjornholt -- Chief Financial Officer

I'd have to go back in a second. I mean our book-to-bill was like 1.17% in the March quarter. And so we entered with very strong backlog, and then we saw weak bookings and --

Steve Sanghi -- Chairman and Chief Executive Officer

We had a very strong backlog. And we gave original guidance, which was actually to be down from 2% to 10% or 2% to 12%. So we basically said that the backlog will deteriorate from being up near 9% to down 6%. This is a reverse quarter where the backlog started lower, and it started 8% lower than April 1.

And the midpoint of our guidance is really is down 4%. So this time, we're improving. We are expecting the backlog to improve in comparison to the last quarter. Why? Because last quarter bookings declined during the quarter.

This quarter, bookings are increasing during the quarter. And it's all visibility, pandemic, end market-driven, what's happening in automotive, what's happening in data center, what's happening in others. And there is really no correlation to what happened in the last five years. So throw all seasonality of the past away.

John Pitzer -- Credit Suisse -- Analyst

That's helpful. But Steve, if I could just add on there. We've all struggled. And I think you guys have internally with all the acquisitions, defining what's normal seasonal.

Any update on what you can give us or what you think a normal seasonal September quarter would look like sequentially?

Steve Sanghi -- Chairman and Chief Executive Officer

Well, first, the environment has to become normal. And we haven't seen normal in the last couple of years with all the U.S.-China trade sanctions and then the tariffs and now global pandemic. So once we have to have a stable environment for a year or so to figure out what the new seasonality would be with our acquisitions. Right now, it would be anybody's guess.

And whatever the seasonality would be in future right now throw that away.

John Pitzer -- Credit Suisse -- Analyst

Thanks for that. Thanks, guys.

Operator

Thank you. The next question will come from Ambrish Srivastava with BMO. Please go ahead.

Ambrish Srivastava -- BMO Capital Markets -- Analyst

Thank you, Steve. I'm going to ask for a clarification as well. I just want to make sure I understand your comments correctly. So as the last quarter progressed based on how you explained it, it sounds like kind deteriorated because you had a lot of short lead time orders that were not met.

And now heading into the September quarter, is it fair to assume that those quarters are now -- those quarter are scrub. But then how to reconcile with the fact that you still had delinquencies that you could not meet. Should they be coming up in this quarter? I'm just a little bit confused on trying to reconcile all your comments on the short lead time orders and the booking trends? That made sense that as the quarter progressed, bookings deteriorated, but then what about the shorter lead time orders that you could not meet in the last quarter?

Steve Sanghi -- Chairman and Chief Executive Officer

Well, let me see if I can clear some of the confusion. So we started the June quarter with a fairly strong backlog, I recall up 9% or so, and Eric correct that. And then we got reasonable bookings in April. So April was a good month.

So it was still looking good. But bookings slowed down significantly in May and then dramatically so in June. So June was even lower than May. And the bookings were so low that if our orders from those bookings were normally aged in terms of near term and outer term, the quarter would have been very low.

But the percentage of bookings that aged into the quarter were quite high. And even though we were not able to meet some of the bookings, some of those orders because of shortly timed, we still beat the quarter. From an original guidance of minus 6% at the midpoint, we came in at minus 1.3%, which means we did meet a lot of the orders, but we still left a large and delinquent. And whatever was delinquent last quarter will get shipped this quarter.

But since the bookings were so near term, we started the quarter still very much on the whole, down 8% from last quarter. And now the bookings are strengthening, bookings have largely -- the slope of the bookings have been higher. Day after day bookings are increasing all through July. And therefore, the backlog versus the same point in time has improved somewhat, but there is a lot more to go.

And we think at the rate the bookings are now and continuing to increase. The shipments will improve from the minus 8% at the start of the quarter to minus 4% at the midpoint that we're guiding to. Does that make sense now?

Ambrish Srivastava -- BMO Capital Markets -- Analyst

It does, Steve. If I just could ask one more clarification. Does that mean then that the visibility as you stand today is better than what it was at the same point in the prior quarter?

Steve Sanghi -- Chairman and Chief Executive Officer

I don't think visibility is any better. I think visibility is very low that's why it's improved from May and June. But it isn't improved from March and April. I think March and April were very strong bookings.

People had -- China had just come back from Chinese New Year, and everybody is expecting a quick end to the pandemic. So there were a lot of bookings. People do want to get quite short. And the pandemic has went longer and longer and longer.

And now there is no end inside, nobody knows what's happening. In many states, it's reemerging. Some countries are still going higher every week. So now the customers and distributors are not giving long-term orders.

It's slightly better than it was in May and June. As I described, the bookings are higher, and we believe it may continue to improve in August and September.

Eric Bjornholt -- Chief Financial Officer

I'm just going to add on to what Steve said there, just to confirm that the 9% that he is quoting in terms of our opening backlog entering the June quarter, that is the accurate number for comparison purposes, compared to the minus 8% or down 8% heading into the September quarter.

Steve Sanghi -- Chairman and Chief Executive Officer

So that's a good comparison where June quarter started up 9%, and September quarter is starting down 8%. And the June quarter deteriorated -- I'm sorry, improved from minus 9% to minus 1.3%. And we believe that this quarter will also improve from -- this quarter will go the other way. It will go from minus 8% to minus 4% that we're guiding to.

Eric Bjornholt -- Chief Financial Officer

Right. Just to clarify that statement. We entered the June quarter with backlog being up 9%, and it deteriorated to the point where we finished the quarter and down 1.3%.

Steve Sanghi -- Chairman and Chief Executive Officer

Correct.

Ambrish Srivastava -- BMO Capital Markets -- Analyst

OK. Thank you.

Operator

Thank you. The next question will come from Craig Hettenbach with Morgan Stanley. Please go ahead.

Craig Hettenbach -- Morgan Stanley -- Analyst

Yes. Thank you. Steve, just a question, just from a geographic perspective. The initial growth was driven by China, and as you mentioned, coming back from China New Year.

Do you think some of the China strength is sustainable? And then also, how are you feeling about other geographies, like Europe and North America?

Steve Sanghi -- Chairman and Chief Executive Officer

Ganesh, you want to take that?

Ganesh Moorthy -- President and Chief Operating Officer

Yeah. So China was certainly stronger last quarter than we expected. But China doesn't live in isolation. China is affected by how other parts of the world do.

And so as we go into the September quarter, it is still doing well, but we anticipate that weakness in Europe, weakness in Americas would have some impact on China, and that's all baked into the guidance that we have built.

Craig Hettenbach -- Morgan Stanley -- Analyst

Got it. Thank you.

Operator

Thank you. The next question will come from Harsh Kumar with Piper Sandler. Please go ahead.

Harsh Kumar -- Piper Sandler -- Analyst

Hey, Steve. So I'm going to ask about what everybody else is talking about. So it sounds like there's good demand, but sounds like toward the end of last quarter, you saw short term demand, but now you're seeing the customer pivot completely, and they are starting to place orders. So my question to you, as you guys talked, you guys do a great job.

You've got lots of customers. You do a good job keeping up with them. What do you think is making the customer flip in this manner?

Steve Sanghi -- Chairman and Chief Executive Officer

I think it's all COVID-19. Customers are not sure. There is a resurgence of COVID in certain countries and certain states in the United States. Customers and distributors have low backlog from their end customers, and our direct customers are not really sure what the run rate would be.

So we're getting frequent orders for short-term delivery that they have the demand today, and they need to build a product to deliver to their customer, but they do not know whether that is sustainable in September, in October, in November. So we're getting -- we're not getting as many longer-term orders to fill the pipeline. But we're getting enough orders to have the strong billings as we go. As we saw last quarter, there was enough strength in short-term orders that the billings was good and we ended fairly good and for all we know that could happen this quarter.

But we can't say with certainty today with our backlog being low compared to same point last quarter, we could get enough turn to fill the quarter. But there is lack of visibility, therefore, we can't guide with that certainty.

Harsh Kumar -- Piper Sandler -- Analyst

Fair enough, Steve. And for my follow-up, your revenues are down quite a bit based on your guidance, but your margin is pretty steady, pretty stable sequentially. Just curious if you have any thoughts on that?

Steve Sanghi -- Chairman and Chief Executive Officer

Well, so you should look at the results and look at it a little bit year over year. So when you look at it year over year, will be kind of much more in the pack overall in the semiconductors. And actually, year-over-year guidance for September is better than really most of our microcontroller and analog competitors. So everybody's seasonality is different.

Our automotive business is only about -- Ganesh, is it 12% now?

Ganesh Moorthy -- President and Chief Operating Officer

It's probably 13%, 14% after the last quarter.

Steve Sanghi -- Chairman and Chief Executive Officer

Yes. So our automotive business is about 13%, 14% of our business. And some of our competitors, it's 40%, 45%. So they took a much larger hit when the automotive went down.

Automotive was down 40% or so in the industry last quarter. And so they are seeing a much larger recovery. Our business, we're seeing a similar recovery, but being only 13%, 14% of our business, this impact will be lower. So we did better last quarter.

This quarter, we're doing worse sequentially. But if you look at year over year, our results are better than all of our larger competitors, TI assays and others. And as far as the question on the margin is concerned, I mean margin, there have been a lot of moving parts, internalization, more advanced-process technologies, some restructuring of our factories, we have talked about before. So lots of things we have brought to bear, where there's been a tailwind on the margins and this is really the best gross margin and operating margin performance of any cycle at Microchip because driven by all these self-health kind of things we have done.

And when this business recovers and goes back to new record on the top line, I think you will see record growth in operating margins.

Operator

Thank you. The next question will come from Shawn Harrison with Loop Capital. Please go ahead.

Shawn Harrison -- Loop Capital Markets -- Analyst

Thank you. Thanks for taking my question. Just a quick clarification and then a follow-up. What was the underutilization in the charge this quarter, Eric?

Eric Bjornholt -- Chief Financial Officer

The underutilization was about $13.9 million. That's right in line with what it was in the March quarter. So flat sequentially.

Shawn Harrison -- Loop Capital Markets -- Analyst

And then Steve, to kind of beat the dead horse on the demand environment. But are there end markets where you're seeing sharper contractions in demand? We know automotive production will be up sharply in the September quarter, but where are you seeing maybe a contraction or more volatility in kind of the bookings rate, if you could give an end market perspective, that would be helpful.

Steve Sanghi -- Chairman and Chief Executive Officer

Ganesh? I'll give it to Ganesh.

Ganesh Moorthy -- President and Chief Operating Officer

So in my prepared remarks, I gave you some flavor of by different end markets what are we seeing in the June quarter. And I think as time goes on, some of these are going to start reverting to normal, which we think, for example, data center and work-from-home-related items. You don't need to continue to be at a high level once you've gotten past the first several months of buying which you need. And then those that were below in the initial phases, like automotive and industrials, should be the ones that begin to recover.

We've already seen the automotive parts put a bottom in the June quarter. And we're expecting September to be good, and we're expecting December to be good. And likewise, in some of the other segments. So medical was another example where some parts of medical did really well because of COVID-related items.

Other parts -- the elective parts got pushed out because people are not willing to go out of their homes or go set up consults for what was elected. Elective will come back. You can't push it out forever. And so that will be, in general, I think the places that will recur as time goes on will be the ones that have more strength.

And some of the things that were stronger could revert back to normal in the coming months.

Operator

Thank you. The next question will come from Gary Mobley with Wells Fargo Securities. Please go ahead.

Gary Mobley -- Wells Fargo Securities -- Analyst

Hey, guys. Thanks for taking my question. I wanted to start with some questions for Eric. I wanted to ask about OPEX.

It looks like for your guidance and what you deliver for the first quarter, you're somewhere just south of $300 million per quarter, that's down, I believe, more than 10% from last year. How much of that is the salary cuts and various other OPEX decreases like lower travel? I'm just trying to get a sense of what oral might look like for you guys on the OPEX side once things begin to turn out?

Eric Bjornholt -- Chief Financial Officer

So the salary cuts when at the levels we implemented, we quantified those last quarter as being about a $21 million per quarter run rate that pulled out. And Stephen talked about us giving some of that back to employees this last quarter is because the results were really quite good. Things like travel, we haven't quantified them, but they are pretty significant. And what I would say with that, I think some of that is probably more permanent than temporary.

I think as we've adjusted from working from home throughout the organization in the different functions, people will become very effective in doing that. And I think overall, travel, although it will come back to a higher level, some of that is going to be permanent savings. So I think we're managing the operating expenses very tightly in the environment that we're in. And the employees are doing a good job of managing that for the environment.

But overall, we've taken out a lot of costs. But as the business improves, some of those costs in terms of the salary cuts and some of the bonuses returning to a higher level, they absolutely will come back to the P&L, and we'll manage that appropriately given where top-line growth is.

Gary Mobley -- Wells Fargo Securities -- Analyst

OK. A follow-up I wanted to ask about the debt structure. You guys refinanced and extended the maturity of a pretty hefty amount of your debt. It looks like as a result, your net interest expense, the new norm might be substantially lower.

Can you speak to what the new norm may look like for net interest expense and as well, given the low interest rate environment that we're in, what the additional opportunities might be to draw down your cost of capital?

Eric Bjornholt -- Chief Financial Officer

Sure. So we were active in the debt capital markets in the quarter. We issued $2.2 billion of senior secured notes and paid off a bridge loan, paid off some of our converts and then use the remaining funds to pay off amounts over a line of credit. The guidance that you'll see in our guidance table in the press release for other expense, which is most of that is interest expense is about $78 million on a non-GAAP basis for the quarter.

And that's a pretty good run rate since all these debt transactions had occurred last quarter and are factored into that guidance. And obviously, we're using a significant amount of the cash that we're generating to pay down debt, everything really beyond the dividend payment. And so as Steve mentioned in his prepared remarks that in the current quarter, we expect to pay down another $300 million of debt. So that is coming down nicely.

We've done some nice things to remove some of the dilution that comes from those convertibles that we've retired from the structure, and we're pretty happy with the transactions that we executed both in the March quarter and the June quarter. And that ongoing run rate is probably about $78 million, and that will reduce as the interest expense comes down through debt repayments.

Gary Mobley -- Wells Fargo Securities -- Analyst

Gotcha. Thanks, guys.

Eric Bjornholt -- Chief Financial Officer

Thank you for the question.

Operator

[Operator instructions] The next question will come from Chris Caso with Raymond James. Please go ahead.

Chris Caso -- Raymond James -- Analyst

Yes. Thank you. Just a couple of clarifications here. Your revenue guidance is suggesting about a 6% year-on-year decline with all of the puts and takes that we've talked about.

Do you think that down 6% a year is an accurate reflection of what your customers' consumption really is? Is that sort of the baseline that we should be using here? And as we look forward into the December quarter, based on what you're seeing in bookings, does that provide you with any degree of confidence that we'd see a sequential increase as we go into December or is that just too tough to call given the short nature of the orders that you're receiving now?

Steve Sanghi -- Chairman and Chief Executive Officer

I'll take the first part of that question. I think the revenue based on selling that we report, we also tell you the end-market demand number, which is based on sell-through, they're not that far apart now. Those two numbers have come really fairly well together. They were wide apart when we were correcting for inventory two years ago.

So if we're down 6% in September quarter guidance versus September quarter of last year that basically represents the market demand today. So that was the first part of your question. The second part was, what do we expect for September? Is that what you're trying to say?

Chris Caso -- Raymond James -- Analyst

Yes. And given the fact it sounded like the orders improved in July, I suppose that some of that's going into the December quarter. But you also mentioned that the order rates were -- the aging of the orders was very short. So perhaps you're not getting the same visibility you're getting this now that you would in a typical quarter, and perhaps that makes it more difficult to call.

Steve Sanghi -- Chairman and Chief Executive Officer

So I would say, in this kind of environment, we can barely call September. We can't really call December. It will depend on what happens on the COVID situation. Does the vaccine come out, do those fears go away, does everybody go back to work, all factories remain open, schools open.

There is a lot of ground to cover between now and October before the December quarter starts. So I would say -- I'm not willing to say much about December yet.Thank you.

Operator

Thank you. The next question will come from Raji Gill with Needham & Company. Please go ahead with your question.

Raji Gill -- Needham and Company -- Analyst

Yes. You might have answered this in the past question, but just to kind of repeat. So as we entered into the June quarter, we saw kind of a dramatic reversal, plus 9% going to minus 1.3%. And as we go into September, we're seeing a reversal in the other direction, going from minus 8% to about minus 4%.

And so those reversals, either positive or negative, if you were to sum it up, it's primarily based on just complete lack of visibility that your customers are getting and basically operating on very short lead times?

Steve Sanghi -- Chairman and Chief Executive Officer

It's basically there. We serve six, seven markets. Every end market is affected differently by COVID-19. Automotive being the worst and industrial being next.

And on the other hand, the best market was a data center and medical and some of the work-from-home computing and all that. So each market is affected very differently by COVID-19. And backlog almost by those end markets, how the customers are behaving is quite different. And I think it's really basically all driven by that.

So what we are seeing today is the bookings today are not bad to really what we need to ship this week and next week and next week. But we're not getting back in May and June. We were not getting enough bookings for August and September and October. So today, we've seen good booking in July, we got good bookings for July, August and September, but not enough yet for the next quarter.

So as we proceed in the quarter, especially when we are in August and September, not only we need to get the bookings to fill the August and September there has a role in it, we also got to get enough bookings. So on October 1, we start the next quarter correctly. And December quarter is also front-end loaded usually because December is a short month because of all the holidays. And it's really just COVID-19 is controlling the people's emotions and purchasing managers habits and everything else.

Raji Gill -- Needham and Company -- Analyst

And for my follow-up, in terms of the gross margin, so with revenue being down 4% sequentially, gross margins are holding flat sequentially despite revenue declining, even though data center is appearing to kind of revert back to normal patterns. I'll presume data center might be a higher gross margin product. So can you just talk a little bit about the puts and takes in terms of the mix shift that's happening, utilization rates that are happening? Why is margins being flat, which is a good thing despite revenue coming down?

Steve Sanghi -- Chairman and Chief Executive Officer

So Eric, do you want to take that one?

Eric Bjornholt -- Chief Financial Officer

Sure. I can. So just maybe start by just reiterating that, we're pretty proud about how the gross margins have held up. And the last couple of years, we've experienced of the various things of China trade and now COVID.

And even with our $13.9 million underutilization charge, still posted 61.7% gross margin this last quarter. So there's always things with product mix that impact gross margins, utilization levels and all those things. But we see pretty good stability this quarter. The midpoint of guidance, as you said, is flat sequentially.

And we've given a little bit broader range of gross margin guidance than we normally do, between 61.2% and 62.2%, so 1% range there. But we've got a pretty wide range of revenue also that we're guiding to between flat and down 8%. So lots of puts and takes, but we're continuing to do all the right things to keep costs under control, bring things in-house where we can to improve the cost structure and gross margin, I think, is really kind of highlighting this cycle in terms of how well they've been maintained.

Raji Gill -- Needham and Company -- Analyst

Thank you.

Operator

Thank you. The next question will come from William Stein with Forest Securities. Please go ahead.

William Stein -- Forest Securities -- Analyst

Great. Thanks for taking my question. Steve, in the press release and in the comments that you made in your prepared remarks today, you seem to attribute the slower pace of bookings, at least partly to resurgence in COVID. And I think what some investors are concerned about is that instead, the slowdown may be related to customers having over ordered in the recent past, Microchip's delivery gets that and then customers have to digest it.

Meanwhile, you seem to have had some pretty deep conversations with customers to figure out sort of end-market expectations for the full year. So I'm wondering if perhaps do you have a sense from those discussions, what customer inventory levels are like now? It seems to me if they're ordering on very short lead times, they're probably ordering for production and not for safety stock, but any insight in this regard would really helpful.

Steve Sanghi -- Chairman and Chief Executive Officer

Well, we do business with 120,000 customers and long-tail well over 100,000 of them buy from hundreds of our distributors around the world. We're not aware of any broad-based holding of inventory by our customers, and our distributor inventories are still in the range of being 15-year lows. With, again, 120,000-plus end customers, we're really not able to assess the inventory situation in each one of our customers, but we have a generally good sense of the inventory in the market. We've done a good job of keeping our lead time short and maintaining our delivery performance at a reasonable level.

If the customers had hold inventory in the prior quarter or so, we wouldn't be getting so many short-term requests. And in some cases, customers are paying expedite charge to get those parts. And there's no reason customers will be paying expedite charges to get the parts if they didn't need them for production. And in many cases, we are delivering right on the factory floor.

They are short-circuiting shipment methods and, hey, drop it on my floor because there are lines-down situation. So if anything, inventory is not high out there, inventory is low.

William Stein -- Forest Securities -- Analyst

That's super helpful. Thank you.

Operator

Thank you. The next question will come from Chris Danley with Citigroup.

Chris Danely -- Citi -- Analyst

Hey. Thanks, guys, for squeezing in. Just a quick one. Can you give us approximately what percentage of revenue goes through China and how that's done over the last few quarters?

Steve Sanghi -- Chairman and Chief Executive Officer

Eric, do you have that?

Eric Bjornholt -- Chief Financial Officer

Yes. So a 21%, 22% of our revenue ships into China. And obviously, there's some of that that's local consumption and some of that comes back to the Americas or Europe for consumption, but it's in that 21%, 22% range.

Steve Sanghi -- Chairman and Chief Executive Officer

So Chris, the June quarter -- in the June quarter, the China revenue snapped back to higher levels as the COVID-19 situation improved in China, and business activities supporting local consumption appear to be much more normal in China.

Operator

Thank you. The next question will come from Harlan Sur with JP Morgan. Please go ahead.

Harlan Sur -- J.P. Morgan -- Analyst

Hi. Good afternoon. In response to the muted demand environment back in the June quarter, you guys did cut back the number of manufacturing hours for your fab employees in your two U.S. fabs.

I think it went from like 11 -- it went from like a 13-week work week -- work quarter to like an 11-week work quarter. With the demand trends being muted, are you guys continuing to drive an 11-week manufacturing work quarter or are you guys taking down work hours and utilizations further here in the September quarter? And then just as a follow-up, it looks like Philippines is reimposing some of the regional lockdowns and a resurgence of COVID-19. Is this having an impact on the Philippines' test operations?

Steve Sanghi -- Chairman and Chief Executive Officer

So I'll take that first part of the question. I think you may have missed the commentary earlier, but I did say in my remarks that actually our inventory last quarter came down to 117 days from the 120 days before. Remember, we went into the quarter guiding to be down minus 6%. So if we were down minus 6%, our inventory would have gone up, which we did not want.

So we put the rotating time off in the factory, at least in the two largest fabs to really have operators take some time off. And so we did better in revenue with only being down minus 1.3%, and we cut back on the production. So the combined effect of that was our inventory actually came down. So with the 117 days inventory, we have now adjusted the factory schedule where we're no longer working the rotating time off in those two large fabs.

There are lots of small, small plants we inherited from Microsemi around the world, in Boston, in Ireland, in Germany and other places, those are all small labs, and each one has their own schedule. Some of them are working short weeks because demand on certain products is weak. But the big plants are no longer working short hours. And second part of your question was the Philippines.

Ganesh, you want to take that one?

Eric Bjornholt -- Chief Financial Officer

Yes. So we did -- we are aware of the adjustments Philippines is making. What we have not given you much color on is, at the May conference call, I mentioned that we've had people who are effectively living in the Philippines factory, who run our operations there for a significant portion of certainly, March and April. And at its peak, we had about 850 employees living in our factory to be able to work around the constraints.

It has come down since then. We still maintain a force of about 300 people that are there. It gives us that strategic flexibility on any short-term constraints. And so we have planned for where this might go and what other actions may be taken.

And we are not -- unless something different happens with what we expect is likely to happen, we feel we have the control and what we need to do for keeping Philippines running.

Harlan Sur -- J.P. Morgan -- Analyst

Thanks, Steve. Thanks for that

Operator

Thank you. The next question will come from Vijay Rakesh with Mizuho. Please go ahead.

Vijay Rakesh -- Mizuho Securities -- Analyst

I guess good execution in a tough environment. Just wondering on your September quarter guide for down four of the midpoint, are you seeing any particular weakness in you look by segment is are you seeing storage, the computer data center being a little bit more weaker or industrial? If you give some more color there?

Steve Sanghi -- Chairman and Chief Executive Officer

So, Ganesh, we answered that question before, but go ahead, take it again.

Eric Bjornholt -- Chief Financial Officer

So as I mentioned, some of the segments that were strong in the June quarter were driven by the work from home and medical type of activities, which had very short surge of demand that was acquired. That's what had us running in the June quarter to try and catch up with a lot of new orders that came in as well. We are anticipating and the trends we're seeing is some of that surge subsides and demand begins to revert back to normal at that point in time. So in that sense, I wouldn't call it weak demand, but I would call it, it doesn't have the surge that the June quarter had required as you continue to go long in time.

And likewise, on the opposite side, some of the things that were really weak, automotive being one example of that, also begins to correct in the opposite direction where it begins to make up for some of that weakness as factories run, as demand returns and that product business gets stronger.

Vijay Rakesh -- Mizuho Securities -- Analyst

Got it. And I know you've mentioned not able to meet all the demand coming through, given the short-term nature of these orders, spurt of orders, I guess. Do you see any risk of losing orders or losing share or just wondering if that's part of it or is it just limited visibility on the part of the customers?

Steve Sanghi -- Chairman and Chief Executive Officer

These are all proprietary products. These aren't product that you switch overnight and go between sources and all that, so no. We don't see any risk of losing share in what's going on. And as we have said, we're working constructively with our customers to try and get the best visibility they have to us as well and to be able to serve them in order to meet their demand requirements.

And so these are short-term issues caused by the demand and supply shocks in the system, I don't expect these to be long-term issues.

Vijay Rakesh -- Mizuho Securities -- Analyst

Thanks a lot.

Steve Sanghi -- Chairman and Chief Executive Officer

Thank you for the question.

Operator

The next question will come from Christopher Rolland with Susquehanna. Please go ahead with your question.

Christopher Rolland -- Susquehanna International Group -- Analyst

Thanks for the question. This one's really for Steve. Switching gears, we now have ADI acquiring Maxim. Do you see this changing anything for the analog market? And what are your feelings generally on consolidation? Do you expect it to continue at this pace or even accelerate during COVID? And if you had a view of valuations for targets in the industry right now, that would be appreciated as well.

Steve Sanghi -- Chairman and Chief Executive Officer

OK. Well, thanks for the question. I mean we ourselves do not see any threat from the proposed acquisition of Maxim by ADI. They are both strong competitors in the analog space, and we compete against both of them on a regular basis.

And when they get combined -- anytime an acquisition happens, we always see incremental opportunities arise because sometimes the customer wants two defense sources or do on all their business with ADI and Maxim as they become one. So some opportunities appear that we'll be able to take advantage of it. In terms of the merger environment, it really looks at times that it could slow down. And if large acquirers are digesting.

At one time, look like it will be difficult to get approvals from China. But then we got a flurry of approvals. Marvell got approved. IDT got approved.

The Mellanox got approved. And now it is Maxim, and Cyprus got approved. So if China continues to approve these deals and the still acquirers who are willing to acquire then the consolidation in the industry would continue. I think that's really for sure.

And the fundamental issue is, if you look at over a long period of time, over the last 20 years, the overall growth of the semiconductor industry has been low to mid-single digits, and that's a tough environment to operate in. Every year, people get excited about one thing or the other, but all these various trends have come in, but a consolidated long-term industry has struggled. And any time an industry struggles on the top line, then the stronger will acquire, the weaker and consolidation will continue. So that's really my view on consolidation.

As far as valuation question is concerned, I mean look at the valuation Cyprus went for and Maxim went for, it just kind of keeps going higher and higher. And I think for most targets, the remaining targets, their stock price already reflects a significant acquisition premium. But you wouldn't convince their boards and their management that the acquisition premium is in there, and that's what drives a very, very high valuation. So that's a problem.

Operator

Thank you. The next question will come from David O'Connor with Exane BNP Paribas. Please go ahead.

David O'Connor -- Exane BNP Paribas -- Analyst

Great. Thanks for squeezing me in, guys. Maybe just a quick follow-up from a previous question. Steve, can you just remind us what the order mix is? What percentage of orders are typically short lead time versus long lead time, both historically versus currently? And I have one quick follow-up.

Steve Sanghi -- Chairman and Chief Executive Officer

We don't have that numeric, and I don't think we would be willing to share it. It changes a lot week to week and month to month. And it's a very fluid situation when you're working with hundreds of distributors and 120,000-plus customers. So we wouldn't share that indicator.

David O'Connor -- Exane BNP Paribas -- Analyst

OK. Fair enough. And as my follow-on. Last quarter, you said with the U.S.

Department of Commerce export ruling, it should be pretty much straightforward for you guys. You called out, I think, military maybe some attention there. Was there anything that popped up from the implementation that you went through that was unexpected?

Steve Sanghi -- Chairman and Chief Executive Officer

Ganesh, do you want to take that one?

Ganesh Moorthy -- President and Chief Operating Officer

Yes. No. There were no issues. There was obviously administrative procedures that need to put in place or have our partners put in place, and so all of that is done and behind us.

David O'Connor -- Exane BNP Paribas -- Analyst

Thank you. Thank you all.

Operator

Next question will come from Craig Ellis with B. Riley FBR. Please go ahead.

Craig Ellis -- B. Riley FBR -- Analyst

Yeah. Thanks for taking the question, guys. Nice job on the execution in the quarter. Steve, I wanted to ask a question.

I'll start with you and may ultimately go to Ganesh. But clearly, the company has executed a number of things tactically with COGS management and OPEX management to really protect margin leverage at historically high levels through last year's and now this year's crises. The question is, as we look ahead and think about things that the company might be doing that are those ongoing continuous efforts to drive structural improvement in both, COGS and OPEX versus some of the things that will have some unwind employees going back to full salaries eventually as demand normalizes. How do we think about the gives and takes there? And maybe Ganesh, if you can just list for us what some of the key longer-term drivers for costs reduction and OPEX optimization are, that would be helpful.

Steve Sanghi -- Chairman and Chief Executive Officer

Go ahead, Ganesh, if you want to take that.

Ganesh Moorthy -- President and Chief Operating Officer

So obviously, there are some costs that are short-term costs that we have taken out, you've listed many of them, Eric commented on one by one. And as we see revenue return, you should expect that some of those costs will come back. And historically, we have been disciplined about how we bring back some of these costs as revenue returns. And you can go back and look at other cycles in terms of how -- as a percentage of revenue, we manage our operating expenses.

I think one thing which we will do different as we come out of this is also look at what have we learned out of this crisis in terms of managing more effectively from an operating expense standpoint. And there, we will get into changes in methodology, Eric mentioned to perhaps travel not being as at high rate as we used to switching to more virtual methods for customer training and a number of other things as well. And so we are committed to the long-term targets we have, which is to get operating expenses down into the 23% range. That's part of our 40.5% operating margin target that we're working toward.

And every bit and every quarter, we learn things we can do more effectively, whether it's in research and development, in sales and marketing or in the overall general and administrative areas that sequentially brings things a bit by bit down. We have been working on the last bit of the integration for Microsemi, which is predominantly, at this point, focused on the business process and IT-related items. We're about nine months away from wrapping that up as the last bits of those get done. So there is constant part of our DNA that is working on these -- in all three areas.

And in a crisis, you take some of the best learnings and make sure you capture them when you get past the crisis.

Craig Ellis -- B. Riley FBR -- Analyst

Got it. Thanks, Ganesh.

Operator

Thank you. The next question will come from John Pitzer with Credit Suisse. Please go ahead.

John Pitzer -- Credit Suisse -- Analyst

Yeah. Thank you for taking the follow-up. Ganesh, you had mentioned in the prepared comments that you thought FPGAs would be up pretty significantly in the September quarter. I'm just kind of curious, is that a business that's more exposed to the auto market? And so what we're seeing is weak June and auto to strong June and September, and that's driving it? Are there other drivers there? There are, can you kind of enumerate, please?

Ganesh Moorthy -- President and Chief Operating Officer

So exposure to automotive for the FPGA business is low at this point. It's one of the things that Microchip brought to that business with our historical strengths in terms of how we take advantage of each other's end-market strength. So it's other parts of the market that are responding and providing growth in the September quarter. And even as we expect that was one large customer that created a down -- a lower revenue in the June quarter, we don't expect they're going to recover in the September quarter.

In spite of that, we expect that the other improvements we're making in business will more than offset for that in the September quarter, but it's not automotive.

John Pitzer -- Credit Suisse -- Analyst

Thank you.

Operator

Thank you. I'll now turn the conference back over to Steve Sanghi for any closing remarks.

Steve Sanghi -- Chairman and Chief Executive Officer

So there is one other indicator I wanted to give you. We haven't planned on it, but I think with all the questions we got in -- how the bookings happened in last quarter versus what's happening in this quarter. I'm going to go on the little and give you this number. The July bookings were 15.5% higher than the May bookings per day -- based on per day.

Every month is not the same. There are minor differences. And July, bookings were 36.6% higher per day than the June bookings. So you could see how last quarter, bookings were decreasing in May and then really fell precipitously in June, but the bookings were very short-term-oriented.

So we made the code actually beat the guidance in the quarter last quarter, but it started this quarter in a whole. But now this quarter, July bookings were 15.5% better than May and 36.6% better than June, that's why we have a confidence that even though we started minus 8%, we're gonna end up a lot better. Hopefully, that helps a little bit. With that, we'll be attending a number of virtual conferences in the coming days and weeks.

And so we'll talk to some of you in those conferences. Thank you very much.

Operator

[Operator signoff]

Duration: 78 minutes

Call participants:

Eric Bjornholt -- Chief Financial Officer

Ganesh Moorthy -- President and Chief Operating Officer

Steve Sanghi -- Chairman and Chief Executive Officer

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

John Pitzer -- Credit Suisse -- Analyst

Ambrish Srivastava -- BMO Capital Markets -- Analyst

Craig Hettenbach -- Morgan Stanley -- Analyst

Harsh Kumar -- Piper Sandler -- Analyst

Shawn Harrison -- Loop Capital Markets -- Analyst

Gary Mobley -- Wells Fargo Securities -- Analyst

Chris Caso -- Raymond James -- Analyst

Raji Gill -- Needham and Company -- Analyst

William Stein -- Forest Securities -- Analyst

Chris Danely -- Citi -- Analyst

Harlan Sur -- J.P. Morgan -- Analyst

Vijay Rakesh -- Mizuho Securities -- Analyst

Christopher Rolland -- Susquehanna International Group -- Analyst

David O'Connor -- Exane BNP Paribas -- Analyst

Craig Ellis -- B. Riley FBR -- Analyst

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