Ganesh Moorthy
President and Chief Executive Officer at Microchip Technology
Great. Thank you, Eric, and good afternoon, everyone. Our December quarter results continued the string of strong growth quarters with revenue growing 6.5% sequentially to achieve another all-time record at $1.76 billion, breaking through the $7 billion annualized revenue milestone. On a year-over-year basis, our December quarter revenue was up 30%, registering the fifth consecutive quarter of rising year-over-year revenue growth rate. Non-GAAP gross margin was another record at 66.1%, up 80 basis points from 65.3% in the September quarter and above the midpoint 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 44.6%, up 210 basis points from 42.5% in the September quarter and well above the high end of our guidance. The large increase in operating margin percentage was helped by the rapid growth in revenue and the additional time it is taking to hire new employees that's delaying expected operating expenses. At 21.5% operating expenses were 100 basis points below the low end of our long-term model of 22.5% to 23.5% in operating expenses. Our long-term business model will continue to guide our actions to enable the long-term growth and profitability of our business.
Our consolidated non-GAAP diluted EPS was a record $1.20 per share, at the high end of our guidance, and up 49% from the year ago quarter. Adjusted EBITDA at 49.5% of revenue and free cash flow at 43.4% of revenue were both very strong continuing to demonstrate the robust cash generation capabilities of our business. This in turn enabled us to pay down another $362.7 million in debt that's brought down our net debt by $422.1 million, driving our net leverage ratio down to 2.58 in the December quarter. This reduction in net debt and net leverage ratio was achieved despite are also buying back $166 million of our shares under our $4 billion stock buyback program, which we initiated soon after we achieved investment grade rating for our debt in November.
The December quarter marked a 125th consecutive quarter of non-GAAP profitability and I would like to thank all our stakeholders who enabled us to achieve these outstanding and record results and especially thank the worldwide Microchip team whose tireless efforts are what made these results possible. Taking a look at our revenue from a product line perspective. Our microcontroller revenue was sequentially up a strong 8.7% as compared to the September quarter and was an all-time record. On an annualized basis, our December quarter microcontroller revenue at $3.9 billion is closing in on $4 billion. On a year-over-year basis, our December quarter microcontroller revenue was up 33.9%. All microcontroller product lines 8-bit, 16-bit and 32-bit had over 30% year-over-year revenue growth in the December quarter with 32-bit microcontrollers having the highest year-over-year growth. 8-bit microcontrollers and 32-bit microcontrollers, both of which are about the same size and revenue, each also achieved record revenue milestones. Microcontrollers represented 55.3% of our revenue in the December quarter.
Coming off of strong sequential growth in the September quarter, our analog revenue increased 1.9% in the December quarter, setting another record in the process. On an annualized basis, our December quarter analog revenue broke through the $2 billion mark for the first time. On a year-over-year basis, our December quarter analog revenue was up 34.3%, almost the same year-over-year growth rate as our microcontroller revenue. Analog represented 28.5% of our revenue in the December quarter. While we no longer break out our FPGA or licensing revenue, they both remain a key focus for Microchip's long-term growth. In the December quarter, our FPGA revenue hit an all-time record by a wide margin, and our licensing royalty revenue also hit an all-time record.
Taking a look at our revenue from a geographic and end market perspective. Americas was up 4.6% sequentially, Europe was up 11% sequentially, which is significantly better than typical seasonal performance for the December quarter. Asia was up 5.8% sequentially and all end markets was strong and supply constraint. Business conditions continue to be exceptionally strong for the quarter. Our preferred supply program or PSP backlog continues to grow and is well over 50% of our aggregate backlog and a 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 represents backlog customers wanted to ship to them in the December quarter, but which we could not deliver in the December quarter, continued to climb significantly as compared to the unsupported backlog exiting the September quarter.
To illustrate the magnitude of the demand supply imbalance, despite our December quarter revenue having grown 30% as compared to the year ago quarter, we exited the December quarter with the highest unsupported backlog ever. We continue to experience constraints in all our internal and external factories and their related manufacturing supply chains. We are also experiencing some adverse impact from the rapid rise in the Omicron variant cases of the COVID-19 virus. We continue to ramp our internal factories as fast as possible and we are working closely with our supply chain partners who provide wafer foundry, assembly, test and materials to secure additional capacity wherever possible.
Looking at the magnitude of the demand supply imbalance, the size of our non-cancelable backlog and the rate at which we're able to bring on new capacity, we continue to expect that we will remain supply constrained throughout 2022 and possibly beyond that. We believe our backlog position, especially the proportion of PSP backlog, is giving us a solid foundation to prudently acquired constrained raw materials, invest in expanding factory capability -- capacity and hire employees to support our factory ramps. Our planned capital spending continues to rise 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 consider to be trailing edge, but which we believe will be workhorse technologies for us for many years to come.
In the December quarter, we signed a definitive agreement to purchase an assembly test factory shell in the Philippines near where we already operate our manufacturing facilities. As we facilities and build out the shell with equipment, we will be able to grow our internal back end capacity for many years to come. 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, especially for trailing edge technologies. We will of course continue to utilize the capacity available from our outsourced 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 March quarter. Our backlog for the March quarter is very strong and we have more capacity improvements coming into effect. However, our supply in the March quarter is expected to be adversely impacted by the COVID-19 Omicron variant which has increased the level of factory workforce absentees. We also have challenges in staffing several of our factories at the rate we would like to. Taking all these factors we have discussed on the call today into consideration, we expect our net sales for the March quarter to be up between 2% and 5% sequentially. Our guidance range assumes some capacity additions as well as continued capacity constraints, some of which we expect to work during the quarter and others that we will carry over to future quarters. At the midpoint of our revenue guidance, our year-over-year growth for the March quarter would be a strong 24%.
For the March quarter, we expect our non-GAAP gross margin to be between 66.2% and 66.6% of sales, we expect non-GAAP operating expenses to be between 21.8% and 22.2% and we expect non-GAAP operating profit to be between 44% and 48% of sales. We expect our non-GAAP diluted earnings per share to be between $1.22 per share and a $1.28 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 requested analysts continue to report their non-GAAP estimates to first call. Finally, at our Investor Day on November 8th last year, we unveiled our Microchip 3.0 strategy, which builds on our Microchip 2.0 strategy that we successfully executed over the last decade, employing serial acquisitions to give us a solid foundation to build scale and breadth of solutions, while significantly improving our gross and operating margin model.
To summarize the essential elements of Microchip 3.0 we announced for, an organic growth target of 2 times the industry growth by focusing on total system solutions and the six key market mega trends, long-term non-GAAP operating margin target of 44% to 46% and free cash flow target of 38%, increased capital return to shareholders to 50% of free cash flow and further increase this every quarter to return 100% of free cash flow to shareholders has net leverage drops to 1.5 times, increase our capex investment to 3% to 6% of revenue and invest in 130 to 150 days of inventory over the business cycles, and finally, to maintain a strong company foundation built on culture and sustainability. As you can see from our December quarter results and the March quarter guidance, we are laser focused on executing our Microchip 3.0 strategy.
Let me now pass the baton to Steve to talk more about our capital return to shareholders. Steve?