Good day, everyone and welcome to this Microchip TechnologySecond Quarter Fiscal Year 2008 Financial Results Conference Call. As areminder, today’s call is being recorded. At this time, I would like to turnthe call over to Microchip's Chief Financial Officer, Mr. Gordon Parnell.Please go ahead, sir.

Thanks Matthew and good afternoon everybody. During thecourse of this conference call, we will be making projections and otherforward-looking statements regarding the future events or the future financialperformance of the company. We wish to caution you that such statements arepredictions, and that actual events or results may differ materially. We referyou to our press release of today, as well as our 10-K for the fiscal yearended March 31, 2007, and our 8-K current reports that we have filed with theSEC that identify important risk factors that may impact Microchip's businessand results of operations. In attendance with me today are Steve Sanghi, Microchip'sPresident and CEO; and Ganesh Moorthy, Executive Vice President. I will commenton our second quarter performance, reviewing geographic data and discussingbalance sheet and cash information. Steve and Ganesh will then give theircomments on the results, outline our guidance for the December quarter, andupdate other pertinent matters regarding our business. We will then all beavailable to respond to specific investor and analyst questions. So let's get going, the net sales review for September, were$258.6 million, down approximately 2.1% from net sales of $264.1 million in theimmediately preceding quarter, and down approximately 3.5% from net sales of$267.9 million in the prior year second quarter. On earnings perspective, we are continuing to include someadditional information in our press release related to FAS-123R. Our non-GAAPresults exclude the effect of the adoption of this accounting standard, and inthe September quarter the financial impact of the sale of Fab 3 in Puyallup, Washington. Non-GAAP net income for the September quarter was $83.3million or $0.38 per diluted share, a decrease of 3.9% from non-GAAP net incomeof $86.7 million or $0.39 per diluted share in the immediately preceding quarter.And the decrease of 1% from non-GAAP net income of $84.2 million or $0.38 pershare in the prior year's second quarter. We completed the sale of Fab 3 in Puyallup, Washingtonin October 19, based on the initial sale and purchase agreement that was enteredinto during the September quarter. The sale proceeds from the transaction were$30 million, based on the net value of the facility and normal cost associatedwith the sale of the property. The sale resulted in the pre-tax loss of $26.8million. The impact on the earnings, net of tax, was 7.4 cents. GAAP net income for September was $60.7 million, or $0.27per diluted share, inclusive of our share based compensation expenses and thesale of Fab 3 in Washington,I just mentioned. The impact on the earnings related to the adoption of share-basedcompensation in the September quarter was 7.4%. Take a look at our geographic information; both the Americas and Europe were down sequentially,while Asia was essentially flat. Americas wasdown 0.7% sequentially and was impacted by the economic conditions that wediscussed and indicated in our pre-announcement on October 8. Our results in Asia were similarly impacted from our initialexpectations. Europe net sales were impacted by the seasonal effects of businessclosures in the summer period in Southern Europe,mainly with net sales being down 5.8% sequentially. Asia continues to be our largest geography representingapproximately 44% of total sales, Europe was approximately of 29% of sales andthe Americaswere approximately 27% of sales. This measurement is based on where the productis delivered for manufacturing purposes, for our customers, but doesn'tnecessary represent with the design activity is taking place or where theconsumption is occurring. Looking at our operating information, initially I am usinggross margin and operating expenses information prior to the effects of share-basedcompensation, and also excluding the effects of the sale of Fab 3 for thisinitial discussion. Gross margins were 60.4% in the September quarter, close toour all-time high levels of the previous quarter. The sale of Puyallup will have positive impact on grossmargins in future periods, adding approximately 50 to 60 basis points to grossmargins. Operating expenses were 25.5% of sales in the Septemberquarter, essentially flat with the prior quarter, which were 25.4% of sales. Researchand development cost were $26.8 million, representing 10.4% of sales. Sales andgeneral administrative expenses were $39.2 million, representing 15.1% ofsales. And on a full GAAP basis, gross margins including theshare-based compensation were 59.8%. Research and development expenses andSG&A expenses combined were $72.3 million or 27.9% of sales. The tax rate for the September quarter was 20.4%. Our taxrate is impacted by the mix of geographical profits and the percentage of ourcash that is invested in tax advantage securities. The tax rate for theDecember quarter on a GAAP basis will include a favorable settlement of a foreigntax matter of $5.7 million. Otherwise, the underlying tax rate is similar tothat of the September period. The dividend declared today of $0.31 per share, was anincrease of approximately 5.1% sequentially and an increase of 24% over thesame quarter in fiscal 2007. The dividend payment to be made in the Decemberquarter will be approximately $67 million. Turning to the balance sheet, Microchips inventory increasedapproximately $800,000 to $124.6 million in the September period, and it nowrepresents approximately 109 days of inventory. On the distribution side, our deferred income on shipmentsto distributors grew by about $3.5 million quarter-over-quarter. At September30th, distributors were holding about 1.9 months of inventory based onsell-through. Combining inventories on our balance sheet and thedistributors, they represent approximately 142 days of total inventory. Combiningboth elements would increase by about 4 days from the prior quarter. Microchip's receivables at September 30th were $125.9 million,a decrease of $1.4 million or about 1% from the balances at the end of June. Payment performance by our customers continues to be inexcellent shape, with minimum balances beyond acceptable terms. On the cash position at September 30th, Microchip hadapproximately $1.249 billion on the balance sheet at the close of the quarter.During the quarter, Microchip generated net cash flow from the business of$119.6 million. Payments related to our cash dividend of 0.295 cents duringthe quarter were $64.1 million. And the cash used related to our buyback of 4million shares, and was approximately $150.2 million. We anticipate building approximately $100 million inoperational cash in the December quarter, excluding the cash received from thesale of Fab 3. And we've purchased 900,000 shares in the current quarter inopen market transactions, using cash from the treasury in the amount of $28.6million. Our capital spending for the September period was $11.7 million. Depreciation expense for the September quarter was $25.4million versus $29.2 million in the same quarter last fiscal year, and $26.4million in the June quarter. Our capital forecast for fiscal '08 is currently 60 to $65million, and depreciation forecast is approximately a $100 million, again, forthe full fiscal year. Now I'll ask Steve and Ganesh to discuss the performance ofour business, our guidance for the December quarter and update other businessmatters. Ganesh?

Thank you Gordon, and good afternoon everyone. I will nowcomment on the individual product lines, after which Steve will walk youthrough our guidance for the next quarter. Our microcontroller business was down just over 3.5%sequentially and was down just over 4% from the year ago quarter. While we'redisappointed with these results, we believe they are reflective of a weakmarket environment, and that our microcontroller product line and marketposition remain very strong. Our Flash microcontroller business was up almost 1%sequentially, and up 3.5% over the year ago quarter, and now represent over 72%of our microcontroller business. So, the drop in revenue in the Septemberquarter came entirely from our older one-time programmable products, many ofwhich are designed into legacy end-products, built for the housing and consumermarkets. Our new product development for over five years has almostexclusivity in Flash-based microcontrollers. Looking at our leading indicator, which is new developmenttool shipped, we shipped 26,344 development tools last quarter. This was asecond highest quarterly shipments ever, demonstrating the continued strongdesign win activity, and acceptance of our products. Moving to 16-bit microcontrollers, we were up over 6%sequentially and up 84% over the year ago quarter. Despite the headwinds in ouroverall, we were able to achieve another quarter of good sequential growth andexpect to post double-digit growth in the December quarter. 16-bit design win momentum and development tool salesremained very strong. We shipped 5,059 16-bit development tools in theSeptember quarter, the second highest quarterly shipments of development toolsfor 16-bit ever. This brings the total 16-bit development tools shipped to-dateto 36,776. Significantly, the number of 16-bit development toolsshipped in the first six months of fiscal year '08 was almost three times thenumber shipped in the first six months of fiscal year '07. During the quarter, we also released nine more 16-bitproducts to production, bringing the total number of products and productionnow to a 101, and we expect to have approximately 150 products in production bythe end of fiscal year '08. The number of volume 16-bit customers grew to 1,018 in theSeptember quarter, up from 897 in the June quarter and in terms of 16-bit customersof all volume that number remains in the several thousands. Moving to analog products, our analog business was flatsequentially and down just under 3% from the year ago quarter. Our analogproducts are designed into many of the applications that our microcontrollersare designed into, and experienced some of the same headwinds we saw in ourmicrocontroller business. The number of customers buying our analog productsgrew to 12,833 from 12,627 in the previous quarter. Our [Serial E2] memory business was up over 7.5%sequentially and was up over 1.5% from the year ago quarter. Sales were helpedby strength in the PC market segment, as well as normal seasonality in thisbusiness segment. Pricing declined moderately quarter-over-quarter. Now let me pass you to Steve for some general comments, aswell as our guidance for the September quarter. Steve.

Thank you Ganesh, and good afternoon everyone. Today I wouldlike to first reflect on the results of the September quarter then I will discussthe thinking behind the sale of Fab 3 and the resulting capacity available toMicrochip. Then I will provide guidance for the December 2007 quarter. We experienced very challenging industry conditions duringthe quarter that led us to lower our guidance in the preannouncement of October8. I am disappointed that conditions in the U.S. housing market have continuedto deteriorate and some of the effects of the credit crunch have filtered intoour consumer segment outside of housing. We have seen these through theweakness in our Asian business, related to U.S. multinationals, the fracturingat Asian subcontractors. This has resulted in sequentially down revenue forMicrochip. I am disappointed by the market reaction to our pre-announcementon October 8 and I would have thought that the credibility that we haveestablished over many years would have stood for more in the face of difficultbusiness conditions. I am confident that future results of Microchip will vindicateus, and regain investors' confidence. One of the main questions in investor's mind is, isMicrochip losing market share? That question is not any different than the onewe have fielded at other occasions in the past when we missed a quarter,because of a significant disruption in the marketplace. Other similar eventswere the Asian financial crisis in 1998, SARS epidemic in 2003, inventorycorrection of 2004, and the military coup in Thailand affecting our operationsin 2006. At each of these occasions, the investor’s first reaction wasthat market dynamics have changed, and Microchip was losing market share. Yet,a quarter or so later all the other companies felt the same issue, and weshowed that we continue to gain market share. Some of these data are already beginningto appear. For example, Arrow Electronics, the second largest componentdistributor, this morning, guided their components revenue to be down betweenzero and 7.5% for the December quarter. With Arrow as a proxy for the semiconductor industry, youwill see this affect in many companies' results. Freescale just announced theirresults, and their TSPG Group where Microcontrollers are housed, was down 4.5%sequentially. Altera also just announced their results, they missed theirguidance too. They were down 1%sequentially and guided down zero to 4%. Xilinx was also flat sequentially andguided down 5%. Both Altera and Xilinx recognized revenue at sell-through, fromdistribution, just like Microchip does Now, I saw some hints of softness in Texas Instrumentsnumbers too, however they are sell-in revenue recognition, which cushions theirresults a bit. So, we are also starting to get some correlation with sell-in versussell-through revenue recognition companies. Now in the past at such occasions investors also felt that Microchipsgross margin was not sustainable, as we have shown our gross margin hascontinued to hit new highs after each of these events. At each of these eventsour inventory also rose and investors felt that an inventory write-off wascoming, yet Microchip did not write-off inventory, because the lifecycle of ourproduct is very long. We are facing one of those events again, and there is plentyof data around. Our housing starts have been cut in half. All the companiesexposed to this sector; home builders, lenders, transportation companies, andothers, are feeling the pinch. We have detailed the impact on Microchip througha U.S. housing index, as well as examples of several customers on a no-name basis,that were down 17%, 20% and 26% sequentially. We have also shared the data fromappliance design magazine, showing how far some of the end applications are,like air conditioners, heat pumps, furnaces, residential water heaters andcooking equipment. And now with data coming from Arrow Electronics, Freescale, andXilinx, it points to the economic softness spilling over in other segments aswell. So in spite of these challenging conditions, we will continueto focus on our business and continue to make improvements. So that as thehousing and consumer sectors stabilize, we see strong growth in our business. So let me give you an update on some of the things that weare doing. First, the sale of Fab 3, there was a culmination of several factorscoming together. Now Fab 3 was not listed for sale, although some of the excessland around Fab 3 was for sale. We received an unsolicited offer for the wholesite. Secondly, we are qualifying a new proprietary technology inFab 4, which significantly extends the available capacity in our two Fabs. So, we now believe that our current equipment set will takeus to $1.6 billion of revenue, with nominal capital equipment additions. Andwith further equipment additions in Fab 4 and some in Fab 2, we can take thetotal capacity in our two Fabs to $2.2 billion. Thirdly, we're having good success in producing several ofour products in foundries. We believe that the capacity available from thefoundries will take our available capacity to $2.5 billion and beyond.Therefore, as we received this unsolicited offer in Fab 3, we believe that wewill not be using Fab 3 for many years into the future. In addition, with many leading-edge technology companiesgoing to 300-millimeter, the large number of 200-millimeter Fabs, fully-loadedwith equipment, will become available to purchase at very economic prices inthe future. Therefore, we decided to close the sales transaction on Fab 3. Theresult will be a 60 basis-points improvement in our gross margin and about$27.5 million additional cash in our treasury. Number two, we are continuing to introduce new 16-bitmicrocontrollers at a rapid pace. We have significant momentum on this productline. Despite significant headwinds, we were up over 6% sequentially and upover 84% over a year ago quarter, and we expect the double-digit growth in16-bit microcontrollers in the December quarter. Number three, despite short-term revenue and earningscompression, we are continuing to increase dividend paid to the investors atthe current dividend rate and the stock price, The dividend is about 4%. And number four, we have said for some time that our stockbuyback plan is opportunistic. We purchase stock when we think that theinvestors no longer understand the story and have thrown out the baby with thebath water. We believe that now is such a time, therefore we have beenaggressively buying back stock which Gordon has detailed for you. Now let me provide you guidance for the December quarter. Our book-to-bill ratio for September quarter wasapproximately 0.94. December quarter is also a seasonally weak quarter forMicrochip. With customers in-housing and consumer segments uncertain abouttheir businesses, we expect many customers to take longer vacations andschedule shutdown days over the holidays. Therefore, we expect our December quarter will be downsequentially because of the level of uncertainly. We are providing a widerrange of guidance than normal. We expect our net sales to be down between zero to 6%sequentially. We expect to achieve record gross margin of 60.8% to 61.1% on anon-GAAP basis, and a non-GAAP EPS is expected to be $0.35 to $0.38. With that, Matthew, would you please poll for questions?

Thank you. The question-and-answer session will be conductedelectronically. (Operator Instructions) Our first question comes from RomitShah with Lehman Brothers.

Thanks. Steve, you provided fairly wide guidance for theDecember period. Could you just run through some of the swing factors thatcould get you either to the high end of the guidance or the low end ofguidance?

Well, Romit swing factors really are customers' behavior. Wehave seen in prior cycles when the customers' businesses are soft, many of themhave fiscal years ends and when the businesses are soft, they use holidays totake extended shutdowns or close down the operations or clean their operatingplants, and we're hearing some of that in our conversations with the largercustomers, but those plans are not firm. And we have seen in the last quarter, from some of thecustomers we met, that they told us what they were going to buy in the quarter,many of them were down significantly to that expectation. So, customers don'tknow themselves in this timeframe what they are going to do, because they arerelying on their businesses doing better and their end customers buying. And when the segment confidence in the housing, consumer andother segments continues to slip and you are starting to see that happening nowin some of the other segments through Arrow and Altera and Xilinxannouncements, which were not available at the time of our preannouncement, andmany investors felt that we had a stand-alone problem. We can now start to seethat there is some company there. And so believe our customers don’t know and it will reallydepend on customer's plans and behavior really where those numbers will comeout.

Our second question comes from Chris Danely, J.P. Morgan.

Thanks, Steve. Hey, Steve, now that we're sort of workingaway through these things, how do you compare this downturn or correctionversus the previous problems we've had, and I guess the reason I ask is that,assuming that the December quarter is down that would be three out of fivequarters with negative growth and I think the only other time that happened wasthe tech bust. So if could just take a step back and kind of compare this timeright now versus the previous downturn?

Well, the tech bust was driven by PCN communication sectorand this particular bust at least for us was driven by housing and consumersegment. But during the tech bust in average PC, communication company was down50% to 90% in revenue and in this segment we assume the people in the housingand consumer segment down 20%, 40%, 50%, although not as much down as in thetech bust. Now, if the company was exclusively exposed to that segmentalone then we will be down as much as some of the home builders are 50%, 60%,70%. We are actually up year-to-date, if you look at the numbers. We were up 3%in March, then we were up 2% in June, and we were down 2% in September. So year-to-date we are still up 3%. That is whatdiversification is doing. We are exposed to many different sectors and sodiversification does work, but when a single segment is not just soft, goesdown 4%, 5% it's busted, it's down 50%. At that point in time with significant exposure to thatsegment, some of the numbers we have posted, I think they are unavoidable, butthe numbers do show that the diversification does work. And I can't image acompany in the PC and communication sector, if their sectors were down 50%,those companies will be down similar, and we are up 3% year-to-date. So take iteither way you like.

And our next question comes from Simona Jankowski with GoldmanSachs. Simona Jankowski -Goldman Sachs: Hi. Thanks very much. Steve, just curious if you can updateus on your book-to-bill, I know it's not always a good predictor, but you didsay it was about 0.94 at the time of your preannouncement. And if we were justthe kind of flat line that, so it imply a minus 6% guidance at the mid point. I am just wondering if you've either seen an accelerationsince your preannouncement or if your expecting one to give a guidance range that'sa a little bit above that kind of a mid point?

Well, Simona, you may remember from, dozens of conferencecalls our book-to-bill never correlates to the end revenue we achieved, wenever had. There are a number of time when book-to-bill as one and we achievedsignificant sequential growth and when the book-to-bill is less than one and wedo better, much better than that. So, we have never found a good correlationbetween book-to-bill and actual number, so. Simona Jankowski -Goldman Sachs: So, suffice to say that we shouldn't reach our guidance asyou having seen some kind of improvement or acceleration in the trend you havetalked about a month ago?

No, I notes or any of my colleague's notes didn’t point toany change in business. We were down 2% and we are guiding down 3 at the middlepoint in 0 to minus 6. So we don't want you to read anything other than what weguided. Simona Jankowski -Goldman Sachs: Sure. And then, I definitely agree with whatever you aresaying about pointing to Arrow and Altera and some of the other negativeearning's reports coming out of semis. I did want to ask you about a couple ofspecific comments made by some of the other component suppliers, one was fromFairchild, actually pointing to pretty positive trends in their white goods businessand then TI microcontroller business specifically was pretty stable. Justcurious if you can contact us for may the trend and exposure you have versusthose particular competitors?

Well, this is another phenomena that we have seen at numberof these events and I highlighted to a little of that in my commentary.Fairchild, TI both these companies recognized revenue at sell-in, whilemicrochip recognizes revenue surely at sell-through worldwide. And we have seenin numerous times the ability it gives the companies to manage the revenue in asell-in situation by simply asking distributors to take little more inventory. If you were take outward inventory build at the distributor'slast quarter. If we have recognized that for revenue then our results will bebetter too. And we have seen many of these companies, they just fall harder,because they can't really build that inventory forever when distributioncorrected in the phase of weakening condition. So, Arrow guiding 0 to minus 7.5, what you think they willbe doing with their inventory. And you will see that results spillover to allthese companies who are sell-in revenue recognition companies. We have seenthis music so times that I am reasonably confident that you will see that, andwe are starting to see it already. Simona Jankowski -Goldman Sachs: Sure, that's fair. And then just last quick question is oninventory at your end customers. One of the trends that I'd like to track isthe microcontroller shipments relative to the long-term trend line, and we haveseen a pretty significant divergence in the last few quarters wheremicrocontrollers are well above the long-term trend lines. We often look atthat as an indication of inventory build at the end customers. So just curious if you have anyway of kind of checking your-- I know you have a lot of fragmented and small customers, but do you have asense whether some of their reduction in their orders and forecast are a resultof them reducing their own inventory in addition to their demand weakening?

Ganesh, do you have any sense of that?

My sense is that customers never really know, and it's verydifficult to discern softness in business versus changes in inventorypositions. So as best as we can tell, they don't tell us they are decreasingtheir inventories. We know that they are building less and that's why we seeless orders on us. Simona Jankowski -Goldman Sachs: Okay. Thank you very much.

Simona, I would add that softer build rates at the customersand inventory reduction is really tied at the hip. Anytime a customer startsbuilding less because of weaker demand for their end customers, the firstimpact they see is they find higher raw material inventory, based on what theyhave to build. So, part of the reduction always is an inventory correction,because their end product demand is weak. So, I've not been able to separatethem in the past, and I believe they are really joined at the hip. Simona Jankowski -Goldman Sachs: Okay. Thank you.

Welcome.

We have a follow-up from Romit Shah with Lehman Brothers.

Hi Romit.

Hi, Steve. Arrow talked about Europeslowing down or not coming back in September and that trend pretty muchcontinuing through October. That was the one region that came in line with yourexpectations. Are you expecting Europe to growin the fourth quarter, or would you expect it to be down at the other regions?

We're usually fairly cautious in Europeevery summer because of the European holidays. We've seen that so many timesthat we usually do not count on Europe reallyto be up in the summer quarter. So even though Europe was down 5.8%, which wasmore down than any other geography around the world, we simply said that wecounted on that Europe is always down. So Europe was quite weak. And as far as December quarter is concerned, we haven'tbroken it down, but I don't believe we are counting on Europeto be up in December.

No, I think Europe tends tohave as it gets into middle of December a lot higher percentage of ourcustomers and the distributors get more extended normal seasonal vacation time.So that's a fact that we're considering here also.

Okay. And if I could just lastly, does your long-term grossmargin target change with the sale of the Fab?

No, it really does not because long-term target we kind ofcounting on either using it or selling it. And we no longer believe that we'regoing to use it for many years, because we have figured out a way to extendexisting fabs much longer, based on the numbers you have heard before in termsof what the capacity was. That number is a lot higher today based on lot of the thingswe have done in technology. So, our long-term target, no, it doesn't notchange.

Okay. I appreciate the color. Thank you.

Welcome.

And we have a follow-up from Chris Danely with J.P. Morgan.

Hi, thanks guys. Can you hear me?

Your line is open.

Okay, great. Just making sure you can hear me. Hey, Steve,do you expect the OTP microcontrollers to continue to trend down. Can you justgive us a sense of what do you think is going to happen in that part of yourbusiness going forward?

The OTP microcontrollers have been kind of trending downslowing for long time, because even though the life cycle of our products isvery long, after five years of not adding any products in that eventually havebeen rolled off. But, growth at the flash microcontrollers has been making itup quite significantly. Last quarter, we sequentially grew only 1% in flashmicrocontrollers because of challenging business condition. So it did not override the decline of OTP, and the decline of OTP was also more severe becausesome of these products were in older models and older legacy products, that'swhere the customers are correct when they are not building enough products. Sowe will expect OTP to continue decline but not certainly at the pace we sawlast quarter.

Sure. And you've always maintained that you would ratherkeep your margin then chase after this sort of higher volume lower marginopportunities. So if you were given the choice and things start to get a littlebit more competitive, would you rather lose some share in certain areas ofmicrocontrollers and keep your margins high, or would you choose to -- if youwould impact your growth rate, would you choose to maybe get a little bit moreaggressive on pricing and sacrifice a little bit on the margins side?

Chris, I have not faced that situation in the microcontrollerbusiness in 15 years and I won't expect that would happen. We will continue togain market share with excellent gross margin. So, I don't need to look at the hypothetical,because I don't think that it will happen.

We have always said, we have got many levers in the grossmargin side and we have always talked about using some of those cost advantagesback at the marketplace to make it more uncomfortable for competitors. And that'swhat we have been dealing with for years and so it does not really change.

Okay and that leads to my last question. Now that you guyshave given guidance, if you look at the total years 2006 and 2007, when you getbigger competitors in 8 bit Atmel has roughly doubled your growth rates. Sowhat gives you confidence that you are not losing share to them.

Well, the share is calculated as the share of the overallmarket. If you look at one year, two year, five years, ten years, or any periodof time, we have substantially outgrown the market. The numbers I have lookedat from 2001 to today, we have outgrown Atmel in 8-bit micro. Now, you can really pick a different timeframe, and pickyear the year or two year, or any period in time and one company of the othercompany could come on top. But we are -- you lose share when you are going lessthan the market. We have never gone less in the market.

Okay, thanks.

The other think I would say Chris is that the generalfeedback we are receiving from investors and some of the analyst commentariesthat somehow there are tremendous market pressures on us. Your gross marginquestion hinted towards tremendous pressure that we somehow crash on ASPs orsomething like that. We like to show you that we are not seeing any of that. Thebusiness is stable. It is good, other than the issues we have identified andconsumer in other markets. So our gross margin last quarter was excellent. Weexpect it to go higher this quarter. We are able to handle the normal decline in ASP’s and allthat we’re seeing through the normal avenues we have available of costreduction, yields, new technologies, depreciation rolling off and all theadditional benefit of really not paying for the Fab 3 sitting idle. So, I liketo really put your concern to rest that seized by the market forces of Atmel oranybody else.

I would like to put my concerns to rest too.

I wish there was more I could help you with.

And moving on, we will hear from Craig Ellis with CitiInvestment Research.

Hi, thanks for asking my question, this is Ken Seil callingfor Craig Ellis. Steve, when I look at the overall annual growth rate from fiscal’03 to fiscal ’07, it’s around 12%; they are expected to be flat for fiscal’08. How should we think about the , on the intensity if you want to get backto that level of growth rate? And also, is that the same type of growth ratestill reasonable level to expect going forward?

Well, I’m sorry I haven’t been able to figure out, inaccurate growth rate that I would like. Last one or two quarters you wereasking the projected years out. I really have no ability to do that.

Okay. And then may be switching gears a little bit. When Ilook at the sequential growth in analog, its slowed quite a bit over the pastsix quarters or so, based on our model. Should we expect to see some return toprevious growth rates within analog, despite some of the near term headwinds oris there need to be a small acquisition to support that level of growth that wesaw in fiscal ‘06?

I think that’s a good question, analog is a good questionand something we're pondering over ourselves. I think the growth in analog wehave found it challenging. We've had reasonably good years, last year was agood year, we were up 24%, we grew the year before. However, staring from theinventory correction it happened in December quarter when most analog companieswere down. Most analog companies were down even in the March quarter. Ithink we saw significant issues with our analog also. And our analog businessis also somewhere tight to really where we sell our microcontrollers becauselot of it is selling to same customer. So our analog exposure is also somewhat like ourmicrocontroller exposure in similar segments. So that has been hit by housingand consumers and those kind of things also. So having said all that, I wouldaccept that we are finding the growth in analog challenging, and we'reinternally looking at ways to really boost that.

Okay, thank you.

And moving on we will hear from Jeff Rosenberg with WilliamBlair. Jeff Rosenberg -William Blair: Hi. Steve, could you elaborate a little bit on your use offoundries, how much of your business, have you increased the amount ofopportunity you see in outsource manufacturing? And what sorts of products areyou thinking make sense to go that way?

Well, I don’t know if I can give that detail, but onequestion you asked is how much of our business is foundries today? It's fairlysmall, it's under 5%. But the key question in the foundries for Microchip hasbeen since, we have not historically used foundry can we be successful at thatmodel, can we successfully develop products, can we add enough of our own IP tomake the resulting products come out at a gross margin, which could meet theMicrochip model rather than since the foundries make gross margin, would thatsubstantially lower our model. We have worked through those challenges and have found thatwe can successfully develop products, analog and microcontrollers and another,basically products in all different segments, where it will cost significantprocess development inside Microchip, substantial R&D investment insideMicrochip to develop those products inside Microchip. We are now found that we can take these relatively smallerbusiness plans and since we don't have to develop the technology portion of theR&D, we can go to foundries. We can actually build an equally successfulmodel with them, as we are achieving with our overall business. So, there are good number of products, which have beendesigned, which have been released to production, they're ramping. So ourfoundry portion of the business is growing and we think in the next five years,it could be 10% higher depending on the success of those products. So, I thinkthat's the difference. Jeff Rosenberg -William Blair: Okay. And then a second question on inventories with thatlooking like a tracking to about a 120 days this quarter, I mean can you giveus some feel for what level of revenue you need to get back to before you feellike you can start to bring that down, and how we should think of that relativeto what it means for your gross margin over the next few quarters?

Gordon

I think the sort of break-even position is about $260millionish a quarter in terms of inventory sale. Below that, we are going toadd somewhat to our inventory balances at this point. Jeff Rosenberg -William Blair: Okay, thanks.

And moving on, we will hear from Gil Alexander with DarphilAssociates. Gil Alexander -Darphil Associates: Good evening, Steve, can you give us some guidance at thispoint as to the dollar sale of your 16-bit or you rather hold off at thispoint?

Gill, I would rather hold off, I think it seems to be verycompetitive information about somebody who will pay money to get that. Gil Alexander -Darphil Associates: Fair enough. Thank you.

I appreciate it.

And our next question comes from Kevin Cassidy with ThomasWeisel Partners. Kevin Cassidy -Thomas Weisel Partners.: Thank you for taking my questions. Lotof my questions been asked but, is the -- who bought the Fab 3, can you saythat?

It was sold to a developer essentially who is going to dosomething with the excess land, something with the building, and something elsewith the fabs. So he was really not a semiconductor manufacturer. Kevin Cassidy -Thomas Weisel Partners: Also the fab will be taken out a commission.

That's been out of commission for many years, it was just anempty show.

We don't really know what the purchasable will do with thesite. Kevin Cassidy -Thomas Weisel Partners: Okay, thank you.

And moving on, we will hear from Kevin Rottinghaus with ClevelandResearch

Thanks. Could you give us an indication that maybedistracted you see the memory market, was that is attributable or is that allthese end market base or something else going on?

Ganesh

Your question is about the memory market?

Yes.

You know memory always has a seasonably strong Septemberquarter. So, some of the strength we saw last quarter was attributable to that.And as you seen, we have memory sales that go in to some of the officeautomation market and we saw some of the strength in that segment reflect inthe memory as well. So, those are the two combinations of factors in lastquarter's memory results.

Okay. And with I guess forecast for continued strength inPCs, would you expect that segment continue to track well for the Decemberquarter?

The various factors, so segment strength is only one, thereare other seasonality factors and memory usually has seasonal weakness as itgoes into the December quarter based on other market segments that it sellsinto as well.

Okay. How about the percentage of revenue throughdistribution this quarter?

64% to 0.65% so not a whole.

Stayed the same.

Big shift.

Okay. And then any changes on headcount or could you give usany kind of update on headcounts since the last K?

There is no real significant change in terms of overallheadcount for the business at this point in time.

Factories are flat, sales force has built, divisions arewell staffed, there is minor changes here and there, any replacements ifsomebody leaves or minor adds here and there, but under business conditionswe're really not growing headcount anyway.

Okay. Just last question for me, just strategically, do youany thoughts kind of on the need to be more involve in kind of the 32-bitmarket or you kind of comfortable with the product portfolio as it is speakingeither near-term or long-term?

Well, we are a microcontroller supplier and when we used toget that question on 16-bit, we couldn't answer it similarly because we don'twant to give a hint to any other competitors what we might do in future, buteventually we did the 16-bit, and the financial result is we will eventually dothe 32-bit, but we can give an hint of when we might need it. Our products today dsPIC and PIC24 16-bit products areextremely competitive in the 16-bit world, our 16-bit architecture, whichactually is 24-bit wide inside and 16-bit on the output side. Its 50% faster inperformance compared to ARM7 which is a 32-bit architecture. And so we have apowerful architecture revenue share. We compete with 32-bit microcontrollerseveryday with our 16-bit and come out winning lot of times.

Thank you.

(Operator Instruction) Moving on John Pitzer with CreditSuisse.

Thanks. This Amit calling in for John. Just outside of theconsumer industry in 3Q or the consumer ad market, I mean do you believe yousaw any unusual strength that might have offset the consumer weakness or evenin the early days of Q4 here? Was there any unusual activity in any of yourother end markets?

I think that there nothing particularly that stands out. Ithink some of the segments that’s have seasonal strength. In the third quarterwe saw strength too. So you have seen companies that are PC exposure who haveseen some of the strength there. We have similar strength in that segment inthe third quarter, but nothing out of the ordinary that I would call out.

Okay, and then--

My general answer really would be that -- we're ahorizontally structured company that serves to 58,000 customers around theworld and we are really usually not segment focused unlike many companies we'reorganized by the end market segments and build special products for endsegments. We do no special products for consumer or communicationsegment or BC segment. Our products are standard, catalog kind of products thatgo horizontally across many markets. So, most of times, we don't really knowwhere we are selling, because we are not organized sold that way. 65% of abusiness is really through distribution and lot of times, we don't really know,where it is going. We have provided you some special inside look on thishousing segment, that required a lot of work and painstakingly, we created anindex for you to give you inside as that sector was sort of getting invested.But that isn’t translate to really our inside knowledge into any of the othersegments.

Okay. Understood. And then I guess the thoughts and I guessits difficult, but may be you can answer the second question. I mean, just as aballpark estimate I know a lot of your products go through distribution andit's hard to estimate. But could you say what percent roughly of your businessgoes to consumer today and may be what percent roughly is exposed to U.S.consumer or the areas seen some of this extreme unique weakness in themarketplace?

Well, the U.S. consumer has been 35% or so of our businessand we don't really know what portion is U.S. consumers, because fair amount ofa product built in Asia another place is really lands up being in U.S. and getsold to consumer. Secondly, even though we highlight consumer to be 35% of ourbusiness, there are many other applications that have consumer likecharacteristics, is a battery chargers for a cellular phone, a communicationproduct or a consumer product is a radar detector for an automotive, a consumerproduct and an automotive product is a radio and a car, a consumer product andan automotive product. So I think these are very overlapping application and weare in every single of those of applications. So if you look at just brand consumer I think you arelooking at a consumer behavior than consumer is two third of the economy,everybody knows that. And so we really see that going to affect in our businessand U.S.consumer is really half of the world’s consumption. So those are big numbers. But again, I come back to what I said earlier, despitechallenging conditions in that large of a market segment numbers are downslightly and if you look at our guidance its starting to now correlate with lotof a companies who have even less exposure on the segment, which is trying totell me that some of that sentiment of consumers and corporate executives inthe industrial segment and communication segment is starting to filter into theentire thing.

Understood, no I think it was helpful to hear yourdefinition or view of consumer, which we are starting to witness. Thank you.

And we do have another question in the queue, this comesfrom Doug Freedman with AmTech Research. Doug Freedman -AmTech Research. Hi guys thanks for taking my question. Some of them havebeen answered, but if you can also give your view at the analog and tax rateand what is happening with some new entrance into the microcontroller arenawhere we are seeing more programmable solutions that incorporate integratedanalog. Can you offer your view there and what you see the outlook andopportunities for Microchip to benefit?

Microchip to benefit in analog? Doug Freedman -AmTech Research: In building integrated circuits that have both the analogand microcontroller, not just working for analog attached.

90% of Microchip’s microcontrollers have analog on them. Socomplaint could come from outside. Just focus on just that segment and call itsomething different than a microcontroller, and at a small base it could growand it could look for a while, but Microchip ships close to over $700 millionto $800 million of revenue in microcontrollers, which has a substantial amountof analog on it. We have lots of those products in our portfolio also and havehad them for years. Doug Freedman -AmTech Research: So, is this an area that you expect to be growing, or is itsomething that you're going to focus more energy on, is there…?

We don't really make a microcontroller today that doesn'thave a substantial analog on it. Our microcontrollers at Microchip are not puredigital engine microcontrollers. I don't believe we had made anymicrocontrollers in the last several years, and over 90% of Microchip'smicrocontroller portfolio and probably over 85%, 90% of our revenue inmicrocontroller, are microcontrollers with substantial analog on it. Ratherthan system on a chip I call them system on a peak SOP. Doug Freedman -AmTech Research: Okay, great.

To many of the customers we refer to those peakmicrocontrollers as system on a peak because they have all the required analogon it also. I think that's partially also we find that customers where, whenMicrochip goes with a microcontroller seeking design, many times the analog onit customer lands up using it on our microcontroller. And therefore, we may notwin that analog circuit. But if the customer was using somebody else'smicrocontroller maybe didn't have as much analog, was purely a digital, thenyou could find an analog part from Linear or Maxim or TI or somewhere. And I think part of our analog challenge is really driven bythe most of our analog IT is also available integrated with ourmicrocontrollers. So therefore every time we go if the customer needs amicrocontroller and in analog, the analog gets cut out because we bundle itwith a microcontroller. Does that make sense to you? Doug Freedman -AmTech Research: Yeah, absolutely. As a result of that, do you think thatthat's part of the opportunity that you have in terms of seeing sort of ahigher ASP per system, and if they are more of trend to incorporate more analoggoing forward to get more system [on tech]?

I think we're -- Ganesh, do you want to comment on that, Imean that's what we have been doing for years.

It's what we've been doing for a long time and if you lookat our product line progression, the complexity of analog that we haveintegrated has just gone up overtime, and clearly some of the reasons why weget the gross margins that we get to get the ASPs that we get is because of theoverall system value we are bringing on these systems on effect.

So if the market share we have gained for years and years inthe phase of a flat or declining EBIT market for years -- when we were growing,we were adding value essentially, putting lot of analog and improving ASPs. Andso it's not something new, I think that's on the top of the list in terms ofwhat we're doing, adding analog and other peripherals on our microcontrollers. Doug Freedman -AmTech Research: Okay, excellent. Changing gears a little bit. Can you talk alittle bit about your good market strategy? I know you've in the past changedyour channel strategy from time to time. Can you give me a summary of howcomfortable you are with how it's working right now and what your view of itis, is it something that you're looking at maybe possibly trying to find toomany ways?

The channel strategy is working well. Initially the reactionof some of the channel partners was negative based on us loading gross marginand taking some of that and pulling them into demand creation effort, and someof that was misunderstood by some of the channel partners thinking thatMicrochip will take all that business direct. And after two years plus, two to four years depending onwhich phase of that program you talk about, where we started it four years ago,a market share gains have continued. Last year was a record gain of marketshare. Channel partners have reengaged, because Microchip didn't take all thatbusiness direct and they thought our business from distribution is still verysimilar, it's almost 65% than we were had four five years ago. So, I think there is always room for improvement and gettingmore effort from all of its channel partners, no matter where they are. Andusually nobody is ever satisfied because in this business you got to ask formore and we'll continue to do so, but there is really no -- the channelpartners are not broken, those relationships are not broken. Doug Freedman -AmTech Research: All right, treat. Thank you for your time.

Welcome.

At this time, we have no further questions in the queue. Iwill turn it back over to Mr. Sanghi for any additional or closing remarks.

Thank you very much everybody for attending. We'll see someof you on the road, as we travel to various conferences and explain our marketposition further and I will talk to you in the next conference call. Bye, bye.

And once again this does conclude today's call. Thank youfor joining us and have a great day.