Ganesh Moorthy - Chief Operating Officer and Executive Vice President J. Bjornholt - Chief Financial Officer, Principal Accounting Officer and Vice President Steve Sanghi - Chairman, Chief Executive Officer and President

Mark Lipacis - Morgan Stanley Ian Ing - Gleacher & Company, Inc. Terence Whalen - Citigroup Inc Brett Piira - Caris & Company Steven Eliscu - UBS Investment Bank James Schneider - Goldman Sachs Group Inc. Christopher Danely - JP Morgan Chase & Co Sumit Dhanda - Citadel Securities, LLC Craig Ellis - Caris & Company Raymond Rund - Shaker Investments Kevin Cassidy - Stifel, Nicolaus & Co., Inc. Christopher Caso - Susquehanna Financial Group, LLLP John Barton - Cowen and Company, LLC Timothy Luke - Barclays Capital

Good day, everyone and welcome to this Microchip Technology Third Quarter and Fiscal Year 2011 Earnings Results Conference Call. [Operator Instructions] At this time I would like to turn the call over to Microchip's CFO, Mr. Eric Bjornholt. Please go ahead, sir. J. Bjornholt: Good afternoon, everyone. During the course of this conference call, we will be making projections and other forward-looking statements regarding future events for the future financial performance of the company. We wish to caution you that such statements are predictions and that actual events or results may differ materially. We refer you to our press release of today, as well as our recent filings with the SEC that identify important risk factors that may impact Microchip’s business and results of operations. In attendance with me today are Steve Sanghi, Microchip's President and CEO; Ganesh Moorthy, Microchip’s COO; and Gordon Parnell, Vice President of Business Development and Investor Relations. I will comment on our third quarter of fiscal year 2011 financial performance and Steve and Ganesh will then give their comments on the results, discuss the current business environment and discuss our guidance. We will then be available to respond to specific investor and analyst questions. We are including information in our press release on 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 GAAP and non-GAAP results. I will now go through some of the operating results for the December quarter. Referring to gross margin and operating expense information on a non-GAAP basis prior to the effects of share-based compensation and acquisition-related expenses. Net sales on the December quarter were towards the high end of our guidance at $367.8 million and were down sequentially 3.8% from net sales of $382.3 million in the immediately preceding quarter and were up 47.1% from net sales of $250.1 million in the December 2009 quarter. Non-GAAP gross margins were 59.8% in the December quarter, well above the high end of our guidance and down marginally as compared to the 60.2% we achieved in the September quarter. Non-GAAP operating expenses were 24.1% of sales and non-GAAP operating income was 35.6% of sales. Non-GAAP net income from continuing operations was $113.8 million, or $0.58 per diluted share, which is also at the high end of our guidance. I want to point out to investors and analysts that fluctuations in Microchip's share price impacted diluted shares outstanding used in our earnings per share calculation. The average share price of Microchip's stock in the December quarter was significantly higher than the average share price in the September quarter. This resulted in a higher share count in part because incremental shares are included in the EPS denominator from Microchip's outstanding convertible debentures. Dilution from the convertible occurs at average quarterly share prices above $29.04, which is the current conversion price. The average price of Microchip's common stock in the December quarter was $33.21, and the stock is trading at higher levels in that today. We have posted a schedule that shows what the incremental share count from the convertible debt will be at various share prices in the supplemental financial information section of our website on the Investor Relations page. This will be helpful to investors and analysts in the future when trying to estimate the share count to use when modeling Microchip's earnings per share. The increase in the share count used in the earnings per share calculation from the September to the December quarter negatively impacted Microchip's earnings per share by about $0.013 on a non-GAAP basis. Using a hypothetical average share price in the March quarter of $38 to calculate the additional diluted effect from the convertible debt impacts Microchip's diluted earnings per share by about an additional $0.015 when compared to the dilutive effect from the convertible in the December quarter. Investors and analysts should refer to the table on our website if they want to model the diluted shares outstanding using a different average share price for the March quarter. On a full GAAP basis, gross margins, including share-based compensation and acquisition-related expenses, which includes the sell-through of written up inventory and intangible amortization were 58.8%. Total operating expenses were $98.9 million or 26.9% of sales and includes share-based compensation of $7.7 million, acquisition-related expenses of $1.9 million and $0.6 million in severance charges that are classified as a special charge within operating expenses. GAAP net income from continuing operations was $101.9 million or $0.52 per diluted share. There was a net loss from discontinued operations of $1.2 million in the December quarter. In the December quarter, the non-GAAP tax rate was 12.4% and the GAAP tax rate was 10.9%. The tax rate was impacted by the retroactive reinstatement of the R&D tax credit, which favorably impacted the GAAP tax rate by $1.5 million for credits generated in the quarters prior to December 2010. The ongoing effects of the reinstated R&D tax credit were factored into our December 2010 tax rate and our forecast for the remainder of fiscal 2011. Our tax rate is impacted by the mix of geographical profits and the percentage of our cash that have been invested in tax-advantaged securities. We expect our combined forward-looking effect of tax rate to be about 12% to 12.5%. To summarize the after-tax impact that the non-GAAP adjustments had on Microchip's earnings per share in the December quarter, share-based compensation was about $0.042, acquisition-related items were about $0.021, non-cash interest expense was about $0.006 and the benefit from the retroactive reinstatement of the R&D tax credit was about $0.008. Microchip paid two dividends in the December quarter. The first dividend was our normal dividend payment and that was $0.344 per share. The second dividend, which was paid on December 27, was an acceleration of the March 2011 dividend due to the uncertainty around potential tax law changes beyond 2010 at the time of the dividend declaration. Microchip's next dividend will be announced with our March 2011 quarterly result and paid in June 2011. Moving on to the balance sheet, Microchip's inventory at December 31, 2010, was $177.7 million or 107 days, up 10 days from the prior-quarter levels. We have stated that our internal target for inventory days was about 115 and we expect to continue to build our inventory levels in the March quarter to help us achieve this target, improve lead times and support our customers delivery the requirements. This has been a successful competitive advantage for Microchip over many cycles and we expect similar positive results from our customers in the market. Inventory at our distributors was 39 days, which is up three days from the prior-quarter level. At December 31, Microchip's accounts receivable balance was $187.3 million, a decrease of 7.6% from the balance as of the end of September. Receivable balances are in great condition with excellent payment performance continuing from our customers. As of December 31, Microchip's cash and total investment position was approximately $1.57 billion and was up $4.1 million from the prior-quarter levels even with Microchip paying $129.4 million in dividends during the quarter. Our cash generation continues to be strong and our total cash and investment position is projected to grow by approximately $125 million to $135 million in the March quarter. Capital spending was approximately $34.2 million for the December quarter. We are continuing to invest in equipment to support the revenue growth of our new products and technologies, and our capital expenditure forecast for fiscal 2011 is about $130 million. Depreciation expense in the December quarter was $23.6 million, which was down from depreciation of $23.7 million in the September quarter. I will now ask Ganesh to give his comments on the performance of the business in the December quarter. Ganesh?

Thank you, Eric. And good afternoon, everyone. Let's now take a closer look at the performance of our individual product lines starting with microcontrollers. Our Microcontroller business performed better than we expected with revenue only down 2.2% on a sequential basis, but were up 24% from the year-ago quarter. We shipped our 9 billionth cumulative microcontroller in December and finished calendar year 2010 shipping a record 1.3 billion microcontrollers. For calendar year 2010, our overall Microcontroller business was up 42.4% over calendar year 2009. Our 8-bit Microcontroller business performed better than we expected with a minimal sequential decline and up significantly from the year-ago quarter. Our 16-bit Microcontroller business was down 2.6% sequentially, but was up 84% from the year-ago quarter. For calendar year 2010, our 16-bit Microcontroller business was up 113.6%, more than doubling over the calendar year 2009 revenue. New customers and new designs continue to go into production as a number of volume 16-bit customers grew to over 3,300 customers. Our 32-bit microcontroller product line, which took a pause in the September quarter, had another strong quarter of growth in the December quarter, up 45% on a sequential basis, achieving a new record just as we had forecast it. For calendar year 2010, our 32-bit Microcontroller business was up 260%, more than tripling over the calendar year 2009 revenue. The number of customers in volume production grew by over 25% to 524 as we continue to build a broad base of customers to grow our 32-bit business. Moving to Development Tools. We shipped over 40,000 development tools in the December quarter. Our Development Tools sale has remained an excellent leading indicator of continued strong design and activity and acceptance of our solutions by our customers and the continued trend of strong Development Tools sales bodes well for our future growth. Now moving to our Analog products. Our Analog business was down 4.7% sequentially, but was up 67% from the year-ago quarter. For calendar year 2010, our Analog business was up 93.4%, almost double the calendar year 2009 revenue. We are very pleased with the design win and revenue momentum of our Analog business and we continue to introduce a steady stream of innovative new products, which we expect will continue to contribute to strong revenue growth in the coming quarters. Now moving to the Memory business. This business is comprised of our Serial E-squared memory products, as well as our SuperFlash memory products. And together, they were down 13.5% on a sequential basis. We continue to run our Memory business in a disciplined fashion that maintains consistent profitability, enables our licensing business and serves our microcontroller customers to complete their solutions. With that, let me now pass it to Steve for some general comments, as well as our guidance going forward. Steve?

Thank you, Ganesh. And good afternoon, everyone. Today, I would like to first comment on the performance of our SST business units in the most recent quarter, then I will reflect on the overall December quarter results. And finally, I will talk about our guidance for the March 2011 quarter. So let's begin with some comments on the SST division. Our licensing revenue was up 10.3% sequentially and reached another all-time record of $19.1 million in the December quarter. When we acquired SST, some investors and analysts had shown concern regarding how the licensing business will perform under Microchip. Their obvious concern was that a significant portion of the licensing business was with Microchip's competitors in the Microcontroller business. After acquiring SST, we created a firewall around the licensing business and decided to manage it at an arm's length to our Microcontroller division. We still have access to advanced SuperFlash technology for our microcontrollers, but the competitor's information is not accessible by our Microcontroller division. This has relieved any concerns and our licensing business has continued to flourish. The real proof of sustainable growth of our licensing business is not just in the existing business, the real proof is in the new licenses signed. Last quarter, we signed six new licensing agreements. Three of these agreements were in Europe, one in China, one in Japan and one elsewhere in Asia. Three of the agreements were with IBM, two were with silicon foundries and one was with a design services company. Three of these deals were incremental licensees with companies that we already do business with. The three other deals where with brand-new companies that we have never done licensing business with. As of the start of the January 2011, there were several additional new deals in the funnel since January 1. One of these deals have already been signed. Proper restructuring of the licensing division under Microchip with focused resources, as well as freedom to pursue more creative business models has allowed acceleration of prospecting and deal closure. Therefore, it is quite clear that we are succeeding in this licensing business across a very broad front around the globe and with IBM and foundries alike. The central attraction continues to be the SuperFlash technology, which is the premier flash technology available for embedded control. There are two kinds of companies in the embedded control, the ones that are using SuperFlash technology and the ones who should be using it. Our SuperFlash technology has penetrated about 25% of the total available market and there's much more room to grow. Now during the last quarter, we also announced that Microchip had decided to retain the SuperFlash memory in RF divisions of SST. In the December quarter, we continue to make outstanding progress in improving the operating model for the SuperFlash memory division in the RF divisions through hard work in partnering with customers, targeting markets, focusing on pricing, improving manufacturing costs and incorporating these divisions into the Microchip business structure. The gross margin improvements have been excellent and we fully expect these divisions to continue to drive Microchip's overall gross margin to higher level. You can see that we have had a laser focus on improving these divisions' gross margins, just like we have done with all of Microchip's product lines throughout Microchip's history. We decided to retain these product lines as ongoing businesses of Microchip as we more fully understood the opportunities that presented and the improvements that we could achieve. We believe that significant margin improvements are still ahead of us. SST divisions were accretive to Microchip's non-GAAP earnings by about $0.09 per share for the December quarter. We expect SST to add approximately $0.32 to Microchip's non-GAAP earnings for fiscal year '11. And for fiscal year '12, we expect the SST businesses to add about $0.40 to our earnings per share. As I reflect on the overall December quarter, it was an excellent quarter for Microchip. Our sales were better than the middle point of our guidance. We beat the overall gross margin target by 60 basis points. We beat the non-GAAP EPS target by $0.01, despite an additional $0.013 per share impact due to the higher share count. Our core Microcontroller business was down only 2.2% sequentially and our 32-bit Microcontroller business achieved another record with a gain of 45.5% sequentially. Our 32-bit Microcontroller is almost exactly following the performance of our 16-bit Microcontroller business with now 10 quarters since the introduction. We continue to be pleased with the penetration we're making in both our 16-bit as well as 32-bit Microcontroller businesses. The December quarter also marked our 81st consecutive profitable quarter, and it's a testimony to the resiliency of the business model that we have fine-tuned over time. Now looking back on calendar year 2010. We had one of our best-growth years ever with over 64% growth as compared to calendar year 2009. If you recall a year ago, we guided to 26% revenue growth from calendar year '09 to calendar year '10. We also guided to a non-GAAP EPS of $1.50 for calendar year '10. At that time, our yearly guidance was seem overly optimistic. I apologize for not guiding more precisely and for beating the numbers by achieving 64% revenue growth and non-GAAP EPS of $2.26. Even if you take the EPS accretion delivered by SST divisions out of the numbers, we still achieved a non-GAAP EPS of $2.02 versus our forecast of $1.50 enough said. As we enter calendar year 2011, we believe we are exceptionally well positioned for continued growth in all of our strategic businesses. I will now provide guidance for March 2011 quarter. We saw a mild inventory correction in the December quarter. As we said in our last earnings conference call, we expected this correction to be mild and be completed after one quarter. With improving lead times in our business, our longer-term backlog visibility is decreasing since customers are no longer placing orders many months out. Therefore, book-to-bill ratio is less than one with the December quarter at 0.77. However, as you have seen before, book-to-bill ratio has no correlation to the quarterly performance. 1.41 book-to-bill ratio in June quarter last year was as meaningless as 0.77 book-to-bill ratio for the last quarter. The backlog shippable in the March quarter is very healthy. We will also see some seasonal impact of Lunar New Year in Asia considering all that we expect our net sales for the March quarter to be flat to up 3% sequentially. We expect our non-GAAP gross margin to be 60% plus, minus 0.1% for March quarter and we expect non-GAAP earnings per share to be between $0.56 and $0.58. Earnings per share assumes an average Microchip stock price of $38 in the quarter, which adds 6.1 million shares to our share count from the December quarter. The total net earnings in dollars at the midpoint of the guidance are expected to be up by about $1.2 million or $0.006 at constant share count. Given all the complications of accounting, for a large acquisition including purcahse inventory write-up, amortization of intangibles, restructuring charges and sale of non-core businesses, like many other companies have done, Microchip will continue to provide guidance and track its results on non-GAAP basis. We believe that non-GAAP results will provide more meaningful comparison to prior quarters and we request that the analysts continue to report their non-GAAP estimates to first call. With that, operator, would you please pool for questions?

[Operator Instructions] And our first question today comes from Chris Caso with Susquehanna Financial. Christopher Caso - Susquehanna Financial Group, LLLP: I just wonder if you could give a little more color around how you got to the guidance levels that you put out for the March quarter? Perhaps, give us some indication for what you've been seeing with regard to turns business and what you're expecting with regard to turns for the March quarter?

Well, again, the question circles around sort of a book-to-bill ratio in terms and all that. And if you go back last year when the lead times were longer and are current lead times are, by the way, four to six weeks on majority of our products. So when the lead times were longer, you're not only getting the backlog for the current quarter, you're getting backlog for almost the entire next quarter because if the lead times are much longer, people have to put their orders and get the space in line. As the lead times have come in, the entire impact that we have seen is we're no longer getting orders for four months, five months, six months out. But the current backlog is very healthy compared to the prior quarter. And we're getting the appropriate amount of turns needed, which are quite strong. Turns are quite strong because parts availability is there and people need the parts and they didn't need to place the orders ahead of time. So when you kind of look at all that, the quarter seems quite normal. Christopher Caso - Susquehanna Financial Group, LLLP: In other words, it sounds like it's really a question of the longer lead orders are coming off, but the orders within the next sort of 90 days or so seem to be maintaining at a reasonable pace?

Exactly.

And our next question comes from Chris Danely from JPMorgan. Christopher Danely - JP Morgan Chase & Co: Actually, Steve, just a quick clarification. So are you saying that your 32-bit Microcontroller revenue has been tracking the 16-bit Microcontroller revenue for the same time period and could you please repeat that time period?

So 32-bit microcontrollers were introduced 10 quarters ago, 2 1/2 years. So if I start from the first quarter of 16-bit and line it up against the first quarter of 32-bit, after 10 quarters, 32-bit is running exactly where 16-bit did. Christopher Danely - JP Morgan Chase & Co: And as my follow-up, so it sounds like you guys can continue to improve the gross margin. Can you just give us a sense of what the drivers would be after this quarter and then maybe throw in a little bit of color on the OpEx drivers after this quarter too?

Gross margin is within a smaller distance of a really longer-term guidance of 61%, plus, minus -- 61% to 62%, so it's not like it's a huge distance away, it's 150 basis points or so away. So there are lots of small, small drivers, but really no single driver. Obviously, we are ramping up facilities to provide for growth. After the current quarter, we have two very strong back-to-back quarters coming up, June and September, which are seasonally very strong quarters for Microchip and we expect them again this year. So currently, we are ramping all of our facilities, both the assembly and test. We are continuing to improve the gross margin of SuperFlash memory division, which has improved dramatically. Quite dramatically, we don't break it out. But quite dramatically, since we bought it and it was up again last quarter and will be up again this quarter. The licensing business is doing very well, which is overall accretive to gross margin. And just lots of normal things, the depreciation rolling off, higher absorption, some strengths[ph] , price management and all these other functions that are incrementally accreting to gross margin every quarter.

Our next question comes from James Schneider with Goldman Sachs. James Schneider - Goldman Sachs Group Inc.: I was wondering if you could speak to linearity in the quarter and it seems like relative to your original guidance and your guidance update, it seems to be pretty much right in line. But if you have any commentary on how it went from October through December that'd be helpful.

I don't think there was anything abnormal as we've gone through the quarter. And I think a normal December quarter has a slower finish, as we go into December has the strongest start comparatively in October and it performed exactly to that. James Schneider - Goldman Sachs Group Inc.: And then relative to your OpEx levels, I think going back to the history, you've done a very good job of maintaining the OpEx at a low percentage of sales, and I think were towards the low end of your so-called range by quite a bit. Can you talk about, as we move through this calendar year, whether you expect that ratio to increase at all given what you expect in terms of the overall revenue run rate, or you think you'll be able to maintain this level here?

Our longer-term guidance still have been about 25% to 26% -- 24% to 26%. So, kind of wider gap. The reason that the expenses are on the lower end of the target is because of just the dramatic growth, achieving 64% growth in the year. You couldn’t add expenses if you wanted to. So we are well funded, all the divisions, all the product lines are really very well staffed. And we're adding people rapidly to further invest into strategic product lines. So as growth happens and as these additional people come on board, I think it will kind of track. But overall, we're in the low end of the overall percentage of revenue and expenses. And over time, it will migrate towards the middle. And I don't know the timeframe because that largely will depend on the growth.

We'll go next to Terence Whalen with Citi. Terence Whalen - Citigroup Inc: I think the fiscal '11 CapEx is $130 million. I was wondering if you could perhaps comment on your expectations and your needs for fiscal '12 CapEx. And also just briefly comment on whether some of the depreciation treatment, accounting wise, is influencing any of your purchasing decisions in calendar '11.

Well, we don't have a fiscal year '12 capital number for you today. We are putting together fiscal year '12 plan internally in the company as we speak. We have a full calendar that's starting with the product lines and revenue assumptions and then going through the capacity and the capital needed to provide that and then the expenses and all that. So we don't have the fiscal year '12, fiscal year comments for you today. In terms of purchasing and depreciation that will impact our decisions. J. Bjornholt: There's nothing on the accounting side that's going to change how we think about investing, Terence. We're going to continue to invest as we see appropriate in business.

Well, the changes there, it's all written up in the one year. J. Bjornholt: Yes, the acceleration of depreciation..

So this is for the tax purpose, it's not for the GAAP. J. Bjornholt: And that's not going to drive...

And that's not going to drive any decisions for us. Terence Whalen - Citigroup Inc: Then, perhaps as my follow-up, you alluded to a very successful quarter for the licensing business. Steve, you mentioned that the several new customers, as well as several new contracts with the existing customers in the licensing business. Can you talk a little bit about the outlook for that business over the next several years? Are there any patent quests that could affect the revenue rate of that business? Is that can be a strategic area of growth for you? If you can just comment how you're thinking about that over the longer term?

Yes, it's absolutely a strategic area of growth. The licensing stream varies over a period of time. So when you sign a license, it usually means nothing immediately. We usually have some payments that come to us over step payments as the technology is implemented, then as the customer's revenue ramp and there's royalty stream. So it's kind of like builds up over some time one, two, three, four years and several of these licenses are going really all together in parallel. So over time, the business grows. We currently don't see, really, any issues in being able to continue to grow the business. The licensing business did record in September quarter, did record again in December quarter and we're fairly confident that it will do record again in the current March quarter.

We'll go next to Tim Luke with Barclays Capital. Timothy Luke - Barclays Capital: Steve, you are referencing that you feel that you're likely to return to some strong growth in the June and September periods. I was wondering if you could give some feel for what areas you are looking forward to seeing stronger growth from as you move through the year? And what some of the factors are in just sounding that you feel reasonably confident about the outlook for June and September?

You've seen some of the momentum that our product lines have been building. In addition to a core 8-bit business that has been growing, we have a much faster growing 16-, 32-bit and Analog product lines. And we've seen the design momentum that we have on those products. As we go into our seasonally strong June and September quarters, we expect will contribute strong growth. We're not really market-segment centric many of these things. We have designs that are in many, many different applications in markets. We don't rely on any one market or any one application to drive the growth. Timothy Luke - Barclays Capital: You mentioned, if I may, the usual Lunar New Year impact. When do you sort of feel that? And what is the linearity associated with that? Does it mean that orders sort of slow at the beginning of February or has it -- what is your expectation there?

We are in the Lunar New Year right now as we speak. And the people return to work, I think, around the 8th of February. So usually when the Lunar New Year falls early, like it is falling this year, it's actually very good because people come back after that, and you still have the rest of the quarter left with strong orders and filling the pipeline and all that. Sometimes Lunar New Year falls very late. It has fallen as late as early March, or even late February, and when that happens, it gets a little more tricky. And you have to get all the orders before people leave for the Lunar New Year, and because you don't have enough time to build it in the right mix after that. So this time, the Lunar New Year is early. So I think it should really work out very good.

We'll go next to Sumit Dhanda with Citadel Securities. Sumit Dhanda - Citadel Securities, LLC: Steve, your commentary on the turns bookings being relatively strong, I guess the question was in terms of your outlook for the March quarter, is the expectation that you have enough backlog and that's the primary reason that you're should be able to shift to that revenue outlook despite the low book-to-bill? Or is the jump in turns bookings the primary driver of the seasonal or the positive outlook?

Well, the book-to-bill ratio we report is the bookings we get in the quarter for shipment over the following one year divided by the billings or the revenue in the current quarter. So I don't know how everybody else does it, but I think it's reasonably standard that you take all the bookings you get in the quarter, which are shippable sometime over the next year and divid it by the billings of the current quarter. So when the lead times are long, you're getting large amount of bookings for the second and third quarter out in time and you're dividing it by the current quarter's revenue. So book-to-bill ratio is unreasonably large like it was 1.41 and 1.36. Now in that kind of environment, your backlog is filled up for the current quarter because you don't have enough lead time to ship it to the current quarter. So most of the bookings are getting out there in time. Now when the business environment transitions and you have much shorter lead time, then all the outer bookings dry up because people have plenty of time to place those orders. So you're not getting all those outer bookings. And if the current quarter backlog is quite healthy, which it is in the transition because you're coming from a fairly strong backlog, then you're dividing small number of bookings largely from the current quarter divided by the full revenue. And then the equation reverses, you have a very low book-to-bill ratio. Sumit Dhanda - Citadel Securities, LLC: So maybe, I don't know if you have this information handy, is there a sort of -- to make an apples-to-apples comparison, is there a 90-day book-to-bill, so to speak, that you could share with us or not really?

We don't track it that way. I think maybe to answer your question, we have strong backlog for this quarter. We see the turns coming in at the rate that we need to hit the guidance we have given you, and that's why we have the guidance we have. Sumit Dhanda - Citadel Securities, LLC: One quick follow-up for you, Eric. You said distribution days were up three to 39, but my recollection was it was 34 last quarter. So maybe I misheard the 39 as the 37. J. Bjornholt: 39 is the correct number.

[Operator Instructions] And we'll go next to Kevin Cassidy with Stifel, Nicolaus. Kevin Cassidy - Stifel, Nicolaus & Co., Inc.: On the 32-bit rebound that you saw in the December quarter, can you give us more details on what that was if it's certain markets or was it just the product coming through pipeline?

It's a result of an accumulation of designs that we have been harvesting for some time. When we reported for the September quarter, I said, "Hey, we have, in a smaller business, more lumpy revenue that comes along." We have no concerns at all about what happened in the September quarter. And we as we expected, the designs continue to grow the customers who may have taken a pause in September came back in for growth in December. And overall, it's growing across -- we have over 500 customers now involved in production on the 32-bit. So it is growing across a broadening base of customers, which in time will make it a more predictable business in terms of quarter-over-quarter sequential growth.

The backlog on 16 and 32-bit looks very healthy so we should have a outstanding quarter again in March. Kevin Cassidy - Stifel, Nicolaus & Co., Inc.: Just in general, are you seeing any pressure on cost of your materials going up? Any issues there?

Well, it's a semiconductor industry. There are constant challenges. In the last year, we have absorbed the price of gold, copper and all the materials going up, fuel charges, energy costs, gas and other. While at the same time, you have yield improvements, you have absorption, you have depreciation falling off, you have value added in new products, and for certain features, and others you can manage ASP in. That's basically the semiconductor business. And all those things average out, but would we like lower gold price, would we like lower material prices? Yes, but those are not the things we can control. So we a have very, very strong cost reduction effort, which keeps up with these things and still produce a gross margin.

We'll go next to John Barton with Cowen. John Barton - Cowen and Company, LLC: ; Steve, if you could update us on what you're seeing from the touch sensor market strategy going forward for that market, please?

So there are -- the touch sensors market has a broad set of applications where that feature is required. Where Microchip has chosen to focus is in all of the broad kinds of applications that are not in cellphones and not in tablets. So in embedded markets, across the types of markets where our microcontrollers get used, touch sensors are being added. And in many of those applications, we have the exact solution that they need, and we are growing much faster than anybody else in those applications. However, we don't believe that the long-term characteristics in the cellphone business is necessarily one that creates a sustainable and predictable business result. And so we have chosen not to be in those areas, but we're doing very well in all the other applications that we touch. John Barton - Cowen and Company, LLC: Steve, you've expressed in your prepared statements, some disappointment that you did not accurately forecast 2010. So using what you've learned from that pleasant mistake, what are your thoughts in 2011?

What I've learned is that whatever I say, it's not going to be believed. So I decided not to say anything. John Barton - Cowen and Company, LLC: If I promise to believe, will you say something?

You may promise to believe, but there's just constant reports, which tell us that we're going to underperform. And we have constantly beaten those expectations. So there's really no point in continuously belaboring 2012 forecast. We'll just deliver the results.

We'll go next to Mark Lipacis with Morgan Stanley. Mark Lipacis - Morgan Stanley: If you normalize for the double dividend payment this quarter, it looks like your dividend payout over the last couple of quarter was about as low as it's been in at least two years or so. And I was wondering if you're embarking on a strategy or conscious decision to try to build cash, and if so, what would be the use for that cash?

Well, I think if you go back in history, we always said that we were going to rapidly grow the dividend, Get to a very healthy level. And then from there, just grow it on a very, very slow basis. Not double, triple it quickly, but grow it rapidly, which we did in the earlier years. And then just slightly continue to grow, which we are doing right now by $0.001 a share every quarter. Now as far as the use of cash is concerned, there are the normal use of cash. There are -- there's dividend, there's acquisitions and they're a normal use in our business. As I earlier said, our business is very well funded, and we are generating huge cash from operations every quarter. So investment in our business is not using up cash, actually, it's generating additional cash; which leaves a build up of the cash, slow dividend increase and essentially opportunistic acquisitions like the great acquisition we did with SST. Meanwhile, the cash will continue to grow. Going significantly past the current dividend level doesn't buy a whole lot. Our dividend is the highest in the semiconductor industry. I believe there's only one company, TSMC, which is not quite an IDM, which may have a higher percentage dividend. I haven't compared recently, but I think they were. But compared to anybody else, we have the highest dividend. So just continue to grow that, we don't believe is right thing to do. John Barton - Cowen and Company, LLC: When you look at the growth in your 16- and 32-bit business, doubling and more than tripling, is there a particular vertical market that is driving the growth where you're seeing the particular demand for the products?

There are no particular vertical markets that we either focus on or that are necessarily driving that growth. It's a pretty broad-based growth. If you look at customers wise, there's over 500 customers on the 32-bit. There's over 3,300 on the 16-bit. And these are volume customers. And typically, when you have volume customers at a certain level, there's about 2x to 3x that many that are customers in the incubation stage of developing new designs. So when you have such a broad suite of customers, there's no single application or market that drives the growth. That's the way we like it, by the way. John Barton - Cowen and Company, LLC: And so is it fair to say that 16, the vertical market profile of 16- and 32-bit is similar to 8-bit, is that fair? J. Bjornholt: Very similar, there may be small percentage here and there that change. But in general, the profile is very similar.

And we'll go next with Steven Eliscu with UBS. Steven Eliscu - UBS Investment Bank: Just first wanted to ask on the touch control market, I know you've talked about not wanting to pursue the cellphone and tablet markets, but as they gain scale, that could give them an advantage in other markets such as industrial. What are you doing to potentially offset those advantages that they may have?

We're not aware of any particular advantage that they have that is giving them scale. Obviously, there are markets that have certain characteristics that we like. Our products work extremely well in the markets that we are going after and for the applications that we're going after. There are no technical challenges that we're seeing. It's just work to go support a large group of customers and to build a productive business that we find sustainable and profitable.

This is not any different than historical use of microcontrollers in the cellphone where we did not focus on versus everywhere else. And you could have asked that question 10 years ago, that you're not in cellphones with all that higher volume, our competitors and others who were largely dominated the cellphone will get an advantage or whatever than they would really have it in any other market. It really hasn't changed that way. These cellphones are unpredictable, short life cycle, lower gross margin, and always, always get packaged into ASIC. The first couple of models is not, but maybe the second design, ASIC will take that it in, and it will not be in micro. Versus the places where we are in. Industrial, automotive, consumer, we probably have over 500 customers in production today in all sorts of applications. The margins are significantly higher, the design -- the lifetime of the design is much longer. They're not ready to get packaged and the next designed into an ASIC. So there are all these advantages that we like. But to do a given volume, we have to serve 10x, 15x, 20x more customers. It's like getting $20 million business at one customer versus getting $20 million business at 100 customers. We excel at serving 100 customers. That's where we make the margin. That's our business model, always has been. Steven Eliscu - UBS Investment Bank: I guess the angle I was looking at was in terms of your large screen resistive and your inductive technologies, how those are potentially augmenting the capacitive touch technology, touch controllers that you're focused on for specific subsegments.

But the majority of a large portion of our revenue today is in capacitive touch sense. We have it in resistive also, but we are very competitive technology on capacitive touch sense. And I think I said that before. I think that two of our competitors always win the cellphone and we win everything else, pretty much. It's easy to get numbers on tablets and numbers on cellphones and smartphones and screen touch and all that. That's very easy to analyze because you can get easily the numbers. If you don't get the numbers on touch sense, on everywhere else, on postage meters, and thermostats, and DVDs, and TVs and push-button, which have touch phones and all that. We've got all that. It's in production in high-volume and lots of lots of places. We're making huge revenue. But it's harder to analyze, harder to get numbers and we like that. That's why we're successful -- Steven Eliscu - UBS Investment Bank: Let me switch gears and ask about 32-bit. Clearly, you're getting some nice growth. What are you doing in terms of your sales and applications force to get them oriented to the right customers? I understand the segments are similar to your 8- and 16-bit segments, but I would imagine that some of the customers are new customers with new requirements you may not have seen in the past. So how are you making sure that they can win more often than not? J. Bjornholt: I think, we have -- for the longest time, new customers are an integral part of our sales process. So even when we had 8, there was an upper end of 8-bit that was new; when we had 16, when we had 32. So we're constantly going after new customers and learning in the process what we may not have that we need improve on. But the 32-bit in particular, if you remember from the days when we were just in 16-bit, we used to report that we played and we were winning against other 32-bit competitors. So we've been in the market and we've seen the customer requirements from the days when we were just with 16-bits only. We continue to evolve our tools, our software, our product capabilities, application notes, our technical support, the whole field sales force augmentation that we did. So for a number of years, things we did to retool our capability to be successful in 16-bit, are now paying off not just for 16-bit but also for 32-bit. Steven Eliscu - UBS Investment Bank: And one last quick question on just the board's thought on share repurchases. I realize you're opportunistic, but are you thinking that it's just a pullback continued increases and share counts assuming share count continues to rise? Or if you like to see the share count get back under 200?

Well, I think we fundamentally do not believe in the strategy of continuously buying shares at all levels. And just trying to dollar cost average into something like that. I've said that on this conference call before that I personally own stocks of lots of other technology companies that have bought billions and billions of dollars of stock, large technology companies over 10 years having no effect on the stock. So Microchip does stock buyback very opportunistically when we believe the stock is undervalued and the Street has thrown the baby out with the bathwater, which seem to happen more often than we would like. In 2008 in the middle of the crisis, the stock was $16 and people were calling it to $12. So that was the last time we bought stock. And you can see where the stock is today, and that was a great return in our investment.

[Operator Instructions] And we'll go next to Ian Ing with Gleacher & Co. Ian Ing - Gleacher & Company, Inc.: Your SST business, where are you with training your sales and FAE teams to better sell licensing in SuperFlash and uncover incremental opportunities? Is it something that you're starting to benefit from already or that lies ahead?

The Microchip sales team does not sell licensing. There's a firewall around the licensing business. This doesn't need a broad distributor and channel sales force because we largely go sell it to the foundries, we sell it to the IDMs and design services companies. And these are not the kind of people our salespeople call on. Our sales people call on original equipment manufacturers, trying to sell our microcontrollers and Analog products. And our sales force should not be going and selling to our competitors, our technology. So the sales force for Licensing business is totally separate. It's firewall. It's not a very large sales force. It doesn't need a very large sales force because you're dealing with a handful of licensees at any one point in time. So it's strictly firewall. It's totally separate. And the rest of the SST business, the RF business, the SuperFlash Memory business is integrated. And our sales force is trained in selling those products today. Ian Ing - Gleacher & Company, Inc.: Last quarter, I think you had a series of international MASTERs conferences. Is there any read on broad-based economy, things like customer travel, registration, other activities?

We had a record attendance in our MASTERs conferences; in Scottsdale, which was in August, in India, which was last year, in China. We also did one in Brazil. So the attendance is record attendance everywhere. And obviously, it's driven by good prospect, great products, lots of new products in 8, 16, 32, analogs. So people come to learn what they don't know, and we have a lot to offer, usually, that drives the attendance as much as the economy.

We'll go next to Ray Rund with Shaker Investments. Raymond Rund - Shaker Investments: Steve, I was just curious, has your success with 16- and 32-bit necessitated any changes in your fab process technology thinking? Are you content to keep these types of products in the foundries or do you think at some point in the future, you may want to take them inside?

We're not making them exclusively in the foundries nor are we making it exclusively inside. It's a hybrid today. It's product by product. And some products may have characteristics or memory size or performance requirement that we may not have inside and others we can do inside. So all of the 16 and 32 business is neither inside nor outside.

And we'll go next to Craig Ellis with Caris & Company. Brett Piira - Caris & Company: This is Brett Piira for Craig. Could you give us any color on regional strengths and weaknesses in the quarter?

The March quarter or December? Craig Ellis - Caris & Company: The just reported December.

So in December quarter, what was very strong was Europe. It's usually a seasonally very week quarter for Europe because of the holidays. Their Christmas holidays is longer than anywhere else in the world. But Europe had strong economy, driven by Germany and we did very, very well in Europe. Everywhere else was kind of normal. Europe was the exception. Brett Piira - Caris & Company: Then maybe just broadly, you talked about gaining some share. How was your market share looking across the Microcontroller?

So based on the numbers that we see, we believe last year we gained market share in 8, 16, 32 and Analog, in all of our strategic product lines. Our 8-bit microcontroller did all-time record sales in September quarter, was down very marginally in the last quarter, December quarter like the others were. And now when the numbers come out, 2010 numbers will confirm that, but the level of growth we had in 2010 was incredible on 8-bit.

This concludes our Q&A session. So I would like to turn the call back to Mr. Steve Sanghi.

Thank you. So we'll see some of you at the Thomas Weisel Conference, which we're going to be presenting on the 10th of February, I believe. And so we'll see some of you on the road again in various non-deal roadshows we'll be conducting this quarter and next. So thank you very much. Bye bye.

This concludes today's call. We thank you for your participation.