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

Uche Orji - UBS Investment Bank Blayne Curtis - Barclays Capital Sujeeva De Silva - ThinkEquity LLC James Schneider - Goldman Sachs Group Inc. Christopher Danely - JP Morgan Chase & Co Gilbert Alexandre Sumit Dhanda - Citadel Securities, LLC Craig Ellis - Caris & Company Christopher Caso - Susquehanna Financial Group, LLLP Kevin Cassidy - Stifel, Nicolaus & Co., Inc. Mark Lipacis - Jefferies & Company, Inc. Harsh Kumar - Morgan Keegan & Company, Inc. John Pitzer - Crédit Suisse AG Brendan Furlong - Miller Tabak + Co., LLC

Good day, everyone, and welcome to this Microchip Technology First Quarter and Fiscal Year 2012 Earnings Results Conference Call. As a reminder, today's call is being recorded. At this time, I'd like to turn the call over to Microchip's Chief Financial Officer, Mr. Eric Bjornholt. Please go ahead. 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 or the future financial performance of the company. We wish to caution you that such statements are predictions, and that actual events or results may differ materially. We refer you to our press 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 first quarter of fiscal year 2012 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. We believe you will find this useful when comparing GAAP and non-GAAP results. I will now go through some of the operating results. I will be 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 in the June quarter were $374.5 million and were down sequentially 1.4% from net sales of $380 million in the immediately preceding quarter, and were up 4.9% from net sales of $357.1 million in the June 2010 quarter. On a non-GAAP basis, gross margins were 59.5% in the June quarter and non-GAAP operating expenses were 25% of sales, both in line with our preliminary results that we shared with the Street on July 11. Operating income was 34.5% of sales and net income was $111.4 million or $0.55 per diluted share. On a full GAAP basis, gross margins, including share-based compensation and acquisition-related intangible amortization, were 58.7% in the June quarter. Total operating expenses were $102.9 million or 27.5% of sales and includes share-based compensation of $7.6 million and acquisition-related expenses of $1.6 million. GAAP net income was $99.3 million or $0.49 per diluted share. In the June quarter, the non-GAAP tax rate was 12.9% and the GAAP tax rate was 12.8%. Our tax rate is impacted by the mix of geographical profits, withholding taxes associated with our licensing business and the percentage of our cash that is invested in tax-advantaged securities. We expect our combined forward-looking effective tax rate on both the GAAP and non-GAAP basis to be about 12.75% to 13.25%. To summarize the after-tax impact of the non-GAAP adjustments had on Microchip's earnings per share on the June quarter, share-based compensation was about $0.038, acquisition-related items were about $0.015 and noncash interest expense was about $0.006. The dividend declared today at $0.347 per share will be paid on September 1, 2011, to shareholders of record on August 18, 2011. The cash payment associated with this dividend will be approximately $66.3 million. Moving on to the balance sheet. Microchip's inventory at June 30, 2011, was $202.5 million or 119 days, up 12 days from the prior-quarter levels. Inventory at our distributors was 43 days, which is up 3 days from the prior-quarter level. We see an increasing trend of the large OEM customers using distribution to hold bonded inventory on their behalf in order to achieve 0 lead times without having to carry inventory on their balance sheets. This has resulted in a general increase over time in the amount of inventory our distributors carry. However, I'll remind you that our global distribution revenue is recognized on a sell-through basis. At June 30, Microchip's accounts receivable balance was $196.3 million, an increase of 8.8% from the balance as of the end of March. The increase in receivables was driven by the shipment linearity in the quarter. Receivable balances are in great condition with excellent payment performance continuing from our customers. As of June 30, Microchip's cash and total investment position was approximately $1.72 billion, and was up $9 million from the prior-quarter level. In the June quarter, Microchip had a $16 million tax payment that will not repeat in the September quarter and we also made our semiannual payment of interest on our junior subordinated convertible debentures of $12.2 million. Additionally, our accounts receivable and inventory positions grew during the June quarter, impacting our overall cash generation. Our total cash and investment position is projected to grow by approximately $90 million to $100 million in the September quarter, prior to our dividend payment. Capital spending was approximately $27.2 million for the June quarter and depreciation expense in the June quarter was $22 million, which was down from depreciation of $22.8 million in the March quarter. I will now ask Ganesh to give his comments on the performance of the business in the June quarter. Ganesh?

Thank you, Eric, and good afternoon, everyone. Let's now take a closer look at the performance of our product lines starting with microcontrollers. Our microcontroller business was down 2% on a sequential basis, but was up 4.3% from the year-ago quarter. Our 8-bit microcontroller business delivered a solid performance, but did not escape the impact of the broad-based slowdown we experienced. Despite this, our 8-bit business was up from the year-ago quarter. Our 16-bit microcontroller business was down 3.1% sequentially, but was up 43% from the year-ago quarter. We continued to see many new customers, as well as additional designs at existing customers going to production. Our 32-bit microcontroller business had another strong quarter of growth in the June quarter and was up 18.7% on a sequential basis and up 108.5% from the year-ago quarter to achieve a new record. 12 quarters after we started shipping 32-bit microcontrollers, the revenue growth and momentum continues to compare favorably versus our 16-bit microcontrollers at the same point in time. The number of customers in volume production grew sequentially from 584 to 657 as we continue to build a broad base of customers to grow this business. We expect the 32-bit business to grow in the September quarter and achieve another record. Moving to development tools. We shipped approximately 44,000 development tools in the June quarter, roughly flat with what we shipped in the March quarter. Development tools sales remain an excellent leading indicator of continued strong design and activity and acceptance of our solutions by our customers. Development tools get used by our customers on multiple projects over several years and as such, the continued trend of strong development tools sales bodes well for future growth. Finally, sometime later this month, Microchip will ship out 10-billion cumulative microcontrollers. It exemplifies the trust placed in us by over 70,000 customers worldwide as we endeavor to enable their innovation. This will be another historic milestone in our journey to be the very best embedded control solutions company ever and mark the collective contributions by our worldwide teams over many, many years. Now let's move to our analog products. Our analog business was down 7% sequentially,, but was up 2.4% from the year-ago quarter. We remain pleased with the design and momentum our analog business has shown, and we continue to introduce a steady stream of innovative new products, which we expect will contribute to strong revenue growth in the future. Now moving to our memory products. Our memory business, which is comprised of our Serial E-squared memory products as well as our SuperFlash Memory, products was up 0.6% 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. Let me now pass this 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 results of the June 2011 quarter and then provide guidance for the September 2011 quarter. The majority of my comments on the June quarter were made during the pre-announcement conference call on July 11. We essentially saw a broad-based demand and bookings weakness across multiple market segments and multiple customers in each segment. In the conference call on July 11, I said, "We believe that our June quarter results reflect weak overall market conditions, which we believe will impact the broad-based semiconductor industry in the June or September quarter, depending on the individual market exposures and revenue recognition practices of the company." Since then, we have seen this sentiment reflect to the earnings season with a weak guidance coming from Linear, Freescale, Texas Instruments, Silicon Labs, STMicroelectronics, Intersil, Micrel, NXP Semiconductors, IDT, Power Integration and others. The semiconductor supply chain is confirming the same sentiment with weak guidance from TSMC and UMC on the wafer foundry side, Teradyne from the test equipment side, [indiscernible] in applied materials from the fab equipment side and Arrow Electronics from the compliment [ph] distribution. There could be some companies that are exceptions due to a particular product transition or momentum in a given application segment, but we continue to believe that most companies will see the weakness manifest itself as the quarter progresses and their guidance is likely to be too aggressive. The broad-based global weakness seen [ph] has also been reflected by large multinational industrial conglomerates like Emerson Electric Co. Last week's Durable Goods report also cited that new orders for durable goods fell unexpectedly in June and a weak June quarter GDP report and a very weak ISM Index this week caps it all. Our long-term investors and analysts have seen Microchip experience these industry events first. Microchip tends to see changes in business conditions earlier than most of our peers due to a number of factors. Number one, we recognize distribution revenue on a sell-through basis worldwide. Number two, we run very short lead times, which gives customers more time to make purchase decisions based on more current business conditions. And number three, we have a large number of small- and medium-sized customers who tend to be quicker in adjusting their inventories. I will now provide guidance for the September 2011 quarter. Nothing that we have seen in the month of July changes our view that we represented in our pre-announcement conference call. Our view has now been confirmed by a large number of industry players, many of whom have fairly broad-based businesses. The overall market environment continues to be weak. Therefore, we're maintaining the guidance that we provided on July 11. We expect our net sales to be down from low to mid-single digit percentage. We expect the non-GAAP gross margin percentage to be between 59.3% and 59.7% of sales with the midpoint being even with the June quarter. We expect the non-GAAP operating expense to be about 25% to 25.5% of sales. And we expect our non-GAAP operating profit to be between 33.8% to 34.7% of sales. And we expect non-GAAP earnings per share to be $0.50 to $0.54 per share. We expect our inventory in the September quarter to be in the range of 130 days. While this inventory is higher than what we experienced in our recent past, we believe that short lead times is one of our competitive strengths. We, therefore, believe that the inventory is acceptable and we will bring it down over time without any harsh actions in manufacturing. Our products have very long lifetimes, and we have a history and track record of managing inventory without onetime write-offs in selling them over the business cycles. One of the immediate benefits of the higher inventory is a substantial reduction in our capital expenditures. We again reaffirmed that we have lowered our CapEx forecast from $125 million that used to be, to $75 million for fiscal year '12. Given all the complications of accounting for the SST acquisition, which we completed last year, including amortization of intangibles and restructuring charges and sales 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. Finally, while our overall results for the June quarter are disappointing, we did manage to make it our 83rd consecutively profitable quarter. Our non-GAAP gross margin of 59.5% and a non-GAAP operating profit of 34.5% are the type of results that are not achieved by most of our competitors even in the best of times. We feel very positive about the long-term prospects in our business. And we are continuing to invest in our strategic initiatives to drive growth. With that, operator, would you please poll for questions?

[Operator Instructions] And we'll take our first question from Mark Lipacis with Jefferies. Mark Lipacis - Jefferies & Company, Inc.: Question for Steve. When you think about the weakness that you're seeing right now, can you give us a sense of how much you think it is real like end-customer weakness out there versus your distributor customers concerned about the macro environment and taking inventory levels below normal, what would be normal levels?

If distributors were simply taking inventory at below normal level, that will have no impact on our revenue because we recognize revenue 100% on sell-through worldwide. That would impact the revenue of other companies who have a selling revenue recognition, but it wouldn't affect our revenue because of sell-through. Mark Lipacis - Jefferies & Company, Inc.: Understand, Steve. I guess what I really meant was your distributors customers. So the OEMs or the contract manufacturers getting more nervous about what they're seeing in the macro environment and whether or not you have a view on if you think they're taking their inventory levels below normal levels.

That's basically demand weakness. It's very hard to really make the differential. A large number of customers have logistics program with their distributors where the inventories are actually held by the distributors and they draw the inventory as they need the product. That's more and more trend going in that direction, which is also one of the reasons that, I think, distribution inventory grows over time and the end-customer inventory actually comes down. I think it's all weak demand. There's lack of confidence in the economy, lack of confidence in consumers, lack of confidence in businesses, people aren't building products. Mark Lipacis - Jefferies & Company, Inc.: Fair enough. And then question for Eric. I think you've mentioned the account receivable DSOs trending up. Is that a positive signal for the linearity during the quarter? If you could give some color on that, I appreciate it. J. Bjornholt: Okay. So, I mean, really that's just a function of when product was scheduled to ship to our distributors. So I don't think you can make too much out of that as a positive sign. We think that accounts receivable balance will come down in the current quarter. Receivables remain in good shape.

And we'll take our next question from Christopher Danely with JP Morgan. Christopher Danely - JP Morgan Chase & Co: My first question is for Steve. So Steve, you've been through quite a few of these cycles. I mean how do you compare this versus what happened in '08? Do you think we're -- do the customers act as scared as they did back then? Do you think it's just a garden variety demand correction? I'd just appreciate your views on what you think is happening out there.

Well, the 2008 cycle was more episodic. It was very fast contraction of the economy and the credit globally just very, very quick contraction that took the semiconductor industry down almost, I think, 36% to 40% over 6 months. Clearly, nobody's expecting that sort. But I think a double-dip recession either already started or is right around the corner. You made a call in 2008, 2009. The government didn't confirm the recession until 9 months after it already finished. So -- however they've measured these numbers, it's clearly visible in the economy, in the stock market. After a wonderful day today in the stock market, I think market is already discounting a recession. And I believe we may already be in one. Christopher Danely - JP Morgan Chase & Co: Got it. And then as my follow-up on what sort of a signs are you looking for, besides the obvious customer orders that were bottoming? And what would it take for you guys to get a little more aggressive on the buy back?

Buyback. We don't really buy back stock that often except under some unique circumstances in the past. We're largely trying to give investors a return through dividend program and long-term stock price growth. So I'm not really looking at any buyback short term. We also have been acquiring a number of small and one large company last year, so we need cash for that, too. But in terms of your first question, what kind of signs we'll be looking. So we have ability internally to pick any large customer in any market. We have so many customers, which is very hard for us to say X percent of business is industrial and Y percent of our business is consumer, and we don't do that. But we can take a basket of X number of customers in any given market and look at the buying pattern quarter-over-quarter over a given design. And as that run rate of a given product starts going up in consumption -- on a consumption basis, that will be my sign that the economy is returning, and I'll tell you so.

And we'll take our next question from James Schneider with Goldman Sachs. James Schneider - Goldman Sachs Group Inc.: Steve, just to follow on the previous questions. It sounds like from your commentary, you think that over the next couple of quarters, all of the things being equal from you're seeing from customers today, that orders are going to continue to decelerate from here even further. Is that a fair assessment?

The order deflation has more to do with the lead times contracting rapidly because the inventories are healthy, as you saw ours and many of our competitors. So when the inventories are healthy and business is down by a small single-digit percentage, but the orders are down much more and so most of the orders down are the reflect of shrinking lead times so people don't have to place orders out in time. James Schneider - Goldman Sachs Group Inc.: Understand. And then since the last call, with respect to the automotive market, which is one area of weakness you specifically called out, have you had any more time to kind of assess what you think is going on with the automotive supply chain? Is that geographic specific? Is it customers just taking down inventories? Or is it just automotive makers not producing finished units at all?

Well, basically, what happened the last quarter in automotive is pretty clear now. The hindsight is always 20/20. The automotive customers put it in some orders in the March quarter after the earthquake, which happened on March 11. So in fact, we have beaten our March quarter and when you look back at the automotive shipments to a given customer, they actually have pulled some orders in. So last quarter, there was a little bit of correction of that inventory because they had pulled the orders in. Secondly, every single automotive suppliers built less cars. Substantial contraction in Japan at companies like Toyota and Honda and others, but there was similar impact on U.S. and European automotive, which had either Japanese engine controllers or other parts. So the entire supply chain was disrupted, and the actual number of cars built data is available. We have it and you should have access to it from various places. One place I can send you is look at Gentex publicly announced earnings reports. It's a public company listed on NASDAQ called the GNTX. They make the mirrors, which have -- the chromatic mirror, which dims when the light comes from the back and it also has 3 buttons by which you can program your garage door. So that company has listed a table that shows what were the prior forecasts, what are the current forecasts for the number of cars built. So that's one place I can send you, but there are many other automotive reports available. So clearly, less cars got built last quarter. And in the remaining year, they're all a expecting recovery of that as the Japanese supply chain is becoming healthier. Will it be completely healthy by the end of this quarter? I don't know. We're already starting to see more bookings and some recovery in the automotive business. But with 2 months to go, it is not totally clear whether it will be completely done by the end of this quarter, so I expect it to actually linger into the following quarter whereby the end of the year, likely same number of cars will get built. That's what the forecast shows, which means what we lost earlier, we should see significant recovery in our automotive business. So there's a chance, and I'm not forecasting right now, but there's a chance that third quarter -- our fiscal third quarter, December quarter, is unseasonal. Usually, that quarter's a weak quarter but that could be unseasonal this time.

And we'll take our next question from Kevin Cassidy with Stifel, Nicolaus. Kevin Cassidy - Stifel, Nicolaus & Co., Inc.: You've reduced your CapEx at $75 million. If this lingers on longer, can you reduce that further or is this maintenance level?

So it is not maintenance level, but we spent a fair amount in fiscal quarter 1, the June quarter, and we're also spending a fair amount in the September quarter, largely driven by noncancellable orders were in place and the equipment is coming in as we speak, and we couldn't cancel it. In some cases, we slipped at some. But then the capital is very, very low in the December and March quarter. So if the environment lingers on, yes, it could go lower but not for the fiscal year because it was forward -- the spending was upfront a little bit. Kevin Cassidy - Stifel, Nicolaus & Co., Inc.: Okay. Maybe could you just remind us what the spending was on?

All sorts. Fab equipment, test equipment, assembly equipment, R&D. Just everything.

[Operator Instructions] We'll go next to Chris Caso with Susquehanna Financial Group. Christopher Caso - Susquehanna Financial Group, LLLP: I just wonder if you could address just some of the comments you made on production levels, and it sounds like you're not making any drastic changes on production, which I guess is keeping that -- helping the gross margins to hold in. What sort of outlook needs to hold with respect to demand for you guys to be able to maintain those levels and not build some more inventory here?

Well, you have to go back in our history where we have managed through lots of different industry cycles. And our strategy -- with the exception of sort of what happened in 2008 where demand went down 35% where you had to do something different. But normally, the inventory correction in a minor demand weakness of low single digits, sort of mid-single-digits we're seeing right now, our strategy always has been to keep the productions stable and allow the inventory to fluctuate rather than fluctuate the production and try to keep the inventory stable. We are able to produce a product today with the equipment we have. And if we don't produce the product and let the equipment be idle, the depreciation continues. And later on, when you have to produce the product, you have to add more equipment to do so. And it's a high fixed cost business in the fabs, and we can only save about $0.20 to $1 by not making the product. So for our investors' money and for our own money, it's a good bet if you believe the inventory is good. If you make SoC products or some product that will become obsolete or in a fast-changing designs where customer goes from one product to the other, that strategy would not work. But for long life-cycled products like us, we should utilize the capacity when it's available because if I build the $10 million lower inventory, I'll have $10 million more cash on which I earned 0.01%. Christopher Caso - Susquehanna Financial Group, LLLP: Okay. And I guess as a follow-up to that, maybe you could remind us what sort of flexibility you have on the OpEx side in the event that this downturn persists longer than we might think.

So on the OpEx side, as we demonstrated back in 2009, we were able to cut 24% of the OpEx out. And even without laying off anybody else, we managed it through zeroing our bonuses. We took a lot of the discretionary costs out. And in that extreme event, actually, we had the entire company on a 10% pay cut, which in the current environment we don't expect it gets that bad that we have to resort to any such measures, although bonuses would be smaller and employees already know that. So our guidance for OpEx has been in the 24% to 26% range for a long period of time. And in the height of the upturn, we opted to very near 24%, and our current guidance is 24% to 25.5%. If the things get worse, we actually have more room still to stay within our guidance. And if we start to go outside of that, then we'll have to resort to some other measures if necessary. Christopher Caso - Susquehanna Financial Group, LLLP: But your expectation... J. Bjornholt: I just want to clarify. For the current quarter, the guidance is between 25% and 25.5%. In the long-term model, it's between 24% to 26%. Christopher Caso - Susquehanna Financial Group, LLLP: And what you're saying is your expectation is under a wide range of scenarios, you stay within that long-term range?

We'd be able to stay within that band because we still have more flexibility in the expenses even where we are at.

And we'll take our next question from Sumit Dhanda with Citadel Securities. Sumit Dhanda - Citadel Securities, LLC: A couple of questions. Steve, could you talk about what's baked into the assumption that you have in the September quarter, either in terms of the trajectory of sales or bookings that you anticipate from now through quarter end, and if there's a book-to-bill number that you'd care to share?

No, we stopped sharing book-to-bill ratio a couple of quarters ago. It just confuses everybody and has never correlated. In fact, if you recall, we told you that the book-to-bill ratio was pretty good going into June quarter, and it did not, again, correlate because the number turned negative. The actual results were negative while the book-to-bill ratio going into June was pretty good. So it really -- it just has no correlation. It can -- it's just really -- basically, it does not make sense. So as some earlier question was, how are the bookings? Bookings are not good, but bookings are not good predominately driven by very short lead times where all the product is available, but we're getting the turns. So people are placing short-term orders for the products they need. And we believe the product is available, and we believe that the demand should be there to get to where we need to get to. Sumit Dhanda - Citadel Securities, LLC: Okay, but I guess my question was are you expecting a material tick up in bookings from current levels to get to where you need to be? Or is that not part of your expectation?

The bookings don't need to pick up. There just need to be healthy turns component in that. The bookings don't have to pick up. The bookings result only would be the next quarter backlog will be weak. So the next quarter turns have to be good again. And usually, turns are good when the lead times are short. Sumit Dhanda - Citadel Securities, LLC: I got it. The other question I had was, you guys have done such a good job of maintaining such low lead times. But when I looked at, for example, your total inventory, your channel and your internal inventory combined, it's knocking up on 6 months. Why do you feel like you need to carry that much inventory when your lead times are so short?

Lead times are short because of the inventory. Cause and effect. Our lead times were -- when our internal inventory was 95 days, just about 6, 8 months ago and the disti inventory was probably 5, 6 days lower, we were having significant trouble. The lead times were longer. J. Bjornholt: We have a high mix in our product line, and so inventory is never perfect for what the demand comes in at. And so some of that inventory is to help satisfy the mix, the demand mix that comes in.

We have over 2,000 mask types and over 80,000 SKUs. It's a very, very broad mix serving 70,000 customers. Now if you shift to the large customer, a one-type product, the dynamic RAM 64-gigabit or something and one product, then yes, it's little bit lower inventory. We got lot of products and lots of SKUs.

And we'll take our next question from John Pitzer with Crédit Suisse. John Pitzer - Crédit Suisse AG: Steve, I guess, trying to find a silver lining. My first question, given the guidance really hasn't changed from 4 weeks ago, implicit in that is there a stabilization going on? Or is it just that the June, July month deteriorating kind of at the rate that you thought it would? And if the latter, is that an early sign of things bottoming?

Well, the things haven't changed since July 11 because we probably appropriately predicted what the quarter might shape up to be, and we put that in our July 11 call also. Has the environment further deteriorated? You could see by most of the reports, the people who were not saying that before are saying it now. Many of the reports came out after our July 11 call, citing it to be a specific Microchip issue and the other channel checks were not showing that. And you can go back and read some of those reports, and now, everybody's saying that. So I think it has caught up to everybody, and the environment has gotten weaker, but we had put that in, in our forecast already. John Pitzer - Crédit Suisse AG: Well, I guess, Steve, my question is, is being able to predict accurately the rate of deterioration kind of an early sign that you got your hands around the situation? As we think about how this bottoms out and the bottoming process, is this an early sign of the bottoming process or not?

Well, I mean, I'm not an economist. And my job is not always forecasting longer term or anything like that. We just basically give you a quarter guidance at a time. With over 1,000 points to drop here in Dow, 1,500 points now in the last few weeks, 2, 3 weeks. How much money has been lost and what does it do to the consumer confidence and spending and investment? And so I don't really know all those derivative effects. Do things get better? Does this economy go into a tailspin? Not quite the 2008 style, but it actually really goes into a double dip. My sense is it already is in one. But I can't tell you yet, when does it recover and how deep it gets, although I did say that I see automotive recovery on the horizon. John Pitzer - Crédit Suisse AG: And then, Steve, as my follow up. I understand and I agree with the strategy of kind of managing inventory and not throttling down utilization. But in the '08, '09 time period, you did hit a pain point where you took utilization down pretty hard and you saw gross margins for a quarter drop, I believe, below 50%. I'm just kind of curious what's the pain point this time around? And what would you need to see to kind of make the decision that, yes, dropping utilization is the right near-term strategy?

Well, like I said, in 2008, from September 2008 to March 2009, Microchip business was down I think 35%. Industry was down a little more than that. So that's what triggered it back then. We're not talking -- we're talking single-digit drops here, so I don't really think it's going to make us change anything.

And we'll take our next question from Brendan Furlong with Miller Tabak. Brendan Furlong - Miller Tabak + Co., LLC: Question for you on China. You have a decent exposure to the Chinese and you're selling to China. Just wondering what your sense is from that market in terms of in demand and order rates?

So our China business in the June quarter was up. We don't break it out specifically out from Asia but our China business was up. Overall, Asia was down but the China business was up. Is it slowing down? Yes. Did it also miss what we had expected to do in China? Yes. But it was still positive, but we had expected it to be a lot more positive. Brendan Furlong - Miller Tabak + Co., LLC: Understood. And then you said the December quarter if the auto rebounds like your OEM customers are predicting, that you could have an unseasonal up quarter in December. Is auto a big enough part of your business in proportion to your business to be able to drive that -- your total revenues up?

Well, that's -- we don't know. We don't know if any other sector will join that. I see auto largely driven by the supply chain disruption going away and the number of cars coming back. Now could you have another effect, if the economy weakens and confidence rate weakens and you can't get car loans and other, then the car demand weakens. So therefore, then the car manufacturers do not build all the cars that they're planning to build. That is not in the forecast. Right now, the forecast that I have seen, which I referred to you in Gentex press release says we get back to the same number of cars for 2010. So what they lost in Q2, they'll make it up in Q3 and Q4. But if the demand isn't there for that Q3 and Q4, then the number could go down. So -- but either way you put it, there should be some recovery in the automotive. Would it be strong enough to make that much difference in our overall numbers? I don't know yet. Brendan Furlong - Miller Tabak + Co., LLC: Okay, and then my last question is what was the SuperFlash, the SST revenue in the quarter? J. Bjornholt: We don't break that out by -- I think we have a memory reporting segment which is SuperFlash and Serial E-squared combined.

Which did what? J. Bjornholt: It was up 0.6%.

And we'll take our next question from Uche Orji with UBS. Uche Orji - UBS Investment Bank: Steve, let me just show -- I understand a little bit what's going on with the distis. Given the way things weakened, how much of the guidance reflects a de-stocking going on within the distis? I mean, I don't know how, if it is going to, perhaps quantify or describe to us a little bit more what's going on within the distis. Are they de-stocking now? Do they have a -- and from your experience, how much longer do you think that could last?

What do you mean by de-stocking going on at distis? Uche Orji - UBS Investment Bank: What I mean is, so are they holding?

Distis buying less product? Uche Orji - UBS Investment Bank: Exactly because of the general and macro [ph] that they have right now, I mean.

How many times do we have to explain? That does not affect our revenue. I think Street really needs to understand what is sell-in versus sell-through recognition means. We do not recognize revenue when we give the product to distributors. So if there's a de-stocking in distributors, that does not affect our revenue. Uche Orji - UBS Investment Bank: Right. It's not necessarily yours. I mean, you're talking about other companies as well in your opening remark. My question is not just so much now, whether from your conversations with them, is there something that you think the fear that the distis will have will last beyond, not just in September quarter. I mean I'm just trying to understand what, in your conversations with them, what is the psyche of the disti right now?

Well, speaking of the distributor is that they are seeing weak demand from their customers. They are seeing similar to what we are seeing. Arrow's guidance was relatively weak. Avnet numbers haven't come out yet. So my feeling is that distis would be de-stocking. They would be buying less products. So I think the companies that have a sell-in revenue recognition, I can rattle them off, but I'd rather than not. I think you should be able to find those out, I believe will have to take that correction at the distributor inventory Microchip would not have to. Uche Orji - UBS Investment Bank: Something else, Steve, I mean, back in 2008 when we had all these housing-related issues, you gave us some numbers as to how much of the exposure was to the U.S. and particularly housing. Now I know we've talked about automotive as one subsegment. Is there anything else -- and I know housing hasn't improved. I don't know whether it's deteriorated much more from what you're seeing. But any comments you can make to us as to aid your U.S. consumer exposure, and whether housing-related products are an area where we've seen further deterioration in your business mix?

Well, it didn't do me any good in giving you that index back a few years ago. Uche Orji - UBS Investment Bank: Well, you gave it, so I don't know if you've maintained it and if you were able to give us more insight.

We don't have it anymore. And it didn't do any good. Nobody bought it. People thought it was just Microchip-specific problem, and so it didn't work that time. So there's no reason to repeat it. Uche Orji - UBS Investment Bank: All right. And just one last question. In terms of your 32-bit product, I mean, that has been growing quite strongly. And are we at a point where we can -- we haven't broken out what the size of that business is, so presumably it's still very small. As you sell that product, how much of this response you're getting that's reflected is a function -- and I'm going back to the issue of ARM versus your choice of MIPS. Obviously, your succeeding in this, and I'm just trying to understand how much of this success you've had is dependent on the overall package that Microchip presents to its customers, easy design tools and all that. And how much of it is a differentiation that your choice of MIPS as a core brings to your offering to your customers? So I don't know if you understand what I'm trying to ask here, but you made the choice to use MIPS, and obviously that doesn't seem to -- relatively different from everybody, that they use ARM. I just want to understand, if you can explain to me what has brought this level of success you're seeing here on the 32-bit front?

I'll have Ganesh try to answer that question.

I don't think there's a MIPS versus ARM discussion here. We sell PIC microcontrollers that has a set of attributes that customers expect with respect to our tools, our software, our compatibility, the migration capability. The product is doing well because it meets what the customers’ expectations are and it exceeds in more cases than not. It's still growing off of a smaller base, so that's why you can see the faster growth rates. But I think the argument of MIPS versus ARM doesn't come into the equation here. People are buying PIC microcontrollers.

[Operator Instructions] Your next is Craig Ellis with Caris & Company. Craig Ellis - Caris & Company: Steve, in your guidance for down 1% to 6%, what is it that will distinguish between the lower end of that range and the higher end of that range in the business? Is it just overall turns activity in the quarter? Or is it more a function of what happens in individual end markets like automotive that you called out earlier?

If I knew that, then I would have given a closer guidance, closer to minus 1% and closer to minus 6%, I don't. I think it just depends on turns. You still have to get turns, backlog, what happens in automotive, recovery. Do any of the sectors get worse? Do any of the sectors recover? Do better? It's just a lot of moving parts, and that's just a broad range of guidance. Craig Ellis - Caris & Company: Okay, fair enough. And then, switching more to product-related questions, Ganesh. It looks like the 8-bit business, at least sequentially, has been flat or down over the last 3 to 4 quarters. You have had very good growth in the 32-bit business and the 16-bit business. What do you think is happening in 8-bit that's causing the divergence in trends between that part of the portfolio and the other?

So, first of all, I think it's an incorrect assumption that 8-bit has been declining over many quarters. The last quarter was the only quarter in which we provided some information in terms of trajectory. 8-bit, as you've seen -- if you look at our 2010 results which gives you a fair amount of data as compared to 2009, had good growth year-over-year, has continued to have growth as we've gone into to 2011. And that we feel very good about 8-bit, its prospects for growth and how it's doing. So it has nothing other than the current broad-based weakness that we're seeing incorporated into the last quarter's results.

Fiscal 2011 was a record year in 8-bit micro. Craig Ellis - Caris & Company: In revenues, Steve? And are you talking Flash and non-Flash or just the Flash products?

In total 8-bit microcontrollers. I know a lot of the models, they don't reflect that. That's just -- because you can't seem to get to that number or derive that number, but 8-bit microcontrollers were record in 2011. J. Bjornholt: Right. And we said that on our earnings conference with the March results.

And we'll take our next question from Mark Lipacis with Jefferies. Mark Lipacis - Jefferies & Company, Inc.: Ganesh, could you be so kind as to repeat what you said about the 16-bit business growth? I missed that. And then 2 questions on products. On the license revenue, how should we think about that? Is that a faster than a core growth business for you guys or slower? And then metal on cap touch controllers, you talked about that last quarter. Can you give us a sense about how big that is, and whether or not that's above your corporate average growth rate or below?

Okay. So let me just divide, there are 3 different questions there. So on 16-bit, what I said is that the business sequentially was down 3.1% but was up 43% from the year-ago quarter. I'll let Steve talk about the licensing fees.

The licensing business was up sequentially 1.3%. That's when actually, we break it out, it was $20.6 million for the quarter, up significantly year-over-year. I don't have that number handy. It was up quite significantly because that has continued to grow faster than Microchip so far. J. Bjornholt: And with respect to metal over cap. The metal over cap is only one of multiple solutions we have that go into the touch market. It's hard for us to track exact revenue that goes into touch because it's a standard microcontroller that utilizes software either from us or from our customers. So it's pretty broad, there's over 1,000 different customers who are using our products in touch-related solutions, all in deeply-embedded applications, and that continues to perform to our expectations. Mark Lipacis - Jefferies & Company, Inc.: Can you give us a sense of how big that the total touch business is for you guys? J. Bjornholt: We don't have a good number that I can give you and stand behind. We know it's broad-based. It's across a broad range of applications, and we can share perhaps some applications in which is going.

We often get asked. We are not in a smartphones or something, where are we making up for this lots of customers. So here's some examples, in consumer electronics, we are in LCD TVs, computer monitors, gaming, set-top boxes, laptops, some tablet PCs in the buttons, remote controls, optical disk drives, audio components, stereo and Hi-Fi, industrial applications like automatic milking machines, popular in China, copier printer buttons, home appliances, washers, dryers, microwaves, coffeemakers, espresso machines, inductive cookers, stovetops. In automotive, we are in overhead controls, dashboard controls, lighting controls, climate controls, proximity detection. In industrial applications, we are in access controls, keypads, LED lighting controls, dimmers and switches. So it just gives you a broad sampling of large number of applications. And that's really where our microcontrollers also grow. That's the flavor of our business where we rather do business with thousand customers buying $100,000 each rather than one customer buying $10 million. Because the gross margin is a lot higher. They appreciate our business model and so on and so forth.

And we'll take our next question from Gil Alexandre with Darphil & Associates.

When you take a look at your 8-bit programmable microcontrollers, can you tell us your market share there? And over a cycle, what that sort of unit growth is in that business now?

Gilbert, basically, if I give you that market share, it breaks out the numbers for 8-bit. And from there, one could decode the 16-bit because 32-bit is relatively small. And for competitive reasons -- we can't get those numbers up from TI. We can't get those numbers from Cypress, Silicon Lab, Atmel and others, and therefore, we cannot provide those. I think you can get color from -- I think we gave enough information that you can deduct from. There is some industry reports which can give you some idea. Most of the analyst split is wrong. So that doesn't work, but there's some reports which are closer, but we can't give you that market share.

And for the -- okay, and you can't comment on the programmable microcontroller growth in the 8-bits?

Programmable microcontroller growth in the 8-bit?

Yes, sir.

Well, the overall 8-bit business does not have a high growth total industry, but we have continuously gained share over the last many, many years. And the programmable sector has gained share over the non-programmable sector. I don't have any recent numbers by any published reports, what portion of the business now is programmable versus non-programmable. I think it's a very high percentage programmable now. So programmable in 8-bit growth are really starting to converge now. That was not the case 5 years ago.

My last question. When you take a look at your inventory, you basically state comfortable with up to 140 days of inventory?

I'll be comfortable even beyond that. I think it will basically depend on choosing what to build. We have 2,000 mask types. I can always choose to build inventory on those products which are, I mean, sure shot, very long lifetime. I'll be selling them 5 years from now, 10 years from now, and then if I build those products ahead of time, then I'm utilizing the equipment which will otherwise go unutilized, and therefore, it will help me to lower the capital expenditure in the coming cycle.

And we'll take our next question from Harsh Kumar with Morgan Keegan. Harsh Kumar - Morgan Keegan & Company, Inc.: Question for you Steve. Steve, on the last call, I think you mentioned that your industrial business was still holding up relatively well. I gather, listening to your commentary today, that, that has changed. If you can provide any color, we'd appreciate it.

You're probably right. I think many other companies have confirmed also, the industrial business, is -- probably cannot be taken out as any different than the others today. Harsh Kumar - Morgan Keegan & Company, Inc.: Okay. Fair enough. And then, Steve, we value your macro opinion. Based on your conversations that you might have had with OEMs, do you think the OEMs are really getting worried about growth here? Or is it a game of chicken that based on short lead time such as yourself, as well as inventory that is abundantly available at distributors, they simply are not ordering or they don't feel like they have to order quickly?

The OEMs are people. They are people making decisions. They're not machines. They are humans, and they watch the same TV. They see the same stock market. They see the same reports. There is lack of demand. There's lack of confidence. There's lack of willingness to invest. There's lack of job creation. On and on and on. Basically, I think it's that macro environment that's very lethargic.

And we'll take our next question from Sujee De Silva with ThinkEquity. Sujeeva De Silva - ThinkEquity LLC: On the Touch products, I'm curious. Are they a separate set of SKUs? Or Steve, with the touch feature -- function or feature in your broader products, you have a very broad adoption there. I'm just curious which way you go-to-market there?

So we have some resistive screen touch controllers which have the special part names. So those are -- especially for a resistive screen touch controller, they still use our standard microcontrollers, but they sell as special products for the touch market. But the majority of all the rest of the capacity of touch products and all these applications that I talked about, customer buys the standard microcontrollers from Microchip just like they buy for any other application, and then they simply program that software in it. Either they program it in their factory or they ask us to burn it in and we can burn them in.

In many cases, touch is one of many things that, that microcontrollers is doing. So it is providing other functions in the application and adding touch as one more function that it does. Sujeeva De Silva - ThinkEquity LLC: Okay, that helps. Next question may be hard to answer now. In terms of the September quarter, are you expecting typical linearity in this environment, or are you guiding to perhaps a more back-end loaded September quarter than usual?

I just can't get that far. In this kind of environment, I just don't know about December. I can only make comment on the automotive, which I made before, that I think recovery should continue and there should be a reasonable quarter from the automotive perspective. But for the rest of it, I think it's too early to be starting to call December.

We'll take our next question from Christopher Danely with JPMorgan. Christopher Danely - JP Morgan Chase & Co: Steve, I just had 2 quick follow-up questions. The first, if you could just take us through your top 3 or 4 end markets. And maybe give us your take on where you think they are in the correction. Are they all bad getting worse? It sounds like auto is improving a little bit, but industrial is starting to weaken. If you could just give us maybe 30 or 45 seconds on your take on each of your end markets.

I think the summary you had and you started with, we know that automotive is starting to show the best signs of beginning to recover. I think industrial has weakened. I think consumer was weak, remains weak. And those are some of the largest segments that we're in. We're not as much in to office automation, although there has been a weakness that we showed -- that we talked about in July, and we don't see anything changing there of any consequence. Christopher Danely - JP Morgan Chase & Co: Sure. And then for my follow-up, just a clarification on inventory. Not disti inventory but channel inventory. Steve, is it your sense that channel inventory is low, going to even below normal? Is it normal now going to below normal? I guess, what is your sense on channel inventory out there for your products?

Well, the channel inventory was what, 43 days, and it grew by 3 days last quarter, and it has been growing about a day or so every quarter. The channel inventory is not high. It's slightly high, but not very, very high. There's a significant trend going on where a large number of customers are starting to build a logistics program with the distributors where they want the distributors to carry the inventory and have that inventory be drawn at a moment's notice for them. So therefore, the customers are starting to keep less inventory which means the distributor has to keep more inventory, and we have to keep more inventory. So the distributor inventory may be up by a few days and may correct over the next couple of quarters, but it's not exceptionally high. And as the distributor inventory corrects, I have to keep saying that it does not affect our revenue.

We'll take our next question from Blayne Curtis with Barclays Capital. Blayne Curtis - Barclays Capital: Just a question for Steve. I don't want to deny that this is a weak market, but when you look at your June quarter, I think out of the semi companies you mentioned, you're the only one that is seeing a decline. And then when you look at the Q3 guidance, I think only Linear guided worse. So when you just look at the makeup of your end markets, maybe could you highlight? Is it the more just the exposure that you have, or you think it's a timing issue, or you maybe saw it first, then people will see a weaker Q4? Any color would be helpful.

This music -- this record has to repeat how many times? I mean, I think it happened in 2004, 2006. Those who has been in the stock for 18 years, they will walk you through how we see this first and I explained it a couple of times already why we see it first. They'll come out later when you cumulatively look at it over 3 quarters, we'll be equal or better than many of this competitors and gain shares. We have demonstrated it many, many times. Yet every time it happens, it's a new question because there are new players, there are new analysts, it's a large churn. So I don't have that problem when I talk to somebody, even large investors who have been in there for a long period of time. And obviously, if you have questioned it on July 11, okay. If you're still questioning it after all these companies have said that their guidance is weak for this quarter, while just 3 or 4 weeks ago -- Just 3 or 4 weeks ago, a number of reports we had basically said that the other companies were not confirming that there is a problem on the horizon, channel checks we're saying that the rest of the companies are doing fine. It was a Microchip problem, 4 weeks later, it's not true. If you're still questioning it, I can't change your mind. Blayne Curtis - Barclays Capital: I guess, what I'm saying is on a relative basis. I'm not disagreeing that things are weak. But clearly, I mean, you just saw Atmel last night. They have touch, but even outside of touch, it's not as weak. I'm just trying to figure out the timing. And then, when you look at December, do you think you're coming out of it first and then some of these other companies have to catch up?

Every company has a different seasonality and different markets and so Linear set down 6% to 8%. So they were worse than ours. So you have to accumulate it over a period of time. I can't pick just one company. But if you look at the industry, look at -- I rattled lots of different companies and they're all seeing similar. Look at their prior guidance, look at their current guidance. Silicon lab said down 5% to down 10% with the middle point of 7.5% and they have microcontrollers and they're a competitor too. So you can always pick somebody who's better. Look at TSMC's guidance. Look at UMC's guidance, UMC said down 20%, I think. Low teens, and TMC's said what? 7% and they are suppliers to the industry. So I think tea leaves are here to read. That's just your interpretation, and I'm not the analyst, you are. J. Bjornholt: Blayne, I think the way to think about it is we will see this early on both sides of the cycle. So we're on the early side of the cycle, but I think when this bottoms out and turns, you'll see that we're among the early people to see on the upside as well.

And that concludes today's question-and-answer session. I'll turn it back to our moderators for any closing remarks.

So that's all we have for you today. We'll be going to some conferences. I think Gordon is going to a conference next week. J. Bjornholt: To Morgan Keegan.

Morgan Keegan conference, so there'll be a chance to interface with him and go deeper into some of these things if you like. And then we'll see you, some of you later in the quarter. Thank you very much.

That does conclude today's conference call. We appreciate your participation.