J. Eric 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

Harsh N. Kumar - Morgan Keegan & Company, Inc., Research Division John Pitzer - Crédit Suisse AG, Research Division Christopher Caso - Susquehanna Financial Group, LLLP, Research Division Uche X. Orji - UBS Investment Bank, Research Division James Schneider - Goldman Sachs Group Inc., Research Division Kevin Cassidy - Stifel, Nicolaus & Co., Inc., Research Division Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division Terence R. Whalen - Citigroup Inc, Research Division Gilbert Alexandre Peter Adamson Thompson - Coho Partners, Ltd. Christopher B. Danely - JP Morgan Chase & Co, Research Division

Good day, everyone, and welcome to the Microchip Technology Second Quarter and Fiscal Year 2012 Earnings Results Conference Call. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Microchip's Chief Financial Officer, Mr. Eric Bjornholt. Please go ahead, sir. J. Eric 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 Business Development and Investor Relations. I will comment on our second 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 in this conference call on various GAAP and non-GAAP measures. We have posted a full GAAP to non-GAAP reconciliation on the Investor Relation 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. I will be referring to gross margin and operating expenses on a non-GAAP basis prior to the effects of share base compensation and acquisition-related expenses. Net sales in the September quarter were $340.6 million, and were down sequentially 9.1% from net sales of $374.5 million in the immediately preceding quarter, and were down 10.9% from net sales of $382.3 million in the September 2010 quarter. Looking at revenue by geography for the September quarter, Americas were down 9.4% sequentially, Europe was down 8.5% sequentially and Asia was down 9.2% sequentially. All geographies were impacted by the business conditions we experienced with Asia being the weakest as compared to our expectations. On a non-GAAP basis, gross margins were 58.2% in the September quarter, and non-GAAP operating expenses were 25.9% of sales. Operating income was 32.3% of sales, and net income was $92.6 million or $0.46 per diluted share. On a full GAAP basis, gross margins, including share-based compensation and acquisition-related intangible amortization were 57.2% in the September quarter. Total operating expenses were $97.4 million or 28.6% of sales, and includes share-based compensation of $7.9 million and acquisition-related expenses of $1.1 million. GAAP net income was $79.3 million, or $0.40 per diluted share. In the September quarter, the non-GAAP tax rate was 12.9%, and the GAAP tax rate was 12.2%. Our tax rate is impacted by the mix of geographical profits, withholding taxes associated with our licensing business, gains or losses on trading securities and a percentage of our cash that is invested in tax advantage securities. We expect our combined forward-looking effective tax rate on both the GAAP and non-GAAP bases 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 in the September quarter, share-based compensation was about $0.041, acquisition-related items were about $0.014, losses on trading securities was about $0.006 and noncash interest expense was about $0.006. The dividend declared today of $0.348 per share will be paid on December 5, 2011, to shareholders of record on November 21, 2011. The cash payment associated with this dividend will be approximately $66.7 million. Moving on to the balance sheet. Microchip's inventory at September 30, 2011, was $211.2 million or 132 days, up 13 days from the prior quarter level. Inventory at our distributors was 46 days, which is up 3 days from the prior quarter level. We continue to see an increasing trend of 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 remind you that our distribution revenue throughout the world is recognized on a sell-through basis. At September 30, Microchip's accounts receivables balance was $142.4 million, a decrease of 27.4% from the balance as of the end of June. The decrease in receivables was driven by the sequential revenue decline and differences in the shipment linearity between the June and September quarters. Receivable balances continue to be in great condition, with excellent payment performance from our customers. As of September 30, Microchip's cash and total investment position was approximately $1.78 billion, and was up $58.1 million from the prior quarter levels. Our total cash and investment position is projected to grow by approximately $75 million to $85 million in the December quarter, prior to our dividend payment. Capital spending was $25.2 million for the September quarter, and is expected to be about $70 million for fiscal year 2012. Depreciation expense in the September quarter was $22 million, which was flat to the June quarter. Depreciation expense in the December quarter is projected to be $21.6 million. I will now ask Ganesh to give his comments in the performance of the business in the September quarter. Ganesh?

Thank you, Eric, and good afternoon, everyone. Let's now take a closer look at the performance of our product lines. Our microcontroller business was down 11.2% on a sequential basis, with both 8-bit and 16-bit product lines down sequentially. Our 16-bit business was down 14.9% sequentially, and about flat for the year ago quarter. Reflective of the overall environment, our existing 16-bit customers were adjusting their inventory, while new customers were more cautious with their end product launches. We continue to retain the designs we have, and we're continuing to secure many new design wins at new and existing customers. Our 32-bit microcontroller business had another strong quarter of growth, up 10.4% on a sequential basis, and up 158.2% from the year-ago quarter to achieve a new record. Despite the challenging environment, this product line continues to demonstrate growth, as sufficient new designs go into production that more than offset the cautiousness of existing customers. The number of customers in volume production grew sequentially from 657 to 790, as we continue to build a broad base of customers to grow this business. Moving to development tools. We shipped over 43,000 development tools in the September quarter. Cumulatively, we have now shipped over 1.2 million development tools, 30% of which were shipped in just the last 2 years. In addition to the development tools that Microchip ships, we have also licensed our tools to be built locally in several countries where import duties are high, as well as cultivated an extensive ecosystem of over 100 development tool partners, who extend our reach even further with the development tools that they develop and ship. Each development tool sold can get used for multiple projects over many years, and therefore, cumulative development tools sold is reflective of broad acceptance of our solutions by our customers. Finally, we shipped our 10 billionth cumulative microcontroller in September to Samsung Electronics in South Korea. The shipment was for a Samsung product that utilized our 32-bit microcontroller, the PIC32, exemplifying the continued acceptance and design win of the PIC32 by leading global brand names like Samsung Electronics. The 10 billionth microcontroller shipment milestone also exemplifies the trust placed in us by over 70,000 customers worldwide, as we endeavor to enable their innovation, and it also exemplifies the collective contribution by our worldwide teams over many, many years. Moving now to our analog business. This business was down only 0.7% sequentially, and performed exceptionally well in the current environment. The strength of the business reflects our strategy to focus not only on attaching to our microcontrollers, but also to other microcontrollers as well as other devices like DSPs, FPGAs and ASICs that require analog around them. We remain pleased with a design momentum our analog business has shown, and we expect to -- 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 business, which is comprised of our Serial E-squared memory products as well as our SuperFlash memory products. This business is down 12.6% 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 comment on the Microchip Thailand operations. So this is an update to the press release that you saw last week. As you have no doubt seen in the news, Thailand is experiencing the worst flooding that they have experienced in over 50 years. The flooding has predominantly been north of Bangkok, where most of the tragic loss of life and extensive damage to factories has occurred. Over the last week, many locations within the city of Bangkok were also flooded. Our heartfelt sympathy and concern goes out to the people of Thailand and our employees who have been impacted by these floods. We operate 2 assembly and test factories in Thailand that are located about 50 miles east of Bangkok. We have more than 3,000 employees in Thailand, over 200 of whom have had their homes flooded. The safety of our team in Thailand remains our #1 priority, and we continue to take steps to ensure their safety. Both of our factories have continued to operate normally, and thanks to the heroic actions of our local team, who have braved personal challenges in order to keep our operations running and our customers served. The primary international airport we use for logistics remains open, and our shipping and receiving is operating normally. Now Microchip recognized the risk of flooding when we decided to set up operations in Thailand 15 years ago. We believe that the best insurance would be flood-prevention, and therefore, we invested in risk mitigation by planning for and investing in a project called Noah's Ark to protect against a 500-year flood. Noah's Ark consists of a dike that is 3.22 meters above sea level that surrounds our property, 9 pumps capable of pumping 10 million liters per hour of water out of the property, and generators plus fuel to run the pumps for over 2 weeks in the event electricity is lost. Additionally, the Microchip Thailand factory itself, the factory floor, is 3.6 meters above sea level, giving us another foot above the height of the dike. To date, the water levels in the canals around our factories have stayed in control, and certainly has not risen anywhere close to threatening our property, and we have not needed the Noah's Ark pumps to be used to expel any water. However, the pumps have been extensively tested, and we are battle-ready should it be necessary. Our subcontractor supply chain in Thailand has, however, been impacted. Although we have worked alternative solutions to just about all the issues. Our subcontractor, HANA, located in Ayutthaya, which is in the north of Bangkok, is underwater, and out of commission for several months. We run variable volume at HANA, and are moving the products we ran there to other subcontractors. Our subcontractor, Stars, also located in Ayutthaya, is underwater and out of commission. We built some of our wireless modules at Stars, and have already shifted production to an alternative subcontractor. Our subcontractor Vigilant, located near an area of Bangkok that is at-risk of flooding, has shut down as a precautionary measure, until the risk has subsided. We have alternative sources for the packages built at Vigilant, and do not expect any impact. And finally, our subcontractor, UTAC, has 3 factories in the Bangkok area, all of which are continuing to operate. The contingency plans developed over the years to prepare for a flood emergency have been put to very good use. The fact that we're continuing to operate as normally as one can under the circumstances, is by no accident. It is a testament to the preparation, thoughtfulness and hard work of our team in Thailand. With that, let me 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 results of the September 2011 quarter, and then provide guidance for the December 2011 quarter. Our September quarter results were consistent with what others in the industry have reported. We began the quarter with the understanding that there was a broad-based demand weakness, and our guidance was consistent with that. But we also expected the late summer orders for normal Christmas-related builds in September. Our distributors have largely reported that he did not see any sales related to Christmas builds materialize in September. We now believe that with a very weak macroeconomic conditions, any Christmas builds could not be deciphered. Therefore, we reported in the quarter below our original guidance. The only market where our business was slightly up was automotive, and that was driven by recovery from the earthquake and tsunami in Japan. This recovery in Japan was a part of our modeling, and therefore, it did not result into any upside. The business continues to see a broad-based weakness in all markets in all geographies. The challenge always is to put Microchip's results into context. We have explained to the investors and analysts multiple times that we see the effect of industry events first. Microchip tends to see changes in business conditions earlier than most of our peers, due to a number of factors. The first is, we recognize distribution revenue on the sell-through basis worldwide, the second is we run very short lead times, which gives customers more time to make budget decisions based in more current business conditions, and the third is that we have a large number of small and medium-sized customers who tend to be quicker in adjusting their inventories. However, as there are always new investors and analysts in the mix, it is prudent to explain these factors again. When we preannounced our results on October 13, we've heard a few of the analysts emphasizing the gap between Microchip's results and the forecast of other industry peers and competitors. However, these peers and competitors missed their forecast broadly, and then guided down deeper for the December quarter. Since then, we have seen the sentiment reflect with the earnings season which results in weak guidance coming from nearly every semiconductor company, the ones who had better June and September quarters are the ones who have guided down the deepest for the December quarter. This further confirms our thesis that companies experience the effect of industry events differently, based on their revenue recognition practices as well as the customer base and vertical markets. We continue to believe that companies will recognize their revenue to distribution on a selling basis will see further weakness as the distributors continue to adjust their inventories to reflect the macro conditions. When you start to compare December 2011 to December 2010, Microchip's results look very comparable to the industry's results, if you adjust for the acquisitions made by other companies. I believe that by the time you compare March 2012 to March 2011, you will begin to appreciate our results even further. I will now provide guidance for the December 2011 quarter, and comment on our outlook beyond the December quarter. Our guidance is based on continuing demand weakness in the December quarter. We expect the shipment rate in December to be below the actual consumption rate by the customers. We expect this inventory burn-off to largely be over by the end of the calendar year. Therefore, we expect the December quarter to mark a bottom for Microchip for revenue, gross margin and earnings per share during this industry cycle. And we expect the March 2012 quarter to be sequentially up in revenue, gross margins and earnings per share. I expect there may be similar skepticism of our guidance on the way up, as there was on the way down. I could have given you our calendar year '12 plan, but if history serves as a guide, that will likely fall on deaf ears. Recall that when we provided guidance of calendar '10 in November of 2009, it was also widely discounted at that time. We proceeded to beat our numbers for 2010 by a substantial margin. For us, it is more important to set the tone for running the company based on our 2012 outlook, than to convince you of our December quarter marking the bottom. So let me first provide December 2011 guidance, and then I will go through what we're doing to set up for 2012. We expect our net sales in December 2011 quarter to be flat to down 7% sequentially. We expect non-GAAP gross margin percentage to be between 56.5% to 57%. We expect non-GAAP operating expense to be about 26% to 26.5% of sales, and we expect our non-GAAP operating profit to be between 30% to 31% of sales, and we expect our non-GAAP earnings per share to be $0.40 to $0.44 per share. Now let me go through what we are doing to manage through this bottoming-out quarter. In our 2 fabs, we are taking some shut down days on Thanksgiving, Christmas and New Year's. During strong economic times, we continue to run the factories during these holidays, but it does not make sense to pay over time to run on holidays at the current time. We have also substantially cut back on the orders to our foundries for those products that are sourced there. With these actions, we expect our inventory to be about flat to slightly up in the December quarter. The inventory would begin to come down starting the March quarter, which we expect to be sequentially up in revenue. While this inventory is slightly on the high side, we believe that short lead times is one of our competitive strengths, and the inventory positions us very well for the upturn. Our products have very long life cycles, and we have a history and track record of managing inventory without onetime write-offs and selling them over the business cycles. One of the immediate benefits of this higher inventory has been a substantial reduction in capital expenditures. Our CapEx forecast for fiscal year '12 has come down further, and is now only $70 million, and we believe that fiscal year '13 CapEx will be low too. As the holiday shutdowns are diversed in March 2012 quarter, we will expect to see gradual recovery in gross margin. With the low amount of new capital, continuing to shut off all the depreciation, the gradual ramp in our factories as inventories are burned off, and ongoing daishin and other cost reductions, we will slowly start to work the gross margin back up towards the corporate target of about 61% on a non-GAAP basis. Regarding operating expenses, we have a variable compensation structure, and we will be able to manage our operating expenses by simply adjusting the variable compensation and not doing any layoffs, except eliminating some contractors. With this approach, we will continue to focus in our key strategic initiatives, which will enable us to gain market share on the upturn and beyond. Given all the complications of accounting for the SSD acquisition completed last year, including amortization of intangibles and restructuring charges, sale of non-core businesses, gain or loss on public securities, 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 the non-GAAP estimates to First Call. Finally, the September quarter was our 84th consecutive profitable quarter. Our non-GAAP gross margin of 58.2%, and non-GAAP operating profit of 32.3% are the type of results that are not achieved by most of our competitors, even in the best of times. We feel very positive and confident about the long-term prospects in our business, and are continuing to invest in our strategic initiatives to drive growth. With that, Operator, would you please poll for questions?

[Operator Instructions] We'll go first to Kevin Cassidy with Stifel, Nicolaus. Kevin Cassidy - Stifel, Nicolaus & Co., Inc., Research Division: As you look at the rebound, I guess, that you're seeing if you compare it to 2009, what you saw it I believe you're at double-digit growth quarter-over-quarter in 2009, how do you think this type of growth would come back?

Well, the late 2008, 2009 drop was much steeper. The average semiconductor company was down, I think, 38% to 40% at that time. Microchip excelled for over 2 quarters back then, the quarter of December 2008 and March 2009 was down 35%, roughly. So the drop this time is not as steep as it was that time. So I wouldn't really expect the recovery to be as steep as it really was back then, but we're not prepared to give guidance past this quarter yet, other than saying that we're seeing all of the signs of the bottoming out quarter and March quarter will be up.

We'll go next to James Schandeider with Goldman Sachs. James Schneider - Goldman Sachs Group Inc., Research Division: With respect to the confidence in December being the bottom, do you yet have bookings that support better take rates from distributors and your OEM customers for the month of December yet? Or said another way, would you need to see cancellations at this point for you to be in the bottom half of your guidance range for the quarter?

Well, I'll probably put it in a different way. The bookings have bounced up from the bottom, so the rate at which we're booking a daily basis is now higher than the worst part of the cycle. So that's really one. The customers who were not taking much product earlier have depleted their inventory, then are starting to take the product, and a number of other customers who are saying that they will deplete their inventory and will buy the full load of product the next quarter. So there are lots of anecdotal signs that really say that this quarter bottoms out. James Schneider - Goldman Sachs Group Inc., Research Division: Fair enough. And then just as a follow-up, can you may be talk about the linearity you saw through the September quarter, and what you see in terms of order rates in October?

You have a comment on linearity in September quarter? J. Eric Bjornholt: Well, I mean, as we indicated, we did not see the Christmas builds materialize as we anticipated entering in the quarter. And so September was weaker than what a normal September would be for us. And Steve mentioned the bookings rates have improved at this point, in time from the bottom that we saw several weeks ago.

We'll go next to John Pitzer with Credit Suisse. John Pitzer - Crédit Suisse AG, Research Division: Steve, back in June when you guys were the first to kind of signal things softening. You made a comment that suggested that the economy might already be in kind of a double-dip recession. I guess given your view the December's the hard bottom, implicit in that, is that the bottoming of the macroeconomy or do you think the gap between a sort of your shipment level and consumption is such that we don't really have to make a bet on end consumption, we just need to see some shipment levels getting back to true consumption levels?

Well, back in June, I was looking at very significant issues in U.S., very significant issues in Europe, and China was starting to put the brakes and starting to increase their interest rates. And my assessment at that time was the U.S. economy is likely in recession already, and government will just announce it 9 months later that it was in recession like they did that in 2009. Infinitely, the U.S. economy has managed to soft land, and I think the worse GDP growth was about a quarter or so ago. And the numbers we have seen for third quarter were better and fourth quarter seem to be okay. So the economy has, despite all odds, managed to soft land. China has not totally fallen off. It's -- the business is weak, they are slowing down their economy, but their inventories are getting flushed out and the resulting level would be weaker than before, but it's still quite healthy. And Europe is probably still a tossup. We were down in Europe last quarter. We are-- this quarter, we're expecting Europe to be the worst, compared to U.S. and Asia. So Europe is still a tossup which we all -- the European issues go. John Pitzer - Crédit Suisse AG, Research Division: And then quickly, Ganesh, on the analog performance in the September quarter, significantly better than the overall business. You talked about your ability to drive up attach rate of your analog onto your MCUs. Was that the big driver of the outperformance? And I guess relative to that trend, how much more do we have to go? How much more can you drive attach rates of analogs to your MCUs?

It's been an ongoing process for several years. A lot of the investments that we made in our field teams to be able to take more control of our own destiny for demand creation has obviously rubbed off on the analog products as well. So when we go after an opportunity, with our microcontroller, obviously we're fully focused on the analog and anything else that surrounds that microcontroller. But there are cases where it's not our microcontroller or it may not be a microcontroller at all. We still want the analog and have a foot in the door at that opportunity. And that's what you're seeing from analog as it spreads, the base of applications we're in and to customers above and beyond just our microcontrollers.

We'll go next to Christopher Danely with JPMorgan. Christopher B. Danely - JP Morgan Chase & Co, Research Division: So you talked about trying to keep inventory flat. Does that mean utilization rates will remain flat into next quarter? If you can just give us a sense of where utilization rates are expected to go and how inventories are expected to trend beyond next quarter.

The utilization rates will improve next quarter because the holidays we have this quarter do not repeat into the next quarter. So the utilization will have a higher number of working days. So overall, utilization would be higher, and therefore, there will be a positive impact on the gross margin. But we’re also forecasting growth in the next quarter, so. With that, the inventory would still be flat or down. Christopher B. Danely - JP Morgan Chase & Co, Research Division: Great. And then Steve, assuming that we get back to normal, revenue is up next quarter. What do you expect OpEx to do in that environment? Will it go up but less than sales? Or are you going to try and keep it flat?

My sense is that you'll start to see a small operating expense leverage. Our long-term model is 25% to 26%. For the current quarter, we have guided 26% to 26.5%. So we're slightly higher than the upper end of the model. So we'll work that back towards inside the model.

We'll go next to Uche Orji with UBS. Uche X. Orji - UBS Investment Bank, Research Division: Steve, let me just ask you about a few end markets. I know that given the way these products are sold through distribution end markets, commentary tends to be fairly anecdotal. But there are a couple of end markets I wanted to ask you about, one is domestic appliances and the other is industrial. To what extent -- as we've seen industrial companies put numbers out now, it looks like we're just starting to see them roll over in terms of the guidance they're providing. And so to the extent of trying to contextualize your commentary, and I know you'd like to see things ahead of other people. Do you think that's -- what is your sense of the risks within the industrial end markets relative to your comment about the outlook both for Q4 and into early next year?

Well, there’s probably no question that the industrial markets are weak, and some other peers and competitors have given the same commentary that industrial markets are weak. But what we're shipping into industrial markets is significantly weaker than their own revenue down, because when the markets weaken, usually there's an inventory that has to be flushed out. So what we are shipping into industrial markets today is significantly below the rate at which industrial markets are consuming. And we believe that, that inventory flushes out, and therefore, even at a weak situation, we're not expecting the March quarter revenue to completely recover, where we make another all-time record quarter. But recovery will begin, and we are confident that in the industrial markets next quarter, we're likely to ship more product that we're shipping this quarter. Uche X. Orji - UBS Investment Bank, Research Division: And also, specifically within the 16-bits. I note the customers there, Ganesh mentioned, going to an inventory correction. Do you believe -- I mean, because this has been one of the fastest growing subsegment, if one were to look beyond the inventory correction, do you still believe the trajectory of growth for 16-bits? And I -- you should have described in the past of how the growth has been progressing, should we still feel confident that, that growth can continue? Or is this the beginning of the inflection of the growth we've seen in -- on the 16-bit category?

We're absolutely confident that the trajectory of growth on 16-bit is sustainable, beyond [Audio Gap] time, the fiscal year is over. Fiscal year '12 will be higher than fiscal year '11. And as we continue into fiscal year -- the breadth of new designs that are continuing to take place is tremendous, and all those designs some may take a little longer to get to production, but they're all going to get to production. And I think you will see this sustained for many, many years to come on 16-bit. Uche X. Orji - UBS Investment Bank, Research Division: And just remind me, Ganesh, the time line between development tools and when the customer starts actually putting it in production. I realize it varies depending on what customer but I'm assuming these development tools momentum is going to translate to real significant design activity at some point. Is there like a rule of thumb between the sale of development tools and when we'll expect to see that translate to product design and revenues that we should be aware of? Just for us to know how to kind of...

Yes, the design cycle varies anywhere from 12 months to as much 30 months, depending on the product complexity, the application and the requirements to get that application into production. Obviously, our 8-bit products go to market fastest, our 16-bits are in between and our 32-bit take a longer period of time. There's not a clean way for you to approximate how a single development tool results in a specific growth. Development tools get used multiple times on many projects and for many years sometimes. So a single development tool results in many, many, many designs that go to production from it.

[Operator Instructions] We'll go next to Peter Thompson with Coho Partners. Peter Adamson Thompson - Coho Partners, Ltd.: Steve, I was just curious if you could maybe explain the cash philosophy of the company and the logic of holding so much cash and still generating cash.

Well, we basically -- the industry sees this 3 different uses of cash: one is in acquisitions; others in dividend; and third is using in operation; and fourth is, let's say, buying back your stock. We're not proponents of buying back our stock. We have seen lots of companies in the last decade buy huge amounts of their stock and their stocks are fractions of what they bought the stock at. Companies often tend to be very poor in figuring out the value of their own stock and the liberty they should buy at. So our philosophy and the board's philosophy always has been rather than buying our own stock, we give it back to the investors. And then have investors make a bet if they want to buy more Microchip stock. They could do that with that money. If they want to go buy somebody else, they can do that with that money. So between giving dividend and buying back stock, our preference is to give dividend. We have bought stock in the past, but we buy our stocks really at some very extreme events, those times when we believe that the investors have thrown the baby with the bathwater, and sometime completely there's a lack of understanding on the street. A stock may be at $16 and then investors are saying sell in subsequent years, so the stock grows to $35. And we have made some successful bets at those extreme events. But in general, were not the buyers of our own stock. In terms of investing our cash in operations, we are very, very profitable. We've been profitable for 84 quarters, substantially cash flow positive. So we have hardly ever needed to take the cash from treasury and use it for operations. So that use is just not there for us. And as far as acquisitions are concerned, most of the acquisitions we have done are very small tuck-in type of acquisitions, where we may need a license to a technology or buy us more technology. We have not really done a major acquisition. Most of them have relatively been small. So they do consume some cash, but we haven't been able to put our entire cash effectively into use. So as far as dividend is concerned, we are among the highest dividend payers in the technology industry. We still grow our dividend a little bit every quarter. Maybe the only company, I'm not sure of that, but probably the only company that actually grows the dividend every quarter by $0.001 or so. So we believe in that dividend and despite all that, cash is piling up and that's the way it is. That's a good thing. Peter Adamson Thompson - Coho Partners, Ltd.: It's a very high-class problem. I guess, the arguments you've made have only suggested to me that you do have more cash than you really do need to run the business. So as a shareholder-friendly option, would a one-time dividend be considered by the board?

Well, when we have talked about one-time dividend over the past years, it hasn't been looked at very favorably because one-time dividends usually do not result into any long-term sustainable benefit. It does not really get into a long-term future return that investors can make. We'd rather grow the dividend so investors today and the investors tomorrow continue to get dividend benefits out of that. With most one-time dividends, investors flip out after the dividends has been received. So we believe the value is very short-lived.

We'll go next to Gil Alexandre with Darphil Associate.

Could you give us an idea of what your days inventory levels you're at now?

Yes. The days of inventory is 132. J. Eric Bjornholt: 132 days.

And could you just indicate again how much your 8-bit business was down? And how does your 8-bit business now compare with 2007?

So we don't break out our revenue by 8-bit microcontroller. We provide some color on 16 and 32 in terms of growth rates but not the absolute numbers 8s, 16s and 32 are a continuum of microcontrollers that gets used by our customers. And we really don't see much benefit in providing the breakdown.

But Gil, our 8-bit business is well above the 2007 levels. That business was a record in fiscal '11. I think, we said that back then. 2011 8-bit microcontroller business was a record, and now it just come down in the last couple of quarters. And the company has had weak performance but it’s way above the 2007 levels.

We'll go next to Chris Caso with Susquehanna Financial Group. Christopher Caso - Susquehanna Financial Group, LLLP, Research Division: I wanted to go back to one of the comments that you made about shipping last to you customers than you thought that they were consuming. And I was wondering if you had a way of gauging by how much. And as an example, I think, right now, the guidance is somewhere about 13.5% below the run rate where you guys were at the beginning of this year in the March quarter. Do you have a sense -- and I know it's a difficult question to answer, but how much of that would be attributed to the inventory effect and how much of that would be actual end demand has been reduced since that time?

So one last quirk. Don't add the sequentially down for 3 quarters. I made the same mistake and Gordon corrected me. When the numbers are going up, the cumulative is higher than the sum of those. When the numbers are going down, the cumulative is lower than sum of all those 3. That's just a math quirk. So the overall it's not down 13.5%, it's less than that. What your other part of the question was?

Can we decode the end market consumption difference? And I think it's very hard to decipher.

So we're talking of too many customers. We just have -- we serve 70,000 customers, and a couple of thousand customers we serve directly in the balance through distribution. So there are customers where we know, where we are shipping 0. We shipped 0 in October and probably we'll ship 0 in November. And may ship a little bit. And there are other customers who may be down just slightly to their run rate. It's all over the place, and there's just no way to average it across so many customers, so many markets, so many industries. But there are customers where we're seeing they're saying, "I'm not likely to take much product this quarter, but I'll completely use it up and then take the more product next quarter." J. Eric Bjornholt: One other thing we can do is we can also see the public results of the many of our customers and how their overall results are progressing quarter-to-quarter. And I think in that, we can build some insight as well. Christopher Caso - Susquehanna Financial Group, LLLP, Research Division: And after looking at that, do you get confidence that you are indeed shipping below what they're consuming at this point?

That we know for sure, because you can't know that out of 70,000 customers, but several large customers, based on what their run rate is, and when we're asking them why haven't they taken product this month and they're saying, "I still have 1.5 months more of inventory," or something. Christopher Caso - Susquehanna Financial Group, LLLP, Research Division: Okay. Maybe I'll try an easier one for my follow-up. In the past, as you guys have grew out of downturns, we've looked at incremental gross margins around the 70% or so range. Would that still be your expectation coming out of this downturn?

We haven't modeled that revenue. We haven't modeled that, so I'll just rather not confirm or deny without actually doing the math on that.

We'll go next to Harsh Kumar with Morgan Keegan. Harsh N. Kumar - Morgan Keegan & Company, Inc., Research Division: December quarter, Steve, you're basically calling the bottom. Is it going to be a macro thing? Or do you see some markets performing better, end markets performing better than others? If so could you maybe highlight them if possible?

I don't know if I can distinguish them, but it's almost certain that all markets and all customers within that market won't behave the same. So it will be a staggered thing that corrects over a period of time. Harsh N. Kumar - Morgan Keegan & Company, Inc., Research Division: Okay. And then I wanted some clarification from Ganesh or your staff on shutdowns. Are you talking about shutdowns that are on top of normal shutdowns for your factories? From what I remember, Steve, you have a strategy of running the factory through downturn for utilization purposes and particularly curious since you see the light at the end of the tunnel in 2 months.

So the shutdowns we are talking about is basically the holiday days. So usually, we run our factories on 24th and 25th of December. We run them on 31st and 1st of January. The ones, which are usually company holidays, we run our factories because factories have such a fixed cost structure. So we always run our factories, and we decided not to run the factory on those particular holidays. We are taking a few days maintenance-related shutdown that we have to take in our order fab every year. That is kind of normal. We've added a day or so to it but that part is normal. The other newer factory that we have in Agrasha Modigan [ph], we don't take a maintenance-related shutdown every year. We take it once in 3, 4, 5 years. But the older factory, we take a shutdown every year between Christmas and New Year.

We'll go next to Brendan Furlong with Miller Tabak. Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division: Two quick questions. Your orders -- you've noticed that your orders have bottomed, and you've seen some improvement in the last several weeks, kind of unrelated to the previous caller there. What has been the-- where do you think the rebound is coming from? And kind of unrelated question, if some of us actually listened to what have to say and believe your opinion on the industry, what do you think will come out fastest next year? I don't know when it's going to happen, but where do you think it's going to lead the rebound in terms of segments?

Well, where we are seeing the bookings come from, I believe it's largely broad-based. We haven't seen it flavor up a given the geography. I think we don't really track our bookings by sector, and we have really no way to do that because majority of the bookings actually come through distribution, where the customers place the bookings on them. So from a geographic standpoint, I've really seen bookings bottom out in every region and recovering from there. What will lead the recovery into next year, I think it's a broad-based downturn, it will be broad-based recovery. If U.S. economy avoids recession, which I think it kind of largely has, then you'll see a little bit of recovery everywhere. And when Europe -- Europe is quite strong in certain countries, Germany and France and others are very strong, but some other countries are weak, so Europe is a very mixed bag.

We'll go next to Terence Whalen with Citi. Terence R. Whalen - Citigroup Inc, Research Division: This one relates to channel inventory. Do you see a need for distributors to actually begin increasing their levels of channel inventory? And then at what point in the recovery process might you expect that to occur?

We do not see that distributors to increase their level of channel inventory because the channel inventory is actually high right now. And part of the inventory correction is happening at distributors. Distributors are giving lower amount of new orders than they're shipping out, so that distributor inventory is dropping. And it needs to drop, and we believe most of that process will be concluded also this quarter. So the next quarter will be more in balance. Now as the distributors change their inventory, it doesn't have a effect on Microchip because we don't take shipments into distributor as revenue. But this was part of my comment in my prepared remarks that those competitors and peers who take the sell-in as a revenue recognition are going to see substantial drops, and you have seen in many other guidance, which are the mid-double digits. And they could see a further drop in Q1 as distributors continue to correct further inventory. At Microchip, it doesn't have effect on our revenue. Terence R. Whalen - Citigroup Inc, Research Division: Okay, terrific. Very helpful. And then the follow-up question that I have is a little bit of a higher level question pertaining to the microcontroller business. The question is, with regards to the newer businesses, the 16- and 32-bit businesses, as those businesses grow at a rate faster than the 8-bit business and become a more critical mass of the overall mix of the microcontroller business, how does that affect your go-to-market approach, your interaction with customers? And also, how does that affect the pricing as it relates to the 8-bit controllers based on how you're growing the 16-; and 32-bit business?

Well, Ganesh may add something to it, but let me say a few words. The biggest change that I have seen in the last several years as the component of our 16- and 32-bit businesses has grown, and prior to that, may be we were largely 8-bit, is that the business has become more application-specific. The 8-bit business was much more horizontal, where there are generally trained application engineers and salespeople who can sell all of these 8-bit products. And now, we need specialists on motor control, digital power supply, Touch Sense, LED lighting, medical, connectivity to iPhone, iPad kind of devices, automotive and on and on and on. Because as the device gets larger and larger, the more complex devices, the applications become more specific and customers need more help. So I think that really has been the change. And in the last several years, we had to accommodate putting all of that specialist's structure and field application engineering specialist structure into place to successfully sell these products, which we are and even in adversity, 32-bit is growing. It grew last quarter. It grew quarter before. And that's really one of the changes we have seen. And as a result, it has had some impact on our operating expenses, which we -- seeing long-term model is 25% to 26%, which could have been 0.5% or 1% higher than maybe something we said 5, 6 years ago. Do you want to add some details?

My only addition would be I think it's also because of the what's -- the more complex applications, as Steve described, it's much more than just a hardware sale. It's how the software, the application support, the reference designs, the total solution sell comes together. And I don't think it's only on 16s and 32-bits, I think even on many of our 8-bit products. We have products with much more capability today than we did many years ago, and that total solution sell, including hardware and software coming together, is an important part of how we go to market. Terence R. Whalen - Citigroup Inc, Research Division: And then Ganesh, as a follow-up to that comment, is there a certain crossover point where the 16- and 32-bit businesses get barging off where they have somewhat of a parasitic effect on your ability to sell the 8-bit versus upsell your customer to a 16 and 32? I was wondering if there is some sort of an effect on the core 8-bit business in pricing?

No. And 8s, 16s and 32s coexist, have coexisted, will coexist. I think they all solve different needs. And there is no way that a single solution meets all the different market needs that are out there. It's a very fragmented market. There are many, many solutions that are needed. Even as we have grown our 16- and 32-bit business, our 8-bit is going to be -- continue to grow as well, maybe not at the same rate, but coming off of a larger base. And so I think people from the early '90s have been talking about 8-bit business being cannibalized by 16-bit or 32-bit, and it's alive strong and kicking.

The phenomena that you're describing is more given by people who only makes 16 or make only 32. The person who makes only 32, what is he supposed to do? Sell 32 into every application, in every design they win. Sometime they win from 32, sometime they win from 16, and they look at that as a cannibalization. We make all of them, and we continue to make substantial investments in 8-bit, with new products and cost reductions and all that. So our difference in our cost and ASP structure between 8, 16 and 32 is really maintaining. And a customer simply going from 8 to 16 for no other reason is going to pay a higher price, which he doesn't need to pay because our 8-bit is cheaper, always will be.

We'll go next to Kevin Cassidy with Stifel Nicolaus.:p id="109309719" name="Kevin Cassidy" /> I just have one more follow-up.On the licensing growth that you saw, was that new customers? Or is it existing customers that were expanding their relationships or higher volume?

So it's a combination of it. Every quarter, we sign new licenses and every quarter we have existing licenses. Some have the license payments because a certain milestone was met. In certain cases, they're in production and they're in higher volumes. So we get more royalty. But the fundamental tenet in that business is the percentage share of the overall microcontroller, DSPs, Smart Card and other markets, which use the nonvolatile flash memory. The percentage penetration of our technology SuperFlash is going up quarter after quarter after quarter. More and more IDMs are adopting it, more and more foundries are adopting it. It is the preeminent technology. Everyone of our competitors, I can't say all because that's always not correct, but a majority of our competitors, even licensees of our technology, they're using it inside their own fab. They're using it at the foundries. So even in a down business, which we have had for the last couple of quarters, the licensing business has done record every quarter because it has that much market share gain going on. Kevin Cassidy - Stifel, Nicolaus & Co., Inc., Research Division: Great. And do you have a long-term model of what you expect as a percentage of revenue? Or is it just expect to take -- continue to take market share?

We definitely have it in-house, but not for public consumption.

And ladies and gentlemen, that does conclude today's question-and-answer session. I'd now like to turn the call back over to Steve Sanghi for any additional or closing remarks.

Well, thanks to everybody. There are a couple of conferences coming up that we will go this quarter. And we'll see many of you on the conference circuit this quarter. And otherwise, we'll see you next quarter. Thank you very much.

And again, that does conclude today's call. We do appreciate everyone's participation.