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

Uche X. Orji - UBS Investment Bank, Research Division James Schneider - Goldman Sachs Group Inc., Research Division JoAnne Feeney - Longbow Research LLC Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division Christopher B. Danely - JP Morgan Chase & Co, Research Division John Pitzer - Crédit Suisse AG, Research Division Christopher Caso - Susquehanna Financial Group, LLLP, Research Division Harsh N. Kumar - Stephens Inc., Research Division Kevin Cassidy - Stifel, Nicolaus & Co., Inc., Research Division Craig A. Ellis - Caris & Company, Inc., Research Division

Good day, ladies and gentlemen, and welcome to this Microchip Technology Fourth Quarter and Fiscal Year 2012 Earnings Results Conference Call. As a reminder, today's call is being recorded. Now for opening remarks and introductions, I will turn the call over to Microchip's President and Chief Executive Officer, Mr. Steve Sanghi. Mr. Sanghi, please go ahead.

Thank you, Debbie, and good morning, 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 2 press releases regarding earnings and announcement of the signing of definitive agreement to acquire Standard Microsystems Inc., known as SMSC, 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: Ganesh Moorthy, Microchip's COO; Eric Bjornholt, CFO; and Gordon Parnell, Vice President of Business Development and Investor Relations. We have 2 back-to-back conference calls today. This call is to discuss Microchip's fiscal fourth quarter 2012 and fiscal year '12 financial results and fiscal quarter 1 2013 guidance. Followed by that, we will take investors and analyst questions on our financial performance, outlook and performance of our product lines. During this call, we will not take any questions on the acquisition. Then in one hour, at 9:30 a.m. Eastern standard time, we will have our second call in which we will introduce you to SMSC, explain our rationale for this acquisition and outline the next steps and the timeline. In the second call, we will not take any questions about our earnings. So I will now pass the call to Eric Bjornholt, Microchip's CFO. J. Eric Bjornholt: , Thanks, Steve, and good morning, everyone. Before I jump in into details, I want to remind you that we are including information in our press release on this conference call on various GAAP and non-GAAP measures. We have posted the full GAAP to non-GAAP reconciliation on the Investor Relations page of our website at www.microchip.com, which we believe you will find useful when comparing GAAP and non-GAAP results. I will now go through some of the operating results. I will be referring to gross margin and operating expense information on a non-GAAP basis prior to the effects of share base compensation, acquisition-related expenses and other nonrecurring events. Net sales in the March 2012 quarter were $338.9 million, up sequentially 3% from net sales of $329.2 million in the immediately preceding quarter, and were down 10.8% from net sales of $380 million in the March 2011 quarter. On a geographic basis in the March quarter, revenue in the Americas was up 1.6% sequentially. Europe was up 14.5% sequentially, and Asia was down 0.7% sequentially, and was seasonally impacted by the Lunar New Year holidays. The March quarter is typically the strongest quarter of the year in Europe, and this year has followed that pattern. Net sales for fiscal 2012 were $1.383 billion, down 7% from the fiscal 2011 levels. On a non-GAAP basis, gross margins were 58.1% in the March quarter, an increase from the 56.8% achieved in the preceding quarter. Non-GAAP operating expenses were 26.2% of sales in the March quarter. Operating income was 31.9% of sales, and net income was $94.3 million or $0.46 per diluted share, which was above the midpoint of our guidance of $0.45. In the March quarter, non-GAAP earnings per share was favorably impacted by about $0.01 in the other income area of the income statement from the redemption of a previously written down Auction Rate Security at par value and some favorable foreign exchange hedging activities. We are not forecasting with these favorable items in the other income area of the P&L will repeat in the June 2012 quarter. For fiscal 2012, on a non-GAAP basis, gross margins were 58.2%, operating expenses were 25.9% of sales, and operating income was 32.3% of sales. Net income was $383.7 million or $1.89 per diluted share. On a full GAAP basis in the March 2012 quarter, gross margins including share-based compensation and acquisition-related intangible amortization were 57.2%. Total operating expenses were $100 million or 29.5% of sales and includes share-based compensation of $8.5 million, $1.5 million in special charges related to a patent license settlement and acquisition-related expenses of $1 million. GAAP net income was $80.6 million or $0.39 per diluted share, which was above the midpoint of our guidance of $0.38. For fiscal 2012, GAAP gross margins were 57.3%, operating expenses were 28.6% of sales, and operating income was 28.7% of sales. GAAP net income was $336.7 million or $1.65 per diluted share. In the March quarter, the non-GAAP tax rate was 12.6%, and the GAAP tax rate was 12.3%. Our tax rate is impacted by a variety of factors, including the mix of geographical profits, and withholding taxes associated with our licensing business. On a forward-looking basis, we expect our effective tax rate on a non-GAAP basis to be 13% to 13.5% and our GAAP effective tax rate to be about 25 basis points lower than that, excluding any discrete onetime events. To summarize the after-tax impact that the non-GAAP adjustments had on Microchip's earnings per share on the March quarter, share-based compensation was about $0.042, acquisition-related items were about $0.012, the patent license settlement was about $0.007, and the noncash interest expense was about $0.006. The dividend declared today of $0.35 per share will be paid on May 31, 2012, to shareholders of record on May 17, 2012. The cash payment associated with this dividend will be approximately $67.8 million. Moving on to the balance sheet. Microchip's inventory at March 31, 2012, was $217.3 million or 137 days, flat to the prior quarter levels. Inventory at our distributors was 31 days, which is down 4 days from the prior quarter level. As measured in days, our distributors have the lowest level of inventory that they have held in the last 10 years. We believe that distributors will need to increase their level of on-hand inventory over the coming quarters. I want to remind you that our distribution revenues throughout the world is recognized on a sell-through basis. At March 31, Microchip's accounts receivable balance was $170.2 million, an increase of 14% from the balance as of the end of December. The increase in receivables can primarily be attributed to the back-end weighting of shipments in the quarter due to the Lunar New Year holidays in Asia, distributors not reducing inventory as much as they did in the December quarter and the increase in revenue. Receivable balances continue to be in great condition with excellent payment performance from our customers. As of March 31, Microchip's cash and total investment position was a record $1.79 billion and was up about $17 million from the prior quarter levels. Our total cash and investment position is projected to grow by approximately $100 million to $110 million in the June quarter, prior to our dividend payments and any acquisition activity. Capital spending was $3.9 million in the March quarter and was $62.5 million for fiscal 2012, about $5.5 million less than we communicated in our last earnings call due to the rollover of some of this capital into the first quarter of fiscal 2013. We are continuing to invest in equipment to support the revenue growth of our new products and technologies and our capital expenditure forecast for fiscal 2013 is about $70 million, including the $5.5 million rollover from fiscal '12. We expect capital expenditures to be about $18 million in the June quarter. Depreciation expense in the March quarter was $20.9 million, which was down about $0.5 million from the December quarter. Depreciation expense for fiscal 2012 was $86.4 million. Depreciation expense is projected to be about $20.7 million in the June quarter. I will now ask Ganesh to give his comments on the performance of the business in the March quarter. Ganesh?

Thank you, Eric, and good morning, everyone. Let's now take a closer look at the performance of our product lines, starting with microcontrollers. Our microcontroller business was up 5.5% on a sequential basis in the March quarter, with both 8-bit and 16-bit product lines up sequentially. For fiscal year '12, our microcontroller business was down 8.4% as compared to fiscal year '11 due to the broad-based inventory correction accentuated by the aftereffects of the twin disasters last year, namely the earthquake in Japan, and the flooding in Thailand. Our 16-bit business was up 19.3% sequentially in the March quarter, as our business recovered sharply from the inventory correction many of our customers went through over the last 3 quarters. For fiscal year '12, our 16-bit business was up 5.9% as compared to fiscal year '11. Despite the broad-based market weakness over the last year, our strong design momentum enabled us to overcome the macro trend and significantly outgrow the market. After 5 consecutive quarters of targeted double-digit growth, including a 33.7% sequential growth in the December quarter, our 32-bit microcontroller business took a pause in the March quarter as some customers digested the inventory they had built. As a result, the 32-bit business was down 13.7% sequentially, although it was still up 51% from the year-ago quarter. For fiscal year '12, our 32-bit microcontroller business grew 104.7% as compared to fiscal year '11, the fastest growth of any 32-bit supplier by a long shot. The number of 32-bit customers and volume production grew to 885 as we continue to build a broad base of customers to grow this business. Moving to development tools. We shipped over 50,400 development tools in the March quarter, a new record for quarterly shipments. Cumulatively, we've now shipped close to 1.3 million development tools. Development tools sales remain an excellent leading indicator of continued strong design-in activity and acceptance of our solutions by our customers. Gartner Dataquest just released the general purpose microcontroller market share report for 2011. While we remained in the #2 position for 8-bit microcontrollers, we continue to gain share versus the 8-bit market at large, and versus our nearest competitors. We closed the gap versus the #1 supplier and increased our distance versus the #3 supplier from a year ago. A year ago, it took the combination of 3 Japanese semiconductor giants, NEC, Hitachi and Mitsubishi, to knock us off the #1 spot for 8-bit microcontrollers. We assured you at the time that we would work relentlessly to gain market share, to wrest back the #1 spot in the coming years. We delivered in the first installment of that promise in 2011 with more to come this year. In the general purpose 16-bit microcontroller market, we were the fastest-growing 16-bit microcontroller supplier among the top 10 suppliers in 2011. While we remain in the #8 spot in 2011 for 16-bit microcontroller, we're well within striking distance of the next 2 spots ahead of us. In the general purpose 32-bit microcontroller market, we moved from the #19 spot in 2010 to #15 spot in 2011. And once again, we were the fastest-growing 32-bit microcontroller franchise. Now Gartner Dataquest report is a backward-looking indicator where we are, of course, performing very well. Now let's look -- take a look at the forward-looking indicator. Within the last month, EE Times released the results of their annual Embedded Market Study. Once again, Microchip was rated by embedded system design engineers as their #1 choice for new designs using 8-bit, 16-bit and 32-bit microcontrollers in the segment of the market we serve. We're honored by the overwhelming preference for our solutions and see this as a positive sign for future growth, especially for our 32-bit microcontroller franchise, where many of you have had questions about our choice of core. Our 2011 market results, as well as the 2012 design engineering preference results, echo market confirmation of our belief that what customers care about is that we offer a PIC microcontroller solution with all the attendant brand promises and that the choice of core is not as important. Now let's move to our analog products. Our analog business was up 0.7% sequentially and performed well in the current environment. For fiscal year '12, our analog business was down 3.8% as compared to fiscal year '11 due to the broad-based inventory correction, although it has performed considerably better than our peer group of competitors. We remain pleased with the design win momentum our analog business has shown and have a strong pipeline of innovative new products that we will be unveiling over the next year. Moving to our memory business. This business is comprised of our Serial E-squared memory products, as well as our SuperFlash memory products, and the business was flat 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. Before I hand off to Steve, I'd like to spend a few minutes on 2 smaller tuck-in acquisitions of private companies that we completed in the last 3 months. Both acquisitions are consistent with our overall strategy and aligned with our vision to be the very best embedded control solutions company. Our first acquisition completed last quarter was a Munich, Germany-based company called Ident, that has developed advanced gesture recognition solutions. Gesture recognition we believe is the next emerging technology in human interface solutions and builds upon our strengths in proximity, touch sense and touchscreen human interface solutions for the embedded market. Our second acquisition completed 2 weeks ago was a Los Gatos, California-based company called Roving Networks. Roving Networks is an innovator in easy-to-use low-power embedded WiFi and Bluetooth solutions that expands the range of our embedded wireless solutions. Let me now pass it to Steve for some general comments, as well as our guidance going forward. Steve?

Thank you, Ganesh. Today, I would like to first comment on the results of the fiscal fourth quarter of 2012, which I will refer to as March quarter and then provide guidance for the fiscal first quarter of 2013, which I will refer to as June quarter. Our March quarter results were consistent with what we had guided during the last earnings call. The March quarter was a transitional quarter for us as we return to growth in revenue, gross margin percentage and profits. We went into this cycle one quarter earlier than most, and we had predicted that we would also come out of this cycle a quarter earlier than most. The December quarter was a bottom for us and we saw growth in our March quarter. Just one comment on the Licensing business that Ganesh did not discuss. The Licensing business was down 7.6% sequentially. This business tends to trail the semiconductor industry cycle, and our March quarter results reflects some of the broader weaknesses seen by the industry, with the industry returning to growth as forecasted by foundries and integrated device manufacturers alike. We expect our Licensing business to follow suit. In the interim, we continue to build a strong foundation for future growth, with 2 new significant license agreements signed in the March quarter. Overall, the March quarter turned out to be in line with our expectations in an otherwise seasonally weak period impacted by the Lunar New Year holidays in Asia. We grew 3% sequentially in revenue. Our gross margin percentage improved by 133 basis points sequentially. Our operating profit was up by 7.6% sequentially, and operating profit percentage was 31.9% of sales. Not too bad for the transitional quarter and it gets better from here. I will now provide guidance for the June quarter. Our guidance is based on the recovery continuing to take place from the bottom of December quarter. We expect our net sales in the June quarter to be up 3% to 7% sequentially. We expect another 100 basis points pickup in the non-GAAP gross margin percentage, with the gross margin in the range of 59% to 59.25%. We expect non-GAAP operating expenses to be about 26.25% of sales. We expect our non-GAAP operating profit to be between 32.75% to 33% of sales, and non-GAAP earnings per share to be $0.47 to $0.49 per share. As you compare our June guidance with our peer group, some other's June guidance may look stronger. But if you compare the results for the March quarter and June guidance as cumulative, our performance is near the top of the growth. Please keep in mind that individual companies have different end market exposures and distribution sales and recognition policies that can affect the trajectory and timing of their revenue decline and subsequent growth. The industry's distribution inventory is very low. As that inventory is rebuilt, the sell-in companies see the revenue immediately while the sell-through companies like Microchip will see them delayed. Therefore, our June guidance should be put in perspective based on these factors. We still expect to reach 60% gross margin by the end of this fiscal year without the effect of the acquisition announced today. On a longer-term basis, with the low amount of new capital, continuing to shut off all depreciation, a gradual ramp in the production of our factories, as inventories burned off, ongoing die shrinks and other cost reductions, we will start to work the gross margin back up towards the corporate target of about 61% on a non-GAAP basis. Given all the complications of accounting for the acquisitions, including amortization of intangibles, restructuring charges and inventory write-up on acquisition, 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, the March quarter was our 86th consecutive profitable quarter. Our non-GAAP gross margin of 58.1% and non-GAAP operating profit of 31.9% 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 today to Uche Orji with UBS. Uche X. Orji - UBS Investment Bank, Research Division: First of all, Steve, thanks for taking the time and being the first on the -- warning how the industry is going to go [indiscernible] of the recovery. A question for you. As you see bookings, which you commented on the press release as continuing to be good, are there any areas that are kind of fallen behind and if you can comment on what you're seeing regionally, especially in Europe where people are always concerned about declining PMI? So if you can just give some color regionally what you're seeing? I know you don't talk about end market but to the extent that you have any insight on end markets as well, may you can give us some commentary there?

Well, bookings were quite strong last quarter around the world by region, including Europe. Europe was actually up the most last quarter, if you see, and the exact number was... J. Eric Bjornholt: 14.5%.

14.5%. Europe is seasonal in that way. We get most of the growth in Europe in the March quarter and then Europe is seasonally very weak in December quarter and the summer quarter, September and June is kind of so-so. So Europe is very seasonal and we're basically seeing that seasonal trend. And on the top of that, whatever happens in the Eurozone, we certainly will not be immune from that effect, but the business in Europe seems fine right now. Uche X. Orji - UBS Investment Bank, Research Division: Okay. Separately, let me just ask you, are there speculation around MIPS and MIPS going to find and buy and decide that your 32-bit is designed around MIPS. To what extent is that going to be a challenge if they're acquired by a competitor, for example? Would you continue to support that architecture or is it easy for you to switch from MIPS to something else? I'm not sure how that works for you but any comment here on what the future of that company may have with regards to 32-bit architecture would be helpful? J. Eric Bjornholt: We always don't want to speculate on what is or is not going on there. We have always maintained that the core is not the critical element of what the solution we deliver is. We've always been clear, it's a PIC32, which has a substantial number of other benefits to the customer that define what value it is to them. So if and when whatever plays out, we'll play out our hand at that time. But right now, there's no change in our strategy. Uche X. Orji - UBS Investment Bank, Research Division: Okay. And can I just ask, I mean, I know Steve, we're going to talk about SMSC in another call. But as I look at all the small acquisitions you've made, gesture recognition seems a little bit some R&D-intensive, how do you see applying that technology to your target markets, this is implying expansion into high-volume applications that you have typically shied away from? And I ask this because we're looking at gesture recognition as something that we'll use more in consumer devices. So how does this fit in with your strategy when you acquired Hampshire Technology and that was going to be focused on less high-volume areas?

So if you look at history, we have always been able to take this technology and move into the broader market. So when you looked at our touch screen and buttons and sliders and touch focus, you saw how we have built substantial business in appliances, in automotive, in touch panels, in industrial and on and on and those kind of stuff, without really making a very large portion of our business in consumer devices, fast moving, fast life cycles and all that. So similarly, as we acquire these technologies, there's a substantial need for all of these technologies in the broad base of the markets that Microchip serve. and as Microchip continues to get larger and larger and we'll get to talk about the other acquisition in the next hour, there's certainly room for some portion of our business in the high-volume faster markets without really overall disturbing Microchip's margin model. So gesture recognition takes the touch screen experience to the next level. Later on tomorrow, I'm presenting to a communication meeting to Microchip's worldwide employees. And the PC that I'm going to be using, I can wave my head and move the slides forward or backward from a distance. That's the technology I'm going to be using and introducing to our employees, and I will try to do the same thing next time I present to the investors so you can get a feel for that technology. Uche X. Orji - UBS Investment Bank, Research Division: Okay. And just finally, on series of acquisitions. I mean, ZeroG, you did acquire ZeroG in embedded wireless and I'm just wondering where Roving fits with regards to ZeroG, does supersede or complement that acquisition? I'm just trying to understand how part of this wireless technology is going to fit into your strategy? That's my last question. J. Eric Bjornholt: It obviously, complements what we have with ZeroG. ZeroG gave us a much lower end of product that was in the entry-level of where WiFi technologies we're at. We get some higher-end technologies. We have some Bluetooth capabilities now that come to us from Roving, and there's some substantial application expertise that comes with it as well. So all of these continue to build our capabilities in the areas of WiFi and Bluetooth, both of which we believe are ubiquitous and the kinds of building block technologies that are in use in a broad range of applications across the market segments we serve.

We'll take our next question from James Schneider with Goldman Sachs. James Schneider - Goldman Sachs Group Inc., Research Division: I was wondering if you could talk broadly about the competitive trends you're seeing in the microcontroller market. I know it's always competitive and there's always pricing pressure. But have you seen any of your competitors be more aggressive, especially on pricing? And do you see any of your competitors kind of struggling to make it in the market currently?

The microcontroller market has lots of different competitors in 8, 16 and 32. There's a long tail of about 20-plus competitors in each of those markets. There are always few people gaining market share. There's never a single person in any time you compare people, one could look faster growing for a period of time than the others, but there are a handful of 4, 5 people gaining market share in many of these markets. But there's a long tail to take market share from and especially Microchip whose business is spread in 70,000 customers, we often gain market share from the tail. And a lot of the investors and analysts focus sometime, tends to be kind of on the top, Atmel, and TI, and Renesas, and STMicro, they're all doing well. And you could compare them all you like. But if you look at the data year after year after year, when we look at our performance versus the industry average shipments, whether you look at SIA, where we overall gained market share last year from 6.5% to 7.5%, or you look at the Dataquest numbers that Ganesh pointed or you look at the EE Times survey in brand preference, we continue to win in every indicator consistently for 20-plus years, looking back and looking forward. Microcontroller market has always been competitive. People come and go. There's nobody bombing that market, destroying the prices, in microcontrollers it just does not work, it's a designmen kind of business. And anybody fading away, you could just look at the ranking, there are plenty people fading away from the bottom. James Schneider - Goldman Sachs Group Inc., Research Division: That's helpful. And then just a follow-up on the geographic color. Can you talk about what's happening in Asia? Clearly, Lunar New Year is a seasonally weak quarter but what -- how do you to expect that to track in the June quarter?

In June quarter, Asia should be very strong. It should be the strongest geography, both separately in China and broader Asia.

We'll take our next question from JoAnne Feeney with Longbow Research. JoAnne Feeney - Longbow Research LLC: I just had a question on the order front. So obviously, with your sell-through accounting, you're not going to pick it up in revenues, so perhaps on the order front, that would be a useful leading indicator. Can you give us a sense of what you think is happening on orders in terms of end demand versus inventory refill driving those for you guys?

So as Eric pointed out, our distribution inventory ended the March quarter with a 10-year low. And it's just inevitable that distribution will replenish some of that inventory this quarter and in the coming quarters. So if anybody's concerned about Microchip's internal inventory being high, and last quarter, it was flat, but there was a substantial reduction last quarter in the distribution inventory. And if distribution had not gone down that much, then our inventory would have dropped. So we always look at the total. On total basis, the inventory dropped. So as the distribution refills it, it will drop Microchip's internal inventory and the distribution is fairly positive going forward. So I think that's the trend. I don't know if that answers your question. JoAnne Feeney - Longbow Research LLC: That's really helpful. And then sometimes, you're able to give us a sense of what your larger customers are doing that you talked directly with versus the distributors. Are you seeing any difference in their behavior right now? Any difference in order patterns?

Well, so our -- what we call direct OEM backlog, the customers that we shipped to directly and not through distribution was up strongly starting in the quarter for this coming quarter. JoAnne Feeney - Longbow Research LLC: And is there any difference between your analog order pattern versus your microcontroller pattern at this point?

Not substantial to report. We don't break it out, but it's not something that pops out. I think we're doing pretty good across the product line. JoAnne Feeney - Longbow Research LLC: Okay. And if I could squeeze in one last. On the gross margin front, so obviously, that's moving up. Is it primarily utilization or is there mix also that could help gross margin?

It's really a combination of factors. It's a handful of moving parts. This continuously -- depreciation is going down with low capital investment. It's continuously mix is becoming richer as memory business is getting smaller as a portion of the overall and microcontrollers and analog licensing have seen more of a growth. It's the die shrinks and all that kind of stuff, general cost reduction in the industry. As the inventory goes down, the factories have a gradual ramp, although we have not increased the factory utilization yet. From December quarter to March quarter, there was some natural improvement because the holidays and all that were not there. And in the June quarter also, the holidays of early January are not there. So there is some improvement in the factory utilization. So a handful of moving parts. We're talking about 100 basis points improvement with 6 factors probably.

We'll take our next question from Brendan Furlong with Miller Tabak. Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division: I just want to kind of circle back on JoAnn's question there a little bit as she kind of preempted me. But the 10-year inventory at the -- excuse me, inventory at a 10-year low, with signs of cycle putting in the bottom in the March quarter, I'm just curious what you think was driving that when the cycle was about to turn up? And when do you think those distributors are finally going to put some orders back on you?

The distributors have put the orders on us. So the backlog is much healthier than it was before, and it will continue to strengthen. The bookings are fairly strong, so the backlog is building by the week. J. Eric Bjornholt: And Brendan, our lead times are very short, have remained short. Some of the strategic inventories that we have built is there. So people have been able to place orders and get them in fairly short period of time. Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division: Okay. And then I guess the other question is you made some comments about your analog. But cumulatively, obviously, it compares very well with your analog peers. I'm just wondering what you're seeing in analog in general as the cycle begins to turn up here in the June quarter?

So I think analog business should do very well in June quarter. I do not want to quantify it, but I think we should have a strong performance in the analog in June quarter.

[Operator Instructions] We'll go next to Chris Danely with JPMorgan. Christopher B. Danely - JP Morgan Chase & Co, Research Division: Steve, I'd just be curious as to your thoughts or impression as to how you think this cycle will play out? I mean, clearly, you guys are undershipping in demand or shipping in demand across some of these [ph]. When do you think we get back to the proper run rate? And what do you think it's going to take to get us back there? Any thoughts on the timing of that?

Well, the cyclic part of the recovery is underway. It's been a classic pattern where we call it first, which we called it back in the June timeframe last year. Everybody jumps in claiming to be an internal Microchip problem. A quarter later, warnings come from everybody and the industry joins. And then the speculation begins, when does the cycle end? Microchip's bottom quarter was December. We called that, too, that we end one quarter early, and that is often questioned. And now, it starts to get believed as that becomes a reality and everybody else called their March quarter as a bottom and then June quarter guidance is up. So it's a very classic pattern. And I think over the next couple of quarters, you should see a number of companies, at least the good companies, making new highs in terms of record revenues, taking out acquisitions and all the economic activities. So I think the pattern is pretty much intact. Christopher B. Danely - JP Morgan Chase & Co, Research Division: And you mentioned that you're already seeing distis having to take their inventory up a little bit. So are your bookings from the distributors a little bit stronger than the OEM/contract manufacturers?

I think our bookings are really strong across the board right now. So -- and it's region by region, so I'd be guessing if I answer that right now. Christopher B. Danely - JP Morgan Chase & Co, Research Division: Sure. And my last question is probably for Eric. You guys are guiding for a nice sequential increase in sales this quarter, but your OpEx looks like it's up about the same amount as sales. Is that because of the 2 small acquisitions you did? And then how are you guys going to get that OpEx down towards the target model as the fiscal year unfolds?

I think -- let me answer that instead of Eric. If you look at our OpEx, it's near the industry best. The industry spends several hundred basis points more than we do on an average basis, we'll be in the top 3, 4 companies, the top echelon. So we have seen a lot of opportunities in the market with these acquisitions and other internal programs, and people get awfully excited about trying to get another 25 basis points leverage. I mean, we just reported 31.9% operating profit and will be higher than that in the June quarter. And when the opportunity is there, if we did not invest in those strategic investments to gain share with these tuck-in acquisitions and internal programs to accelerate various revenue growth, we wouldn't be making over 32% operating profit, a kind of shame on us. That's the real answer. J. Eric Bjornholt: And I guess, I'll just also point out that our long-term model is 25% to 26%.

Yes. So we're just 25 basis points higher than that, we will be getting in the range as the recovery picks up steam.

We'll take our next question from John Pitzer with Crédit Suisse. John Pitzer - Crédit Suisse AG, Research Division: Steve, realizing that 32-bit is still a very small portion of the overall microcontroller market. Down this quarter, do you expect to see a resumption of growth in the June quarter? And relative to the 16-bit ramp, is this kind of lumpiness kind of typical as you're starting out a new node?

So I would predict that we will grow in the June quarter in 8, 16, 32, analog, across the board. J. Eric Bjornholt: I think if you go back and look at the 16-bit by quarter patterns, we haven't had a timeline where occasionally, there's going to be a quarter when there is a decline, and that was there if you go back over to the first 20, 30 quarters of how the 16-bit did, it's not unusual at this stage. But if you look at the consistent longer-term pattern of the growth and you're going to find multiple quarters of growth, and there'll be a pause somewhere along the way. John Pitzer - Crédit Suisse AG, Research Division: And then guys, as you think about the different segments of microcontrollers, I'm kind of curious, relative to the overall growth in microcontrollers, how do you see 16 versus 32? And I know you're dealing with different basis [indiscernible], but I'm most interested in kind of the 8-bit market and what you think the longer-term growth there is? It seems like the 8-bit downturn starts a little bit earlier than the overall semiconductor downturn?

We have -- in our history, we have really never cared about that. We always look at what our market share is. If our market share is 15% in any given market, then the 85% of the business we don't have. We don't let our people think that this particular market is shrinking or this particular market is growing. If you look at our 20-year performance in the 8-bit market, we have done incredible in the face of the market that analysts have called it for better part of 10 years as not a good market. 16-bit is the same way. Everybody says all the growth is in 32-bit. We have doubled year after year after year in 16-bit and grew again last year significantly. So it's just a different thinking. We don't think in terms of market growth. We think in terms of the opportunities that we can have in growing that market. So if it grows to market share and the market isn't growing, so be it. We don't make the difference. John Pitzer - Crédit Suisse AG, Research Division: And then Steve, my last question, maybe a bit tangential to the 9:30 call, but the dividend has always been sort of a key part of the Microchip story and you guys have always been very committed to it. Just given the size of the acquisition announced this morning, as I run the numbers, doesn't seem to be any issue with the dividend strategy but I thought I'd just like to hear from you.

So you're correct and the question is valid for this call, too. There will be no change in our dividend strategy, we've got substantial amount of cash and we established a larger credit line last year to really fund this so there's no problem, here. Dividend strategy will continue.

And we'll take our next question from Chris Caso with Susquehanna Financial Group. Christopher Caso - Susquehanna Financial Group, LLLP, Research Division: I wonder if you could -- it's a difficult question, given the breadth of your customer line, but give some indication of what you think your customers are doing and end customers are doing with inventory levels right now? Do you -- in terms of how lean those inventories may be and their willingness to perhaps start to do some restocking here, independent of what's happening at the distributors?

So if you look at the direct customers, it's quite clear. As I mentioned, the direct customers backlog started out much stronger and additional bookings are continuing. So we feel pretty good about it. And part of that across the customer base has to be where they're seeing resurgence in their business or the inventory is too low or a combination of both. Christopher Caso - Susquehanna Financial Group, LLLP, Research Division: Right. I mean, I guess as a follow-on to that, from a bigger picture perspective, you obviously have a lot of customers but I'm sure you speak a lot of customers, what are they telling you, from a bigger picture standpoint, of their confidence through the rest of the year?

Their businesses are doing better. They have bounced off the bottom. They're more confident that economic cycle is doing better. But they're not happy that the economic cycle is the weakest recovery it's been seen in many, many recessions. The latest slowdown in GDP in the March quarter, which was lower, is not a happy news. So nobody is really pleased with the pace of the recovery, nor are we. But everybody is still seeing growth, at least it has turned positive, and they're doing better than they were doing before. Christopher Caso - Susquehanna Financial Group, LLLP, Research Division: Okay. And just one final. You had talked a bit about what you're doing with your inventories and such. I believe the way that you were managing utilization was taking factory shutdowns, are you planning on continuing the shutdowns into the June quarter?

No, we did not have any shutdown in the March quarter either, although there is some natural shutdown. The New Year holiday kind of goes a little bit into January, early part of January. But there are no more factory shutdowns required because our inventory, when you combine it together with the distribution, it's dropping already.

We'll take our next question from Harsh Kumar with Stephens. Harsh N. Kumar - Stephens Inc., Research Division: First question, Steve, Microcontroller business was up 5.5%, which is better. I understand that you're recovering from some natural disaster kind of issues. But I'm curious if there was any one market or 2 markets that stood out that did better than the others? And I'm also curious if you saw increasing strength in orders. In other words, how is the linearity of orders?

So you want to take the Microcontroller, please? J. Eric Bjornholt: Sure. Our business is very broad-based. There's no specific market that's been driving the resurgence in the growth. It's growth across the board. And I forgot, what was the second question?

Second part question was the linearity of the orders. So basically, the business has continued to strengthen through the March quarter. So bookings, higher and higher every month, and we expect that pattern to continue in April, and then May is just starting so basically, it's a very classic pattern. The bookings are strengthening. Harsh N. Kumar - Stephens Inc., Research Division: Very good. And as a follow-up, Steve, last decade, this is a strategic question. Microchip, from what I remember covering you guys, was not a very big fan of acquisitions. This sort of decade so far, we've seen a different pattern. And I'm curious if there's a change in the way you guys are thinking about running the business going forward as you get -- are you trying to get more acquisitive? Or is it a function of what you're able to see in the marketplace that's very cheap? Just any thoughts?

Well, kind of thoughtful question. So if you look at -- the question really depends on what you do with your cash. So we produce enormous amount of cash and relatively low capital investment in the business. So the business is very profitable and throws a lot of cash. So we spent the last decade building up our dividend to be near 4%, one of the highest dividend in the semiconductor industry. And that's good, giving -- on the top of that more even is really not helpful. It gets kind of too high and I don't think people start to appreciate beyond that when it's already the highest. So the other is the investment in our own business, where growth in strategic initiatives. There was the earlier question regarding the operating expenses and not as quick to get it down to 25%, 25.5%. There is an opportunity we're investing and we're happy with it, our business is very profitable. But despite giving all this dividend and despite spending 26.25% on operating expenses, slightly higher than the model, we're still building cash. We've got $1.8 billion record cash. So what do we do with it? So we're looking for where we can find acquisitions that can enhance Microchip's available market, maybe to similar customers where we sell their products that go around the board, things that we could package in with Micro where it can really add to strategic initiatives, either in technology, all the market, all the products or all of the above. We didn't have that level of cash in the earlier part of last decade. We were also building our factory infrastructure at that time. If you recall, we spent a couple of hundred million dollars buying our fab floor in Oregon, and subsequently made substantial capital investments for equipment and all that. We built a factory in Thailand and added significant to that. So we were building our infrastructure and spending money internally. All that is now built and we have substantial factory capacity in our factories plus part of the fab-lite strategy where we are doing a portion of the business at the foundries. So business has become less capital-intensive in this decade. And therefore, we are trying to find use for that money and doing it very judiciously. We haven't done a bad acquisition. The record of acquisitions in our industry is terrible and ours is great. Acquisition after acquisition, we are very, very pleased with it. It's adding shareholder value. Harsh N. Kumar - Stephens Inc., Research Division: Great. So I should think of your strategy for using cash is basically kind of expanding your product line, expanding your footprint. But that's where you cut off the line, correct?

Yes. I mean, unless there's a fourth element of it and there's capital investment, there is internal growth in operating expenses, growth in operating expenses, we don't like, and 26% versus 26%, I'm not shedding tears. The capital expense, we are spending what we need to spend and it is low because of our strategy. So that is fine. And despite doing all that, we are still building a lot of cash. So therefore, I hold the management at Microchip responsible and you should hold all of us responsible to make sure we don't blow that cash in bad acquisitions, a lot of people did at the height of the 2000 bubble and spending billions of dollars and then writing them off. We haven't done that at all, and we will not do that. And that's our promise to you, that if we do an acquisition, we will deliver tremendous shareholder value.

We'll go next to Kevin Cassidy with Stifel, Nicolaus. Kevin Cassidy - Stifel, Nicolaus & Co., Inc., Research Division: I have a short question. Just if development tools are a good indicator of future revenue, can you give a little more of a breakout or at least growth rate of development tools for 32-bit controllers versus 16 or 8? J. Eric Bjornholt: So our development tools are used across 8s, 16s and 32s. Yes, there are a subset of tools that are unique to 32 only. But there's a much larger number of tools that get used across 8s, 16s and 32s. I think the more meaningful indicators to look at, how are the businesses themselves growing, and if you look at 8s, 16s and 32s, they have continued to outperform the market and the development tools that our customer buys can be used on different projects and today, may help an 8-bit, tomorrow, may help a 16-bit, day after tomorrow, can help a 32-bit. But the fact that they're being purchased and used is a good reflection across our microcontroller portfolio.

I would like to add that a part of the Microchip PIC brand value proposition is that we are the only company where if you buy a development tool, you can use it on our 900 products from 8 to 32. You cannot do that with any other company. Their product lines are disjointed where one is based on this architecture, the other was designed here, the pinouts and peripherals and others are not compatible, they don't match, so you have to buy different tools for different product lines. For Microchip, one tool set will serve the entire base. Kevin Cassidy - Stifel, Nicolaus & Co., Inc., Research Division: Okay. I guess that supports the reason different processors or cores don't really matter as long as the development tools are the same.

Exactly, yes.

We'll take our final question today from Craig Ellis with Caris & Company. Craig A. Ellis - Caris & Company, Inc., Research Division: It's probably a good segue into the call but Steve, to further clarify the acquisition strategy. It seems like you've been opportunistic in the past with the SSTI deal. A lot of the acquisitions have kind of fallen into that elbow out, but Ganesh just mentioned that it seems like you were alluding to the most recent acquisition, SMSC, as one that's more SAM expansion. So is that the right way to think about how you're looking at your acquisition strategy on a go-forward basis?

So since you named the company we're buying, I'd rather take that question in the next call. And if it's not asked, I'll answer it anyway in the call. There are certain rules about filing and all that, so I'd rather not take that in this call. Craig A. Ellis - Caris & Company, Inc., Research Division: All right. On the Licensing business, you mentioned there were 2 deals that were signed in the quarter, in the March quarter that were meaningful. When do those kick in from a revenue standpoint? And will we see them impacting the growth rate of that business or is the cyclical dynamic that you mentioned just really the overriding factor in terms of how we think about the way that business rises and falls over time?

So the new license is depending on what kind of days, whether it's an extension of something, or it's a major license or it's a brand new node and a major foundry. It could have 2 years to revenue. But there are milestone payments in between, there's payments usually at signing of the contract. Some of that we will get this quarter when you make the first package delivery, the technology in our delivery. But then as they start to install it, there's money at various steps. But in the royalty stream, actually, they're couple of years away. But there's a significant revenue in between. Okay. So with that, we'd like to finish the earnings portion of the call. So all of you have to sign into a different call. There's a different number that was sent out. And for the second call, I'll also be using a slide set, which was posted on the Web as we speak. So make sure you get that slide set. J. Eric Bjornholt: It will be on the webcast.

It will also be on the webcast. So we'll see many of you on the next call. Thank you very much.

Ladies and gentlemen, thank you for your participation. This does conclude today's earnings conference.