James Eric Bjornholt - Chief Financial Officer, Principal Accounting Officer and Vice President of Finance Ganesh Moorthy - Chief Operating Officer and Executive Vice President Steve Sanghi - Chairman, Chief Executive Officer and President

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division James Schneider - Goldman Sachs Group Inc., Research Division John W. Pitzer - Crédit Suisse AG, Research Division Harsh N. Kumar - Stephens Inc., Research Division Christopher B. Danely - JP Morgan Chase & Co, Research Division Sumit Dhanda - ISI Group Inc., Research Division Terence R. Whalen - Citigroup Inc, Research Division Dean Grumlose - Stifel, Nicolaus & Co., Inc., Research Division Raymond Joseph Rund - Shaker Investments, L.L.C.

Good day, everyone. Welcome to this Microchip Technology First Quarter Fiscal Year 2014 Earnings Results Conference Call. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Microchip's Chief Financial Officer, Mr. Eric Bjornholt. Please go ahead, sir.

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 press our 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 operation. In attendance with me today are Steve Sanghi, Microchip's President and CEO; and Ganesh Moorthy, Microchip's COO. I will comment on our first quarter fiscal year 2014 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. I want to remind you that we are including information in our press release and this conference call on various GAAP and non-GAAP measures. We have posted a full GAAP to non-GAAP reconciliation on the Investor Relations page of our website at www.microchip.com, which we believe you will find useful when comparing GAAP and non-GAAP results. I will now go through some of the operating results, including net sales, gross margin and operating expenses. I will be referring to these results on a non-GAAP basis prior to the effects of our acquisition activities and share-based compensation. Net sales in the June quarter were a record $462.8 million and were up 7.6% sequentially from net sales of $430.1 million in the immediately preceding quarter. Revenue by product line was $300.3 million for microcontrollers, $103.2 million for analog, $34 million for memory and $22.5 million for licensing, and $2.8 million of other. Revenue by geography was $86.9 million in the Americas, $101.2 million in Europe and $274.6 million in Asia. I remind you that we recognize revenue based on where we ship our products to, which tends to skew some of the revenue towards Asia, where a lot of contract manufacturing takes place. On a non-GAAP basis, gross margins were 58% from the June quarter and above the high end of our upwardly revised guidance provided on June 3 of 57.25%. Non-GAAP operating expenses were 27.5% of sales. Non-GAAP operating income was 30.5% of sales, and net income was a record at $120.4 million. This resulted in earnings of $0.57 per diluted share, which was $0.03 above the mid-point of our upwardly revised guidance and $0.05 above the mid-point of our original guidance. On a full GAAP basis, gross margins, including share-based compensation and acquisition-related expenses, were 57.6% in the June quarter. GAAP gross margins included the impact of $2 million of share-based compensation expense. Total operating expenses were $168.2 million or 36.3% of sales, and include acquisition, intangible amortization and special charges totaling $29.4 million and also include share-based compensation of $10.7 million. The GAAP net income was $78.6 million or $0.37 per diluted share. In the June quarter, the non-GAAP tax rate was 11.1% and the GAAP tax rate was 13%. Our tax rate is impacted by the mix of geographical profits, withholding taxes associated with our licensing business and the tax effects of various nonrecurring items. Excluding any one-time events, we expect our longer-term forward-looking non-GAAP effective tax rate to be about 10.5% to 11.5%. To summarize the after-tax impact that the non-GAAP adjustments had on Microchip's earnings per share on the June quarter, acquisition-related items were about $0.138, share-based compensation was about $0.053 and noncash interest expense was about $0.006. The dividend declared today at $0.354 per share will be paid on September 4, 2013, to shareholders of record on August 21, 2013. The cash payment associated with this dividend will approximately be $70 million. This quarter's dividend will be our 44th consecutive quarter of making a dividend payment. We have never made a reduction in our dividend. And in fact, this quarter's increase marks the 38th occasion we have increased the dividend payment and our cumulative dividends paid is over $2 billion. This program continues to be an important component of how we return value to our shareholders. Moving onto the balance sheet. Consolidated inventory at June 30, 2013, was $256.1 million or 119 days. The mix of our inventory between internally produced and externally sourced product is in better alignment than it was at the end of March, and our inventory position is within our target model. We expect days of inventory at the end of September quarter to be relatively flat to the June quarter levels. Inventory at our distributors increased by 2 days during the June quarter to 32 days and remain at very low levels compared to where they have been historically. I want to remind you that our distribution revenue throughout the world is recognized on a sell-through basis. At June 30, the consolidated accounts receivable balance increased to $232.3 million, driven by the increases in quarterly revenue and the inventory build by our distributors. Receivable balances are in great condition, with excellent payment performance continuing from our customers. We had strong free cash flow generation in the June quarter of $138.9 million prior to our dividend payment. As of June 30, the consolidated cash and total investment position was approximately $1.9 billion, and we had $610 million in borrowings under our revolving line of credit. Excluding dividend payments, we expect our total cash and investment position to grow by approximately $110 million to $130 million in the September quarter. During the June quarter, we executed a new $2 billion revolving credit facility that has a 5-year term. The new facility replaces the $750 million facility that was previously in place. The new facility provides us with additional flexibility to pursue our business objectives with minimal immediate income statement impact based on our current level of borrowing activity. Capital spending was approximately $27.8 million for the June quarter and included rollover capital from the March quarter and a $12.5 million R&D building purchase in India. We expect about $27 million in capital spending in the September quarter. We expect overall capital expenditures for fiscal year 2014 to be about $90 million, as we are adding capital to support the growth of our business. Depreciation expense in the June quarter was $21.4 million. I will now ask Ganesh to give his comments on the performance of the business in the June quarter. Ganesh?

Thank you, Eric. And good afternoon, everyone. Let's now take a closer look at the performance of our product lines in the June quarter. Our microcontroller business grew a strong 8.9% sequentially in the June quarter to achieve an all-time record of $300.3 million in revenue. Microcontroller revenue was also up 24.8% versus the year-ago quarter. All 3 microcontroller segments grew significantly, with 16-bit and 32-bit achieving new records and 8-bit within a hair's breadth of achieving a new record. We fully expect that 8-bit microcontrollers will set a new record in the September quarter. Microcontrollers represented 64.9% of Microchip's overall revenue in the June quarter. And in April, we shipped our 12 billionth cumulative microcontroller. Additionally, we shipped a record number of development systems in the June quarter, which bodes well for future growth. Our 16-bit microcontroller business was up 10.1% sequentially in the June quarter, achieving a new record for revenue. 16-bit microcontroller revenue was also up 71.7% versus the year-ago quarter. We continue to expand the breadth of innovative 16-bit solutions that we're offering, customers that we are serving and applications that we're winning, as we continue to gain market share in this segment. Our 32-bit microcontroller business was up 26.3% sequentially in the June quarter, coming back strong after a pause in the March quarter to set a new record for revenue. 32-bit microcontroller revenue was also up 362% over the year-ago quarter. We are continuing to win new designs and expanding into new applications to enable further growth in revenue and market share. Despite the questions that some analysts have had about our choice of core, our consistent growth provides market confirmation of our belief that what customers care most 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. Moving to our analog business. Our analog business grew 6.2% sequentially in the June quarter to also achieve a new record and continues to perform exceptionally well. Analog revenue was also up 119% versus the year-ago quarter. Analog revenue represented 22.3% of Microchip's overall revenue in the June quarter. And at a $413 million annual sales run rate, it has quietly become one of the larger analog franchises in the industry. We are continuing to develop and introduce a wide range of innovative and proprietary new products to fuel the future growth of our analog business. Our memory business, which is comprised of our Serial E2PROM memory products, as well as our SuperFlash Memory products, was up 3.7% sequentially. We continue to run our memory business in a disciplined fashion that maintains consistently high profitability, enables our licensing business and serves our microcontroller customers to complete their solutions. Our memory business was down to 7.3% of Microchip's overall revenue in the June quarter. With that, let me now pass it to Steve for some general comments, as well as our guidance going forward. Steve?

Thank you, Ganesh, and good afternoon, everyone. Today, I would like to reflect on the results of the fiscal first quarter of 2014, then I will provide guidance for the fiscal second quarter of 2014. We were very pleased with our execution in the June quarter. In early June, we raised our guidance from what we had provided in our earnings conference call in May. Our actual net sales exceeded even the higher end of our revised guidance. The gross margin percentage was 163 basis points better than March quarter and exceeded the high end of our revised guidance by 78 basis points, as we increased factory output to meet the increased sales. Our operating profit percentage once again exceeded 30%, and we are making good progress towards our long-term goal of 32.5% operating profit. Non-GAAP earnings per share also exceeded the high end of our revised guidance and meet our original guidance by $0.05 per share. We made several new all-time records in the quarter. Our total net sales, microcontroller net sales and analog net sales all achieved new records. Individually, 16-bit microcontrollers and 32-bit microcontrollers also achieved new all-time records. Our 8-bit microcontroller revenue came within 3% of its all-time high, further validating what we have been saying, which is that our 8-bit microcontroller business is very healthy, growing and very profitable. Our 8-bit MCU business is continuing to gain share from competitors, who have either moved away from 8-bit or otherwise are uncompetitive and cannot make money in the 8-bit MCU. We are also continuing to gain market share in 16-bit and 32-bit microcontrollers and analog. I want to thank all the employees of Microchip for their contribution in making this an excellent quarter in every respect. Last, but not the least, the March quarter was our 91st consecutive profitable quarter. Regarding SMSC, I would like to comment that for the June quarter, the SMSC division delivered an impressive $0.10 accretion, which was in the high end of our $0.09 to $0.10 range that we have provided. The accretion was up from $0.085 in the March quarter. SMSC's operating profit in the June quarter was about 27% of sales, up from 12% in the last full year prior to the acquisition. SMSC businesses are now very well integrated and intertwined with Microchip, and that breaking out of the numbers is increasingly difficult and not worth the effort. Therefore, this is the last time we will comment on it by saying that we have more than delivered on the promise of SMSC acquisition and there is more to come from the longer-term synergies in manufacturing on the cost side and revenue on the sales side. Near the beginning of the month of June, we completely reversed the rotating time-off in our factories and recalled all employees to full-time work. During last month, we also reversed the pay cut of over 2,500 employees, who had volunteered for a 5% pay cut last November. These employees also received an extra bonus last quarter as a shared reward for their shared sacrifice. This continues to exemplify the strength and uniqueness of our Microchip culture. Now I will provide guidance for the fiscal second quarter of 2014. We have continued to see very strong bookings and expedite requests in our business driven by strong demand in our design win pipeline. The book-to-bill ratio was strongly positive in the June quarter. The starting backlog for September quarter was significantly higher than the starting backlog for the June quarter. However, we continue to have lead time challenges, mainly driven by longer lead time from our foundries. We are getting good visibility from our customers, but many new bookings will still be scheduled to be around the end of this quarter. Taking all these factors into account, we expect Microchip's total net sales in the September quarter to be up between 2% and 6% sequentially. Several investors and analysts have asked to -- what explains significant growth that Microchip business has experienced in the last 2 quarters and going into the current quarter? The answer lies in which sectors Microchip does business. In the last calendar year, smartphones and tablets were very strong, while the other sectors were struggling in a weak economy. This year, the smartphone sector is weak, as evidenced by reports of several semiconductor companies with strong exposure to that market. This year, the strong sectors are housing, industrial and automotive, the 3 sectors that Microchip has very strong exposure to. While we do not break out our business by these sectors, just looking at some sample customers, we see significant strength in customers that sell products for housing, industrial and automotive. We believe that in general, investors and analysts may have overlooked Microchip's outside exposure to these markets. Our internal inventory is now fully corrected, and we are ramping our fabs, as well as back-end facilities, to meet the increased demand. Last quarter, our finished goods inventory went down significantly, as we shipped products into strong demand. Our facilities have now switched from lowering finished goods inventory to rebuilding finished goods stock to reduce lead times and meet the increased demand of our customers. On a non-GAAP basis, we expect our gross margin to be between 58.1% to 58.7% of sales. We expect operating expenses to be between 27% and 27.5% of sales. We expect operating profit to be between 30.6% to 31.7% of sales. And we expect non-GAAP earnings per share to be between $0.58 and $0.62 per share. Our long-term model for the combined company remains a gross margin of about 60%, plus/minus 0.5%, operating expenses of about 27.5%, plus or minus 0.5%, and operating profit of about 32.5%, plus or minus, 0.5%. All of these numbers are non-GAAP. This long-term model will continue to be a premium model in the semiconductor industry. This, together with one of the highest dividends in the semiconductor industry, will continue to generate excellent shareholder value. Given all the complications of accounting for the acquisitions, including amortization of intangibles, restructuring charges and inventory write-up on acquisitions, Microchip will continue to provide guidance and track its results on a non-GAAP basis. We believe that non-GAAP results provide more meaningful comparison to prior quarters, and we expect that the analysts continue to report their non-GAAP estimates to press corp. With this, Angela, will you please poll for questions?

[Operator Instructions] And we will go first to Christopher Caso with Susquehanna Financial Group. Christopher Caso - Susquehanna Financial Group, LLLP, Research Division: I guess with -- I'll start with a high-level question, and I understand your comments with regard to some of the strengths in some of the broader segments, such as housing, industrial and automotive. As you talk to your customers and your distributors, perhaps, you could tell us what gives you confidence that the orders that you're seeing do, in fact, reflect real demand, and perhaps, you could talk little bit about the inventory levels to the extent you have visibility into your customers.

Well, our expedite activity is very high. We're just expediting products on multiple fronts, in multiple markets for customers in multiple geographies and multiple sectors. The -- there is really very little inventory at the end customer. While distributor inventory is lower compared to any historic norms. It was up 2 days last quarter, but still on the very low end of, really, the historical norms. So that's really what gives us confidence that the orders are real. We're not getting any net pushout activity or anything like that. There are always moving parts and somebody scheduled a few parts out, somebody else pulls it in. But the net-net debt demand continues to be very strong. The backlog is very healthy. And we are actually struggling to meet all of the demand we have in the current quarter. Christopher Caso - Susquehanna Financial Group, LLLP, Research Division: Okay. As a follow-up to that, obviously, you mentioned you're increasing production now in response to the order rates that you have in the inventory levels. Could you remind us the impact that the increased production would have on your gross margins? What sort of improvement can we expect going over the next couple of quarters? And as you talk about the 60% long-term gross margin target, is that tied to a particular revenue number? And if so, would you care to share that with us?

So it is tied to a particular number, but we cannot share that. There is internal modeling on it. But if you look at it at the bottom of this cycle -- do you recall what our gross margin was? I think it was 55-point-something, yes?

Yes, I think that's right.

Something in that area. So the gross margin has continued to come up every quarter. Going into this quarter, at the last conference call, our guidance for the gross margin for the current quarter was 57%. And we delivered 58.04% or something. Actually, I just got the number. The gross margin at the bottom of this cycle was 56%. So I could see that we have come up substantially. And it's come with higher utilization, recalling all the employees back for -- back to a fab-sorting production, and we're currently increasing wafer starts further. So the impact of the gross margin is very positive. We're guiding another increase in gross margin this quarter from 58% last quarter to a mid-point of about 58.4%. And depending on how the quarter goes, I guess further strengthen it, there can be upside to that. And gross margin will continue to increase. Our long-term target is 60%, and there's another 200 basis points to go.

And we will now go to Jim Schneider with Goldman Sachs. James Schneider - Goldman Sachs Group Inc., Research Division: I was wondering if you could address some of the longer-dated backlog you referred to in your opening commentary, say, some of it was out past the end of September quarter. Can you maybe give us some context how much of the bookings are scheduled past the end of the quarter or this quarter versus last quarter to the quarter before?

Well, the bookings have been strong now for a couple of quarters. I think this is a repeat comment that we made last quarter also. So from that standpoint, there is not really a substantial change in that. I think what's more important is how much of the backlog customers are requesting in a current quarter, but we're giving them few days out. We're getting significant visibility. So there's a fair amount of backlog into next quarter already. But that is a request in the next quarter, we're delivering in the next quarter. That business is normal. The problem is where certain portion of the backlog, customers will take it in September, and we are just scheduled out a week or 2 weeks out. We're struggling hard to pull it in, and we'll be successful in some and not in some other. James Schneider - Goldman Sachs Group Inc., Research Division: That's helpful color. And then as a follow-on, could you maybe talk about how much your internal factory utilization has increased over the past several quarters from, say, trough to the current levels? In other words, maybe if you can express it in points, that'll be helpful.

We don't like to give that numerically. But with the rotating time-off, we have taken the production down significantly. And a lot of that has come back, and we have increased production even beyond that to really meet the current demand and we'll continue to increase it. But neither I have the numerical numbers in front of me nor do we like to share that.

Yes, and it's a mix between our wafer fab and our assembly and test. And assembly and test is cranking out a lot of product today and this is what we utilize.

Yes, so there are 2 other factors. One is assembly and test, which we have been ramping it all last quarter in the fall because a lot of the inventory we had built during slow time was being held up at the high level. So if the demand came back, we can immediately crank up the back end to start to produce more output. The fab cycle time takes longer to improve the output. So that's one factor. The second factor is, as we mentioned in the last conference call, 40% of our dye production now comes from outside foundries, where we do not produce them internally. And there, we are dealing with foundry lead times and queue times and others. And I don't really have -- under our full control were we can expedite around fab.

And we will now go to John Pitzer with Crédit Suisse. John W. Pitzer - Crédit Suisse AG, Research Division: Just to follow up on the gross margin line. Steve, given that you guys started to re-ramp, it sounds more aggressively, at beginning June. I would have thought that you would have gotten a better utilization at maybe in the September quarter, not that the absolute number is a bad number at all. I'm just kind of curious. When you look at the revenue mix in the September quarter, is more of it coming from the 40% that's now outsourced and that's why you're not getting the leverage, or can you help me understand the incremental gross margins in September versus June which were very strong?

Well, we started improving output in -- probably, in the middle of the quarter and we recalled the people a little bit later as the line got filled up. So we got more than probably just a month. Secondly, we got a very large increase. The attrition out of the back end, which we were expediting the entire quarter because the dye was healthy. So this quarter, we don't really get as much incremental out of the back end. Because the back end, we had to fill last time. And you add a little bit more of the fab. So when you average it, I mean that's sort of the result we get. John W. Pitzer - Crédit Suisse AG, Research Division: That's helpful. And then, Steve, on the top line. When you look at the strength, both in June and September, if you -- how much of that do you attribute to just the inventory level being a lot leaner than a lot of us recognize versus, perhaps, Microchip gaining share versus, I guess even the third bucket is maybe some revenue synergies that you're starting to get with the SMSC acquisition?

Well, there are several questions in there, a bunch of moving parts. But I don't really think customers, end customers, usually hold a lot of inventory these days. The inventory really gets all pushed down to ODMs and distributors and eventually, the semiconductor manufacturer. But the end customer inventory was just totally dry up in a slow time because, probably, the lead times are very short. So as of the demand strengthened, the first step we see is the significant increase in the expedite activity and we rush to provide a product to them. And then it's not whole, and it catches on and the customer set can give you longer-term orders because they see lead times going long. So we don't you see as much change in the end customer inventory that they're holding. It's mostly the pipeline that we have. We're getting much better visibility today than we got it in January. John W. Pitzer - Crédit Suisse AG, Research Division: Steve, relative to perhaps Microchip gaining share and/or revenue synergies with the recent acquisition?

So share gains are obvious. You could just kind of do the math. We grew, I think, 3.4% in the March quarter. Add the current quarter growth to that, you're dealing with over 10% growth in just the first 2 quarters and add the one we're guiding to for the September. So from December quarter to September quarter, you will see growth somewhere in the 14%-plus range, cumulatively more than that. So that's a significant growth. Obviously, the markets and economy are not growing that strong. So somehow, a lot of that is growth. A lot of that is new products. A lot of them are exposure to stronger segments and a combination of all those. And there is some part of that, which is the third comment you made, getting some revenue accretion from SMSC. Yes, we've gotten some of that, but that's longer-term. Much of that is still on the design win stage, and we will continue to comment in the year, this year, next year and the year after. But some of it is there.

And we will now go to Harsh Kumar with Stephens. Harsh N. Kumar - Stephens Inc., Research Division: Steve, I have a couple of questions. Microchip always does very well when coming off of periods in bad markets. You guys always end up taking a bunch of share. This happened in '09. It's happening again. I'm curious what drives that? It's got to be just more than just having a strong balance sheet relative to your competitors. I'm wondering if you could give us some color on that.

During the down cycles, we continued to stay invested in our product roadmaps. We continued to stay invested in our customers and the support that they need to design in with our products and we continued to work on our internal operational efficiencies. And that's what the shared sacrifice approach takes, is we -- keeps our people intact, keeps our systems intact, we get the expense reductions we need, positions us for strength as we come out of these. That's exactly what happened in the '09, '10 time frame and exactly what we're doing here between 2012 and 2013. And in all of that, we're able to outperform people with the investments we've made, as well as with the operational improvements we've made. Harsh N. Kumar - Stephens Inc., Research Division: And then second question, as a follow-up. Steve, I think you touched upon this a little bit earlier. Gross margin of, call it, 58% and change, a long-term goal of 60%. What's the biggest factor in getting there?

The biggest factor in getting there is really getting the production higher. We are not at the peak production from a factory as yet. When we had higher gross margins at -- the peak production from our factory goes higher, more of the product is now running in the outside foundries for various different reasons. We're ramping production inside, but we're not at the peak production yet. So I think that's the biggest factor. And then there are a lot of the second and third effects, a whole bunch of SMSC, probe, assembly and test is driving the Microchip factories, which will continue to have accretive effect in the coming year. There is cost reduction, some conversion to new technologies. But those are a bunch of moving parts that happen in our business all the time. And I think the 2 different changes that are not always normal is number one, getting back to a higher production, and number two, completing some of the longer-term accretion items in the SMSC acquisition. SMSC integration is complete. It's running as one company that's fully intertwined. But some of the longer-term items are transferring some of their assembly and test, pro production to inside longer-term items, which are continuing.

And we will now go to Christopher Danely with JPMorgan. Christopher B. Danely - JP Morgan Chase & Co, Research Division: Can you just give us a little more color on the lead time situations? I guess, what percentage of product is seeing the increased lead times? What are normal, where have they gone to now and when -- or what it depends on, do you think they'll get their lead times back to normal value?

There's no such thing as a fixed lead time. It's a pretty broad range. There are products in which the lead times are small as 3, 4 weeks or available off-the-shelf in some cases, and others where lead times are going to be north of 12 to 16 weeks, in that range. It's a function of what source they come from, what the inventory position on them is, what the demand picture looks like. We have so many line items that are spread across, that there's not a single lead time thing. We're continuously working on the improvement of the supply to meet our customers' requirements and bring the lead times in. And that's an ongoing challenge. Obviously, for some of it that's inside Microchip, it's an easier approach. We have more control on being able to affect change. For some of the things that are outside, we work with the foundries and do the normal things that people who use outside our fabs do to try and get our fair share.

I could give you 2 extremes. The shortest lead time is a product we can build in our fabs and we can fully assemble and test it in our factory and ship it. And on a product where there are thousands of customers, hundreds and thousands of customers, a very broad, high-volume product with just lots and lots of customers buying it. Because on that product, we can build it inside plus we can build inventory because it has a broad usage. That will have the shortest lead time and most likely on the shelf. You go to the other extreme, and you take a product that runs at a foundry, gets probe, assembled and tested outside, hasn't been brought it yet either as SMSC product or could be one of our product that runs outside. And if you add on the top of that, especially a product that has a very narrow customer base, 1 or 2 customers buy it, and it doesn't really have a broad-based usage in consumer, industrial communication, PC, a lot of Microchip products, then we cannot build a lot of inventory because the inventory can go obsolete. And some of that product is largely distant -- built on specific customer demand, either on order or understanding with the customers. So that will have the longest lead time. Those 2 are the extremes. And you have -- and that extreme could be 18 weeks. The lowest that is built inside is off-the-shelf. And then, there are products all over the place. That are maybe fab-ed inside, tested outside or fab outside, tested inside, small customer base, large customer base, all over the place. We sell over 100,000 SKUs. Christopher B. Danely - JP Morgan Chase & Co, Research Division: And then another, I guess, my follow-up question, is just on cash and cash management. So as you guys have talked about and as you're demonstrating, is that some of the best margins and some of the highest dividend yields in your space. Is it -- probably, you have your cash and growth continues to outpace dividend growth? And you also have a little bit of share count creep over the last several quarters. So I'm just wondering, do you think about having some sort of regular token buyback? Or do you think about maybe increasing the dividend a little more? And then if you could also address why you increased the revolver to, I mean to $2 billion up from $750 million?

Okay. So from a cash basis, obviously, we've been very committed to the dividend program, and that's where our priority is over any share buyback. It's pretty clear in our public documents and how we talk to investors that we have a lot more cash offshore than we have onshore. So we want to be selective on how we use that cash and returning it to shareholders through the dividend program. And so stock buyback is not something that we are considering any time in the near future. We would consider it if the market did something crazy with the stock, that will be something and we have to revisit with the board. So that's primarily where we're focused on. The facility that was put in place in late June with the new revolver. It's essentially an expansion of what we had before. We had a $750 million line of credit before. We've expanded that up to $2 billion. We were borrowing roughly $600 million on that revolver at the end of the quarter, $610 million. And that is essentially dry powder for us for any expansion requirements that we see in U.S. through acquisition or any other strategic mean.

Can you get also the question on share creep?

Share creep. So yes, the share creep is driven by just ongoing equity programs that we have. But the largest factor there is the convertible debt that we have outstanding and the dilution that comes with that with additional shares outstanding as the stock price increases. And so the stock prices out, obviously, gone up over the last quarter. And what we factored into our guidance here is about $40 average stock price, not knowing where else to peg that for the September quarter.

[Operator Instructions] And we will go next to Sumit Dhanda with ISI. Sumit Dhanda - ISI Group Inc., Research Division: Yes, a couple of questions, guys. On -- mainly on geographic trends. First one on that, Steve, have you seen anything that suggests that the time of business, especially from a white goods or appliance perspective, are you seeing any slowdown or pertubation[ph], given all the concerns on the economy there? And then, as you look into the September quarter, are there particular geographies you expect to outperform versus the others? Or is it mainly a seasonal pattern as it relates to the individual geographies?

Well, our China business is very strong. And at the first blush would not jive with the substitute reading. We read the reports on both sides. And things are good and things are slowing down in China, but our results don't speak for that. So either it could be a significant market share gain. It could also be the segments we are in, sectors we are serving. And it could also be that the China market is on the lower end of the bit scale. There isn't as much to apply that 32-bit over there. There's a lot of 8 and 16-bit market. And our product lines are very, very healthy. We're gaining a lot of share in 8 and, 16, we got nearly 1,000 products in those segments. And as other competitors may have miscalculated that transition and have maybe consolidated all their resources on 32-bit and very much supported by analysts' viewpoint, I must say, probably didn't serve them well. Sumit Dhanda - ISI Group Inc., Research Division: Got you. And then in terms of the outlook into the September quarter, is there something you expect from a geographic perspective that's different from outside the norm of seasonality?

No, this is a -- September quarter is usually a weak quarter in Europe. And the normal quarter in U.S. and Asia, and we won't expect anything different. All the sentiment from Europe is that Europe is on demand. I mean Europe was in recession. The business in the [indiscernible] countries is very, very small, especially for our kind of products. Germany is very, very strong and the sentiment is very good in Germany and the reports that we are getting and the activity we are seeing in Europe. Europe is on the mend. In fact, Europe would have a seasonally stronger summer than they historically have relative to the June quarter. Sumit Dhanda - ISI Group Inc., Research Division: Okay. And then just one more question, Steve. You mentioned that bringing some of the back end operations for SMSC announced will help the gross margins. Is that fully comprehended in your 60% target? Or do think that could be a source of additional upside to the long-term target?

That, I choose not to be granular about. There are lots of moving parts in trying to get there. And I want to leave some room there. So I don't really know. Like we have an internal model, but I don't want to share the total parameters of that model.

And we will now go to Terence Whalen with Citi. Terence R. Whalen - Citigroup Inc, Research Division: Steve, I think you referred to there being some sort of longer-term areas of integration of SMSC that had not yet been realized. With accretion being $0.10 a quarter and the fiscal year target being, I think, $0.40 to $0.45. I want to understand if this longer-term accretion opportunities were factored into that $0.40 to $0.45 accretion for the fiscal year or if you're talking about some opportunities with levels beyond that?

So some of that is factored into going from $0.10 where we are at, to trying to get to the $0.40 to $0.45 for the year. But especially the sales part of the synergies are beyond that. So we're getting a lot of new designs into automotive and audio and the computing segment with Microchip products next to SMSC products and set top boxes and USB and Ethernet and LAN and other places. And a lot of those are 1 year, 1.5-year design cycles. So that's not all going to be in here this year. Some yes, some not. You're seeing stronger growth, and that stronger growth and market share gains are driven by a lot of our core growth, but are also getting some help from having a broader platform where products can sit next to each other. That will continue for several years. The manufacturing piece that brings accretion, we will not be completed with all the manufacturing transfers inside Microchip by the end of this year, either. Some of that will go into fiscal year 2015. Terence R. Whalen - Citigroup Inc, Research Division: Okay, very helpful. My follow-up question is regarding projected utilization. Specifically, if under a scenario, that revenue, let's say, were flat in a seasonably softer December quarter, would that warrant you taking utilization up further in the December quarter from your planned September levels?

If December quarter is seasonally flat to September quarter, then we, probably would ramp the fab a little bit on some specific leading-edge technologies where the demand is very strong. And those technologies are more complex so they require more steps, but they will not be a meaningful change if the underlying business was flat.

Right. We're projecting inventory to be relatively flat in the current quarter. It's within our model. So I agree with that. Terence R. Whalen - Citigroup Inc, Research Division: Okay. Maybe I can ask the question a different way. What's the ramification of now having a higher outsourced model? Are you going to experience lower utilization declines in seasonally weaker periods or is this not going to be necessarily used on a small quarter-to-quarter basis, just in larger cyclical correction?

Well, so having 40% of our business at foundries, what it gives us, I believe, is if 100% of the business came from inside, when the downturn comes, we have to absorb it all inside, cut production and have a deeper impact. When 40% of the business comes from foundries, it's easier to cut production in foundries without having a negative impact on it because of foundries are observing the utilization essentially. So actually, the model gets better slightly. It has some other negative ramifications. You have less than control and longer lead times and all that. But in a slow time, it helps you to correct the inventory much more rapidly.

And we will now go to Kevin Cassidy with Stifel. Dean Grumlose - Stifel, Nicolaus & Co., Inc., Research Division: This is Dean Grumlose calling in for Kevin. In the 32-bit controller market, there appears to be a wider variety of architectures and approaches, like multi-core processors and more complex schemes. Could you provide your view on the extent to which 32-bit market may be different? Or do you think these type of complex schemes really are not relevant in that space?

32-bit market is a large market. There are lots of opportunities for Microchip as we push into a broader range of 32-bit products. I don't want to comment on any specific architectural or other improvements we are heading towards. But clearly, we're aware and paying attention to the customers and markets that we either serve or plan to serve, and have a roadmap consistent with being able to push the different parameters, performance, features, costs and otherwise, in the 32-bit market. Dean Grumlose - Stifel, Nicolaus & Co., Inc., Research Division: As a follow-up on a different tactic, can you please provide us with an update on your onshore, offshore cash position?

Sure. So our onshore cash is somewhere between $50 million and $100 million. We obviously have our credit facility that we can tap into and it -- the less of the credit facility that we're using in the U.S., the lower our costs are. So we manage that as well as we can. But the vast majority of our cash is offshore. That's driven by the acquisitions that we've done that have been U.S.-sourced, taking up U.S. cash, and 80% of our business being offshore. So we've got a lot of the profits that earned offshore.

And we'll take our next question from Ray Rund with Shaker Investments. Raymond Joseph Rund - Shaker Investments, L.L.C.: I was wondering, as you've mentioned, you've already got 40% of your business in foundries. And as you evolve towards more complex products, such as the 32-bit as that becomes a greater percentage of your run rate, have you given any thought to your process technology roadmap there? Are you considering increasing your capabilities so you might be able to maintain your foundry reliance at 40%? Or do you see this going up over time?

Well, the reliance on the foundries has largely been driven by acquisition. The internal shift has been a smaller and slower portion of it because while in some advanced technologies and 32-bit and others, we have gone out, but we've also advanced the state of the technology inside, where some of the products that we're built outside several years ago are now built inside. So we have more ability to keep picking from it and keep that mix more reasonably stable. What has driven this number is really adding $400 million type of business at SMSC, which is all driven outside. And prior to that, the SST acquisition, where 100% of business was outside, plus some of the small transactions we have done, roaming networks in the networking area and other number of small transaction we have done in the last few years. That has been the primary reason why they're outside. When you don't have your own fab, you have the tendency to just go down and move slow and find the smallest technology you can find. And sometimes, it's not the best technology, but that's what fabless companies tend to do.

And it appears, there are no further questions at this time. Mr. Sanghi, I would like to turn the conference back to you for any additional or closing remarks.

Okay. We want to thank everyone for attending this conference call. Microchip management and myself and Eric Bjornholt will be at Citibank conference in early September.

Yes, also be at the Jefferies conference in August.

Jefferies conference in August. So we'll see some of you at those conferences. Thank you. Bye-bye.

Ladies and gentlemen, this concludes today's conference. We thank you for your participation.