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 Terence R. Whalen - Citigroup Inc, Research Division Shaon Baqui - JP Morgan Chase & Co, Research Division Gilbert Alexandre Dean Grumlose - Stifel, Nicolaus & Co., Inc., Research Division Richard Sewell - Stephens Inc., Research Division

Good day, everyone, and welcome to this Microchip Technology Second Quarter Fiscal Year 2014 Earnings Results [Technical Difficulty]

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 September quarter were a record $492.7 million, and were up 6.5% sequentially from net sales of $462.8 million in the immediately preceding quarter. Revenue by product line was $321 million for microcontrollers, $108.5 million for analog, $35 million for memory, $24.8 million for licensing and $3.4 million of other. Revenue by geography was $95.2 million in the Americas, $98.9 million in Europe and $298.6 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 the contract manufacturing takes place. On a non-GAAP basis, gross margins were 59% in the September quarter and above the high end of our guidance of 58.7%. Non-GAAP operating expenses were 27.2% of sales. Non-GAAP operating income was 31.8% of sales. And net income was a record $136.4 million. This resulted in record earnings of $0.63 per diluted share, which was $0.03 above the midpoint of our guidance. On a GAAP basis, gross margins, including share-based compensation and acquisition-related expenses, were 58.6% in the September quarter. GAAP gross margins included the impact of $1.9 million of share-based compensation. Total operating expenses were $171.4 million or 34.8% of sales and include acquisition, intangible amortization of $23.7 million and also include share-based compensation of $13.1 million. The GAAP net income of $99.8 million or $0.46 per diluted share was a result in the quarter. In the September quarter, the non-GAAP tax rate was 10.6% and the GAAP tax rate was 10.3%. The GAAP tax rate in the September quarter was favorably impacted by $2 million of nonrecurring items. 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 onetime events, we expect our longer-term forward-looking non-GAAP effective tax rate to be about 10.5% to an 11.5%. To summarize the after-tax impact that the non-GAAP adjustments had on Microchip's earnings per share on the September quarter, acquisition-related items were about $0.11, share-based compensation was about $0.062, nonrecurring tax events were about $0.009 and noncash interest expense was about $0.006. Share-based compensation was higher in the September quarter and will also be at a higher level than normal on the December quarter due to the vesting of performance-based awards to employees that had been on a voluntary pay reduction program from late Q3 fiscal 2013 through Q1 fiscal 2014. This performance award vests on November 15, 2013 due to Microchip's achievements of record non-GAAP earnings per share on the September quarter. We believe this pay sacrifice allowed us to remain committed to our strategic programs by avoiding a layoff and helped us deliver the outstanding results you are seeing now. Share-based compensation is expected to impact earnings by about $0.058 in the December quarter and then reduced to about $0.051 in the March quarter. The dividend declared today of $0.3545 per share will be paid on December 5, 2013 to shareholders of record on November 21, 2013. The cash payment associated with this dividend will be approximately $70.4 million. This quarter's dividend will be our 45th consecutive quarter of making a dividend payment. We have never made reductions in our dividend. And in fact, this quarter's increase marks the 39th occasion we have increased the dividend payment. And our cumulative dividends paid is almost $2.1 billion. This program continues to be an important component of how we return value to our shareholders. Moving on to the balance sheet. Consolidated inventory at December 30, 2013, was $275.1 million or 123 days. We expect days of inventory at the end of the December quarter to be flat to up about 8 days based on our revenue guidance range. Inventory at our distributors increased by 1 day during the September quarter to 33 days and remain at 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 September 30, the consolidated accounts receivable balance decreased slightly on a sequential basis to $230.5 million. Receivables remain in great condition, with excellent payment performance continuing from our customers. We had strong free cash flow generation in the September quarter of $126.4 million prior to our dividend payment. As of September 30, the consolidated cash and total investment position was approximately $1.98 billion. And we had $640 million in borrowings under 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 December quarter. Capital spending was approximately $27.4 million for the September quarter. We expect about $35 million in capital spending in the December quarter and overall capital expenditures for the fiscal year 2014 to be about $115 million, as we are adding capital to support the growth of the business and to bring in-house some of the assembly and test operations that were outsourced by SMSC. Depreciation expense in the September quarter was $23 million. One question we have received from investors is whether we are concerned about the level of the short interest in our stock. In summary, we are not. And we wanted to pass along our assessment of the situation. As you know, Microchip has had a convertible bond outstanding since December 2007. The bonds are convertible into 43.4 million shares, which is about 22% of our outstanding common shares. According to public sources, the aggregate short interest position in our shares jumped from approximately 5 million shares to approximately 25 million shares when we issued the convertible. And that number is roughly 20 million shares today. This level was neither surprising nor troubling to us because the significant portion of the convertible bond market consistent of arbitrage funds. The general strategy of these funds is the whole convertible debt would create an economic-long stock exposure, and then hedge this exposure with a short position in the common shares. It is worth noting that this hedging objective is very different from the strategy of activist or directional short-sellers. In any event, the size of the short position arising from a convertible will correspond to the level of equity exposure in the bonds and the percentage of the bonds being held by arbitrage funds. We know that a sizable amount of our convertible is held by arbitrage funds. And we believe that their activity represents the majority of the overall short interest, which has generally remained in the 15 million to 25 million shares range since 2007. Other companies that have similar convertible bonds outstanding also have high levels of short interest in their stocks. I will now ask Ganesh to give his comments on the performance of the business in the September quarter. Ganesh?

Thank you, Eric, and good afternoon, everyone. The September quarter was one for the ages with strong growth in each of our product lines and new records in most of them. Let's take a closer look at the performance of each of our product line starting with microcontrollers. Our overall microcontroller revenue grew a strong 6.9% sequentially in the September quarter to achieve an all-time record of $321 million in revenue. Microcontroller revenue was also up 22.9% versus the year-ago quarter. As we projected in our July conference call, our 8-bit microcontrollers did set a new record in the September quarter, as did our 16-bit and 32-bit microcontroller businesses. Microcontrollers represented 65.2% of Microchip's overall revenue in the September quarter. Sometime in the month of November, we expect to ship our 13th billion cumulative microcontroller, a milestone that will occur just 7 months after we ship our 12th billion microcontroller back in April of this year. Our 16-bit microcontroller business was up 10.9% sequentially in the September quarter, achieving a new record for revenue. 16-bit microcontroller revenue was also up 48.1% over the year-ago quarter. We continue to expand the breadth of innovative 16-bit solutions that we're offering, the number of customers that we are serving and new applications that we're winning as we continue to gain market share in this segment. Our 32-bit microcontroller business was up 24% sequentially in the September quarter, registering another strong quarter of growth to also set a new record for revenue. 32-bit microcontroller revenue was also up 53.4% over the year-ago quarter. We are continuing to expand our new product portfolio. And next month, we plan to announce a number of blockbuster solutions that will further enrich our 32-bit microcontroller platform offering. In the meanwhile, we are continuing to win new designs. And we're expanding into new applications to enable further growth in revenue and market share. Our overall microcontroller results, as well as each of our 8-bit, 16-bit and 32-bit results are clearly outperforming the market. The sequential and year-over-year growth rate's well above the market and what we have seen reported by our competitors in their results. We're gaining significant market share and have the new product momentum and customer engagement to continue to gain even more share as we further build the best-performing microcontroller franchise in the industry. Now moving to our analog business. This business grew 5.1% sequentially in the September quarter, the 8th consecutive quarter of sequential growth to also achieve a new record. And it continues to perform exceptionally well. Analog revenue was also up 25.2% from the year-ago quarter. Analog revenue now represents 22% of Microchip's overall revenue in the September quarter. And at close to $434 million annual sales run rate, it remains one of the best-performing 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. Moving to our memory business. Our memory business, which is comprised of our Serial E-squared memory products, as well as our SuperFlash Memory products was up 2.9%. 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 represented 7.1% of Microchip's overall revenue in the September quarter. Now let me pass it to Steve for some general comments, as well as our guidance going forward. Steve?

Thank you, Ganesh, and good afternoon, everyone. Today, I would first like to reflect on the results of the fiscal second quarter of 2014, then I will provide guidance for the fiscal third quarter of 2014. I will also provide guidance for our long-term model, which we are revising upwards. We are very pleased with our execution in the September quarter. Our actual net sale exceeded the high end of our guidance. The 59% gross margin we achieved was 100 basis points better than June quarter and exceeded the high end of our guidance, as we increased factory output to meet the increased sales results. Our operating profit percentage reached 31.8%. And we are making excellent progress towards what our long-term goal of 32% operating profit was, which we will derive higher later in this call. Non-GAAP earnings per share also exceeded the high end of our guidance and beat our guidance by $0.03 per share. We made several new all-time records in the quarter. Our total net sales, microcontroller net sales, analog net sales and our licensing business all achieved new records. Individually, 8-bit microcontrollers, 16-bit microcontrollers and 32-bit microcontrollers all achieved new all-time records. Our record 8-bit microcontroller revenue further validates what we have been communicating to investors and analysts, which is that our 8-bit MCU business is very healthy, growing and very profitable. Our 8-bit MCU business is continuing to gain share from competitors could have either moved away from 8-bit or are otherwise uncompetitive and cannot make money in the 8-bit market. We're also continuing to gain market share in the 16-bit MCU, 32-bit MCU and analog. We mentioned on our last conference call that Microchip has an outsized exposure to housing, industrial and automotive sectors. These has been some of the strong sectors of the economy this year. While we do not break out our business by these sectors, just looking at some sample customers, we saw significant strength in customers that sell products for housing, industrial and automotive. Last but not the least, the September quarter was our 92nd consecutive profitable quarter, which is 23 years of making profit every quarter. I want to thank all the employees of Microchip for their contribution in making this an outstanding quarter in every respect. I also wanted to compare our results of September quarter versus the year-ago September quarter. September quarter of this year was up 20.8% over the September quarter last year. Last year, September quarter had 2 months of SMSC net. If we add the third month of SMSC and then compare the September quarter of this year was up 11.5% over September quarter last year. This was the best performance among our peers and competitors, and many of whom were flat-to-down in September quarter over the year-ago September. Our outstanding results were also recognized by Selling Power magazine who recently named Microchip to its annual 50 Best Companies to Sell For, for 2013. Microchip ranked 19th, and is the only semiconductor company on that list. Now I will provide guidance for the fiscal third quarter of 2014. The December quarter is our seasonally weakest quarter of the year. The December quarter in 2010 and 2011 averaged a sequential decline of 3.5%. Last year was impacted positively by an additional month of revenue from the SMSC acquisition. We're expecting the December quarter this year to be seasonally normal and are guiding for net sales to be flat to down 6% sequentially. On a non-GAAP basis, we expect our gross margin to be between 58.8% and 59.2% of sales. We expect operating expenses to be between 27% and 27.5% of sales. We expect operating profit to be between 31.3% and 32.2% of sales. And we expect non-GAAP earnings per share to be between $0.57 and $0.63 per share. As I said earlier in the call, we are revising our long-term model upwards. You may recall that after the acquisition of SMSC, we revised our long-term model downwards. This was driven by the lower gross margin, higher operating expenses and lower operating profit of the SMSC business. We are revising the business model upwards due to 3 reasons. Number one, our microcontroller and analog business has outperformed very well. With improving factor utilization, our margins on microcontrollers and analog have recovered very nicely. We believe that we have further upside as the factory utilization continues to approach the old record and eventually exceed it. Number two, while we have countered on significant improvement in the SMSC operating model, we have substantially exceeded our own internal goals. SMSC operating model is now approaching the traditional Microchip model. The longer-term synergy actions are also now starting to bear fruit. As one example, I just returned from our Asia-wide distribution conference. The opportunities that our sales and distribution network have identified on SMSC products is truly impressive. As these opportunities move down the sales process and get to the order stage, we will see a substantial growth and a profitability model will continue to improve. And number three, our licensing business just achieved an all-time record and is at nearly $100 million run rate. At 100% gross margin, its net effect on gross and operating margin is very accretive. Based on these 3 factors, we are revising our long-term model for Microchip upwards. We are revising the midpoint of gross margin to be 150 basis points higher. We're revising the midpoint of operating expenses to be 100 basis points lower. And we are revising the midpoint of the operating profit to be 250 basis points higher. We now expect the long-term gross margin to be 61.5% plus or minus 0.5%. We now expect long-term operating expenses of about 26.5%, plus or minus 0.5%. And we now expect operating profit of about 35%, plus or minus 1%. All of these numbers are non-GAAP. This takes our long-term operating model back to what it was prior to the SMSC acquisition. 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 non-GAAP basis. We believe that non-GAAP results provide more meaningful comparison to prior quarters. And we request that the analysts continue to report their non-GAAP estimates to press corp. With this, operator, will you please pull for questions?

[Operator Instructions] And we will go first to Chris Caso of Susquehanna. Christopher Caso - Susquehanna Financial Group, LLLP, Research Division: Just taking into the consideration the revised margin targets, what should we expect with respect to the gross margins, operating margins as we go through this cycle? I think that during the last cycle, your gross margins bottomed to 56%. Would you also assume that we -- obviously, we don't know where revenue will trough during the next downturn, but would you expect to see higher troughs for the same reasons that you had mentioned?

Well, it seems like the gist of your question implies the revenue and continues to gross down here and trough somewhere. Our expectation is that December quarter is seasonally very normal. And as you have seen in the past, December quarter is seasonally down, and then the March is seasonally up. We usually grow low single-digits in the March quarter. And our current expectation is that, that will not be really any different. Christopher Caso - Susquehanna Financial Group, LLLP, Research Division: Sure. The nature of my question wasn't really near-term. Obviously, it's a cyclical business. So just as you go through the length of a cycle, really, that was what I was getting at.

Yes. So I'm not seeing a recession in front of us. The recessions come in various forms. There are unit recessions, the demand recessions, inventory revenue recessions, financial crisis. And everything is different depending on what we do with our fabs, what we do with our assembly and test, what actions we take. So it's very, very difficult to guide on something we don't see today on really what our actions would be in response to that recession.

Yes. Maybe just what I would add to that is now that a larger portion of our business is relying on foundry, that has less of the ups and downs in the gross margin area that is not impacted by our own factory utilization. But like Steve said, each cycle is different. Christopher Caso - Susquehanna Financial Group, LLLP, Research Division: Okay. Just a quick follow-up. With regard to the plans to build inventory, could you talk a little bit about the reasons behind that? And I guess perhaps that has some connection to where your lead times are now?

So I'll give you a general opinion on inventory. We don't manage the inventory. We don't manage our factories in a way that we constantly take them up or down to try to manage into a very tight range of inventory. You can go back into our history, we have never done that. The companies who do that are either constantly laying off people and cutting production and then hiring untrained people and definitely trying to grow and making mistakes when the times grow stronger. Our desire to the cycle usually is to run our factories in a much more constant fashion and allows the inventory to fluctuate up or down. Now the very long life cycle of Microchip products, microcontroller, analog and memory products historically has always allowed us to manage it in that fashion, in not taking any large inventory write-offs. You could go back in history, there's no record of Microchip coming into you and saying, we rolled off $100 million of inventory, like some other competitors may have done. So we run the factories much more normally. And we allow the inventory to fluctuate. And as Eric mentioned, in more recent past, we now have 40% of our business coming out of foundries because of significant large acquisitions and others which allows you to really control inventory rapidly by turning the stacks on the outside factories. So when you put it all together, until just 1.5 months ago, we were expediting products and trying to improve production and adding capacity because we -- the midpoint of our guidance for September quarter was 4%. We produced 6.5%. If you manage too tightly on the inventory, you cannot produce that kind of upside in a very short timeframe. And now the December quarter is seasonally down, we expect March quarter to be up. In that kind of environment, we don't really take any actions. So the inventory driven by lower revenue will be higher in December. And we'll decrease some in March. And we'll take those actions over the next 2 or 3 quarters, allow the revenue increase to naturally adjust inventory. Now having said all that, there have been a couple of times in our history, one was after the financial crisis of 2009, and may have been a tech buster. Some of these mega events in the industry will cause the situation where you have to take precipitously some strong actions, otherwise the inventory would go way too high. Other than that, it would be a small one quarter perturbation. We run our business more constantly and not go up and down. Sorry for the long answer.

And we will go next to Jim Schneider of Goldman Sachs. James Schneider - Goldman Sachs Group Inc., Research Division: Steve, I was wondering if you could maybe comment on the overall bookings environment? This time last quarter, you talked about very strong bookings environment. And later in the quarter, you guided to the near to midpoint of the range. And then you ended doing much better than that. So I'm just kind of curious, have the bookings pace moderated at all at this point or do you still expect a fairly strong book to bill and then the December guidance is more of just a little bit more tempered by the normal seasonality?

Well, bookings are still good if I look at the overall long-term backlog. And the bookings that are coming in are still good. But bookings, the large amount of bookings are aging into the next quarter. Some are aging into this quarter, but based on at the rate they're aging and the amount of 9 weeks or so left in the quarter, an introduction to the guidance that we provided. But the overall rate of the bookings are still strong because lots of bookings are coming into the next quarter, which is seasonally stronger quarter for us also. James Schneider - Goldman Sachs Group Inc., Research Division: Understand, that's helpful. And then, I guess, if you think about the upward vision to your gross margin target, how much do you think is being driven by the licensing business versus the mix of products you're expecting to have versus utilization? Any way to put some kind of rough sense on that?

They were really in bad order. The best performance we're getting is really out of our own microcontroller and analog businesses. There was a concern from the street on our 32-bit business. There was a concern on our 8-bit business. There was concern on our 16-bit business. They will get squeezed by 8 and 32. There was the concern on our 8-bit business because everybody else is going away from it. And there was a concern on our 32-bit business because we're not ARM. The 19 covered many years now, we have demonstrated there are 8, 16, 32-bit. All those 3 businesses are -- they're a tremendous win. And they're all growing. And they're all making records. And they're all high margins and so on and so forth. So temporarily, during last year, our gross margin went down because essentially, factory utilization. And it affected significantly our internal businesses, the ones we run inside our fabs because those were the ones mainly impacted by lower utilization. As that utilization has continued to improve, and especially by beating these numbers, last 3 quarters, we have written our revenue guidance. The utilization is getting quite healthy, but there is more to grow. And as we are seeing the utilization improve, our internal margins are back to the historical margins. Either they are where we can project them going forward as the utilization improves a bit more. The second effect is at SMSC. When we purchased SMSC, its full year operating margin in the year prior to our acquisition was only 12%. And until the time we were breaking it out, I think we had told you a quarter or so ago that we had more than doubled that operating profit. We're no longer breaking it out because the numbers are very intertwined. Operating expenses are very hard to figure out, what division they're going into. But based on our own assessments internally, that business now is performing as well as our own business withdrawal. This is how much we have improved then. And some of the long-term accretion is underway and yet to come. Every quarter, as it goes by, a higher and higher portion of their product is running into our factories for assembly and test purposes. And the ultimate accretion really comes from the market players where we are seeing an enormous sales opportunities sometimes developed in selling SMSC products around Microchip's consumer and industrial automotive customer sockets, which our sales and distribution network has identified an enormous opportunity. And some of them, we'll see them in later part of the next year, and some are longer term. But all those, they are very high margin into a Microchip business system. A lot of them will be coming from Microchip's ecosystem in terms of factories and all that, and will be very, very high margins. So that's another thing that's accreting. And the third order of effect is the licensing business.

And we will go next to John Pitzer of Crédit Suisse. John W. Pitzer - Crédit Suisse AG, Research Division: Steve, clearly, one of the core competencies that you guys have proven over the last several years are finding and integrating these acquisitions. I'm kind of curious, relative to the answer to your last question, any way to quantify either through incremental TAM or the kind of incremental growth rates? Do you think these acquisitions have added to the core Microchip business? And I guess more importantly, are you now at a TAM level or expected growth rate level longer-term that you're satisfied with whether you see other opportunities to holding on acquisitions and integration?

Well, it's difficult to put numbers on it, nor are we usually comfortable in putting numbers on it. Because, one, it projects too much. And secondly, it tells everybody else what we're doing, our competitors and others. So in general, I'm always uncomfortable in giving that kind of data. But let me give you one. If you look at our December quarter guidance, despite the December quarter being guided down 3%, our December quarter at that guidance, midpoint of the guidance, will be up 15% from December quarter of last year, 14.9% to be exact. And there's no acquisition in between. The December quarter last year had full SMSC in it. So December quarter last year to December quarter this year at the midpoint of the guidance will be up 14.9%. Who is up 14.9% right now? Most companies are down year-over-year and driving down further in December quarter. So you are seeing the result of internal core strengths in 8, 16, 32 and analog. You've seen this type of acquisitions. You're seeing our ability to take these acquisitions and digest them. And then be able to create more business out of them across our customers and sockets and all that. I don't know whether that answers your question. John W. Pitzer - Crédit Suisse AG, Research Division: That's helpful, Steve. And maybe as a quick follow-on. Historically, you guys have given us sort of revenue detail by product, less so by end market given how much goes to distribution. I'm just kind of curious, as you think about exploiting things like the auto end market vertical, do you -- does the curved distribution model work as well or will you start having operationally more of an end market focus to try to exploit some of these revenue opportunities?

We have always had selected end market focus. We told you that when we acquired SMSC. One of the criticism was that Microchip is a horizontal-focus company and SMSC is a vertical-focus company. And they don't fit. It was a bad acquisition, if you recall. Microchip has always run the automotive business in a vertical market fashion for years, 12 years, 15 years plus. Our automotive business does not go through distribution. We do business with all large automotive companies and their suppliers. And that has always been handled by Microchip's dotted sales force. So SMSC's automotive business fit very, very well along with that. And we have found substantial incremental opportunity on SMSC's automotive sockets around really our business and vice versa. Same as the case, we did business directly with a number of large computing manufacturers which will not go through distribution. And same way, SMSC's business fit very well with that. And we have found sockets around each of those -- sockets and business units. So Microchip has always been a mixture of a broad-based long-tail horizontal company, yet executing only large number of vertical focuses very, very well. We have had a vertical focus on automotive, home appliances, medical, energy, which material is it?

Touch.

Touch.

From an interface test.

I would say a bunch of display driving and all that.

That was automotive infotainment. I mean, it's a pretty broad range.

Automotive infotainment, model control, connectivities. So there are a number of large vertical application kind of areas that we had really managed very well internally, and really have a dual sale structure with centers of expertise in various markets that work together with a horizontal sales force.

So maybe if you're assuming that because the distribution sales are quite large, that those are not customers we target. There's a good portion of distribution revenue that actually has resulted from Microchip creating the demand. But will our customers choose what the best fulfillment channel for them is, and in many cases that's direct, and in some cases, that's distribution. But distribution customers are not left just to distribution to create a demand

And we will take our next question from Craig Hettenbach of Morgan Stanley.

This is [indiscernible]. I'm dialing in for Craig. So microcontrollers have been really strong for the last few quarters. So could you talk more about your 32-bit microcontrollers? Like what applications are they seeing the stronger design traction? And also, could you just compare your 32-bit product introductions this year related to last year?

Ganesh, you want the last part of the question? And how do we compare our new product introductions this year to last year?

Okay. So let me start with the second part of the question. We're -- obviously, we're accelerating data new product introduction. And as I mentioned, you're going to see some blockbuster announcements coming in the month of November. It's an area where we have been continuing to increase investment over the last several years. We're building out portfolio to fill out range of different memory sizes, functionalities, packet sizes, et cetera, et cetera, to build a strong portfolio that can be used in many, many different applications. And you'll see that as we move into 2014. That breadth of products will continue to accelerate. In terms of the applications themselves, they are often in the kinds of applications where our 16-bit microcontrollers are. They are run-of-the-mill applications. They can be in power supplies, in the human interface and motor control and in general. Then you'll find them in coffee machines and cars and broad range of applications, but where that is more needed in terms of either performance, memory, features or otherwise than what our 16-bit portfolio can provide. And so we provide a seamless migration in the way that we have planned our products that customers can go up and down, our microcontroller range of products, in the case of 32-bit most often from our 16-bit products up. And there's nothing earth-shattering about a brand new application that our 32-bit is in that is driving all the design. So it's pretty a broad range of designs, a broad range of applications that we're designed into.

Got it, that's helpful. From a follow-up, like as I said, like SMSC integration is broadly complete. And it's on the same target model now. What is your appetite for additional acquisitions? And what's the biggest holdup currently? Is this pricing, the lack of target? Like what is your plan going forward?

Our appetite is very good, but we don't have a target.

And we're disciplined about how we approach it.

We're disciplined about how we approach it. We have passed on a number of targets that we have looked at for various reasons, the lack of faith, not priced appropriately. Our synergies stick with our business for various other reasons. But if investors and analysts were to give us ideas, we'll be happy to take them. Don't expect feedback on them whether where we are in the process after to give us that idea, but we do not have a target today.

[Operator Instructions] All right, and we will go to our next question. That is Terence Whalen from Citi. Terence R. Whalen - Citigroup Inc, Research Division: My question wanted to focus on licensing, in particular. It sounds like based on the increase in the target profitability model, you're continuing to expect licensing to be a strong portion of that profitability. I just wanted to understand going forward, how we should think about modeling that line, whether that line can continue to grow or whether there are any certain sort of expirations that we have to be aware of in terms of any terms of future cliff in licensing revenue?

The licensing revenue is very broad. We essentially have most foundries in the world of license, lots of larger IDM customers to license. There are many market segments, microcontrollers, SoCs, FPGAs, smartcards and others that run on using our process technologies. So it's a fairly broad-based business. And really, there is no very major lumpiness in it like you shouldn't expect in one quarter, you come in, it goes down 50%, and if you like that because of some expiry. There are lots of different process that we're getting royalties all the way on 0.5, 0.35, 0.25, 0.18, 0.13, 0.11, and 90-nanometer and 55. And so it's really very broad. And it's just a few things will go down in volume while the new ones are going up. So I think -- I don't know whether that answers your question, but you shouldn't be concerned about any major reduction of any kind.

And there are ongoing new licensees that are coming on board. Terence R. Whalen - Citigroup Inc, Research Division: Okay. So steady and stable, it sounds like. The quick follow-up I had was a longer-term technology question. As you sort of evaluate the development of the Internet of Things, I know that's a very broad and loose term. But do you feel like you have the right capabilities? And where do you see the opportunities? Do you have the correct RF Technology, in particular that pair with your controllers?

It's a market we've been in for a while. And there are several ingredient capabilities that are needed to enable customers who want to reach an Internet of Things solutions. So if you look at -- and fundamentally, you need some form of microcontroller in these applications. Often these are applications we're already designed in. And a customer is now looking to extend the capability to connect to the Internet. So let's look at a thermostat as an example. If you take a standard thermostat, we've been in it for 20-plus years with analog functionality, microcontroller functionality. Now customers that have the thermostat who wants to be able to connect to the Internet takes advantage of our wireless capability. In most cases, it will be a Wi-Fi connection that we can enable, and we have enabled using our Wi-Fi modules that we provide. In other cases, it might be a proprietary wireless that then has a way to get back into the Internet. The other big challenge that many customers have is, well, how do they manage the other side of this which is the cloud itself? Some customers are sophisticated and have the ability to manage how they have a setup on the cloud that can receive the data and then be able to do something with it. But we have many customers for whom that is new. And as you saw earlier this week, we announced a partnership with Amazon. Actually, it was last week that we announced to be able be help host these capabilities, and enable people to take advantage of existing solutions, but get on the cloud with their applications. So we believe we have put together with our existing solutions and with partnerships for the cloud, the ingredients that are needed for anybody who has an Internet of Things thought process or application that they want to get into.

And we will take our next question from Christopher Danely with JPMorgan. Shaon Baqui - JP Morgan Chase & Co, Research Division: This is Shaon Baqui calling in for Chris. I just want to get your thoughts real quick on the various GEOs [ph], if you're seeing any particular areas of strength here as we look in the December quarter?

Eric?

So I mean, typically, what we will see in the December quarter is that due to the holidays, we'll see Europe and the Americas have some stress on the business. And Asia typically does okay, but it's not enough to offset the weakness that we see out of Europe and the Americas. So it's really a holiday-driven phenomena, just like we see in the March quarter with Asia being week due to the Chinese New Year. Shaon Baqui - JP Morgan Chase & Co, Research Division: Okay, great. And this is a quick follow-up as we look into the December quarter. Can you give us kind of the puts and takes in your guidance? Are there any segments here that meant to your analog particularly that may be up or down a little bit more than the others?

We don't really break out by segment.

We have 14 product divisions inside Microchip internally, how we manage it. And it's just too many. We bucket them for you in a way to 16 and 32 analog and all that, but it's much broader internally. And some of them have multiple things in one division. So I can't break it down any further.

And we will go next to go Gil Alexandre with Darphil Associates.

Two questions, if I may ask. Could you give us an idea of your factory utilization at this time?

So historically, we have not given a number on factory utilization. The problem is that there's a tendency then to draw a straight line and try to figure out every point of utilization means we're done on gross margin and kind of track and expect that as utilization goes up or down. In what we have seen has historically reached to long conclusions because in one quarter, unfair portion of our growth may come from foundry products. And other time, they come from internally. And not all products have same gross margins, and depending on what you're running in a given quarter. So it's a very complex mix. And we are, in general, not comfortable with trying to tie a given utilization to a given gross margin. Our utilization has not peaked yet compared to where it was before. There is a significant more accretion to go. And we -- many months -- several more quarters as we continue to increase the utilization for the gross margin to continue to really go higher. And then eventually, utilization will go beyond that. But we're not running all the equipment that we have in our factories flat out. This means the utilization still has a way to go.

All right. My second question, on your return from Asia, can you give us any reasonable reading of the Chinese economic growth?

So our China business did enormously well. In fact, that's when we break it out, right, in the queue?

Well, we break out the percentage of the total revenue. And it's approaching 29% of the total now.

If you break it out in percentage, they can figure out the dollars.

Yes.

So where does it grow quarter-over-quarter sequentially?

I do not have that in front of me.

But it was a very, very strong growth. So 6.5% overall growth. The highest growth, I think, was still also double-digit. I recall seeing it. So China did very, very well. The China GDP numbers in the latest report were slightly revised upwards. So despite what you hear in China, China business is very solid.

And we will take our next question from Kevin Cassidy of Stifel, Nicolaus. Dean Grumlose - Stifel, Nicolaus & Co., Inc., Research Division: This is Dean Grumlose calling in for Kevin. I was wondering if you could describe how the 32-bit market may differ from 8 and 16 in terms of perhaps what customers are looking for or the product needs. And as a follow-up, how you would view your progress in this market so far compared to the previous markets?

So, I want you to think of 32-bit as not a separate market. It's one continuum of microcontroller markets for which different products serve the needs of that market. There is a range, performance, memory size and features at which the 32-bit is the right product to be able to use in those applications. Often at the boundary between 16 and 32-bit, you're going to have 16 bits that are in the 32-bit type of applications and vice versa. The -- our own progress here has been outstanding. You can take a look at the last many years over which we have reported our sequential, as well as our year-over-year growth. And it's been significant. Obviously, several years ago, it was growing off of a very small base, but it has continued to grow into a reasonably sized business for us. That product portfolio has expanded in that timeframe. The third available market that we can target has grown with that. And perhaps, the -- in that continuum of 8s, 16s and 32s, the largest change is really the software intensity that is involved in these applications. And so in addition to the silicon level of products, there's a significant software investment that we have to make and being able to enable solutions. And we have done that. And we expect to be doing more of that along with our silicon products in 32-bit in the coming months and years.

And we will take our next question from Harsh Kumar of Stephens. Richard Sewell - Stephens Inc., Research Division: This is Richard in for Harsh. I just wanted to get your sense on seasonality. You talked about the seasonality in the December and March quarter, but have you seen any changes in the June and September quarters with the addition of SMSC?

No. If you -- actually, did not seem to have changed our seasonality. June and September quarters were very strong. March quarter was good. June was excellent. September was excellent. December is seasonally normal. And we're expecting March to be seasonally normal, which would be up in the single-digits. Richard Sewell - Stephens Inc., Research Division: Great. And my follow-on relates to SMSC as well. Have you seen any benefits from the back end integration yet? And if not, when do you expect to see those benefits?

Yes. We have seen benefit from the back -- integration of the back end. There were some in the June quarter, much more in September quarter to be even more in December. So it's really continuing, and also requires capital investment to bring some of the deal. And we're doing it at a controlled pace.

And this does concludes today's question-and-answer session. At this time, I'll turn the call back to our moderators for any additional or closing remarks.

Okay. We want to thank everyone for attending this call. We'll be at some conferences. I believe the next one is...

Well, the next conference will be at the Credit Suisse Conference in Phoenix. We'll also be at the NASDAQ Conference in London and doing some marketing throughout the quarter.

So we'll certainly see some of you at the CSFB Conference in Scottsdale. I will promise a great weather here in its hometown. So please come and see us. Thank you.

And this does conclude today's conference call. Once again, we would like to thank everyone for your participation, and have a wonderful day.