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

Kevin E. Cassidy - Stifel, Nicolaus & Co., Inc., Research Division Gilbert Alexandre Craig Hettenbach - Morgan Stanley, Research Division James Schneider - Goldman Sachs Group Inc., Research Division Christopher Caso - Susquehanna Financial Group, LLLP, Research Division JoAnne Feeney Harsh N. Kumar - Stephens Inc., Research Division John W. Pitzer - Crédit Suisse AG, Research Division Craig A. Ellis - B. Riley Caris, Research Division

Good day, everyone, and welcome to this Microchip Technology Third Quarter Fiscal Year 2014 Earnings Results Conference. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Microchip's President and Chief Financial Officer, Mr. Eric Bjornholt.

Good afternoon, everyone. During the course of this conference call, we will be making projections and other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions, and that actual events or results may differ materially. We refer you to our press release of today, as well as our recent filings with the SEC that identify important risk factors that may impact Microchip's business and results of operations. In attendance with me today are Steve Sanghi, Microchip's President and CEO; Ganesh Moorthy, Microchip's COO. I will comment on our third 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 December quarter were $482.4 million, and were down 2.1% sequentially from net sales of $492.7 million in the immediately preceding quarter. Revenue by product line was $313.3 million for microcontrollers, $108.9 million for analog, $32.5 million for memory, $24.1 million for licensing and $3.6 million of other. Revenue by geography was $90.7 million in the Americas, $95.4 million in Europe and $296.3 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 December quarter. Non-GAAP operating expenses were 27.1% of sales, non-GAAP operating income was 31.9% of sales and net income was $132.9 million. This resulted in earnings of $0.61 per diluted share, which was $0.01 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 December quarter. GAAP gross margins include the impact of $1.8 million of share-based compensation. Total operating expenses were $165.8 million or 34.4% of sales, and include acquisition intangible amortization of $21.8 million, share-based compensation of $11.9 million and special charges of $0.8 million. The GAAP net income was $105.4 million or $0.48 per diluted share. GAAP net income includes nonrecurring favorable tax events of $6.2 million and a onetime gain of $2.4 million on our acquisition of EqcoLogic, for which GAAP accounting required us to write up our previous ownership of 18.3% to its fair value. Ganesh will discuss the EqcoLogic acquisition later on this call. In the December quarter, the non-GAAP tax rate was 11% and the GAAP tax rate was 6.4%. The GAAP tax rate was favorably impacted by the $6.2 million of nonrecurring favorable tax events I mentioned before. Our tax rate is impacted by the mix of geographical profits, withholding taxes associated with our licensing business and the tax effect to various nonrecurring items. Excluding any nonrecurring 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 the non-GAAP adjustments had on Microchip's earnings per share in the December quarter, acquisition-related items were about $0.103, share-based compensation was about $0.056, nonrecurring favorable tax events were about $0.028, the onetime gain on the EqcoLogic acquisition was about $0.011 and noncash interest expense was about $0.007. The dividend declared today of $0.355 per share will be paid on March 7, 2014 to shareholders of record on February 24 -- excuse me, February 21, 2014. The cash payment associated with this dividend will be approximately $70.7 million. This quarter's dividend will be our 46th consecutive quarter of making a dividend payment. We have never made reductions in our dividend. And in fact, this quarter's increase marks the 48th occasion we have increased the dividend payment. And our cumulative dividend paid is approaching $2.2 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 31, 2014 was $274.6 million or 126 days. We expect days of inventory at the end of March to be down between 1 and 7 days based on our revenue guidance range. Inventory at our distributors stayed flat in the December quarter at 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 December 31, the accounts receivable balance was $224.3 million, and decreased by $6.2 million on a sequential basis. Receivable balances remain in great condition, with excellent payment performance continuing from our customers. Free cash flow generation in the December quarter was $110.3 million prior to our dividend payment. As of December 31, the consolidated cash and total investment position was approximately $2.03 billion, and we had $650 million in borrowings under our revolving line of credit. Excluding dividend payments, we expect our total cash and investment position to grow by approximately $135 million to $155 million in the March quarter. Capital spending was approximately $24.3 million for the December quarter. We expect about $30 million in capital spending in the March quarter and overall capital expenditures for 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 more of the assembly and test operations that were outsourced by SMSC. Depreciation expense in the December quarter was $22.2 million. I will now ask Ganesh to give us comments on the performance of the business in the December quarter. Ganesh?

Thank you, Eric, and good afternoon, everyone. Let's take a closer look at the performance of each of our product lines starting with microcontrollers. Our overall microcontroller revenue declined 2.4% sequentially in the December quarter. However, microcontroller revenue was up 17.8% versus the year-ago quarter, reflecting a year of excellent market share gain in calendar 2013. Microcontrollers represented 65% of Microchip's overall revenue in the December quarter. As we projected, during our last quarter's conference call, we shipped a 13 billionth cumulative microcontroller in November, just 7 months after we shipped our 12 billionth microcontroller back in April. Our 16-bit microcontroller business was down 2.7% sequentially in the December quarter. However, 16-bit microcontroller revenue was up 27.9% over the year-ago quarter as we gained significant market share in calendar 2013. This business continues to be an important engine of ongoing growth for us, and we continue to find and serve new customers and new applications with our expanding portfolio. Our 32-bit microcontroller business was down 0.8% sequentially in the December quarter. However, 32-bit microcontroller revenue was up 29.5% over the year-ago quarter as, once again, we gain substantial market share in this segment. During the December quarter, we had 2 blockbuster announcements. First, the feature-rich, PIC32MZ family of products, which have the highest computational performance of any microcontroller in the category, as well as the best software efficiency. And second, the MPLAB Harmony integrated software platform, the industry's first software framework to integrate both internal and third-party middleware drivers, peripheral libraries and real-time operating systems. That's simplifying and accelerating the 32-bit software development process, which is one of the larger challenges customers face. Both these solutions have received broad industry accolades and customer acceptance. We are continuing to rapidly expand our new product portfolio, win new designs and expand into new fields of play like the Internet of Things 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, with year-over-year growth rates well above the market and what we've 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. Our analog business bucked the trend and grew 0.4% sequentially in the December quarter, the ninth consecutive quarter of sequential growth to achieve a new record, and continues to perform exceptionally well. Analog revenue was also up 16.7% from the year-ago quarter, reflecting significant market share gains. Analog revenue represented 22.6% of Microchip's overall revenue in the December quarter. And we continue to have one of the best-performing analog franchises in the industry. In November, we announced the acquisition of EqcoLogic, a Brussels-based early stage company, who has innovative equalizer and coax transceiver products and technologies, which are important to our automotive and other embedded networking initiatives. EqcoLogic's leadership equalizer technology enables the effective recovery of high-speed signals that may degrade as they transmit over longer distances. In an automotive infotainment network, for example, this technology enables substantial system-level cost reduction as OEMs can switch from expensive optical fiber networks to much more cost-effective coaxial cable networks, even though the signals degrade more in a coax cable network as compared to an optical fiber network. Last but not least, in our core analog business, 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. Now 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 sequentially down 7.1%. 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 6.7% of Microchip's overall revenue in the December 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 will first like to reflect on the results of the fiscal third quarter of 2014, then I will provide guidance for the fiscal fourth quarter of 2014. We are very pleased with our execution in the December quarter. All of the non-GAAP financial metrics like net sales, gross margin percentage, operating expense percentage, operating profit percentage and earnings per share were at/or better than the midpoint of our guidance. Our operating profit percentage is approaching 32% and we are making excellent progress towards our long-term goal of 35% operating profit. Non-GAAP earnings per share exceeded the midpoint of the guidance by $0.01 per share. Our overall net sales in December quarter were up 16% versus the year-ago quarter, marking an excellent year of market share growth compared to a low single-digit growth for the industry. Our analog business made a new all-time record in December quarter, with sales up 0.4% sequentially and up 16.7% over the year-ago quarter. All other major segments of the business was sequentially down a bit based on the seasonally weakest quarter of the year. The end of December quarter also marks the completion of the 2013 calendar year, which was an excellent year for Microchip in every respect. Last but not the least, the December quarter was our 93rd consecutive profitable quarter. I want to thank all the employees of Microchip for their contribution in making this an outstanding year for Microchip. Now I will provide guidance for the fiscal fourth quarter of 2014. The March quarter is seasonally a middle-of-the-road quarter for Microchip, not as strong as June and September, but not sequentially down as December. It does not feel any different this year, and we expect this to be a seasonally normal quarter. Europe is normally very strong in this quarter, America is in the middle and Asia is down due to lunar new year holidays. Taking all of this into account, we expect the March quarter net sales to be flat to up 3% sequentially. On a non-GAAP basis, we expect our gross margin to be between 59% and 59.2% of sales, which is a slight improvement from December quarter. We expect operating expenses to be between 26.8% and 27.2% of sales. We expect operating profit to be between 31.8% and 32.4% of sales. And we expect non-GAAP EPS to be between $0.59 and $0.63 per share. Our EPS is getting a slight negative impact by the addition of about 3 million shares through the share count. This is because of significantly higher average stock price in the current quarter versus the last quarter, the rising stock price mix of our $1.15 billion convertible transaction more in the money and results into a higher effective share count. Given all the complications of accounting for the acquisitions including amortization of intangibles, restructuring charges and inventory writeup 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 request that the analysts continue to report their non-GAAP estimates to press corp. With this, operator, will you please pull for questions? Operator?

[Operator Instructions] We'll hear first from Kevin Cassidy with Stifel. Kevin E. Cassidy - Stifel, Nicolaus & Co., Inc., Research Division: I was just wondering, in the automotive market, there's been talk of Ethernet coming into the automobile. Are you seeing that trend and are you preparing for that?

So there are many standards that come into the automotive marketplace. In automotive networking for infotainment, the MOST network is the dominant standard today. There are, obviously, alternates in any given market. Ethernet is one of them. That is in consideration. But we believe we have a strong position in the marketplace and a position that customers have validated with their choice of our network. Kevin E. Cassidy - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And maybe just talk a little bit more about automotive. Are there many opportunities for 32-bit microcontrollers? And what's your traction there?

So the answer is yes. There are many 32-bit applications in automotive. As you know, we have been on the journey for 32-bit for not as many years as some of the incumbents who play in that space. But we are starting to make inroads in 32-bit applications in carmakers just as we have previously with our 16-bit, as well as our 8-bit along the way. So we fully expect as time goes on, you'll see that our microcontrollers across the spectrum of 8s, 16s and 32s will play in many automotive applications.

I'd like to add to that. When you come up with a brand new product line, whether it's 8, 16 and 32, if the first 2 products you make are for the automotive market, which means they have all the CAN bus, the LIN bus and all the protocols and everything that the automotive needs, then your first revenue is 3 or 4 years away. And that's not the best way to launch a brand new product line. So just like we did that with 8 or 16, we originally come up with a product line that will be quicker time-to-market in other applications, industrial, consumer and all the others. And then as the product line gains momentum and the architecture is accepted, we have round out all -- any other issues, any of the others, then you add the automotive features and start to work with automotive. So that began 3 years ago or so. And now we have designs in automotive and we're moving, but the large portion of the revenue is not automotive yet.

We'll move next to Gil Alexandre with Darphil Associates.

Could you remind me of what are your growth margin goals, long-term model?

So our long-term model for those margin is 61.5%, plus/minus 0.5%. And we are certainly making progress. The middle point of the guidance for us in the current quarter is 59.1%. So we're reaching towards it and continue to make fairly good progress.

Moving on to Craig Hettenbach with Morgan Stanley. Craig Hettenbach - Morgan Stanley, Research Division: You noted the strong growth in 16 and 32-bit year-over-year. Can you provide any color or context from new product introductions, what you're doing on those product lines and anything from a design win perspective?

So in any given year, we have anywhere from 100 to 125 brand-new products that we bring to market. A substantial portion of that continues to be 16-bit and 32-bit because our portfolio there was not as rich as we did on the 8-bit. I don't have the exact numbers, but we're well over 100 products at this point on our 32-bit. And we're well above 400 products in our 16-bit portfolio. Craig Hettenbach - Morgan Stanley, Research Division: Got it. And as a follow-up, on the SMSC transaction, you guys saw a very strong margin expansion early on. Can you talk about just the revenue synergies and opportunities that you see over the next 12 to 18 months on that side?

The revenue synergies are building over the last year. We have spent time in looking at how our customers' application boards where Microchip, prior to SMSC, did not play, but SMSC customers could use our products and how that could be brought to bear on new designs, and likewise where SMSC products could be brought into the Microchip customer base. So it is a -- these are long-design cycles. They take 18, 24 months to get to the point where they get to revenue. There are many the pipeline. Some of the early ones have gone to production. But we're very optimistic in terms of how the 2 product lines combined play a stronger role at many end customers than what each of us individually could have played.

I mentioned this in the last conference call in November, I believe, that I spent a week with all of our Asian distributors, collected them all in 1 geography and nearly 80 or 90 of them and reviewed the last calendar year and had them -- put some plans together for the current calendar year. And it was quite surprising to see that Microchip's distribution, which was not SMSC distribution before, how much cross-selling opportunity they had identified on SMSC products into the Microchip customer base. There was, in fact, the highlight of the conference that just very, very significant opportunity they have identified in all of our consumer industrial accounts with USB and Ethernet and all of the other SMSC products. So they will take some time to go to production, but the opportunity is significant.

[Operator Instructions] We'll move back to Jim Schneider with Goldman Sachs. James Schneider - Goldman Sachs Group Inc., Research Division: Sorry about the difficulty before. Steve, I was just wondering if you could address again your new longer -- new higher longer-term margin model. It seems like the biggest place where you have to improve to get there is in the gross margin line. Can you talk about some of the utilization or cost structure measures in the cost of goods sold or mix and what the timeframe would be to kind of hope you to get to -- up to that 51.5% model?

Well, I can lead you there qualitatively, but not really quantitatively breaking down the impact of each of the other things. So some of the qualitative factors are obviously fab utilization. Our internal fabs are not at the capacity they were yet at the peak for a number of reasons. As the couple of years go by, some of the technology migration happens and we're producing parts at a better nodes. So therefore, it just produces a large number of die in a wafer and therefore, cutting the number of wafers. Some of the products are made in outside foundries, where it was more either cost-effective or more feasible or we didn't have the technology inside. So for a number of reasons, we're not at that full capacity. So there's a significant accretion still coming as that goes towards a peak production. The acquisitions are not 100% integrated. We are far into it. But if you look at both from an assembly and test perspective and the wafer pro perspective, we're still moving a lot of the SMSC products into Microchip. And if we're to guess what portion of the test is converted?

Probably about 20%, 25%.

25% of the test is converted. So it takes a while to get the momentum, but now we have the testers and load boards and programs. And it will rise very rapidly, but the first thing takes longer. So there's a lot of accretion coming from that also. And then there is a continuous margin improvement on our smaller product lines, which are newer in nature, where it takes a while for the products to ring out and build the next-generation products which are more cost effective and higher-yielding in our new technologies. So there are a number of things playing role in it and combination of all that gets there. I mean, we could get there on paper with a margin to give. James Schneider - Goldman Sachs Group Inc., Research Division: Okay, that's helpful. And then as a follow-up, in terms of the environment in Asia, you talked about that being a little bit weaker in the quarter. Maybe that's just a seasonal thing, but clearly, there's been a lot of concern whether that's real or not real about China in the emerging markets. China PMI was down a little bit. Can you talk about just the overall order environment and what your customers are telling you out of Asia, and what you're seeing from Asian distributors in particular?

Well, Asia goes through about 10 days of holidays and driven by that in the current quarter forecast. So Asia is down just about as much as it historically is just by the number of days they're off. So that's why we called the quarter pretty seasonally normal. Booking patterns are normal. There's really nothing abnormal to call. There's not any kind of crisis or disaster in the works. Our products are also very ubiquitous, though. They go into areas where as Chinese are building more and more consumerism, a lot of them, they acquire these products where our products are in. We're in the things and people buy a things.

We'll now hear from Susquehanna Financial Group's Chris Caso. Christopher Caso - Susquehanna Financial Group, LLLP, Research Division: Just a question about production levels. And I think last quarter you suggested the plan was to keep production fairly constant as you went through this quarter, and your comments suggested that the inventory levels internally come down as a result of that. If you hit those inventory targets by the end of this quarter, should we expect the production levels to start increasing as we go into the June quarter? And if you could give some sense of the effect of that on gross margins.

Well, I think it depends on where we are within the guidance, which is really narrow, flat to up 3%. We have not put together a plan. And we're in the middle of our annual operating planning process. Our fiscal year ends at the end of the current quarter. So we don't really have an official fiscal 2015 plan yet to really see what production we'll be running. But if we grow production, that will improve gross margin. The inventory is not exactly where I want it to be. I think it needs more improvement. We'll get some this quarter whether we need some more next quarter or we could completely improve production. We don't know yet. It depends on where it will land. Do you have something to add?

No. I was going to say there's ongoing gross margin improvement from the back end from assembly and test as we bring more of that in-house as well. Christopher Caso - Susquehanna Financial Group, LLLP, Research Division: So you may get some gross margin improvement from the back end, but the front end is obviously dependent on the revenue levels and where the inventory goes?

That's right.

We expect improvement in June quarter in gross margin, right? No question about it. Well, June quarter is generally a strong quarter for us. And there'll be higher absorption. And there should be a gross margin improvement in June quarter, no question. Christopher Caso - Susquehanna Financial Group, LLLP, Research Division: Okay. And just looking out, as you say, you're in the planning process for fiscal '15. What do you expect your strategic priorities to be as you look into fiscal '15? And assuming the demand environment kind of stays stable as it is now, SMSC, the integration seems to be, I would guess, I'd characterize late innings now. Not sure how you would characterize it, but where does the management focus turn to as you go into fiscal '15?

Well, we're not a one-trick pony. I mean, at the current quarter guidance, we're almost a $2 billion company, just slightly shy of that, around 12, 13 divisions inside the company. So continue to building out 32-bit and 16-bit and analog. And there's still a lot of new products in 8-bit. We'll continue to gain a lot of share in 8-bit as other people either can't compete or don't want it or whatever. So all the strategic product lines have a very strong roadmap, and they're all showing significant growth in the initial analysis. Then if you look at from an end market or application perspective, we're getting a very significant acceptance in growth in the Internet of Things, motor control, digital power, lighting, medical, touch, automotive. So there are just way too many. I mean, we're really -- we show a chart in the presentations. There are about 14 different segments that we have significant focus in. Now the other thing that we've been telling you for years, Microchip has one company, recognize this before many of the others in the industry that semiconductor industries has matured and saturating. And if you look at the overall semiconductor growth, they are in low single-digits year after year. We have done well. Our December quarter was up 15% year-over-year, 16%, but we also understand that there is a significant industry growth headwind that every company faces. And therefore, we also are trying to supplement Microchip's growth by a constant stream of small and some large acquisitions to bring in overall growth to a reasonable number where it will be acceptable to Microchip management and its board. So it's a combination of internal and external growth. It's not only one or the other. And we're not doing acquisitions to mask any risk of our internal growth. We're doing it to enhance on the top of the internal growth that you've seen us now for several years.

We'll now go to JoAnne Feeney with ABR Investment Strategy.

I have a follow-up question on the issue of the guidance for the current quarter. I'm wondering, this is the first round of a March guidance we've seen since the acquisition was fully integrated. And I'm wondering if what we're picking up here is perhaps that little bit of a shift in your seasonal pattern given the different end markets that are now weighing in. And as you said, China, you're seeing probably some of your stuff go into more consumer-oriented products. So some of the last 10 years, the data and throughout the 2 that were real outliers, you typically saw around 3% to 3.5% growth in the March quarter. So can you -- do you have a sense of this whether you're seeing basically a little bit of a shift in your seasonal pattern because of the different end market mix than before the acquisition?

Well, JoAnne, you are always very astute and smart in your analysis. And I think you have answered your question. There are 2 shifts in that seasonality, minor ones, but they're definitely worth noting. One is that with the acquisitions and all that, we have little more of our business now in the computing segment, which kind of sees a significant decline in the calendar first quarter than we had in the Microchip's core business. So there's a little impact of that. The second impact is Asia is becoming a larger and larger portion of our business. I mean, China is a huge portion of our business now. We break those out in the Qs. You can read them. So as that becomes larger and larger portion of the business, then you have a larger portion of overall Microchip that takes a drop in the calendar first quarter because of the Chinese New Year. And if there's enough shift in the business in Asia and that starts to be material. So I think those combined two things together, this is probably the new normal, but it probably also mean that you'll pick up that gap on other quarters which are either stronger quarters for Asia or they're stronger quarters for SMSC business. So overall, it hasn't shifted, but there's a slight impact in the calendar first quarter because of those 2 reasons.

All right, okay, perfect. And then as a follow up, just looking longer term at your opportunities for continued share gain, it's been quite impressive in 16-bit and 32-bit. But one might expect that, that would naturally slow down as you kind of tick off the low-hanging fruit. So I guess, could you give us some sense of what you expect over the next year or so and how you expect, if you do, to continue to gain share and what you think the pace of that will be, that is the growth of those 2 segments relative to the industry?

Well, the current estimates aren't saying that it kind of slows down. If it does, that's really minor in nature. But then you pick up the difference by newer applications where we can now do a very good job where maybe historically, we could not with the high-performance 16 and 32-bit product lines like digital power, like the lighting, like the Internet of Things, Wi-Fi connectivity and all that kind of stuff. So we are opening additional, large amount of served available market. I mean, if you look at the Internet of Things, our revenue in Internet of Things is hundreds of millions of dollars. If you look at the overall definition of what some of the others are calling as overall Internet connectivity or machine-to-machine connectivity, and it's the fastest-growing segment of the business. So there are always pluses and minuses and something saturates, but then the new opportunities emerge, and how well positioned you are. You want to talk about IoT a little bit?

Yes. I think as Steve mentioned, this is one of the exciting areas of opportunity presented to us. And the broad adoption of tablets and smartphones are one of the catalysts that are accelerating the demand for more things to be connected and accessible by these mobile devices. And we've historically had a very strong presence in a broad range of things that are in our home and in some of our other areas where we interact. And we think we have a pole position on -- as these things get connected, our solutions being in the center of how they are connected. Therefore, things that we know, 4 areas that we have to bring to bear to win in the Internet of Things market. One is a strong portfolio of microcontrollers and analog, which we have and we're continuing to strengthen. Two is a strong portfolio of wireless and wired connectivity. Three is a suite of the software and firmware requirement for the different protocol and security that is going to be required any time you have connectivity. And finally, the fourth is a set of partners who can provide both cost-effective and scalable cloud infrastructure because most of them are really not IT experts, nor have any IT infrastructure. And when you put it all together, it's epicenter of where we have played. We have customers that we know very well, and we have technologies to enable them. And we are seeing many, many of them taking advantage of that capability.

So it sounds like you're looking at some adjacent sockets in products where you're already appearing, in dishwashers and other white goods, for example?

Yes. So we are in things and now we are helping customers connect those things. So selling additional content, whether it's a wireless module or an RF module are really getting them, helping them do more things. And then continuing with the answer to your question, we talked about all the cross-selling opportunities with SMSC products into our socket. So think about how many cars today have a USB charger socket in the car. Every time I do an analysis, if there are 10 people I'm talking to, and I ask a question, the number comes out to be about 20% and 30%. In 20%, 30% of the cars, people have a USB charger. You can always charge for the cigarette lighter, but I'm talking about the actual USB charger. And now fast forward 3 or 4 years, don't you think all -- 100% of the cars will have a USB charger because that's what's becoming the life. And who is getting in all these cars, whose USB chargers are in most of the cars? It's yours truly. So there are always areas which are growing significantly faster where there's a significant opportunity. When you look at the USB -- so we have proprietary technology where you plug in a smartphone into the USB charger of the car and a phone can become the host. And whatever you have on the phone, it will display that whether it's navigation or whatever on the screen of the car, which could be extremely beneficial. Everybody uses navigation on their phone as they travel or get rental cars, everybody uses the phone. I know how to use it in my phone. I don't even know how to use it in my car. Next time, I'm going to get one in the car because I have it in the phone. And you plug it to the USB charger, and it displays what you're running on your phone on your car. So -- and we were showing that at the CES show in Las Vegas, an actual demo of that working. So there are tremendous opportunities coming up with this connectivity. And we're right in the thicket of it. And there are lots of design wins, there are lots of opportunities. So those things will grow faster. And some of the mature businesses could slow down a little bit, but the overall opportunity has not decreased.

We'll go now to Harsh Kumar with Stephens. Harsh N. Kumar - Stephens Inc., Research Division: A question for Ganesh. Ganesh, congratulations. Steve and Ganesh, congratulations on pretty impressive microcontroller growth as a category. I was wondering if you could provide some color on maybe between 8, 16 and 32, which one you think you took the most share in? If you want to rank, order them or just talk qualitatively, I would appreciate the color.

I think if you want to look at the dollars, we took the most share in 8-bit, didn't we?

Yes, in overall dollars because that's the rank order of the revenue is 8-bit, the largest business, followed by 16, followed by 32. But if you look at the growth rates, you're going to find that compared to where the baseline grew, 16 and 32-bit is where we grew, outgrew, and 8-bit will have outgrown, but by not quite the same magnitude. So it's hard -- we'll know in 2 or 3 months when all the official numbers will be put together. But I'm expecting we'll see large gains across 8, 16 and 32. Harsh N. Kumar - Stephens Inc., Research Division: Okay, fair enough, guys. That's helpful. And I wanted to ask you, in your press release, Steve you talked about the MPLAB Harmony integrated software platform. I was struggling to understand how that will work in terms of you being able to sell chips. Maybe you could take up a couple of minutes to explain how that flows through in your P&L?

Well, so the most difficult thing for the customer in a 32-bit is development of the software and the firmware. And if you have a piecemeal solution where the chip comes from one party, the stack comes from another party, the library comes from another party, the development will come from somebody else, and then you have to put all those things together, then you don't have a very good experience because when something isn't working, you don't know whether it's architecture or the chip, or the software or the development tool or whatever. So what Microchip has done is the entire PIC32 solution comes from Microchip, but it's much more like an Apple kind of experience where the product, the architecture, the software, the development tool, the libraries, the stacks, everything is coming from Microchip and already crosschecked and functional. So what we have done on the top of that now with the Harmony software is really integrated the entire ecosystem. We also integrated the third-party software, the middleware, the stacks and everything all pre-checked out. And customers are telling us, it's up to 40%, 50% productivity. And this development of the software is about 75% of the total cost in adopting a 32-bit microcontroller into an end application. And on that 75% of the cost, if you can provide that much productivity on an industry, accolades are coming like crazy. So how we essentially monetize this, winning more designs, accelerating time-to-market, selling more 32-bit chips. And then in all the software and all that, you always have a version of it which is free essentially. Anybody can use it. So there's a wide acceptance of it. But then you have premium versions and you have software support and upgrades and all that for which you charge, it becomes a product. But that's not where the big money is. Big money is really still selling that chip.

And next from Crédit Suisse, we'll hear from John Pitzer. John W. Pitzer - Crédit Suisse AG, Research Division: I apologize, I've been jumping back and forth across a couple of calls, Steve. So if you addressed this, I do apologize. But it's been my perception that the environment over the last couple of quarters has sort of given you guys perhaps a little bit more visibility than sort of normal. And I'm kind of curious, notwithstanding kind of the seasonal issues in the March quarter, as you think about lead times and just the rate at which customers are placing orders, how would you kind of characterize visibility today? And I guess as you answer the question, Steve, you've always had a better view than most on the economy and the macro. And I'm kind of curious, as you think about 2014, is the macro a tailwind, a headwind or a neutral factor as we think about your growth?

The best guess would be neutral. John W. Pitzer - Crédit Suisse AG, Research Division: And then just relative to visibility today versus, let's say, 30 days ago, how are you guys seeing kind of customer activity in order? Is it just tracking around normal seasonality, and so we really have to wait until after Chinese New Year to have a better assessment?

Yes, it hasn't changed. Basically, there's a lot of positioning and jockeying for position for the Chinese New Year. And even for December, some people have year-end in December. They're trying to lower the inventories. Some distributors have a fiscal year ending at some other times. So they kind of adjust the inventory a different time. Some people want the product before the Chinese New Year, so they can participate in the surge afterwards. And some place the order, but they want to take their delivery after. So there are all these crosscurrents, and it's kind of -- I think the good thing is Chinese New Year is early. I mean, it's beginning now. And 2 months of the quarter are left after that. And usually, every time that happens, where the Chinese New Year is early, usually has been a positive result. John W. Pitzer - Crédit Suisse AG, Research Division: And Steve, as my follow-up, at our conference in December, you gave a pretty informative presentation about the positioning of 32-bit and kind of what you're doing at the software level on the ecosystem. And correct me if I'm wrong, but the argument sort of was you're kind of hitting an inflection point or a critical mass point where 32 might actually start to show even more meaningful gains in the strong growth you're seeing. Is that how I should think about the 32 big growth prospects for 2014? And I also noticed in the quarter you announced an ARM-based microcontroller. Should I just think about that as another arrow in your quiver or is there something more strategic behind that?

So several questions in there. Number one, yes, the point I made on 32-bit is we went over 100 products last quarter. And 100 products is kind of the magical critical mass. If you have fewer products in a microcontroller, then you have engagement issues with our customer, where the customer engages, he does all this work and says, "I like the architecture. I'll use your product." But then they need more memory or the connectivity, they need a LIN bus, they need a Wi-Fi, they need an RF on the chip, and you don't have that version of the product, then their work is wasted and they have to go through the different architectures. So customers often look for having a sufficient critical mass of products where there's a very high probability that the product they need is in the portfolio, and at 100-plus products that becomes really real. So we really, we hit that number. So we think that's a reasonable inflection point. And the second is the 2 main things that I talked about at your conference, and Ganesh talked about it today. One is the announcement of the 32-bit and 32 MZ product line, which is really industry's the highest performance microcontroller in its class. And second is this Harmony software development tool, which is absolutely a productivity giver to the customers. So we think all those things combined is really a game-changer. And we're starting to see it in the feedback we're getting.

We'll hear now from Craig Ellis with B. Riley. Craig A. Ellis - B. Riley Caris, Research Division: I wanted to follow up on a different product segment, the analog product group. The business has performed very well in the last year. And how should we think about the way you're looking at growing that business as we think about calendar '14 and beyond, whether it be from a product group standpoint. Where do you feel like you can add products or whether it be just from taking that product to market, whether it be channel management strategies, what have you?

Well, so we have described over the years where we had a three-pronged strategy in analog. Early on at the start of the century, our analog strategy was largely attaching analog to our own microcontrollers for the first few years because we had no name recognition in analog, we didn't know Microchip makes analog. So we had a great name recognition in microcontrollers, so we will position and attach RPMs and supervisors and power management and those kind of products together with our microcontroller sockets. And at one point at the peak, well over 70% of our analog business was attached to our microcontroller. But that strategy was quite successful. Then we went into the Phase 2 where we said, "Well, our analog products are so well designed and architected to work in a microcontroller-embedded control environment. Why would we limit ourself to only Microchip's microcontrollers." Back then, we had 4%, 5% market share in microcontroller overall because we didn't even make 16 and 32 at that time. 8-bit, why we would not position this to any microcontroller, whether it's Freescale or NXP or Atmel or ST or anybody else? We don't win the microcontroller, but we still compete for the analog because our architecture is very well to work next to those designs. So that was the Phase 2 of that strategy, and they were very successful a few years ago. It accelerated our growth rate on analog. And then, in the last few years, we said, Phase 3. Why would we now limited only to the microcontroller sockets? What about FPGA? What about DSP? What about SoCs, silicon on chip? Or really any kind of sockets. And that put us in a direct competition with TI, ADI, Linear, Maxim, some of the big companies. And we have, what, over 2,000 products in analog now?

About 1,100 to 1,200.

1,100, 1,200 analog products. So broad portfolio and positioning it really head-on with in any kind of sockets. And it has worked very well. And we're growing. We have the best performance of analog in the industry compared to -- look at the year-over-year growth rates compared to anybody.

And it's not just the last year, right? If you go back and look at it, it's now been for several years we've seen that analog has performed exceptionally well and outgrown the analog industry and the semiconductor industry both.

And people have some sort of this mix that analog is black magic, and all the analog engineers work for these other companies and you can't find them and that's just kind of not true. We were able to attract them. We had lots of analog engineers working in our microcontroller groups because 95% of the microcontroller revenue is with the large amount of analog on the same die. And we were able to package some of that functionality standalone, some of it together with the microcontroller. But really, we were able to amass a fair amount of these sources, some through acquisitions, some ourselves, and then created one of the best-performing analog franchises in the industry. Craig A. Ellis - B. Riley Caris, Research Division: Well, I was going to summarize it by saying it seems like what you're saying is the recipe for growth is to continue to execute on the strategy that you have in place. As I look back at some of your past comments, I think it was 2 quarters ago, maybe it was even 3, where you said based on the successful completion of the SMSC deal, you were ready to do another mid-sized deal. Subsequent to that, there hasn't been such a deal. Is the issue that there aren't good targets out there, is the issue that there are good targets, but that with the market going so much higher that the valuations aren't where you'd be comfortable, where do you stand with respect to growing through acquisition at this point?

So like I said early on, I don't know whether you were on the call yet or not, but I mentioned in fiscal 2015 and then going forward, we continue to have a strategy of significant internal growth and then further beefed up by continuous small or occasionally large acquisition. Beyond that, I couldn't really give you any signal for timing or what area or whatever. But it's like we're active constantly.

And we'll take a follow-up from Kevin Cassidy with Stifel. Kevin E. Cassidy - Stifel, Nicolaus & Co., Inc., Research Division: I just wanted to see if you could give a few comments around the licensing business? Do you have more contracts on the way? And how does licensing play into the Internet of Things?

So the only way licensing plays in the Internet of Things is really enabling our SuperFlash technology to build low-power microcontrollers in the industry, which will then go to the Internet of Things. Otherwise, it doesn't really have a direct play. What we have successfully done is really essentially licensed to every major foundry is licensed on a SuperFlash technology. The largest big foundries, any other foundry you name, the one in Taiwan, the one in China, the ones in Singapore, the ones in Malaysia, the ones in Europe, they all have license of SuperFlash technology. And some are in production and some are proceeding towards the production where the licensing happened either last year or the year before. And these are very complex technologies. It takes a couple of years to go to production. So there's a significant additional revenue growth ahead as these additional foundries go to production and the royalty income begin. We have more than doubled the business since we bought SST. When we bought it, it was doing $40 million a year business. We're doing about $90 million now. And there's further growth ahead as many more of these foundries go to production.

And gentlemen, at this time, we'll turn the conference back to you all for closing remarks.

Well, thanks for attending the conference. Our next conference we go to is...

We're presenting at Stifel Conference on February 11.

Okay. So we'll see some of you there. Otherwise, we'll talk to you next quarter.

And that will conclude today's conference. Again, we thank you all for joining us.

Bye-bye.