Analyst Conference Summary

conference date: July 26, 2007 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2007 (Q1 fiscal 2008)

Forward-looking statements

Overview: Continues to pull out of slump, but more slowly than expected.

Basic data:

Revenues were $264.1 million, up 2.3% sequentially from $258.2 million and up 0.6% from $262.6 million year-earlier.

Net income was $80.3 million, down 37% sequentially from $127.7 million, but up 4% from $77.0 million year-earlier.

EPS (earning per share) were $0.36, down 37% sequentially from $0.57 but up $0.01 over year-earlier.

Cash and short term investments ended at $1.3 billion.

Guidance:

September quarter revenues expected flat to up 2%. GAAP EPS $0.36; non-GAAP EPS $0.39.

Conference Highlights:

Industry conditions were challenging. June pre-announcement (of slower growth), 1% decline in guidance was due to slowdown in U.S. housing construction (garage door openers, security systems, thermostats, irrigation equipment, airconditioning). Serial E-square memory was also weak.

Quarterly cash dividend increased to 29.5 cents per share, an increase of 5.4%.

Prior quarter (fiscal Q4 2007) had a EPS tax benefit of $0.23. Eliminating that EPS rose sequentially.

Non-GAAP net income was given as $86.7 million, or $0.39 per share, up 6.6% sequentially and up 6.5% from year-earlier.

Gross margin non-GAAP was 60.6%, a record. GAAP 60.0%.

Europe was weak with a 5.4% sequential decrease. Asian sales were up 9.7% sequentially. Americas sequentially flat. Asia is now 43% of total sales; Europe 30%; Americas 27%.

Cash generated was $126.2 million; $61.1 million went out for the dividend payment.

Capital spending fo Q1 was $25 million. Fiscal Q2 capital expenditures are expected to be about $15 million; total fiscal 2008 cap ex $70 million. Depreciation $105 million for 2008.

Cost of sales was $105.5 million. Gross profit $158.5 million. Operating expenses were $73.5 million, including $29.75 million for R&D and $43.8 million for SG&A. Operating income was $85 million. Other income (interest) was $15.7 million. Taxes were $20.5 million. Tax rate was 20.3%.

Inventories increased by $2.8 million to $123.8 million, or 107 days, or 138 days if combined with distributors' inventory. Accounts payable dropped sharply sequentially to $96.4 million from $164.6 million.

Microcontroller business was up 2.5% sequential and 1% over year-earlier; not as good as we like, but better than competitors. Flash microcontrollers up 3% sequentially and 10% over year-ago; now are 69% of microcontroller business.

16-bit microcontroller revenue increased 24.5% sequentially and 165% y/y.

Analog up 1.7% sequentially and flat over year-ago.

Memory 1.3% sequentially with moderate price declines.

Book to bill in June was 0.99.

Q&A:

Analog slowdown? Did grow slowly, but competitors are down year-over-year where as we were flat. Does attach to 16 bit more than 8 bit, so that helps accelerate the growth.

Modest guidance broad based? None of the divisions look negative.

Rapid increase of dividends? Our cash EPS tend to be higher than EPS, and believe slow growth due to housing slowdown is temporary.

Europe slowdown? Europe had been the strongest area for a while, it is possible distributors had gotten overly optimistic.

Shanghai lawsuit? Impact on costs is very small. Could take years. We have had past success against copiers in Taiwan.

Stock buy backs? We only buy our stock back when we feel it is significantly underpriced. We have authorization for buy backs in place in case that happens.

Housing effects on consumers? Our big housing related customers are only 3% of revenues. Consumer spending has not seen a decline.

Your guidance is lower than normal seasonal upswing? Yes. Based on orders, belief Europe would be weak, and continued weekness in housing related OEMs. Independent industry monitors are seeing low single digit semiconductor growth this year.

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