Analyst Conference Summary

conference date: July 24, 2008 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2008 (Q1 fiscal 2009)

Forward-looking statements

Overview: Record revenues and non-GAAP EPS in a difficult environment; raised dividend again.

Basic data (GAAP):

Revenues were $268 million, up 3% sequentially from $260 million and up 1.6% from $264 million year-earlier.

Net income was $76.3 million, down 0.5% sequentially from $76.7 million and down from $80.3 million year-earlier.

EPS (earnings per share) were $0.40, flat sequentially but up 11% from $0.36 year-earlier.

Guidance:

Fiscal Q2 ending September 30, 2008 guidance is for revenues from flat sequentially to up 3%. EPS approximately $0.44 to $0.45 cents non-GAAP: GAAP EPS approximately $0.40 to $0.41 cents.

Fiscal Q2 cash generation of approximately $110 million before the dividend payment of approximately $62.5 million.

$110 million in capital expenditures are expected for the fiscal year.

Conference Highlights:

Non-GAAP earnings were a record $0.44, up 4.6% sequentially from $0.42 and up 12% from $0.39 year-earlier.

Quarterly dividend of $0.338 declared, up 15% from year-earlier.

Book to bill ratio was 1.15, resulting in a strong starting backlog for the September quarter. However, continue to be cautious because of economic environment and not seeing the strength in billings that we are in bookings. European summer vacation and Peking Olympics may have some impact in fiscal Q2.

Microcontroller revenue was up 3% sequentially to a record (up 2% y/y). 16-bit grew 5% sequentially and 60% from year-earlier. Flash microcontrollers were up 3.5% sequentially. Now have 11 32-bit products, but still in early design cycles.

Analog semiconductor product revenue grew 2.5% sequentially and 8% from year-earlier to a record.

Memory revenues grew 2.7% sequentially, with pricing declining moderately.

It is clear we are beginning to gain market share from our competitors.

35,000 development tools were shipped in the quarter, a record.

Inventory declined to 110 days ($126 million). Channel inventory declined to 32 days.

$118 million cash generated prior to dividend payment and stock repurchases. $1.55 cash and equivalents at end of quarter. $23.6 million used to buy back stock. $21.7 million in capital spending.

China sales were up 18%; the earthquake had no visible effects. Asia sales were up and represent 46% of total sales. U.S. and Europe sales were down.

Non-GAAP gross margin was 61.6%, a record. GAAP was 61%.

Cost of sales was $104.5 million. R&D expense was $31.5 million. Selling, general and administrative expense was $45.4 million. Leaving operating income of $86.6 million. Other income was $6.5 million. Income tax $17 million.

Q&A:

Reason for strength in China? Much of China business is for export, so it comes down to our own demand creation efforts. We have a record number of customers, so demand is broadly based. Customers are doing smaller runrates than if economy were better.

Missed guidance on analog and 16 bit sequential growth? Growth is not always linear, we just make a guess for a quarter, annual rates are more consistent. 16 bit has had much higher sequential growth rates on occasion. We did get new records for both analog and 16 bit, but not up to our expectations.

Seeing a turn in the market? The economic situation has changed due to high oil prices, high Euro, weak U.S. So our December comments were right about recovering from inventory corrections. We feel good but we have to remind you of the global economic situation.

Extension of lead times, TI report of distributrors cutting back? We are seeing strong demand from distributors, and inventory decreasing. We have had some specific package issues, with volume customers wanting a particular package and volume in that jumping by a factor of 2 or 3.

Costs of supplies? Yes, gold and other metals, natural gas, transportation costs are all going up. We are trying to not give any price reductions to our own customers, in some cases have asked for price increases.

Target of capital spending? It is spread out, with largest amount going to assembly and test where we have to add it to grow. We have $1.6 billion fab capacity, so we are okay there. $30 million will be for a new building in Thailand.

Arrow termination has been a positive; all the business was given to other distributors that are working with on on demand creation.

No particular architecture is showing particular strength except that 16-bit is growing faster because it is on a small base.

Linearity in quarter? One of the most linear quarters we have had. Other three quarters tend to me more non-linear because of various holidays. Backlog was strong, as was book-to-bill, but in our experience neither of these factors are good predictors because we have a design-in business rather than a commodity business.

July? Asia is driving strength, China in particular. But much of this is U.S. companies manufacturing in China for export back to the U.S. We have created tremendous demand in the U.S. despite the soft economy.

We are committed to growing the dividend every quarter so that no matter when an investor buys a stock, they can expect dividend growth.

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