Analyst Conference Summary

conference date: May 7, 2009 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2009 (Q4 fiscal 2009)

Forward-looking statements

Overview: As expected, another sequential revenue decline. However, turned a profit even at this level.

Basic data (GAAP):

Revenues were $173.3 million, down 10% sequentially from $192 million and down 33% from $260.4 million year-earlier.

Net income was $22.8 million, down 69% sequentially from $73 million, and down 70% from $76.7 million year-earlier.

EPS (earnings per share) were $0.12, down 70% sequentially from $0.40, and also down 70% from $0.40 year-earlier.

Guidance:

No guidance, but internal plan is for $182 million in revenue. Gross margin 50% non-GAAP. $0.16 non-GAAP EPS, $0.11 GAAP EPS. Operating cash flow should come very close to covering the dividend payment. Capital expense plan is $4.5 million.

Conference Highlights:

The dividend was declared to continue to be 33.9 cents per share per quarter.

Non-GAAP numbers: 49.3% gross margin; 19.3% operating margin; net income $27.9 million, EPS $0.15.

Cash was reduced by acquisitions, dividends. Cash balance ended at $1.39 billion. Converitble debenture debt is $1.15 billion.

$10.5 million capital spending in quarter. $22.9 million depreciation expense. Inventories decreased by $5 million in the quarter.

.9 to 1.2 million increase in interest expense per quarter going forward due to change in accounting rules on convertible instruments.

Microcontroller business down 9.5% sequentially. Flash 78% of microcontroller revenue. Still #1 in 8-bit microcontroller market and grew market share to high teens. Most competitors are losing money in this market.

16 bit microcontroller revenue up 6% sequentially and 21% from year-earlier.

32 bit microcontroller business is mainly in design-win stage.

Touch sense input business is growing. Analog business down 13% sequentially, but gained market share over course of year. E2 products down 9% sequentially.

Backlog bottomed out early in quarter, and increased at a slow pace during quarter. Book-to-bill ratio was 1.04.

48.5% GAAP gross margin partly achieved by one-week unpaid vacation and 10% salary reductions for employees.

Plan to introduce about 150 new products in the coming year.

1.04 book to bill in quarter.

Our competitors almost all lost money in the quarter, with TI about flat.

Q&A:

Gross margin increase for June quarter? Margin improvement should be driven increased backend activity, better product mix, and cost reductions. Utilization should be flat as we continue to reduce inventory.

Inventory target? We have an increasing number of items, and distributors are keeping inventories lean. We are at $134 million, we are aiming for $124 million or so by end of June.

Are customers noting the losses of your competitors? Historically, they have not cared. Now, they are asking that kind of question more. Some are worried about continued supplies from our competitors.

We did have a shutdown scheduled for Thailand that we cancelled because of more than projected demand. Most of our inventory is in die bank, that is where we are reducing inventory.

16-bit wins? It resembles the 8-bit business. It is very broad. Our performance is very competitive, and can even compete with low end 32 bit microcontrollers of competitors.

Acquisitions? We have an elbow-out strategy. We are going after bite-sized aquisitions that have no immediate revenue contributions, but give us an edge in a market in sockets near our microcontrollers.

Is June quarter guidance based on increased demand or inventory replenishment? Run rates went down to lower than demand, but the growth is really coming from Asia. Europe we expect to be down again sequentially in quarter. China is doing a marvelous job with their stimilus plan, creating end demand within China. We are participating in that significantly.

Operating expenses as a percent of revenue should stay steady going forward as we increase revenue. We made sacrifices to bring the percentage down. We expect to get pay back to normal when the revenue is back.

High end microntrollers don't necessarily have higher margins because the die sizes are larger, etc.

Net interest income in June will be in the minus $2 million range. It was minus $2.1 this quarter.

Does linearity have to continue to improve this quarter to hit your internal plan? No, but there are issues about whether bookings turn into revenue within the quarter.

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