Analyst Conference Summary

conference date: May 5, 2010 @ 3:00 PM Pacific Time
for quarter ending: March 31, 2009 (Q4 fiscal 2010)

Forward-looking statements

Overview: Another strong quarter as work done during the recession continues to pay off.

Basic data (GAAP):

Revenues were $278 million, up 11% sequentially from $250.1 million and up 60% from $173.3 million in the year-earlier quarter.

Net income was $75.7 million, up 9% sequentially from $69.4 million and up 245% from $22.0 million year-earlier

EPS (earnings per share) were $0.40, up 8% sequentially from $0.37, and up 233% from $0.12 year-earlier.

Guidance:

Excluding SST acquisition, for fiscal Q1 2011 ending June 30, 2010: revenue $300 million, gross margin near 61%, earnings per share $0.43 GAAP. Non-GAAP gross margin near 62%, EPS $0.49.

Operations of former SST: revenue $18 million, net income $6.1 to $6.5 million. This is just from continuing business, not from assets held for sale.

Capital expenditures expected near $45 million; for full fiscal 2011 about $90 million.

Cash generation in the quarter expected between $80 and $90 million, excluding dividend payment and SST acquisition.

Conference Highlights:

Record revenues and non-GAAP gross margin. SST acquired on April 8. Dividend increased (very slightly) to 34.2 cents per share per quarter, payable to shareholders of record on May 19.

Non-GAAP numbers: 61.6% gross margin. $99.6 million operating income. $86.7 million net income. EPS $0.46.

Growth was exceptional across all geographies and product lines. "Microchip's factories are running at higher levels of production output than ever."

Microcontroller revenue was up over 10% sequentially and up 58% y/y. 16-bit microcontrollers were up 23% sequentially. 32-bit up 36% sequentially on a small base. Microchip gained market share and remained the largest 8-bit microcontroller manufacturer.

Analog chip revenues had 19% sequential growth and were up 92% from year-earlier.

45,057 development tools shipped in the quarter.

Inventory is well below internal targets; hopes to build inventory in June quarter.

After the dividend payment of $63.0 million, cash still increased by $31.9 million. Ending cash and investment balance was $1.53 billion. Capital expenditure was $19.2 million. $21.3 million depreciation expense.

Book-to-bill ratio was 1.36! The June quarter had a record high opening backlog.

There were, as usual, numerous new products introduced in the quarter.

By geography, Americas revenue was up 12.5% (for 24% of total), Europe 22% (for 26.4% of revenue), and Asia 5.6% (for 49.6% of revenue). All geographies surpassed expectations and exceeded normal seasonality.

NAND Drive and some other segments of SST are seen as not core businesses, and will be sold, reported as discontinued operations. Will keep 8051s because the margins are good.

Q&A:

Book to bill versus revenue growth guidance? Bookings may not age in quarter, but billings are all in quarter. So it is not just a multiplier for the next quarter. Because lead times in the industry are getting to be so long, people are ordering more in advance.

Analog relationship to microcontroller sales? We have competed successfully in analog for years. Our products are often best in class. Our microcontroller mostly have a lot of analog on them as well, but the analog segment we report is stand-alone analog.

Why did you buy SST? The license business is very profitable; we were already using some SST technology. There are many facets to SST's intellectual property that are still be evaluated. SST's fabs are more leading-edge than Microchip's.

Are you saying customers are redesigning boards because of competitor's lead times? Yes.

Will competitors continue licensing SST microcontroller IP now that you are in charge? We have a firewall around the SST technology so that we can't take advantage of our competitor's data.

Your own lead times? Range is mostly 8 to 12 weeks depending on product.

European business high increase? Q1 is a good shipping-day quarter in Europe, and the biggest sequential increase we have ever seen.

Attach rate of 16 and 32-bit versus 8-bit? Yes, there is a higher analog attach rate at higher bit widths.

When you buy a business like SST you really have to look at the non-GAAP numbers because the GAAP calculations are so complex and based on non-cash considerations.

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