Analyst Conference Summary

conference date: February 2, 2012 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2011 (Q3 fiscal 2012)

Forward-looking statements

Overview: Revenue came in around the middle of guidance.

Basic data (GAAP):

Revenues were $329.2 million, down 3% sequentially from $340.6 million and down 11% from $367.8 million in the year-earlier quarter.

Net income was $77.5 million, down 2% sequentially from $79.3 million and down 24% from $101.9 million year-earlier.

EPS (earnings per share) were $0.38, down 5% sequentially from $0.40 and down 27% from $0.52 year-earlier.

Guidance:

Revenue in the March 2012 quarter is expected to be up sequentially 1% to 5% to $332 to $345 million. 57.75 to 58.25% non-GAAP gross margin. Non-GAAP EPS $0.43 to $0.47, GAAP EPS $0.36 to $0.40. $9 million in capital expenditures. Cash generation $80 to $90 million, excluding the dividend payment.

Conference Highlights:

Distributors' inventory declined 11 days during the quarter. "At this time we believe the majority of the inventory correction has been completed for our customers and our distributors." Believes December quarter was the bottom of the cycle for Microchip; will grow in March quarter.

Non-GAAP numbers: net income $85.4 million, down 8% sequentially from $92.6 million and down 25% from $113.8 million year-earlier. EPS $0.46. Gross margin 56.8%. Excludes $8.6 million of share-based compensation and other items.

Dividend of 34.9 cents per share declared payable 3/6/2012 to stockholders of record on 2/21/2012. The total payment will be about $67.1 million.

Cash balance ended at $1.77 billion, down $5.1 million in the quarter. $6.1 million capital expenditures. $21.5 million depreciation. Convertible debentures carried as $353.3 million of debt.

Microcontroller segment down 4.4% sequentially

32-bit microcontroller revenue was up 33.7% sequentially and 137% y/y to a new record, as new designs continue to be released.

16-bit microcontrollers saw introduction of two new families of products. Revenue down 5.4% sequentially due to flooding in Thailand.

8-bit microcontrollers added a device with an RF transmitter for remote-access applications. Revenue down sequentially.

Analog segment revenue up 2% sequentially on new product introductions and design-ins.

Memory segment added two low power Flash devices. Revenue down 6.6% sequentially.

Licensing revenue was up 5% sequentially and 21% y/y, led by SuperFlash technology.

The March quarter will see the usual seasonal impact from the Lunar New Year holidays in Asia.

43,146 development systems were shipped in the quarter.

Revenue by geography: Americas down 3.4% sequentially, Europe down 15.3%, Asia up 1.9%.

Cost of sales was $145.4 million, leaving gross profit of $183.8 million. Operating expenses of $95.7 million included $44.3 million for research and development, $52.1 million for selling, general and administrative, and a special benefit of $0.7 million. Operating income was $88.1 million. Other expense $4.5 million. Income taxes $6.2 million.

Non-GAAP gross margins should improve to 60% by the end of the 2013 fiscal year.

Q&A:

Inventory compared to 2008 downturn? It was higher in the last downturn.

Is recovery in orders demand or inventory driven? Probably a combination.

White goods market? Our customer mix is much broader than most of our competitors, so we can't break it down that way. Last quarter automotive was up, other verticals were down. Our overall Asian business was up last quarter.

32-bit result details? Over 800 customers with a broad set of applications; no single application or customer.

Margin improvement details? For instance in the December quarter we closed the factories for a few days. Running them without shutdowns helps margins. We also get reductions in cost when we shrink dies to newer technologies.

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