Analyst Conference Summary

conference date: May 2, 2012 @ 5:30 AM Pacific Time
for quarter ending: March 31, 2012 (Q4 fiscal 2012)

Forward-looking statements

Overview: Clear signs of a recovery as revenue increased in what is typically a seasonally down quarter.

Basic data (GAAP):

Revenues were $338.9 million, up 3% sequentially from $329.2 million, but down 11% from $380.0 million in the year-earlier quarter.

Net income was $80.6 million, up 4% sequentially from $77.5 million, but down 38% from $130.6 million year-earlier.

EPS (earnings per share) were $0.39, up 3% sequentially from $0.38 but down 37% from $0.62 year-earlier.

Guidance:

Calendar Q2 (Q1 fiscal 2013) revenue between $349.1 and $362.6 million. GAAP net income $83.2 to $87.9 million; non-GAAP net income $96.7 to $101.9 million. GAAP EPS $0.40 to $0.42, non-GAAP EPS $0.47 to $0.49.

Expects capital expenditures in the quarter of $18 million. Cash generation $100 to $110 million.

Capital expense in fiscal 2013 around $70 million.

Conference Highlights:

Coming out of a down cycle one quarter earlier than most semiconductor companies. Backlog at end of quarter was strong and bookings this quarter are good so far.

Dividend was increased slightly to $0.35 per share.

Microchip announced the acquisition of SMSC (Standard Microsystems Corporation) for $37 per share for it smart mixed-signal connectivity solutions. SMSC's latest annual revenue was $412 million and the acquisition should be acretive to Microchip profits.

Non-GAAP numbers: gross margin 58.1%, net income $94.3 million, EPS $0.46. A special charge of $1.5 million for a patent settlement is excluded from non-GAAP, in addition to $8.6 million in stock-based compensation, convertible debt interest expense of $1.2 million, and amortization of intangibles of $2.6 million.

Microcontroller segment was up 5.5% sequentially, with 16-bit up 19.3% sequentially. But 32-bit was down 13.7% sequentially following prior rapid growth. Strong design wins enabled Microchip to outgrow the market.

A record 50,405 development systems shipped in the quarter.

Analog segment was up 0.7% sequentially. A strong pipeline of new products will be unveiled during 2012.

Memory segment was flat sequentially. Licensing business was down 7.6% sequentially.

Acquired Ident Technology AG for its gesture recognition solutions. Acquired Roving Networks for their embedded Wi-Fi and Bluetooth technology in April.

Cash balance at end of quarter was $1.79 billion, up $17 million in quarter. Inventory was flat sequentially. Capital spending was $3.9 million. Depreciation $20.9 million.

Many new types of semiconductor chips were introduced in the quarter.

By geography, America's revenue was up 1.6% sequentially, Europe 14.5%, Asia down 0.7%. March quarter is typically seasonally strongest in Europe.

Cost of sales was $145.0 million, leaving gross profit of $193.9 million. Operating expenses of $100.0 million included $47.7 million for research and development, $50.8 million for selling, general and administrative, and a special charge of $1.5 million for a patent litigation issue. Leaving operating income of $93.9 million. Other expense was $2.0 million. Income taxes $11.3 million.

Non-GAAP gross margins should head back up towards 61% as inventories start to rebuild and factory utilization increases.

Q&A:

Strong bookings this quarter, regional issues? In Europe we are just seeing the usual seasonal trends. Business seems find right now.

MIPS to be acquired, what about the architecture? We have always maintained that the core is not the critical element. PIC is critical. Right now there is no change in our strategy.

Consumer and other high volume devices? When we acquire technology we take it to the broader market, but not so much consumer devices. As we get larger there is room for some portion of our business to be in the high volume markets without affecting our high margins.

Zero Gee acquisition gave us a lower end Wi-Fi product, Roving gives us the high end.

Microcontroller competition trends? There are about 20 competitors in each segment (8, 16, 32 bit), we tend to take share from the long tail, the smaller competitors. It is a design win type of business, you can't just go in and get share with low prices.

In June quarter Asia should be the strongest geography.

Our channel inventory is at a ten year low. So we would expect there to be refilling. We look at the total of our internal inventory and what is in the channel. Ours should drop as the channel fills back up. Our direct to OEM backlog was up strongly in the quarter. The distributors are already increasing their orders. Our lead times are short because of the inventory we built.

For ten years people have said the 8-bit market is not a good one to be in, but we keep growing our share of it.

The current dividend strategy will continue. We are making more acquisitions because we generate a lot of cash and already have a high dividend within our sector. We promise that if we do an acquisition we will deliver high shareholder value.

We did not need to do a factory shutdown in the March quarter.

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