Analyst Conference Summary

conference date: August 2, 2012 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2012 (Q1, fiscal first quarter 2013)

Forward-looking statements

Overview: Good results given the economy; revenue and non-GAAP EPS up sequentially.

Basic data (GAAP):

Revenues were $352.1 million, up 4% sequentially from $338.9 million, but down 6% from $374.5 million in the year-earlier quarter.

Net income was $78.7, down 3% sequentially from $80.6 million, and down 21% from $99.3 million year-earlier.

EPS (earnings per share) were $0.31, % sequentially from $0.39, and down 37% from $0.49 year-earlier.

Guidance:

Fiscal year capital spending plan reduced to $60 million, excluding SMSC.

September quarter revenue expected up 17% to 22% sequentially, or $412 to $430 million. which includes $65 to $70 million contribution from SMSC. Assumes stalls in U.S. and Europe and a slowdown in China. 58.5 to 59% non-GAAP gross margin. Non-GAAP EPS $0.50 to $0.52.

Conference Highlights:

Announced completion of acquisition of SMSC (Standard Microsystems Corporation): SMSC's latest annual revenue was $412 million and the acquisition should be accretive to Microchip profits. SMSC is fabless and makes mixed system analog products and cross selling of products should be productive. Will help in automotive market and will add audio to MCHP's mix. Will be accretive to earnings in September quarter.

Non-GAAP numbers: 59% gross margin. Net income $96.9 million up 3% sequentially but down 13% y/y; EPS $0.48.

The quarter started out strong but then weakened in June in Europe and the U.S. Came in near mid-point of guidance.

$0.351 quarterly dividend declared. Payable September 5, 2012.

Microcontroller segment up 5.1% sequentially. No comment on 8-bit. 16-bit all time record, up 23.7% sequentially and 18.6% y/y. 71.5% sequential increase in 32-bit.

Analog segment was up 9% sequentially to a new record.

Memory segment was down 2.4% sequentially. Licensing was weak.

Signed two license agreements for SST Flash in the quarter.

Cash balance at end of quarter was $1.82 billion. Free cash flow 101.4 million. $10 million capital spending, below forecast.

Inventories are low compared to historical levels, at $221.5 million.

By geography, America's revenue was up % sequentially, Europe %, Asia down %.

Cost of sales was $149.1 million, leaving GAAP gross profit of $203.1 million. Operating expenses were $106.7 million, consisting of $48.8 million for research and development and

Q&A:

Current order rates by geography? All the growth is coming from the SMSC addition. Europe is weak, looking down this quarter. Asia and U.S. will make up for the drop in Europe.

R&D expense? SMSC acquisition will add to R&D expense at first, but then will trend down.

Microchip has no plan to sell any of the SMSC business, but will restructure to reduce costs of the combined companies.

Because of the design win process, it will take 6 to 9 months before we see products from SMSC sold to new customers.

Although there are category overlaps with SMSC, like microcontrollers, there is almost no specific overlap, as SMSC sells specialty products. Each company has libraries of circuits that can be included on a systems chip. They can't be combined immediately because they use different foundry processes.

Inventory direction? Our inventory went down by 1 day last quarter, likely to go down by another day this quarter. Distributors' inventory is low. Next quarter the SMSC inventory will be added in, so comparisons will be difficult.

Seasonality of SMSC business? In February quarter there were 2 bad months. They will now be on December and March quarters, which split up the two bad months.

8-bit revenue? Up slightly sequentially.

China is now our largest geography, we ship more to China than the U.S. If a stimulus package there included incentives for consumers to buy appliances and automobiles that would help us considerably.

Microchips's automotive customers are very interested in SMSC products.

All vested stock options at SMSC were cashed out. Non-vested options were assumed.

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