Microchip Technology

conference date: April 26, 2007 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2007 (4th fiscal quarter 2007)

Forward Looking Statements
my ownership

Overview: Good quarter may signal end of downturn in semiconductor chip sales. Dividend increased again on strong earnings.

Basic data:

Net sales was $258.2 million, up 2.9% sequentially from $251.0 million and up 4.5% year-over-year from $247.2 million.

GAAP net income was $127.7 million, up 75% sequentially from 72.8 million and up 69% from $75.6 million year-over-year.

However, for consistency they reported worse non-GAAP net income of $81.3 million, up only 3% sequentially from $78.7 million and 7.5% year-over-year from $75.6 million

GAAP EPS was $0.57. Non-GAAP EPS was $0.37.

$1.3 billion cash at end of quarter. $100 million cash flow before dividends, which were $57 million


Seasonally strong June quarter revenues up about 5% sequentially. Gross margin near 60.75%. Operating expense about 25% of revenues. Tax rate 20%. GAAP EPS $0.37; non-GAAP $0.40. $110 million free cash flow before dividend payments. Going into another up cycle.

FY 2008 Capital Expense estimated $80 million. Tax rate 20%. Depreciation $105 million.

Conference Highlights:

For first time became number 1 in world for 8-bit microcontroller revenue. Highest growth of any semiconductor company that has reported March 2007 results so far.

Difference between GAAP and non-GAAP results were mainly from an income tax adjustment of $54.0 million.

GAAP cost of sales was $103.6 million; R&D $28.5 million; SG&A $40.8 million. Total operating expense $69.3 million. Income taxes $28.3 million. Depreciation $28.1 million.

Microcontroller revenue was up 4% sequentially and up 6.5% year-over-year. 16-bit microcontroller revenue ws up 41% sequentially and 135% from year-earlier; volume customers increased to 735 from 638; 3278 development tools shipped.

Flash micro revenue was up 7% sequentially and 21.3% year-over-year.

28,847 total development tools were shipped, another record.

Analog revenues were down 3.3% sequentially but FY 2007 was 24% abover FY 2006. Serial EEPROM sales declined 0.7% sequentially. Number of analog customers grew sequentially to 12, 147 from 11,687.

Non-GAAP Gross margin 60.5%, a record. GAAP gross margin 59.9%. Operating profit 36%.

Book to bill was 1.01 for quarter.

Distributor inventory ended at all time low of 1.8 months; internal inventory at 105 days, down sequentially from 108 days. Lead times remain at 3 to 5 weeks.

Geographic: Europe up 19%, America flat, Asia down, which is typical seasonality.

Next dividend will pay out $60 million.

Starting backlog for June quarter is sequentially higher, combined with low inventories. Ramping wafer starts in Fab4 in Gresham and assembly in Thailand.


New range for distributor inventory? Does not think it will go back to 3.3 months. But believes average will be lower than ever before.

April business? Very good, bookings very strong.

Europe? March is seasonally strong because of lack of holidays. Tremendous results go far beyond seasonality. Gaining market share, design houses, regional distributors, Microchip sales staff.

Gross margins? See mix and revenue growth that could strengthen growth margins.

End demand growth or just inventory correction ending? Most of inventory correction was over in December quarter. We had guided March quarter to be flat, instead was up 2.9%. We have created new demand for our products. June quarter guidance represents real demand. Competitors may be in different situation. But other industy sources indicate market is more flat, so our results are from superior products that are gaining market share.

Freescale? Did not seem concerned. They have successfully competed against Freescale over time; typically several steps ahead of them.

New tax rate? Our tax rate is complex because of international issues. We believe 20% is sustainable.

Capacity issues? We have plenty of capacity. We are ready for a $1.4 billion annual run rate, plus we can outsource, so we can get to $2 billion.

Stock buy back possibility? We have reputation for being shareholder friendly. Pay highest dividend in industry. Do look at buy backs, but are not fans of financial engineering [so expect the dividend to keep increasing]. Only will buy back stock when price in unreasonably depressed. Last opportunity like that was in 2003. Does have some $ authorized from the past.

8 bit market? Growth has been in programmable and flash improvements. Sure, growth rates will come down for Flash as it becomes larger percentage of market.

Business through Arrow is growing. Was up 5.4% sequentially.

What was DataQuest number for 8-bit market? MCHP share was between 15 and 16%. See no real limitations on taking more market share.

Operating expense growing marginally faster than revenue? Don't think so. Not lately.

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Copyright 2007 William P. Meyers