Good day, everyone and welcome to this Microchip Technology first quarter fiscal year 2008 financial results conference call. As a reminder, today’s call is being recorded. At this time, I would like to turn the call over to Microchip's Chief Financial Officer, Mr. Gordon Parnell. Please go ahead, sir.

Thank you very much and good afternoon and welcome to our first quarter 2008 conference call. During the course of the call, we will be making projections and other forward-looking statements regarding future events or the future financial performance of Microchip. We wish to caution you that such statements are predictions and that actual events or results may differ materially. We refer you to our press release of today, as well as our 10-K for the fiscal year ended March 31, 2007, and our 8-K current reports that we have filed with the SEC that identify important risk factors that may impact Microchip's business and results of operations. In attendance with me today are Steve Sanghi, Microchip's President and CEO; and Ganesh Moorthy, Executive Vice President. I will begin by commenting on our first quarter performance, reviewing geographic data and discussing balance sheet and cash information, and Steve and Ganesh will then give their comments on the results, outline our guidance for the September quarter, and update other pertinent matters regarding our business. We will then all be available to respond to specific investor and analyst questions. Net sales for the June quarter were $264.1 million, up approximately 2.3% from net sales of $258.2 million in the immediately preceding quarter, and up approximately 0.6% from net sales of $262.6 million in the prior year’s first quarter. Our earnings, we are continuing to include additional information in our press release related to FAS-123R. Non-GAAP results exclude the effect of the adoption of this accounting standard. Non-GAAP net income for the June quarter was $86.7 million, or $0.39 per diluted share, an increase of 6.6% from non-GAAP net income of $81.3 million or $0.37 per diluted share in the immediately preceding quarter, and an increase of 6.5% from non-GAAP net income of…

Thank you, Gordon and good afternoon, everyone. I will now comment on the individual product lines, after which Steve will walk you through our guidance for the next quarter. Let’s begin with microcontrollers. Our microcontroller business was up 2.5% sequentially and up 1% over the year-ago quarter. While we were not satisfied with these results, they should be viewed in light of market conditions as reflected in the microcontroller business results announced so far by competitors like TI and Freescale’s TSBG group, which is the relevant group for microcontrollers. Freescale TSBG experienced a year-over-year decline in the microcontroller business, while TI was flat year over year as compared to Microchip's modest growth. And on a sequential growth basis, Freescale TSBG was about the same as Microchip, while TI’s microcontroller business was also flat sequentially. Our flash microcontroller business was up 3% sequentially and up 10% over the year-ago quarter. Flash microcontrollers now represent approximately 69% of our microcontroller business. Notably, we shipped our 2 billionth flash microcontroller during the last quarter and believe that this is by a significant margin the largest number of flash microcontrollers shipped by anyone. Looking at one of our leading indicators, we shipped 28,294 new development tools last quarter, which was another all-time record. The record shipment of development tools demonstrates continued strong design win activity and acceptance of our products. Moving to 16-bit microcontrollers, our 16-bit business was up 24.5% sequentially and up 165% over the year-ago quarter. Our 16-bit design win momentum and development tool sales remained very strong. The number of volume 16-bit customers grew to 897 in the June quarter from 735 in the March quarter, up almost 22%. In terms of 16-bit customers of all volumes, that number is in the several thousands. We shipped 8,290 16-bit development tools in the June quarter, the highest quarterly shipment of development tools ever. This strong growth in development tool shipments reflects strong design-in activity augmented by broad, worldwide customer training programs that Microchip has been running. This brings the total 16-bit development tools shipped to date to 31,717. We now have 92 16-bit microcontrollers in production and expect this to grow to be about 150 products by the end of fiscal ’08. Moving to analog products, analog products were up 1.7% sequentially and were essentially flat over the year-ago quarter. The number of customers buying our analog products grew to 12,627 from 12,147 in the previous quarter. For Serial EEPROM memory products, net sales were up 1.3% sequentially. Pricing declined moderately quarter over quarter. After our pre-announcement in June, our Serial EEPROM business performed slightly better than our expectations. We were expecting a sequential decline at that time but instead we pulled off a small sequential increase. Now let me pass it to Steve for some general comments and our guidance for the September quarter. Steve.

Thanks, Ganesh and good afternoon, everyone. Today I would like to first reflect on the results of the June quarter, then I will discuss the guidance for the September 2007 quarter. We experienced very challenging industry conditions during the quarter that led us to lower our guidance in the month of June. We met that guidance and were up 2.3% sequentially. We achieved another record gross margin of 60.64% prior to the equity expense charge, and we also achieved an operating profit of 35.2% before the equity expense charge. This quarter also makes the 67th consecutive quarter that we have been profitable, a testament to the resilience of Microchip's business model over many, many business cycles. We shipped a record number of new development tools, indicating strong acceptance of our products and strong design win activity. Before I go into the guidance, I want to give you an update on three factors that led to the pre-announcement during June. The first of these was the impact of a dramatic slowdown in the U.S. housing. New housing starts in the U.S. saw a dramatic decline during the start of the calendar year 2007 and Microchip products usually get bought a few months into the housing build cycle. Therefore, we saw the impact of it during our June quarter. Then we took 10 large U.S. customers and we created a U.S. housing index. Two of these customers build garage door openers, two build air conditioning equipment, two build appliances, two build security systems, one of these customers builds thermostats, and the final one builds irrigation equipment. Our sales to these 10 large customers was down 14.2% sequentially in the June quarter. Therefore, from the base of the March quarter, we created sort of a U.S. housing index for Microchip of 85.8. 85.8…

(Operator Instructions) We’ll take our first question from Craig Ellis from Citigroup.

Thanks and good afternoon, everybody. Just looking at some of the details of the business, in analog it looks like, at least in our model, that that business is growing a little bit more slowly than it did back in calendar 2005. With the strength in the 16-bit business and microcontrollers overall, do you expect reacceleration as you move into the back-half of the year and next year?

It is correct that the analog business this year has grown slower than it grew back in 2005. If you compare it to really where all the other analog companies are coming in, every single company is actually still down year over year. Microchip's business is not down year over year in analog, although growing slower. That was the first part of your question, but the second part is does it accelerate with more 16-bit. We do have larger dollar content around 16-bit applications with our own analog products versus with 8-bit products. Number one because there is more analog around it and number two, 16-bit application is a new world, so there is not an incumbent and we can get in first, while in 8-bit applications, some other analog guy may already be there. So driven by all those factors, yes, we are doing better with attachment with the 16-bit, and as the 16-bit business gets larger and grows further, gets significantly meaningful, it would help accelerate the analog.

That’s helpful, Steve and then with regard to the outlook, in the just completed quarter, there was broad-based growth across the different product lines. Do you expect the modest growth that you are guiding to to be similarly broad-based?

Yes, I mean, as we look at internally, we are only guiding flat to 2% so it is pretty hard to triangulate but internally, none of the divisions currently are looking at a negative. Now, when you are zero to 2, these are small numbers but we don’t really look at any division to go down substantially in any way.

Lastly for me, given the 5%-plus dividend increase relative to the revenue growth, it seems like you are saying that you view the revenue deceleration as a temporal issue. Is that correct?

Yes. We basically understand that the revenue deceleration is coming from the significant impact of the housing market and that somehow filtering over to the rest of the consumers. Europe, which is usually seasonally slow -- but the longer term, as we have said before, we have not tied the growth in dividend to growth of revenue or earnings. Investors have asked us do we have a ratio in mind and we largely say that no, we do not have a ratio in mind. Our cash earnings continue to be substantially ahead of really the GAAP EPS earnings and therefore, we are committed to continue to increase dividends for well into the future and are not deterred by temporary interruptions of a quarter or so, driven by cycles or events.

Thanks, Steve.

(Operator Instructions) Next we’ll hear from Michael Masdea from Credit Suisse.

Thanks a lot. Steve, ever since you switched your accounting and moved to a sell-through, you’ve done a very good job of managing the inventories, et cetera, but it does like Europe got a little out of control, given the growth last quarter and the fall-off this quarter. Is there anything from a systems perspective or anything different that you are doing that maybe caused that to happen, that we can prevent that in the future or am I missing what happened over there?

I think you are missing the change from sell-in to sell-out really was our distribution, where we do not recognize sales through distribution as revenue until distribution ships it out. When we changed it back in 2003, Europe has always been based on sell-out. That change in 2003 was made in Asia. In Europe, we have been at sell-out for the last -- ever since we have been public and even before. If this Europe negative inventory issue we are talking about is really either at the European OEM customers or customers or our distributors. We did not have a higher distribution inventory in Europe and that distribution inventory did not change in the last two or three quarters. We just had a significant growth in sell-out and distributors were giving us a significantly higher forecast regarding what the sell-out would have been in the June quarter, and distributors did not really realize that sell-out because they saw some inventory correction at their end customers where they had shipped a lot of product in January.

You know, the backdrop for Europe, Europe has been very strong for several quarters. I think if we look back over the last two fiscal years, it has been probably the strongest geography that we had at Microchip. It is certainly possible that the end customers of our distributors, with that as a backdrop, perhaps got ahead of themselves in some way in terms of what they saw as demand from their own economy and perhaps some of those factors have affected it. But certainly our ability to have any changes in that end-market, the customers’ demand in the distribution channel, is really based on their own outlook on their business, the economic factors they see at that point in time.

If you look at some of the results that have come out from distribution so far, they are really pretty lukewarm. [inaudible] results haven’t come out yet but Arrow’s results have and the June quarter was essentially flat and was down 2% last year, and for the September quarter they are forecasting their components business to be minus 4.3% to up 1%. So the distribution is not forecasting very good results overall for their components business, so --

That’s helpful. I appreciate it. Gordon, on the lead time front, what were your lead times? The reason I ask partially is because some of the -- I guess a few of the analog companies at least have seen some extending of lead times. I wanted to see if yours have stretched at all and also if your competitors or some of the -- might not be the right word but some of the others out there, if their lead time is stretching, is that impact the bill of materials lead time at all?

Our lead times are three to five weeks and really haven’t changed substantially over the last few quarters. It is certainly with longer lead times in different parts of the board, it is possible that can have an impact on the business differently. The fact that we have shorter lead times perhaps results in us not having as much backlog visibility in some way, shape or form. And so, you know, it is an inter-related board that our customers are trying to populate.

Last quick one -- you guys filed a lawsuit against Shanghai Haier. I just want to understand what kind of impact per quarter in terms of spending. Is it material? Secondly what is your ultimate goal, given that can be sometimes a tougher route to go for a lot of the U.S. companies?

The impact is really very small. These things take a long time. Some of the customers we have litigated in Taiwan in the past can take years, so it is really nothing. There is no short-term impact on expenses of any kind. They are trivial. As it gets well into it, these are not mega-lawsuits like you’re used to with some other U.S. company to U.S. company. It is really on a very small segment of products and longer term, we have taken similar actions against customers -- no, not customers, sorry -- several competitors in Taiwan very, very successfully. We took an action similarly against a U.S. company years ago. The company used to be called Phoenix Semiconductors and they don’t make those copied products anymore, so our success in enforcing our intellectual property has been relatively pretty good and that’s why we’ve enjoyed very, very good margins over long periods of time. Here, we are not talking about the entire Microchip portfolio. Our product line is very, very vast. It is really at the bottom end of older microcontrollers that Microchip has been making for 10, 12 years now where there is some breach of intellectual property, and in due time we’ll take care of that.

Great. Thanks a lot.

Next we’ll hear from Chris Danely from J.P. Morgan.

Thanks, guys. A question for Steve of Ganesh -- have you guys talked to those 10 customers, sort of housing related, that pushed out in the June quarter? And if you have, what are they saying about their September quarter? Are you getting any commentary from them regarding their inventory levels or how long this is going to last?

Yes, yes we have. Basically they are not very confident in their own forecast because they read the same headlines like all of us read, and just today’s over 300 points market drop in the middle of the day, largely the headlines I read were driven by housing and sub-prime woes and so on and so forth. The customers are forecasting this quarter to be sequentially down on their own business for those 10 customers that I mentioned, so the U.S. housing index, as I -- don’t try to correlate that to a U.S. housing index that you may hear from homebuilders and anybody else, because within these 10 customers, we may have additional designs going into production, people moving to Asia -- it is just really complicated. But rather than not having anything, I try to really take a judgment and try to give you an indicator, which could give you a feel for really how our business is doing at these 10 customers. In the September quarter, that business is expected to be sequentially down.

Okay, and then Steve, you raised the dividend and clearly you are still confident in the business model. I’m just curious as to why you wouldn’t be buying back more stock.

I think we have said many times before that we buy stock really at occasions when we feel that stock is substantially under-priced, to the point where the market has thrown the baby with the bathwater. Last time, I’ve given examples before, the last time it happened was during SARS, where a significant event happened and Shanghai and Beijing were ghost towns and our business was very substantially impacted. But the market reaction of that was somehow we lost the recipe and the market has gone to 16-bit and our margins were not maintainable and so on and so forth. We haven’t seen really that kind of reaction in the market this time. It seems to be investors understand what is happening and housing is a well-known phenomenon. It is being talked about every day. Having said that, where the stock has come down from the highs of 42 before, and depending on what the market reaction is in the coming days, there is -- you know, the board has a chance to really rethink that and trigger that any time they feel it is reasonable. We have a large amount of stock buy-back authorization in place and we are not going to signal to the investors when we start acting on it.

But it is fair to say if we get another 15% sell off, you guys would think of stepping in?

That would be signaling. That would be giving you a definitive answer. I can’t give you a definitive answer at what point and time the board and management will meet and think it is the right time.

Okay, thanks.

(Operator Instructions) Next we’ll talk to Simona Jankowski from Goldman Sachs.

Thank you. I think in the past you’ve indicated that consumer is about a third of the business. I know it is difficult to track how much of it goes into the U.S. versus overseas but is there any guideline roughly you can give us of how much of your business overall is exposed to the U.S. consumer?

One thing we want to separate is the consumer versus housing, because consumer versus housing are not the same. Housing we are look at things that go into new housing -- appliances, security system, thermostat, air conditioners, garage door openers -- that is housing. Consumer could be anything, you know? Stuff we sell into things consumers buy and all sorts of electronics and entertainment and other equipment. That is not related to new U.S. housing. Some people have asked what is that exposure to U.S. housing? It is very hard to figure that out but I believe our guess is somewhere in the 7% type of range. How we arrive at that is really by looking at these large customers and roughly looking at -- there is a huge tail but roughly what portion of the business is the 10 customers that I talked about. These 10 customers that I talked about are slightly over 3% of our business, so if you just double it, take care of the long tail, it really gets in that range. I don’t know if that really helps you but investors shouldn’t confuse U.S. housing to U.S. consumer. U.S. consumer is still doing well, and you are right -- a third of our business worldwide is consumer but our U.S. overall business last quarter was slightly up.

That’s very helpful. That’s exactly what I was getting at. Just related to that, the U.S. housing market has been weakening for a while, so I’m just kind of curious from your perspective, has the decline been pretty similar in the last two quarters and it is just that in prior quarters, other parts of the business like Europe were strong enough to offset it so it wasn’t observable from the outside? Or is it because that this quarter in particular, the deterioration accelerate?

I think you answered it. We serve 60,000 customers around the world and we’ve been gaining market share tremendously. As you know, Dataquest numbers on 8-bit microcontrollers, our competitors were down last year and we were up nearly 15%, so with that kind of market share gains and a very broad base of customers, we are often able to take the impact of a single segment. At any given point in time out of 60,000 customers, there are customers going up and customers going down, customer who win against their competitors and customers who lose against their competitors. Sometime we’re on both sides of the equation, so we don’t win or lose but other times, we have a customer who loses in their end market. So these kind of phenomena happen all the time. It is a large number and our revenue is very stable, but this was a very dramatic change, number one and the change came in parallel with really another factor in Serial EEPROM and another factor in Europe. And at the top of when most companies are announcing year-over-year negative growth in an otherwise difficult, challenging market, you couldn’t take all of that together.

Thank you.

Next we’ll hear from Sumit Dhanda from Banc of America Securities.

Steve, I had a question for you. If you sort of look at your normal seasonality in the September quarter and the five-year average is about 4%, the 10-year average is about 5%. So the delta versus that seasonality is, depending on what frame of reference you choose, about three to four points. Any sense you can give us as to where that delta or what that delta is attributable to? It seems large. Is it just that the backlog and the book-to-bill is not where you would like it to be to be able to guide to normal seasonality?

It is really all of the above. Backlog, but more than the backlog, I think I have historically said that we don’t really rely much on backlog because whether the customer who places the order on the 25th of June or gives it to us on the 7th of July, it doesn’t really make any difference. I think the biggest issues are the housing market is still going down and we know from this segment that we’ll have another negative indicator. Europe would be down this quarter, driven by Europe and any time the market is weak, it can go down more than you think it can go down in a given segment. As we look at the guidance from the rest of the industry, just in the last quarter the Semiconductor Industry Association, Dataquest, InStat -- everybody has dropped the overall semiconductor growth for 2007 into very low single-digits, like 2% type. It used to be 7% to 8%, which basically means with half the year ahead, which means they are not optimistic on the second-half of the year. Just this week earlier, STMicroelectronics dropped their 2007 industry forecast down to 1.8% from a number which was 5%, 6% type. I think people in general I think are a bit more pessimistic about the second-half of the year, and therefore all that is accounted in the guidance in the September quarter.

I don’t want to belabor the point but just as I dig through this, you indicated that your housing exposure is about 6%, 7% and your exposure to Europe is about 30%. It almost seems like you would need to see declines of the same magnitude you saw last quarter to see that two or three point delta. Is that the right way to think about it, your housing exposure is down sequentially another 15% and maybe Europe declines another 5% or 7%? Is that what you are baking into your forecast?

I don’t know how to split that out in so many portions but I think when you are trying to triangulate back to an average of the last X number of years being 4% or 5%, your basic assumption is starting from that the industry conditions today are average of the last 10 years, and from there you are trying to subtract out a specific effect of housing or Microchip specific. I don’t believe that the industry conditions are average right now. I think the industry conditions are below average. I am looking at guidance and announcements from most companies. I think Microchip is one of very few companies that are up year over year. Companies like TI and [Xilinx] and [Altara] and [inaudible] announced today and a bunch of large companies. They are all down year over year and they are not talking about huge growth. Everybody’s talk has gone down in an announcement for the last 10 days. I don’t think that you should start from an average industry condition of Microchip growth to be 4% to 5% and then try to subtract the specific factors. I think you have to take a good sized judgment that the industry conditions are not average.

On a different note, either you or Ganesh could answer this question, in terms of your 16-bit microcontroller products, not as a percentage of revenues but as a percentage of your design portfolio, which I think you have disclosed in the past, has it moved substantially from the 25% type number? Is there an update you can give us on that metric?

I am not sure we have provided that metric. Are you referring to --

He’s looking at the number of products, like we have 92 products out of the total.

In that sense, it is probably close to that same ratio. We have about 450-ish total microcontrollers. 16-bit is about 100, a little bit less than 100, about 92, somewhere in that range. So it’s in that 20%, 25%.

Would you expect an acceleration in that in the near future? I would assume so, or if not --

As we invest in 16-bit, we are not dis-investing 8-bit, so we still have substantial 8-bit investment, substantial market share yet to gain. You will continue to see a steady drumbeat of 8-bit products from us, even as we bring out a substantial number of 16-bit products. In terms of acceleration, we’re telling you you should see us close to 150 products by the end of our fiscal year ’08, so that’s 50% more than where we are at today.

Thank you very much.

Next we’ll hear from Jeffrey Rosenberg from William Blair.

I wanted to follow-up on that 16-bit question as well. Of those 92 products, how many of those have been it the market for -- I don’t know if two years or more would be the rights sort of timeframe to think about when they’ve had a chance to start to ramp to a reasonable volume of revenue. How would you look at it that way in terms of kind of by class, how many of them have been in the market long enough where they are reaching that point?

Very good question. So there is probably one-third of them that have been around for more than two years. A lot of the newer products have come out and are still in their design cycle. The early customers may have gone to production but there are many, many more that are in the incubation stage that are not yet in production.

Okay, thanks. And if I could ask one more, Steve, in terms of parsing things and looking at different segments, how -- do you think Asia will have a growth rate that is somewhat softer than you would have normally expected as well? I mean, just thinking about the non-housing related consumer and the ramp seasonally, are you seeing that or is that muted as well?

A lot of the U.S. customers produce in Asia, so our Asia number really has a substantial amount of export from Asia back to the U.S., so if you are looking at some pessimism here then yes, it will reflect in the Asia number too. The numbers we have internally baked in for Asia are a bit lower than I would have like to see.

Thank you.

(Operator Instructions) Next we’ll hear from Kevin Cassidy from Piper Jaffray.

Thank you for taking my call. You had mentioned that the Serial EEPROM, the business got better after the pre-announcement. I wanted to know what changed that made that business get better. Did ASPs go up?

No, it is not that the ASPs went up. I think a significant portion of our business is always distribution, which we only recognize when we get a distribution sales report and we don’t have it all the time. We get these periodic reports and I think in the final, as we tally the numbers, the distribution sales out were slightly better. Some time even if you get an earlier flash report, we get a total but we don’t really get a breakdown by each product line, so distribution says okay, I sold out so much. They don’t really periodically give you a breakdown of every product line every week. When we finally got that number in early July, there was a bit more business, I believe, Gordon, of the type of $0.5 million plus?

$0.5 million to $0.75 million.

$0.5 million to $0.75 million more had moved in the category of Serial EEPROM. This business is what, a $30 million business, roughly per quarter? So that is sizeable and that can change it from slightly negative to slightly positive.

What percentage of the memory business goes through distribution?

Very dissimilar to really what the rest of it is.

Two-thirds of it is through distribution.

Okay, so since it was through distribution, were you able to tell what market segment it was?

Our memory business is very similar to the rest of the business. It is a very broad-based number of customers, applications, markets it goes into. There is nothing unique about memory in one market segment.

I must say that this $0.5 million to $0.75 million change from one product line to another product line, E-squared to micro, micro to E-squared, analog -- they happen all the time. They happen every quarter but they don’t get the scrutiny. We don’t really forecast for you what every product line will grow every quarter. We give you the numbers at the end and we see the change internally. This is a -- we are talking about a $1 billion business and 60,000 customers. These kinds of changes happen all the time. Now, coming off a quarter where we had a negative pre-announcement, we know the investors are anxious to really know more and we work hard to provide you a bit more on the U.S. housing index and Serial EEPROM and all that but these are trivial changes in general over time.

Okay. I was just looking for what the changes were. Thank you.

Our final question comes from Uche Orji from UBS.

Thanks. Can you help me -- I know you’ve talked about this whole housing thing but if I look at the other sub-segments, were there any areas where you saw strength that you thought was notable, at least just for us to get a sense, a proper sense of what are the areas where there have been some improvements. That may be interesting for us to know.

Well, you know, we manage our business by product line divisions, not by end markets.

Of course I know that.

We do not have an end market, we don’t have -- we don’t have an organization selling into communications or selling into consumer or selling into office automation. Our products are standard, programmable products, exactly the same microcontroller can be used in a cell phone, in a automobile, in a toaster or blender, in a washing machine and a garage door opener. The only difference is the customer has designed it differently in those different application boards, so therefore our approach to market is very horizontal in nature. We can tell you really how product lines did and we are telling you that the 16-bit product line was the runway winner, with over 25% growth, and the other product lines were essentially all were close to, you know, weaker. But we can’t tell you by end market. We saw a significant impact of housing and it took a lot of work to bring you some data and we have done that. But with 60,000 customers and hundreds of end markets, in general don’t manage it that way.

Fair enough. I understand that. I just was hoping that given how much in housing, we could perhaps get some insight in other areas. But let me ask you a different question -- when I look at Europe, you had a strong performance in March and then things have kind of slowed down. Do you think that the seasonal impacts we have seen out of Europe may be somehow amplified by an inventory correction, given the strength we saw in March? Do you think so?

Is the impact amplified by the inventory correction?

-- strong performance in March, and then --

I think we admitted that. I don’t know whether you joined on the call late but we talked about that it is possible that the distribution over-shipped to their end customers over a period of time and there was a very, very strong growth in March, 19% growth sequentially, so the end customers were already bullish, the distributors were very bullish in terms of the forecast they were giving us and those forecast were not realized.

If your question is about next quarter, I think there is not an overhang from the --

That’s my question, actually, yes.

Because he was asking --

There is no amplification going into the September quarter.

If you look at the GDP and other factors in some of the leading economies there, they still are strong. This could certainly have been some level of an overreaction from our OEM and distribution end customers that rectified itself here, or represented itself, I should say, in the June quarter.

That’s helpful. Thank you very much.

Due to time restrictions, the question-and-answer session has ended. I will now turn it back over to our speakers.

Thank you very much and we will see you on the road as we go to various conferences. Thanks.

That concludes today’s conference. We appreciate your participation. You may now disconnect.