Good day, everyone, and welcome to this Microchip Technology Third Quarter and Fiscal Year 2013 Earnings 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. Eric Bjornholt. Please go ahead, sir.

Good afternoon, everyone. During the course of this conference call, we will be making projections and other forward-looking statements regarding future events or the future financial performance of the company. 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 recent filings 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; Ganesh Moorthy, Microchip's COO; and Gordon Parnell, Vice President Business Development and Investor Relations. I will comment on our third quarter of fiscal year 2013 financial performance; and Steve and Ganesh will then give their comments on the results, discuss the current business environment and discuss our guidance. We will then be available to respond to specific investor and analyst questions. I want to remind you that we are including information in our press release and in this conference call on various GAAP and non-GAAP measures. We have posted a full GAAP to non-GAAP reconciliation on the Investor Relations page of our website at www.microchip.com, which we believe you will find useful when comparing GAAP and non-GAAP results. I will now go through some of the operating results, including net sales, gross margin and operating expenses. I will be referring to these results on a non-GAAP basis prior to the effects of our acquisition activities and share-based compensation. Net sales into the December quarter were a record $416 million and were up 2% sequentially from non-GAAP net sales of $407.8 million in the immediately preceding quarter. Revenue by product line was $266 million for microcontrollers, $93.3 million for analog, $32.5 million for memory, $21.3 million for licensing…

Thank you, Eric, and good afternoon, everyone. Let's now take a closer look at the performance of our product lines. Our microcontroller revenue grew 1.8% sequentially in the December quarter to achieve an all-time record of $266 million in revenue. Microcontroller revenue was also up 22.6% versus the year ago quarter. And as you will hear in Steve's remarks later, we gained market share in all microcontroller segments during 2012. Microcontrollers represented 63.9% of Microchip's overall revenue in the December quarter. Our 16-bit microcontroller business was up 12.6% sequentially in the December quarter, achieving a new record for revenue. We continue to expand the breadth of 16-bit solutions that we're offering and customers that we are serving, as we continue to gain market share in this segment. Our 32-bit microcontroller business was up 17.4% sequentially in the December quarter. We are continuing to win new designs and expanding into new applications to enable further growth in revenue and market share. Now moving to our analog products. Our analog business grew 7.7% sequentially in the December quarter to achieve a new record and continues to perform exceptionally well. Analog revenue represented 22.4% of Microchip's overall revenue in the December quarter, the highest proportion of our revenue ever. During the quarter, we launched 2 new families of analog products. The first is a portfolio of high-efficiency discrete power MOSFETs, specifically tuned for power applications. The second is a family of analog power controllers that offer higher voltages and enable significant energy efficiency improvement in power conversion applications. Both product families expand our served available market for existing customers and applications, as well as enable us to penetrate new customers and applications, and nicely complement our dsPIC digital signal controllers, which already have a leadership position in the power conversion market segment. Now…

Thank you, Ganesh, and good afternoon, everyone. Today, I would like to first comment on the results of the fiscal third quarter of 2013, then I will provide guidance for the fiscal fourth quarter of 2013. We are pleased with our execution in the December quarter, despite a very challenging macroeconomic environment. Our net sales, gross margin, operating expenses and earnings per share were all better than the mid-point of our guidance. We made new all-time record in net sales for several of our product lines. Microcontrollers, with $266 million of net sales, posted a new record. Our 16-bit and 32-bit microcontrollers each posted a new record in revenue. Analog products also posted a new record. Our licensing businesses also performed very well in the quarter and achieved this 6% sequential growth. Last, but not the least, the December quarter was our 89th consecutive quarter of profitability. December quarter also had several other highlights. First, our non-GAAP earnings per share at $0.41 were at the high end of our guidance. Number two, we achieved $0.065 accretion from SMSC, which was well above our guidance of $0.04 to $0.05 for December quarter. Number 3, during the quarter, we instituted a rotating time-off program for our fab employees and substantially reduced the wafer starts in our factories with reduced inventory. Because of SMSC acquisition and the write-up of SMSC inventory to market value, the inventory calculations are very complex and can be confusing. In our T.J. Rodgers [ph] of Cypress Semiconductors calls it wacky purchase accounting. I happen to agree. Eric Bjornholt went through a 3-step process on inventory after an acquisition. In step 1, the inventory is written up to the fair market value, so the inventory balloons and the inventory days go up. In the second step, the written up…

[Operator Instructions] And we'll take our first question from Chris Caso with Susquehanna Financial Group.

I'm wondering if you could give a little more color on some of the business improvement that you've seen. Where are you seeing that as a broad-based? Is it at any particular customers? And then, in particular, I was interested in the comment about the expedites that you were seeing. I don't think that's something we've seen, we've heard from your competitors. Why do you think your customers' expediting? I would assume, given the inventory levels, that the lead times are pretty low right now.

So, Chris, thanks for the question. Basically, the inventories have run down very low at the customers, as well as at the distributors. And the customers were probably accounting for either much deeper cycle in the December or not as much recovery in this current quarter. So we are seeing a fairly strong expedite activity, which is driven by customers not having inventory and them not being able to find that inventory distribution either. The strength is pretty broad-based. We are pretty much seeing it from all geographies, including Europe. And we're seeing it in direct as well as distribution. And it doesn't seem to be any specific market segment, vertical market or anything where it's happening. We have pretty strong bookings across the board.

Okay, that's great. And I guess, with respect to the fab loading. You had earlier talked about running that at lower levels through the June quarter. Is that still the -- is that still the plan? Have some of the improvements you've seen caused you to change that? And perhaps you can just remind us how we should expect as that fab loading increases, we should start to see benefits on the gross margin line.

So that's a very good question, Chris. We're asking the same question to ourselves. At this point in time, we still have inventories higher than what we would like. Total inventories and the majority of the excess inventory is sitting in the die banks. So at this current time, we are ramping our back-ending facilities to move that inventory from die bank to assembly and test into finished goods, to keep the lead time short, meet the expedite request and meet the increasing needs of the customers. We do not feel yet that we need to take any action in the fab because the die banks are quite healthy. Now as those die banks start to correct and overall inventory starts to adjust, we will be watching it on, really, a monthly basis, even more often. And the rotating time-off is very flexible. I mean, it allows us on a moment's notice to be able to increase the wafer starts by simply asking the production staff to work more hours than what they're working today. And that's the beauty of it. We don't have to hire people. We haven't laid off the people. They're all working. They simply are taking some furlough days off and they simply come to work more hours, which they would love it anyway. So as we start to make those changes, we'll communicate to the investors and analysts. Today, we're not prepared to really make any decision on it.

And we will take our next question from Jim Schneider with Goldman Sachs.

I was wondering if we can maybe talk about the expedited orders or the increased backlog in maybe a different way. I think you talked about bookings into the June quarter as well. Can you maybe give us some kind of metrics about the longer dated order backlog into the June quarter, either in terms of how many more weeks further extended backlog that you're seeing now that compared to normal or some other kind of metrics indicating coverage?

It's a more qualitative assessment we're giving you at this point in time. Clearly, as we look at how far into the quarter are we booked, at this time of the quarter, we can see we are significantly higher booked into this quarter, and we can see backlog starting to fill into the next quarter as well. I don't have a precise number to give you to say how far in that we are for next quarter.

Okay. And then maybe if you could give us any kind of color on the end markets and which ones you expect to be up stronger or maybe less strongly into the March quarter, that will be helpful.

As I earlier mentioned when Chris asked the question, I don't think we are seeing any difference by end markets nor we track them, really, as well as we would like to. Our business is largely horizontal. We serve into a lot of customers and lots of customers through distribution. So we're seeing pretty broad base strength. But some large customers where we do business directly, whether they're in the Consumer segment or Industrial segment or Automotive segment or Computing segment, we're seeing really pretty strong business bookings across the board.

And we will take our next question from Kevin Cassidy with Stifel, Nicolaus. Kevin E. Cassidy - Stifel, Nicolaus & Co., Inc., Research Division: Just along the same lines, gross margin, you guided for flat quarter-over-quarter. Can you tell what the dynamics are there? If you said that inventory write-down was a drag on gross margins in the third quarter. Just wondering why it's not going up a little more in the fourth quarter?

So, Kevin, I think maybe it's being confused. We didn't talk about an inventory write down. We talked about an inventory write-up associated with purchase accounting. And that only impacts our GAAP gross margins, which you saw were down pretty significantly at about 48%. But that does not impact the non-GAAP results. So that is not something that's impacting the quarter-over-quarter activity. Steve talked about the activities in the wafer fabs. We're remaining with these rotating time-offs schedules at this point in time and really just ramping on the back end. So that's really what's happening on the gross margin line. There isn't anything that is going to improve the gross margins in the March quarter significantly. Kevin E. Cassidy - Stifel, Nicolaus & Co., Inc., Research Division: And also, how long did the employees agreed to take the 5% cut?

It's through end of June.

Okay. Is there no other metrics along with that, just through June?

Well, so it's basically voluntary in nature. So 2,400 employees voluntarily stepped up and say, we'll help the company when the operating expenses need to be brought down rather than doing a layoff. We're saving money that way. Therefore, committed to the programs, which will otherwise have to readjust or slip out. Now, if the business environment continues to strengthen, as it is looking, we'll certainly look at it again as we talk to the employees. We could reduce the 5%. We could terminate it early. All those options are there, but the number just became public today. So that conversation hasn't happened with the employees.

And we will go next to Sumit Dhanda with ISI Group.

A couple of questions. The analog business did exceptionally well in the quarter. So just curious, I know you've been doing well in analog for some time, but was there any specific factor that really helped drive that 8% growth, which was so much better than the rest of the industry?

Gordon, do you want to take that one?

Well, analog has been doing very well so much for many quarters, as you say. We have been able to take advantage of our analog business, not only being attached to microcontrollers, but also extending its reach into other areas of analog capability. Certainly, as we've extended into 16 and 32-bit microcontrollers, the opportunity has improved, and we've been able to take advantage of that. Our design win funnel is performing very, very well. And we're very bullish on the capabilities that we have in analog and how we've been able to grow that business.

Steve, maybe just as follow-up on that. If you had to take a stab at, not that we're going to hold you to this, but by how many points do you think analog business can outperform the broader analog business this year? Do you think it's 5 points more or less? Just your thought process given the design win funnel.

Sure. You will hold me to it so I'm not going to answer it.

Well then maybe can I ask you a different question?

Pull me to it, you will be the one.

On the bookings, any color you can provide, Steve, on when you started to see the pickup. Was it just in January? Was it November, December? Has the bookings trajectory strengthened only lately? Or was it strengthening through the course of the fourth quarter, because the data is all over the map, depending on which company you talk to this earnings season?

So I think it's been strengthening along. The late part of last quarter was pretty good. But around the Christmas timeframe, lots of people are off and all that. So the data gets very muddy whether you're getting higher amount of bookings in shorter number of days, because purchasing managers wouldn't be working certain days. So we cannot decide for the data as well in that timeframe. But then as we came into January, post the New Year, bookings continue to strengthen and the last several weeks have been just very, very strong.

[Operator Instructions] And we will take our next question from John Pitzer with Crédit Suisse.

This is Andrew Paik calling in for John. I was just curious if you now have a better sense of normal seasonality, including SMSC. And historically, you have been a good indicator of the cycle. So I was curious what your current view is respect to the channel inventory then lead times. It seems like lead times are low, would this lead to a rather muted recovery, in your opinion?

Well, so 2, 3 questions in there. First one was regarding the cyclicality. I don't think we have any better handle on cyclicality, in general. I think if you look at the last several years in semiconductor industry, there's just no cyclicality. I mean it's just like, things are all over the place. And if you take the average of a given quarter for 5 or 6 years, it doesn't really tell you much about where the current quarter could perform. So we could go back to a historic seasonality, where June and September are good, strong quarters. And the March is the reasonable quarter. December is usually very weak. But I'm not sure if that's good right now. March quarter is looking pretty good and December quarter, and -- I'm sorry, June quarter should strengthen further. The second part of your question was what?

Just I was curious your current view of the cycle, given that you have been a good indicator in the past. It looks like lead times are pretty low these days. And I was curious if that could possibly lead to a rather muted recovery in the near term?

Well, when the lead times are low, it doesn't lead to a muted recovery, it leads to a strong recovery. Because when the lead times are low, the customers usually have no inventory and slight disturbance or uptick or demand drives what it is driving right now, huge expedite requests, strong bookings. Because when people can find certain parts, lead time shorts doesn't always mean 100% of the products just available today. It's usually on the majority of the products and whenever a customer needs some parts and if they don't find it for a week, the factory's down for the week, and that's very, very expensive. So usually, when the lead times are short, people don't hold any inventory and as soon as there's any sign of recovery, huge kind of orders come in, like we are seeing today. And then the recovery's actually fairly strong, I would say.

Okay. And as a quick follow-up. Just given the pay cuts through the June quarter, how should we think about the OpEx trajectory for the, I guess, post -- I guess, through June and then after the June quarter?

So we haven't dollarized for you. I don't know if you have the number. But the March quarter is in our guidance that we're giving you. And then we can further give you guidance for past the June quarter as those pay cuts are reversed. There's also a chance that they reverse early or the pay cut is lessened from 5% or a smaller number, as I mentioned earlier, based on if we see that recovery strengthening in the June quarter, June quarter will be very strong, then we're unlikely to stay through the pay cut to the end of the June. That just wouldn't be fair to the employees at that point in time. So that's something we have to give you guidance as we go along.

And we will take our next question from Steven Eliscu from UBS.

Similar question on the cycle, but I want to ask it somewhat different way. Just based on your experience, strengths you're seeing this quarter. And you're already indicating further strength in the June quarter. Is there any chance that we're getting a restocking cycle that potentially holds from the June quarter, which has historically been seasonally strong? Or do you believe that we're perhaps at the front end of a multi-quarter restocking cycle? What would history tell you?

The history tells me that not all customers, not all purchasing managers telephone each other and line up together to really go do something. And there's always a multicycle. We always see too many moving parts across a large customer base. There are customers pushing out orders, and there are many customers pulling in orders and expediting. So this usually always happens in a multicycle way -- no, multiquarter way, not in one quarter.

Okay, that's helpful. And then more strategic question. Just we've seen a number of recent announcements from your competitors on low- to mid- range 32-bit controllers that are using 90-nanometer or 65-nanometer technology. And even this one competitor talked, this past week, about 300-millimeter wafer manufacturing. Is there something that -- do you believe there's something that's changed where, now, advanced process technology for low-end 32-bit is now being brought to bear? And potentially with the risk to you that some of that may squeeze your 16-bit price stack? What is your view on how to address that threat?

Well, it's nothing new. There have been 32-bits at specific price points that you've been on calls where that had been brought up 4, 5 years ago. This market has many different factors upon which decisions are made. They have platform decisions, there are many competitive expectations beyond price that customers work with. And we can -- as you can see in our results, we have continued to outperform the market on our microcontrollers, on our 16-bit microcontrollers, on our 32-bit microcontrollers. As time goes on, were not standing still. We continue to evolve our product lines. We know what the competitive issues are and where they're coming from. And you will continue to see responses from us to address any competitive threats we see.

But, Steve, how is this question different than the one for the last 15 years where Freescale will do X, Y, Z. and TI has a 300-millimeter fab and Samsung has excess capacity and they will lower the price, and blah, blah, blah, and I just rattled up some names. It's the same thing over and over. Microcontroller market is very complex. It takes thousand-plus MOSFETs from Microchip to really completely serve their market. Somebody wants low-power. Somebody high power. Somebody wants low current. Somebody wants high current. Somebody wants high-performance. Somebody wants low price. It's a very complex market and we know how to serve it very well. I mean, our 8 and 16-bit businesses did very, very well last year. Our 16-bit business was up very substantially year-over-year, and our 8-bit business gained significant share from the market as we compared to the SIA data. So everybody has their strategies. But our strategies are working very well. We gain share by bit worth and overall substantially. And as we go to the conferences, we'll show you some graphs on it. The overall market share growth went from about 7% to a little over 9% going out of the year.

And if I could just ask one last quick question. Last quarter, you guided for SMSC sales of $87 million to $94 million. I realized you're not reporting that going forward. But can you at least tell us what you did relative to that guidance?

We did near the high end of that.

And we will go next to JoAnne Feeney with Longbow Research.

I'd like to go back to the OpEx questions earlier. Hopefully, you can give us a little bit more detail on the breakdown on the savings that you saw last quarter, probably some of those salary cuts. But I'm wondering what kind of progress you're making in pulling efficiencies through from the SMSC acquisition. And what we might expect going forward. Is this sort of going to be linear improvement? And perhaps in so explaining, you might shed light on why the accretion levels have come up for you guys?

So I think, if you've seen my commentary, we had $0.038 accretion in September quarter. We did $0.065 cents per share in December quarter. We're guiding to $0.07 to $0.08 for March. And what was it? $0.09 to $0.10 for June. So that increasing line of accretion is really a result of systems getting combined and then people becoming redundant, reducing costs, renegotiating stuff based on combined Microchip and SMSC activity, combining offices, closing down leases, those tend to be smaller items. But there is -- across the board, I mean, this is what we did with SST. We're very good at these consolidations. And it's really coming as a result of that. So SST is up -- I'm sorry, SMSC's operating expenses were well in excess of 40% when we started, and it just made 21% operating profit. And we're not breaking out the gross margin. But you can get a feel for. I told you that operating profit number, you can get a feel for how much improvement has been made. The prior year when there were standalone, the operating profits were 12% and on higher revenue. Because it was close to the downturn.

And how much more can you pull out in terms of efficiencies? Are we near the end of that or in the middle? I guess I'm just trying to think about when those salary increases come back into play, whether it's in the September quarter or earlier?

The salary increases are minute. They don't even make an impact of a penny.

Okay. And then do we still expect to see more savings from SMSC?

Yes.

For the OpEx line?

Yes, we do. Because this quarter, we're guiding to $0.07 to $0.08. And then we're seeing $0.09 to $0.10 next quarter and then $0.38 to $0.42 for fiscal year '14. So you could see we're kind of in the middle of it.

Okay, perfect. So that's driven by the savings. And if I could just switch gears for a question on the revenue side. It seems like 16-bit and 32-bit did quite well, 8-bit less well. Can you, perhaps, explain what's going on at 8-bit side of the world? Is it the different composition of end markets perhaps or is 16 or 32 being pulled by technology upgrades? Whereas 8 needs to wait until there's more a broad, general macro recovery?

8-bit is more economically sensitive and it's much larger business for us than 16 and 32. So smaller businesses can outsmart, number one. Number two, there are a lot many newer products on 16 and 32. In any given segment of 16 and 32, there's much larger incremental business coming from new designs where the 8-bit is a much larger business, less number of newer products, less number of newer designs. And so when there's a macroeconomic headwind, you'll have the larger, mature business get more impacted.

And we will take our next question from Brendan Furlong with Miller Tabak. Brendan Oliver Furlong - Miller Tabak + Co., LLC, Research Division: One very quick question. Unfortunately, going back to the OpEx in June. I understand the 5% pay cuts and all the rest. But do you normally see stock comp accrual and the usual annual increases in OpEx bump into June quarter because it's the first fiscal quarter of year? Or do -- will you see it in the December quarter in terms of calendar year?

So really, no change in stock comp. So our stock comp program does not -- you don't see spikes in it from that standpoint.

It's a quarterly program.

Right. And if I'm kind of a normal payroll standpoint, we make changes as the business can afford them. So it's not consistently tied to a specific quarter.

And we will take our next question from Cody Acree with Williams Financial.

Maybe, Steve, just on a high level. The pickup that you've seen, do you believe that this is really economically based? You're gaining share. You've got excessively low inventories in the channel. I guess, can you maybe just talk about what you think is the driver, if not, from an end-market standpoint, just maybe on a high level?

Well, it's really all of the above. You had more of the answer to the question than the question itself. The addition of all those and we cannot decipher. It's the -- there is some recovery in the works. So there's very low inventories. So there is resurgence coming out of that. We're gaining share. Lots of new products, new design wins that have been in the incubation and, usually, customers don't launch their new products in a very bad environment. And I think the last new products are getting launched and we're getting customer schedules for products going into a lot of new products and the structure and bookings coming from there, where customers relaunch their new products. So it's a combination of all that.

And we will take our last question from Raji Gill with Needham & Company. Rajvindra S. Gill - Needham & Company, LLC, Research Division: Sorry, if this was asked before, but I jumped on late. With respect to kind of the trends in the microcontroller market, it appears that some of your competitors are starting to integrate low-power Wi-Fi into the microcontroller and starting to go out to the Internet of things. I'm just wondering if you have thoughts on that particular market or that particular strategy.

Well, the competitor you're mentioning is behind because it -- they're just starting to hear about it now and we've been doing it about, what? Several years?

2,4 years. And you can go back and look at as we did acquisitions along the way, we had GE as the first acquisition that brought us into the Internet of thing space between that. The microcontrollers, the software that's required -- and this is a pretty fragmented market, where it takes more than just a product. It takes a significant amount of other collateral to enable small, medium-sized customers to be able to get into this. So we've been at it for some time. Rajvindra S. Gill - Needham & Company, LLC, Research Division: No, I know you're ahead. I'm just wondering if you -- how do you kind of look at the market in terms of the size and the future of it going forward.

Is a good market. It's growing. It's not going to be like a cellphone market. It's going to take time to build across a broad slate of customers and applications. And in that sense, I think it'll be a nice, good sustainable business over the long term. Rajvindra S. Gill - Needham & Company, LLC, Research Division: And just last question on the automotive side. Can you describe some of the cross-selling opportunities that you're kind of seeing now with SMSC and how do you think that kind of positions you to gain share in 32-bit market relative to, say, Freescale or Renesas and just wondering what your thoughts on the ARM-based controller versus kind of MIPS-based controller in that market.

Again, we have never thought in terms of ARM versus MIPS and that's really not what the solution that customer buys. So customers are looking for infotainment solutions, which is what came to us through the SMSC acquisitions. Customers are looking for analog and other memory microcontroller kind of solutions to go into the applications they have. The opportunity with SMSC has given us deeper relationships in certain accounts, where they had a much larger position than we did. There's certainly deeper relationships that the SMSC Automotive business had with the automotive OEMs giving us more insight into where platforms are being -- what direction people are taking and what some of the future technology requirements are. I wouldn't say there's any immediate change that has happened in revenue. Things take a long time in automotive. But we're getting substantial insight on where the future of automotive platforms, from an electronics standpoint, are going. And where there are opportunities to potentially work with the combined portfolio of products at customers where either one of us were not having as high of a content.

There is cross-selling synergy coming out on a more shorter-term basis, but it's not in the automotive market because it takes longer. We're seeing it in other industrial and consumer end of the markets, like set-top boxes and various USB hubs and computing segment and docks and speaker docks and all that kind stuff, digital audio and other things. So there are plenty of markets where we are seeing attach opportunities with either microcontrollers or analog products. We're also seeing those opportunities in automotive. But automotive will be longer time to market because they will have to be designed in.

That concludes today's question-and-answer session. At this time, I will turn the conference back over to the presenters for any additional or closing remarks.

We want to thank everyone for attending today. We'll be at the Morgan Stanley conference on February 27 in San Francisco. And we'll see some of you there. Thank you very much.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation.