微晶片科技 (MCHP) 2004 Q1 法說會逐字稿

This is premier conferencing, please stand by.

We're about to begin.

Good day and welcome to Microchip Technology, quarter 1, fiscal year 2004 conference call.

As a reminder, today's call is being recorded.

At this time, I would like to turn the call over to microchip microchip's Chief Financial Officer, Mr. Gordon Parnell.

Please go ahead, sir.

Thanks, Silvia.

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 actual 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, 2003 and our 8K cover reports that we have filed with the FCC that identify important risk factors results of operations.

In attendance with me today is Steve Sanghi, Microchip’s President and CEO.

I will comment on our first quarter fiscal 2004 performance giving information by geography product segment and Steve will give comments on the June quarter, providing an update on manufacturing capacity, discuss product line performance, and outline our guidance for the September quarter.

We'll then both be available to respond to specific investor and analyst questions.

Net sales for the June quarter were $161.3 million, up 1% sequentially, from sales of 159.7 million in the march quarter, and up 2% from sales of 157.5 million in the prior year year's first quarter.

Geographically, Asia grew by approximately 4%, Americas was essentially flat, while Europe decline sequentially by 2%.

Total revenue breakdown for the quarter resulted in sales for Asia representing approximately 40%, Americas at 31%, and Europe at 29%.

Net sales for microcontroller products represented approximately 81% of revenue in the quarter, analog products were approximately 7% of revenue, and memory, the balance of approximately 12% of revenue.

Pro forma net income from the June quarter was 33.5 million or 16 cents per diluted share, an increase of 2% from net income of $33 million, or 16 cents per share in the immediately preceding quarter.

And an increase of 12% from pro forma net income of 30.1 million or 14 cents for diluted share from the prior year's first quarter.

On a GAAP basis, net income for the June quarter was $13.5 million or 6 cents per share.

Pro forma diluted earnings for the June quarter excludes the expense of special charges of 33.4 million which consists of 30.6 million, releasing to accelerated depreciation, related to the closure of Fab 1 and 2.8 million of additional charges, principally for contract cancellation, severance and other related costs.

Gross margin for the June quarter was 54.1%.

Factory utilization levels were at 85% in the quarter.

The start up costs for the Gresham facility were 4.7 million in the June quarter.

Excluding these costs are product gross margins for the quarter with 57%, essentially unchanged from the prior quarter.

Pro forma operating expense were 26.9% of sales in the June quarter, compared to 27.3 in the previous quarter.

For certain development costs were 21.3 million, representing 13.2% of sales.

Sales and general administrative expenses were 22.1 million, representing 13.7% of sales.

Pro forma operating expenses overall showed a decrease of approximately $200,000 from the previous quarter.

The tax rate used in our pro forma earnings was 25.5%, which was in line with the guidance that we had given the street.

The tax rate on the special charges carries a U.S. tax rate of approximately 40%, as these costs are 100% incurred in our U.S. operations.

These factors net to a 16.3% negative tax rate in our GAAP statements.

The tax rate for the balance of the year is anticipated to be in line with the 25.5% we had given further.

Onto the balance sheet.

June 30, our receiveable days were 48 compared to the same level as of the march quarter, and that is you said by a couple of days from a year ago.

Overall, receivable balance declined by approximately $7.2 million, while revenues grew 1% sequentially.

As of June 30, microchip's cash position and short-term investment was 272.6 million, with no debt on the balance sheet.

During the quarter, microchip generated approximately 68 million in cash from operations, offset by capital expenditures of $10 million, financing activities of $2 million.

Cash flow from the business after capital costs, working capital costs, dividend payments and treasury activities result resulting in adding about $56 million to treasurery.

Our total position at march 31st was approximately 108.3 million.

An increase of $6 million from the prior quarter level.

This increase in inventory from Fab 1 inventory built in the June quarter to support customers qualification requirements as a transition to Fab 2 product.

Inventory returns are 2.7 with days of inventory representing 134 days.

This will constitute the peak in terms of sales base, based on the closure of Fab 1 and we are teaming that there will be approximately 124 days of inventory at the end of fiscal September.

Capital spending in the quarter was about $10 million.

And we expect that capital expenditures for the year will be between $40 and $45 million , unchanged from previous guidance we have given the Street.

Depreciation expense for the June quarter was $28 million versus $27 million for the same quarter last fiscal year and in line with the depreciation for the prior quarter.

Development systems, we shipped 12,187 new application development systems and this is another record for us in terms of development systems, up from approximately 10.5 thousand system shipments in the prior quarter.

We have now shipped over 274,000 systems period to date.

This is really a strong indication of the continued strong design momentum for our products.

With that, I'll ask Steve to discuss the performance of our various divisional business elements, the combination of our fab activities that was completed in the June quarter and outline our guidance for September.

Thank you, Gordon.

Today I would like to cover four subjects.

First, I would like to reflect on the results of June quarter relative to many of the concerns of investors and analysts three months ago.

Second, I will give you an update on Fab 1 and Fab 2 consolidation and fab 4 status.

Third, I will comment on the products lines and finally, I shall talk about guidance for the September quarter.

So let's begin.

While announcing the March quarter results, we told investors that the results were affected by the world events like SARS.

But since most of the companies at that time had not talked about SARS, many investors and analysts were concerned that microchip was losing market share.

Since then, you have seen preannouncement from Motorola, Nokia, Advanced Micro Devices, Max Sim, RF Microdevices, Texas Instruments, Micrel (ph)and others that they were affected by SARS, too.

In addition, the new market share ranking by data request recently revealed the microchip was number one manufacturer of 8-bit microcontrollers shipments for calendar year 2002.

In 2002, microchip's unit shipments grew by 30%, while Motorola's shipments declined by 4.5% and industry unit shipments declined by 2.5%.

So we gained substantial market share.

If you look at the future design activity, microchip shipped a record number of new development systems in fiscal year 2003.

In fiscal 2003, the development system shipped were 50% higher than the fiscal 2002.

In the June quarter that just finished, we shipped another all-time record number of development systems showing a very strong momentum for our products.

I hope that we have put the investors concerns to rest.

Microchip announced on April 7th that it intended to consolidate its Fab 1 and Fab 2 facilities and close down Fab 1.

We have successfully completed this program.

Fab 1 was closed on June 24th.

So, what we accomplished here is is, we defined the last time build requirement for Fab 1, received approval from our customers.

We got all of the weavers wafers out week, built the mask for Fab 2, transferred technologies for Fab 2 and shut down Fab 1, all in 11 weeks.

The speed and quality of execution has been unprecedented in the industry.

I have seen competitors take nine months to a year and sometimes longer closing down a fab.

Now, let me give you an update on Fab 4.

Fab 4 has shipped all of the (inaudible) qualification lots already, initial qualification results were excellent and yields were excellent.

The qualification of fab 4 is now just a couple of weeks away, well ahead of the production start up of late October.

Meanwhile microchip's inventory daze at the end of June were better than projected.

We told you 141 days in our last conference call.

The actual was 134 days.

Some of it was attributed to a very quick closure of Fab 1, resulting in not too much inventory build.

With the closure of fab 1 we have taken a fair amount of capacity out now, and therefore inventory days are expected to drop further to about 124 days by the end of September.

So inventory at the end of September will be actually lower than what it was at the end of March before we started the restructuring activity.

Inventories in very good mix and investors need not worry about an inventory write-off.

So overall if you look at the last quarter, we achieved better than the midpoint of revenue guidance guidance, which is slightly higher grows margin percentage.

We lowered our operating expenses.

We achieved a high end of the earnings per share guidance, less than projected inventory, we built 56 million of cash.

We closed Fab 1 ahead of schedule and are two weeks away from the qualification of fab 4.

Should the investors be close pleased?

I'll let you be the judge.

Now a comment on our product lines.

Microcontroller revenue was up approximately one half of 1% sequentially, and it was up 5.5% from a year ago quarter.

The development tool sales as well as designs are very strong.

We expect to make record shipments in calendar '03, as well as fiscal '04.

Despite increasing amount of clawing by Motorola, the momentum continues to be in our favor.

We have confirmation that Motorola is trying to hire an outsider to run their microcontroller business, not really a sign of things going great.

Motorola actually has tried to hire one of our senior executives, who have declined the position.

On serial products, that was down one half of one percent.

We’ll pretty much essentially call that flat.

Analog products, analog business was up 10% sequentially, despite a very difficult market environment.

We believe that this 10% sequential increase is one of the largest increases you will see from any analog company, albeit on a small base.

The growth was driven by new customers last quarter of a standalone analog customers grew by 700.

The total number of analog customers we now serve are 8100.

It is clearly an evidence of our attact strategy working.

We are now gaining market share in analog, gross margin percentage and analog is approximately 60%, well above the corporate average and now approaching that of the high end analog companies.

Finally, the outlook for September quarter, SARS is now contained and all travel bans have been lifted.

We see significant growth in Asia in this quarter.

We also see signs of recovery in America's while Europe will be sequentially down because of the summer holidays.

Putting this all into account and after considerable checking and rechecking of expectations through all of our channels and all geographies, we expect our net sales for the September quarter to be between 163 and 171 million dollars, which comes up to -- up approximately 1 to 6% sequentially.

Gross margins are expected to be 54%, inventory should be down to about 124 days, and earnings per share is expected to be 16 to 18 cents.

With that, Silvia, will you please call for questions.

Thank you, sir.

The question and answer session will be conducted electronically electronically.

If you would like to ask a question, please do so by pressing the star key, followed by the digit 1 on your touchtone telephone.

If you are using a speaker phone phone, please make sure your mute function is turned off to allow your signal to reach our equipment.

In the interest of time, we ask that you please limit yourself to one question and one follow-up question.

We'll proceed in the order that you signal us, and we will take as many questions as time permits.

Once again, please press star 1 to ask a question.

And we'll pause for just a moment.

Our first question will come from Michael Masaida of Credit Suisse First Boston.

The first one, you talked about Motorola.

Can you talk about the Taiwanese and the traction they are making making?

Is it certain areas or are they not a concern of yours?

The Taiwanese business is local.

They have various different parts of various different companies and a lot of that market is underground.

The moment you expose it, it seems to go away.

There is a -- there is a small amount of activity that goes on for years and years and years, and it's hardly, you know, it's impossible to take it down to zero, but none of those really major competitors on a daily basis.

Right, and then in terms of inventories, I apologize if I missed this, can you give us an update on the customers in channel and what that's doing to lead times and visibility out there?

You said customers lead times times?

First of all inventories of your customers and how that's impacting lead times and visibility.

Are they changing?

The channel inventory?

Sure, I think it's the other way around in the sense that lead times affect the inventory, honestly.

Right.

When you look at the channel, we've been saying it's relatively flat because lead times are extremely short and that continues to be the case.

In the distribution channel inventory, as you can see from the balance sheet, are very much in line with where we were at the end of march, about 2.5 months of inventory.

We don't expect to see any significant changes in that as we look forward.

As far as OEM inventory is concerned, that's much more difficult to get your hands around specifically, obviously many of our customers operate consignment inventories, just in time systems, trying to affect as much control over their supply chain as they can.

And with lead times being as short as they are, stopped to two weeks, we don't believe there is any significant inventories in the channel.

Great.

The final question, is there any way you can break out exactly how much or pretty close your revenue is microcontrollers only versus all peripherals versus analog and RF and the drivers and all of that?

Yeah, we break that out.

When we say our microcontrollers business --

So the analog is pure an analog with no microcontroller in there there?

That's right.

The analog business we mention in our queue is pure stand alone analog business, microcontroller is pure microcontroller business and memory is the pure memory business.

Great.

Thanks a lot, guys.

Our next question will come from Chris Caso of Sound View Technology.

Hi, good afternoon.

I just want to comment on what kind of turns requirement you have for the guidance in the September quarter and how much of your June quarter revenue was done as turns?

When we look at turns it's appropriate to talk about turns for direct OEM business with the worldwide recognition on distribution to be taken as point of sales route and point of purchase, the shipments of the distributors do not matter, because it simply goes into the distributor inventory.

What matters is what distribute ships out.

So if you want to look at the OEM turns, in the quarter we just finished in June, we achieved approximately 60% turns.

And the requirement to do sort of midpoint guidance this quarter is about 58% OEM turns.

I would say in the same range.

The difference is noise.

Okay, great.

Could you give us an update on the 16 bit product, the data speck on launch date of that and how it's going with sampling of customers now?

It is going very well.

The final is in the fab, we have sampled it to over 100 beta site customers who are actively working on it, a large number of them have committed designs to it.

The product is all the development tools are in production and available on sale.

The product is going in production in the calendar fourth quarter.

And that'll be produced at the Gresham fab?

It'll be produced in our Tempe fab.

Tempe fab?

Fab 2.

Okay, Thanks very much.

Gresham fab can produce it also, but they will start up in late October and there is no reason to burden it with a brand new product with unpredictable demand and all of that.

It's a higher volume product.

Our next question will come from Chris Danely of JP Morgan.

Just a quick question.

It seems like that Americas and Asia is pretty strong this September quarter.

Can you give us a sense of kind of how the product lines will be up more in the September quarter quarter?

We don't really have ability to break down forecast of the next quarter by product line, by geography.

That would be too much detail.

You know, my thinking would be the majority of the growth will probably come out of the microcontrollers and analog, analog probably was up sequentially 10% last quarter, should be the strongest growth in the coming quarter.

Microcontroller, which is the largest portion of the business will be next, and the memory will be third.

It's -- that's qualitatively, I can't give you more quantitatively than that.

I guess the question I was trying to ask was analog was up 10%.

That would be pretty significant.

I was wondering if that was due to inventory replacement or do you expect that to continue in the September quarter or if there is any share gains there?

The analog -- it doesn't have anything to do with the inventory.

It came from really dramatic growth of the customers and the prior quarter we were serving 7400 customers.

In this last quarter, it was 8100.

So the customer base grew by almost 10 percent.

This is a large number of, you know, opportunities which are opportunities management funnel that we have been harvesting for in a couple of years we've been putting in, and eventually it's coming through.

A lot of it is attached business to our microcontroller.

There are lots of new designs, and there are significant additional large number of designs that should go to production in the current quarter.

So the growth is really coming from all of those right factors.

It really has nothing to do with inventory.

Got you.

What was the book-to-bill for the quarter?

Book-to-bill was slightly be low one.

Great, that's all I have.

Thank you.

Moving now to Joe Osha of Merrill Lynch.

Congratulation on the smooth closer of Fab 1.

I wanted to get an update, Steve mentioned that you were going to begin production in Gresham in October.

Perhaps an update on sort of the point for the ramp of that fab and on the back of that, what the gross margin targets might be as we look out kind of 6 to 8 quarters here.

Well, you know, when the fab starts production in late October, it will really do a small amount of volume in that quarter.

Obviously, there is some holidays at the late end of that quarter, and it takes a while to get the production out.

There will be a lot of production in that particular quarter.

It will ramp a little bit in the following quarter, but without really having a revenue guidance that goes that far out, it is very, very difficult to assess and guide, really, to get pinned down on the revenue ramp which will drive the gross margin, all that is driven by the revenue first.

So I can't really guide you to that.

Let's try it another way, then.

Let's just imagine that things progress seasonally normal and I won't nail you down to a number.

Would the expectation be that the real benefits associated with this ramp begin to materialize in the June quarter and let's go to an imaginary quarter eight quarters from now where the business is running at close to $200 million run rate, perhaps you could tell me what, you know, if you get there, when you get there, what those gross margin might look like at that point in time.

Gordon, we have done graphs on it before.

Do you recall off the top of your head?

Yeah, I think our longer term guidance is that margins will be in the 57 to 58% range in that sort of time frame.

It is not clear if it gets there in June 2004.

No, he said 6 to 8 quarters, though.

If you say 6 to 8 quarters, yes, the numbers we've been talking about are gross margins in the 58%.

Okay, just checking that.

It will go up certainly June quarter next year and should steep plea increase.

The June quarter is when we should begin to really expect to see the gains begin to show up?

Yeah, and depending on the revenue, there could be some in March.

It depends on the ramming up.

Just depends on the ramp.

I'll refresh everybody's memory, we bought this fab for $ $183 million, and if we take that $183 million, call it $180 for round numbers it has $180 million of equipment cost basis and $100 million -- $20 million in land, $80 million in building and $80 million in equipment, I'm sorry.

There 20 million in land, $80 million in building and $80 million in equipment.

The equipment is a very small subset of that equipment.

Do you know that in dollars?

Is it about ten?

Percent of it?

In millions of dollars.

It's in that range.

It's in that range.

It's a very, very small piece of equipment that goes to production which really starts depreciateing.

Therefore, the depressureiation of that fab having not a burden and therefore, as soon as you start producing any kind of volume production, it very quickly gets acretetive.

That's the beauty of that.

Once the revenue starts rising we can very quickly ramp that fab.

We don’t really need a lot of notice There are a large number of people that used to work in that fab that used to work in that area, you know, there is not any additional equipment required to ramp it to a reasonable level.

All we need to do is turn turn the knob on and turn the equipment on.

That's the best position for microchip to be in, where we qualify the fab in a couple of weeks from now and we're basically read, waiting for the signal from me to go ramp.

Any kind of upturn, if it materializes, we should be in a very good position.

Okay, thanks very much.

And our next question will come from Cody Acree of Legg Mason.

Let me talk about the linearity in the quarter.

Can you go through and see how this quarter has progressed and talk about orders and backlog.

For the June quarter?

For the June quarter.

Yeah, I think it was a pretty linear quarter overall.

It obviously enabled us to give a mid-quarter update, retaining our guidance.

When Steve was at the Thomas wisele conference later in the quarter, we had enough visibility to -- obviously we've come in slightly above the midpoint there, so I think all during the quarter it's been reasonable progress on our fairly linear basis for June.

I must remind that the June quarter is probably the most normal lineal quarter in the year.

The march quarter is back-end loaded because of Chinese new year as well as early January late start.

The summer quarter which we're in right now usually back-end loaded because of European holidays and some are October, November, December quarter has significant holidays and Thanksgiving and Christmas.

So the quarter we have finished is sort of from a linearity standpoint is the most linear quarter.

So with your backlog sitting about where it has been, does that point to maybe a little more stable bookings than you would expect in a back-end load loaded quarter?

Well, you know, I mentioned earlier, the OEM backlog was stronger, starting OEM backlog was stronger than it was on April 1.

And that's why it requires slightly less number of turns.

I think the number was 58% which is 60% we achieved last quarter, but I look at that as noise.

That's really nothing.

And then maybe you can talk finally about end applications.

Did you see any specific stratification or strength and weaknesses among some of the end markets you are going into?

We continue to see weak business in the cell phone area, everything else is about the same.

Okay, thank you.

Moving now to Harsh Kamar of Morgan Keegan.

Harsh Kamar It looks like it's anything back really nicely for you guys.

Can you give us a sense, is that coming back from pent up demand from what happened in the last quarter or are you seeing some new real demand?

And then I've got a couple more.

You know, if you look at the quarter we finished in June, the growth came out of Asia, despite SARS and all of those kinds of things, Asia was still the only geography that grew, Europe was down and Europe was flat.

If SARS would not have been there, Asia would have been very very, very strong growth, which it has been in the past.

When Asia has been the engine of growth, a lot of the designs you win in the U.S. and Europe transfer for Asia for buying, and we report our geography based on where the product is purchased.

So Asia is a significant contributor for growth and the current quarter quarter should drive a significant portion of the growth.

Europe should be sequentially down, but U.S. is up also.

Fair enough.

Memory was flat in this last quarter.

Can you give us a sense of some color on how pricing was for you in the quarter in memory?

Yeah, pricing was pretty much the same as it was the prior quarter, low single digits in terms of pricing pressure.

Okay.

And also, I guess, in the last quarter, you had said that U.S.

OEMs were down significantly in the March quarter.

Are you seeing -- and you're forecasting that U.S. will be modestly up, I guess, or up.

Are you seeing the U.S.

OEMs come back?

Can you give us some more color into that comment?

You know, back in the March quarter, U.S.

OEM was down almost 20%, so we have seen U.S.

OEM come back, yes.

Great, thanks.

As a reminder, it is star 1 to ask a question.

We'll go next to Eric Gomberg of Thomas Weisel Partners.

Could you guys give the DNA figure.

What's DNA?

Depreciation and amortization.

Sure, I'm sorry.

That's about $28 million for the quarter was the depreciation.

Okay, since you took the charged in Fab 1, will depreciation be lower in September quarter?

It will be about a million dollars lower.

Okay, thanks.

Okay, that's fine for now.

Thank you.

Our next question will come from Jeff Rosenberg of William Blair.

I guess I just wanted to follow up on what you were saying before about signs of improvement in North America.

You talked about things coming back with the OEM customers.

Do you have a good pipeline of new designs that you see coming up into production this quarter and I guess some specifically I'm also thinking about the new model year automotive, if you can comment on that.

Well, yeah, the pipeline of new designs has been extremely large, almost around the world for last year and a half, two years.

The largest element of the problem has been the continuous restructuring of the corporate America and corporate world everywhere.

You're working on a design and the entire team gets laid off, I'm talking about a customer or they close down a division or two companies merge.

So the economy has created so many moving parts that the focus of the customer has not been necessarily taking and launching new designs and taking new designs to production.

Customers usually when they launch new products, it's expensive, it requires travel.

It requires advertisement, and they don't like to waste -- so this is something I've said consistently.

There has been a lot of potential sitting there in terms of new designs and you're starting -- you're starting to see some of that come through.

You saw that in the analog last quarter.

We'll see more of that this quarter.

The most predictable portion of the launch happens to be automotive, because good times and bad times, automotive next model year shows up with 100% guarantee and if you are design designed in there and it shows up, and we have shown investors, you know, in various conferences that we have significant additional designs in the automotive business -- in the automotive business in the current model year, and you know know, you balance that with whatever is happening in the automotive unit and it gives you a mixed answer.

So to make up for some of the possible unit design would be with the new growth for the new designs.

The rest of the business, which is non-automotive, you can't say that with that certainty, because customers hold back.

They don't launch their models.

They wait for the better environment and that has been the significant reason why many of the designs have not gone to production.

So if it's not a heavy flow of new designs across your end markets, what are you seeing as sort of the signs of recovery in North America that you commented on?

Well, we are starting to see some of the designs getting released.

We're starting to see some other existing design volume to go up.

We're starting to, as you talk to the commerce and the industrial world, part of the world where you live in, you know, the customers are giving better signals.

We have our annual master's conference going on in Phoenix right now.

I just got back from there and 600 customers from around the world are here in 110 degree weather paying money to come here to attend this conference and learning about our products and are giving us fairly positive indicators.

Great, okay.

Are the operating expense for the guidance to be in absolute dollars a little bit council, is that a function of expense that is came out related to the fab?

Is there any operating expense there?

What's the reason that operating expenses would tick down?

It's noise level.

There is some radiation and certain discretion areas whether it be travel or some other elements of a business, some of them in -- so there's nothing that specifically I would out outline.

The range is typical to be able to forecast with a 40 million operating expense number.

Okay, and last one I wanted to ask was, you said utilization in Fab 2 was 85%.

I think you said you thought it would be at 90% when you are done.

Do you get there this quarter or has something changed there?

If I said that, I've misspoke misspoken.

The overall was 58.

FabFab 2 is at 90% plus.

And that's the range that it will be operating at this quarter.

Okay.

I may have miss heard.

Right.

Thank you.

Our next question will come from Brandy Brandon of eaten --

I was getting at that.

If you could just add a little bit to how you got 85% sort of time waited over the time that before Fab 1 was closed.

Is that sort of the calculation there that gets to you 85%?

It's in line with where we saw it in march.

Fab 1 closed the 24th of June.

It's a very modest impact in terms of -- Fab 1 is always more utilization than Fab 2, hence Fab 2 we're looking at being north of 90%.

Fab 1 was 50 percent utilization, Fab 2 was 90% of utilization.

But Fab 2 was producing majority of the product.

Average was 85 in the prior quarter.

So after the Fab 1 has been closed down now, Fab 2 utilization becomes pure which is 90% plus.

Thank you.

And our next question will come from Tory Vanberg of U.S. Bankcorp.

You gave as you a pretty nice schedule on where you expect inventory days to move in the next couple of quarters.

Could you give us that same schedule for your utilization rates?

Well, utilization in Fab 2, it's going to stay in the range of about 90% plus.

As we said, we are we have intentionally set it such that we will see declining inventory and getting us closer to the 110 days that is our range.

When fab 4 comes to productive readiness in October, it will come on very modestly, so I think that in terms of out utilization, that would be a very modest change, and we have really to determine exact exactly how we're going to describe that to the street.

So Fab 2 staying in that 90% range, still wring bringing down inventories as we go through the next several quarters.

Very well.

And you gave a fairly wide range on your guidance.

Is that due to the back-end loaded nature of the quarter or are you baking in some extra conservativatism here?

Well, certainly that's the guidance.

Yeah, that's our judgment based on the factors that we have.

Okay, very good.

And finally, how much of your analog business is OEM versus -- giving the given the increase.

How much is the analog versus DISTY, I think we have it if we don't have it right this second, we can get it later.

I don't have that information right in front of me here.

If we find it during rest of the call, we'll fade on the call call, meanwhile we can go on the next question.

I appreciate that, thank you very much.

Moving next to Chris Avery of Deutsche Bank.

Just to circle back, according to the charts you released regarding the 8-bit market, it appeared to gain roughly 3.5 percentage points in ’02 for a total of 15%.

Given what you've said and maybe you can add on the competitive outlook, what do you believe that you might be able to gain in '03?

Is it a similar rate?

Higher, lower?

I do not wish to project.

Market share is a lot more than what we can do.

We don't really know, you know, how is NEC and Hitachi and others doing.

We don't know the size of the market.

We don't know who is doing what.

The market sizes can change based on some unique application somewhere, somebody shipping 10, 12 million units.

Market share is a calculation based on what we do divided by the total.

I have no handle on the total.

We are here, you know, visibly working with our customers, trying to make the best number possible.

The market share does not come out till, you know, end of June, early July every year from data quest.

The monthly numbers come out from SIA, and you probably get them.

We don't endorse SIA numbers.

They have been highly erroneous over the years.

You know, we don't report our numbers to SIA, and a number of other companies don't report numbers to SIA.

SIA numbers are really reported by the member companies of SIA, and we're not a member.

As a final reminder to ask a question, please press star 1 at this time time.

We will here now from Jason Sam of Fizer Company.

Hey, guys, two quick questions.

One, can you give me a couple of housekeeping items, one, can you break down for me interest income expense and other income for the quarter, and also OEM versus distribution percentage in terms of revenues.

You know, interest expense or interest income, excuse me, it's a little over $700,000 for the quarter.

And the balance in that area is miscellaneous other items in terms of our overall numbers distribution to --

Now, Gordon, is the 700K net?

Yes.

It's about 800K income, about 700K net.

Distribution, you know, approximately 60%.

We have exact number.

Okay.

Great.

And just a question on the growth drivers in terms of customer segments for, you know, Q2 coming up in terms of, you know, you sort of touched on it briefly in terms of the different segments, but can you talk a little bit about that in terms of you know, the overall business and also in terms of your analog business, you know, relating to your customer Is it constricted in any specific product segments?

It is not.

You know, microchip has now over 40,000 customers, if we count all of the customers that buy product from distribution plus the one we serve directly, the total number is over 40,000 customers.

That number for analog last quarter was 8100 customers.

You are talking such a large customer base all moving differently and a lot of people who buy from distribution are difficult to identify many times what their end product will be and what category would you put it in.

Is it radio in the car automotive or consumer?

Is a radar detector consumer or automotive?

So this is a guess.

We give it to you once a year, and we hold to that guess during the year.

We'll make change to it if there is a substantial change in one market segment versus the other.

But this is not the company where you have 10 customers making up your business and every quarter we can give you numerically x percent of our business was industrial or automotive.

So your question is not answer answerable in exact numbers.

So look at it in the smallest scale in terms 700 customers that you signed up?

Across the board, they are worldwide, they are all geography.

They are consumer, industrial, automotive.

They are everywhere.

Okay, great.

The only thing we can highlight is we continue to see a lot of weakness in the cell phone business, which was, you know, largely driven by demand drying up for cell phones in china and because of SARS.

You know there, may be some recovery of that in the coming quarters.

Other than that, we cannot highlight any other piece of business which was extraordinary extraordinarily stronger or weak weaker.

So then the growth in Asia and the U.S. is just customers finally returning to normal buy buying patterns or you know, any particular sector that's driving that?

Like I said, there is no sector we can pinpoint which is driving it.

It's very broad based, and you know, we don only did 1% growth last quarter.

How much can you split that apart?

I'm talking going forward over the next quarters, though, so in terms of your visibility in general.

Some of the growth areas were with existing customers buying additional amount of product because their businesses are recovering.

Some are new designs going to production.

Some are new customers that have never bought from us, really starting to buy from us because they are following designs with the microchip.

All I'm saying is out of 40,000 customers, you can't numerically break it out which one belongs in which category.

Thanks you.

And there are no further questions at this time.

I'll turn the question back over to you, Mr. Parnell for any additional or closing remarks.

We appreciate everyone's questions and time this afternoon.

Steve will and I will be available later today and tomorrow if there are any follow on questions.

That does conclude today's conference call call.

Thank you everyone, for your participation.