微晶片科技 (MCHP) 2009 Q3 法說會逐字稿

Good day, everyone, and welcome to this Microchip Technology third quarter fiscal year 2009 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 President and Chief Executive Officer Mr.

Steve Sanghi.

Please go ahead, sir.

Thank you, operator, and good afternoon, everyone and welcome to our fiscal third quarter 2009 earnings conference call.

In attendance with me today are Ganesh Moorthy, Executive Vice President, Eric Bjornholt, Chief Financial Officer, and Gordon Parnell.

You all know Gordon from his previous position as CFO at Microchip, and we had previously told Investors about his new role in business development.

We have recently decided to add an Investor Relations function to Gordon's activities, so he will support Eric and me in these efforts and you will continue to see Gordon at various conferences and industrial meetings.

With that, I will pass the call to Eric Bjornholt.

Thanks, Steve, and good afternoon, everyone.

During the course of this conference call we will be making projections and other forward-looking statements regarding future events for the future financial performance of the Company.

We wish to caution you that such statements are predictions and that actual results may differ materially.

We refer you to our press release of today as well as the 10-K for the fiscal year-ended March 31st, 2008 and our 8-K reports that we have filed with the SEC that identify important risk factors that may impact Microchip's business and results of operations.

I will comment on the third quarter fiscal year 2009 results reviewing geographic data and discussing balance sheet and cash information and Steve and Ganesh will then give their comments on the results, discuss the current business environment, discuss our internal plans for the March quarter and update other pertinent matters regarding our business.

We will then be available to respond to specific investor and analyst questions.

Net sales for the December quarter were $192.2 million, down approximately 28.8% from net sales of $269.7 million in the immediately preceding quarter and down approximately 23.9% from net sales of $252.6 million in the prior year's first quarter.

We are continuing to include information in our press release on various GAAP and non-GAAP measures.

Management believes that the non-GAAP measures are useful to investors because they enhance the understanding of our historical financial performance and comparability between periods.

Non-GAAP results exclude share-based compensation expense, losses on trading securities, nonrecurring tax events and expenses associated with the acquisition of Hampshire Company.

Earnings per share on a non-GAAP basis were $0.23 per diluted share in the December quarter, a decrease of 49.5% from $0.45 per diluted share in the immediately preceding quarter and a decrease of 41.5% from $0.39 per diluted share in the prior year's third quarter.

GAAP earnings per share for the December quarter were $0.40 per diluted share.

The after tax impact on the December quarterly earnings that have been excluded from our non-GAAP results include; $6.7 million in share-based compensation expense, $11.9 million in losses from trading securities and $51.3 million benefit from nonrecurring tax events and $0.8 million in expenses associated with the acquisition of Hampshire Company.

Revenue was down significantly in all geographies.

America's revenue was down 21.3%, Europe was down 27.8% and Asia was down 32.9%.

Asia continues to be our largest geography representing approximately 45.8% of total sales.

Revenues from Europe represent 28.1% of our business and the Americas is the balance at 26.1% of total sales.

These measurements are based on where the product is delivered for manufacturing purposes for our customers, but does not necessarily represent where the design activity is taking place or where the end product consumption is occurring.

I will now go through some of the operating results for the December quarter.

I am using gross margin and operating expense information prior to the effects share-based compensation and the acquisition-related expenses.

Gross margins were 55.2% in the December quarter compared to 61.6% in the September quarter.

The quarterly reduction in gross profit margin was driven by costs related to reduce production levels of our manufacturing facilities being charged the cost of goods sold during the quarter.

Total operating expenses were 29.4% of sales in the December quarter compared with the prior quarter which was 26.2% of sales.

Research and development costs were $24 million representing 12.5% of sales.

Sales and general administrative expenses were $32.5 million representing 16.9% of sales.

Operating expenses were reduced by $14 million over the prior quarter levels.

On a full GAAP basis gross margins including share-based compensation and amortization of acquisition-related intangibles were 54.5%.

Total operating expenses were $64.3 million or 33.5% of sales and include share-based compensation and acquisition-related expenses for in process R&D and amortization of acquisition-related intangibles.

On a non-GAAP basis the tax rate for the December quarter was 17.8%.

The GAAP effective tax rate for the December quarter resulted in a benefit to our earnings as it included a tax reserve relief of $33 million associated with the clarification and tax regulations announced by the IRS in late December.

A $16.9 million favorable settlement with the IRS and a $1.5 million benefit from the retroactive reinstatement of the R&D tax credit.

Adjustments for the losses on trading securities and acquisition-related expenses.

Our tax rate is impacted by the mix of geographical profit on the percentage of our cash that is invested in tax advantage securities.

The dividend declared today of $0.339 per share was an increase of approximately 5.9% over the same quarter end fiscal 2008.

The dividend payment associated with this declared dividend will be approximately $62 million.

Moving on to the balance sheet, inventory on Microchip's books were $136.5 million representing approximately 143 days as of the end of December.

Deferred income on shipments to distributors were $98.4 million down by $5.1 million from the balance in September.

At December 31st distributors were holding about 41 days of inventory.

We are taking appropriate actions with our production levels to right size our manufacturing output and reduce inventories over time.

At December 31st our receivables were $78.6 million, a decrease of $42.3 million or 35% from balances as of the end of September.

We have not experienced any material deterioration in the payment performance from our customers and believe that our receivable balances are in good condition.

We continue to closely monitor customer activity to ensure we are protecting the receivable assets on our balance sheet.

Customer balances beyond terms continue to be at very low levels.

As of December 31st Microchip's cash and total investment position was approximately $1.474 billion, a decrease of $45 million from September.

There were several significant factors driving the reduction in our cash and investment balance during the quarter associated with changes in working capital.

Additionally, we recorded a $16 million reduction and the fair value of our trading securities which reduced our investment balance and payments related to our cash dividend of $0.339 were $61.7 million.

Capital spending was approximately $23.8 million for the December quarter.

Depreciation expense for the December quarter was $23.2 million versus $23.4 million for the same quarter last fiscal year and $23.9 million in the September quarter.

Our fiscal 2009 capital expenditures forecast is currently $106 million, a reduction of $9 million from previously anticipated levels and the fiscal 2009 depreciation forecast is approximately $93.5 million.

The capital expenditure forecast includes approximately $30 million related to the addition of new buildings in Thailand to support our assembly and test requirements and a new building for our R&D support operations in India.

We have also reduced our capital expenditures budget for fiscal 2010 to $15 million, a reduction of 86% from fiscal 2009 levels.

I will now ask Ganesh to give his comments on the performance of the business in the December quarter.

Ganesh?

Thank you, Eric, and good afternoon, everyone.

I will now comment on the individual product line and let's start with microcontrollers.

Our microcontroller business was down 28% on a sequential basis and was down 23% from the year-ago quarter.

Flash microcontrollers now represent approximately 78.5% of our microcontroller business.

In these difficult business conditions we are heartened by the innovation and ingenuity of our customers that enabled us to sip our seven billionth cumulative microcontroller earlier this month just 14 months after we shipped our six billionth microcontroller.

Against the backdrop of a challenging overall business environment, our 16-bit microcontroller business performed much better comparatively.

16-bit revenue was only down 7% sequentially and was up 28% from the year-ago quarter.

New customers and new designs going to production helped offset most of the general market weakness experienced by older designs as the number of volume 16-bit customers grew approximately 2% sequentially to 1,670 customers.

Our 32-bit microcontroller product line continues to make good progress.

18 products are now in production.

Customer interest remains very high and we have a large number of designs incubating across a broad range of customers and applications.

We expect the 32-bit product line to start contributing to our microcontroller revenue in fiscal year '10.

During the quarter Microchip continued to make significant strides in establishing our leadership in the growing area of user interface solutions for the embedded market.

In October we completed the acquisition of Hampshire Company, a leader in the touchscreen controller market.

That's enabling us to address a broad range of new applications requiring touchscreen control.

We followed that in November with the introduction of the world's first inductive touch sensing solution which enabled touch sense to be extended to a much broader range of applications, where capacitive touch sense alone may not be suitable.

Our inductive touch sense solutions does complement and expand the leadership capacity of touch sensing solutions we introduced to the market almost 18 months ago.

We are excited by the market interest, customer acceptance and design win momentum of our broad range of user interface solutions and their potential to drive growth.

Moving to development tools, we shipped 32,799 development tools in the December quarter, the highest number of tools we've ever shipped in a fiscal third quarter and up over 14% from the same quarter a year ago.

Even in these challenging business conditions we see no slowdown from our customers in their designing activities.

We also shipped 3,758 16-bit development tools in the December quarter bringing the total 16-bit development tools shipped to date to over 57,000.

Moving to our analog products, our analog business was down 23% sequentially and was down 5% from the year-ago quarter.

And while market conditions were difficult we continue to introduce several innovative new products and we are encouraged by the strength in overall customer design and activity.

And then on to the [Serial leased] memory products, this business was down 38% sequentially, although market conditions were challenging, we continue to run this business in a disciplined fashion that keeps it profitable.

Let me now pass it to Steve for some general comments and our guidance for the March quarter.

Steve?

Thank you, Ganesh, and good afternoon, everyone, again.

Today I would like to first reflect on the results of the December quarter.

Then I will talk about our internal plan for the March, 2009 quarter.

The December quarter was the most difficult quarter ever in the history of our Company.

It was a quarter that the industry and I would like to forget.

With the onset of the global financial crisis, the business environment deteriorated rapidly.

The bookings and visibility dropped precipitously.

As you saw, any Company who gave any kind of guidance last quarter then had to revise their guidance a few weeks later.

In response to the worsening business environment Microchip implemented a series of cost and capital containment measures.

First we implemented a shutdown in both of our fabs at the end of the quarter.

We reduced our production level by 20% from the peak utilization in September, 2008 quarter.

Second, we implemented a company wide pay cut and eliminated all bonuses and substantially reduced discretionary expenses.

And third, we canceled and pushed out a significant amount of capital that had been ordered for growth.

Despite taking all these actions we saw a significant increase in our inventory in days of sale.

This is because our actions to cut production were somewhat negated by our distributors and customers continuing to reduce inventories in response to their business falling off dramatically.

At the end we still have high inventory at Microchip as well as our distributors and it will take a couple quarters to burn this inventory off.

Meanwhile Microchip will continue to run its fab at reduced levels.

From the last quarter levels we have reduced manufacturing substantially more than currently our fabs are running at 40% below their peak levels for September, 2008 quarter.

The December quarter put a damper on what was otherwise shaping to be a very good year for Microchip in 2008.

Our revenue in March, June and September 2008 quarters increased by 3%, 3% and 1%, respectively.

So we grew every quarter.

In microcontrollers we shipped a record number of development tools in all three quarters and achieved record sales in microcontrollers in the September, 2008 quarter.

We also shipped a record sales on 16-bit microcontrollers with a growth of 12%, 5% and 17% in the first three calendar quarters of last year.

We also achieved a growth of 8%, 3% and 12% in analog in the first three quarters of calendar 2008.

Our 32-bit microcontrollers products achieved six different awards from a variety of international publications in 2008.

We also shipped over 16,000 development tools surpassing the rate of tools shipped for 16-bit microcontrollers at the same stage.

So by September quarter we had achieved our highest manufacturing efficiencies resulting in our lowest ever wafer cost, highest ever non-GAAP gross margin of 61.6% and a record non-GAAP earnings per share.

So during the year through the September quarter, we had delivered on our operational goals in nearly all elements of our business.

This disciplined execution remains an important strength for Microchip.

But the response could now be what have you done for me lately?

Enter the December quarter and it all got washed away.

The only product line that turned in respectable performance in December quarter was the 16-bit microcontrollers.

As Ganesh pointed out, 16-bit microcontrollers were down 7% sequentially and up 28% from a year-ago quarter.

Given the steep decline in industry revenue our 16-bit performance shows the inherent momentum in that product line, a backlog for 16-bit microcontrollers for March quarter is higher than what we saw in the December quarter.

And if that trend continues, we are cautiously optimistic in expecting flat to some revenue growth in this product line in the March quarter.

We believe that the best way to successfully emerge from this recession is with new products.

We will continue our pace of investment in R&D while maintaining our employees on a pay cut to reduce operating expenses.

In 2009 we will have approximately 150 new 8-bit, 16-bit, 32-bit and analog products coming to market that will offer superior value for our customers.

These new products will set the standard for ultra low power consumption and they will expand and extend our broad base of embedded controlled solutions especially for the energy efficiency, for the green products, user interface for touch and graphics and intelligence sensor markets.

We believe that we will continue to gain market share in all of our strategic product lines.

Now I will discuss our internal plan for the March quarter.

The semiconductor industry is still suffering from the global financial crisis.

You have seen the March quarter guidance from several semiconductor manufacturers they're all seeing weak bookings and substantial concerns in the economy.

The story at Microchip is not very different in that respect.

Our book to build ratio for December quarter was 0.7.

We have the lowest backlog in visibility in a very long time entering a quarter.

But on the other hand, we have seen our total backlog bottom out and it has been on a slightly increasing slope for the last three weeks.

We have a large number of customers expediting product because they may have taken inventory levels too low during the correction last quarter.

Having said that, the bookings in January are still on the weak side.

Such a reduced visibility is making revenue determination very challenging.

With that backdrop we're not able to provide guidance for the March quarter.

We have set our internal plan for revenue for the March quarter at $173 million or down about 10% sequentially.

Our internal plan for non-GAAP gross margin is about 50%.

Our non-GAAP earnings per share internal plan is $0.13 to $0.15.

Our GAAP earnings per share plan is $0.09 to $0.11.

Since Microchip owns public securities which are subject to mark-to-market considerations, we have assumed a zero mark-to-market adjustment.

With such deep declines in revenue across the industry even leading semiconductor companies are forecasting a loss for the March quarter.

We take some consolation in the fact that our business model is working and it's profitable even in such dire industry conditions.

We have been profitable for 73 consecutive quarters and the March quarter will be our 74th.

We continue to receive questions from investors and analysts about Microchip's dividend.

We have said repeatedly that the Board of Directors of Microchip is committed to maintaining the current dividend.

Despite unprecedented weak business conditions, Microchip's business is very profitable even in the face of extremely difficult conditions in the December quarter we generated positive cash flow from operations and we returned to substantially higher generation of free cash flow from operations moving forward.

Once we get past the March quarter the inventory will start to come down and the capital expense will drop precipitously, expected only $15 million for fiscal year '10, then Microchip's cash flow becomes very healthy again and able to support the dividend.

Meanwhile we are committed to maintaining the dividend by using a portion of our very healthy cash reserves.

With that, [Sarah], would you please poll for questions?

Certainly.

(Operator Instructions).

And our first question today will come from Romit Shah with Barclays Capital.

Good afternoon.

Thanks for taking my question.

Steve, there's a number of companies that a couple quarters ago had similar margins that today are in the red.

Given the adjustments you've made to lower capacity and reduce expenses, can you give us a expense of what cash break even might be for Microchip?

Cash flow break even?

Yes.

Or operating break even?

Which one?

Either one's fine.

I don't know if we have either of them.

We are so profitable if you look at the numbers that the gross margin we talked about internal plan is about 50% gross margin.

Substantial deterioration from the peak, but this is sort of where it bottoms.

And you should see gross margin starting to inch from, starting from the June quarter and operating expenses are in the low 30s.

So, the Company is still very, very profitable and you have to go way, way down in revenue to the point where you -- I couldn't fathom for the Company to actually go below break even and start losing money.

In any such a eventuality we'll further cut manufacturing and expenses all that much deeper.

So I don't think we will even get close to it.

Okay.

And as my follow-up, you guys have talked I think in the last quarter or so about acquisitions as a potential use of cash.

And if these acquisitions are to go through, do you think you'll be able to still support the dividend?

The answer to that is yes.

I mean we have model day to day.

There is no scenario we have put together internally where the -- where it becomes, not possible for us to pay the dividend.

We wouldn't take any actions which would make that a problem.

Okay.

Thank you.

Moving on we'll hear from Chris Danely with JPMorgan.

Thanks, Steve.

You gave us your rough guidance for some of OpEx and gross margins for the March quarter.

Assuming an extremely gradual stabilization/recovery for the rest of the year, how do you expect your OpEx and gross margins to trend after the March quarter?

Well, we have designed our overall compensation system in OpEx to be of a highly variable nature.

It's in our book chapter six if you want to get more details.

I read it.

Last quarter our OpEx went down 20%.

I have not seeing a lot of other companies being able to cut OpEx 20% so rapidly with the revenue deteriorating and with the knife falling so fast.

I've seen numbers in the 10%, 12%, 15% range.

Our OpEx was down 20 and we go down more this quarter.

So essentially we are preparing on both sides of the spectrum.

On one hand we are prepared if this recession is long, goes all year or longer, conditions continue to be very, very difficult, we can maintain operating expense very low, keep manufacturing very low and continue to really lower the inventory.

On the other hand, we are seeing our backlog bottom out, as I mentioned.

Backlog is starting to grow.

Customers are expediting products, some of their inventory has gone so low.

So we are cautiously optimistic there.

So in either scenario I think we're positioning the Company very well.

So I guess, Steve, if business remains sort of sluggish can you keep OpEx flattish after this quarter?

Yes.

Flattish or even lower.

Okay, great.

And then as my follow-up, can you just talk about if you guys have a goal for inventory or when you think your utilization rates would bottom out?

Utilization rates basically depend on the revenue outlook.

So with the current revenue internal plan we believe utilization bottoms sort of where we are.

We are running the fabs at 40% lower from the peak levels.

So call it 60% from where we were at the top and with that even with you have to look at the inventory total.

Microchip plus distributors because we don't really know what the distributors will do.

And in reality that total inventory, ours plus distributors, really serves our customers.

That total inventory will decline substantially this quarter.

And we can maintain the utilization at that rate and even if the revenue stays flat going forward, the inventory will drop quite significantly.

If the revenue has some increase in the next quarter and the second half, then the inventory will even drop faster.

Can you give us an estimate of let's just say it's flat, how much inventory would drop or, Eric, can you take a stab at that?

We haven't.

Okay.

That's fine.

Our next question will come from Harsh Kumar with Morgan Keegan.

Hi, guys, two quick questions.

First of all, Steve, your guidance of 10% down roughly is a lot better than what we're hearing from some of the other guys down 15 to 20.

You're also saying, that the distributor are reducing inventory and your sales out.

So should we think of demand the way you're viewing demand to be better than 10%?

Is that what our take-away should be?

Well, it often is the case whenever business is going down usually it goes down lower than the real consumption level.

That is the only way to really deplete the inventories out there.

So I'm sure that is true.

However, with a large number of customers, huge number of distributors, multiple geographies not completely lined up week by week and it's sort of kind of very hard to see.

So, our -- we did this modeling by extensive consultation with our distributors, customers, all of our sales regions going through our normal processes and, -- I mean we did that last quarter, also, but you can see that in this environment customers don't know.

In October when we gave the guidance, customers told us what they were going to do and then just three weeks later customers were shutting down their factories for two weeks, three weeks and pushing out backlog.

So the inputs can be very unreliable.

So we took the inputs again.

We added a substantial amount of judgment.

We are running this thing conservatively and we realize that our 10% is substantially better than what we're hearing from the competitors and I guess time will tell.

Either we're gaining share, our mix is better or we took an earlier fall.

Because our markets and housing and all that bottomed out earlier versus other companies in PC and cell phones and all that are seeing the correction now.

So I can kind of tie it back to number of people blamed us to be losing market share and I think as you compile the numbers now you can really see that over two quarters we seem to be doing better than pretty much everybody.

No.

Appreciate the color, Steve.

Just one more question switching gears a little bit.

A longer-term strategic question.

You've got a pretty commanding share in the 8-bit microcontroller globally.

Is it fair for us to assume that there's not a lot of market share left for you to gain in 8-bit, that you'll probably go with the market?

Any color would be helpful, Steve.

Ganesh will answer that.

We expect and we will continue to gain market share.

We're in the 15%, 16% share of the overall market.

There's a lot more to be had.

Our next question comes from JoAnne Feeney with FTN.

Yes.

I was hoping maybe you could shed some light.

I know it's awful hard for you guys to see which end markers are doing well but just judging from your conversations with your customers can you perhaps contrast for us how things are going in the consumer versus computing versus industrial areas?

Well, in real honesty no markets are doing well.

Having said that the housing section really burnt out much earlier.

So later on when the crisis spread from housing to banks and then to the consumers and others you saw significant impact on PCs and cell phones and consumer electronics .

Consumer is really a very misunderstood word in a way.

There is consumer electronics and there is consumer which looks more like industrial thermostats and sprinklers and appliances and housing and all that.

We're in that.

We are less in the consumer electronics which is cell phones and toys and entertainment equipment and iPods and other stuff.

So, the consumer industrial-type busted earlier and that's why we took the fall from the housing earlier.

And then what you're seeing now is a substantial drop of -- some of the companies are down 50% or 40 to 50% over two quarters, which are much more exposed to the consumer electronics as well as PCs and

Are you at all concerned or rethinking given the data that came out today for the housing industry?

Today and yesterday rather.

No.

I mean the numbers have been so low he that we're not seeing it really having a major further -- there's no place to go down.

Okay.

And then just --

Inventory of homes sold will change on a daily basis.

That's not really what drives it.

What drives it is really in the housing market there is refurbishment and there are new stuff bought.

60 to 70% off appliance sales are actually to existing consumers changing their washer or dryer or air conditioner and whatever and 30, 35% are new.

Going into the newer houses.

The newer houses have gone to almost nothing and the business was down by that much percentage.

The rest is refurbishment.

So there is not a whole lot lower to go from there.

Okay.

And then just one question on the gross margin on the newer 16-bit effort.

Are those gross margins higher than sort of your average in 8-bit?

Can you let us know whether that change in mix might be pushing your margins up over the longer term?

Ganesh?

Think of microcontrollers as kind of an overall segment and the margins within them across a product lines are very similar.

The gross margins are.

The absolute margins change by the ASB of the products, but the gross margin percentage is really roughly the same across 8's, 16's and eventually as we get into volume in 32's, 32-bit as well.

Okay, great.

Thanks.

(Operator Instructions) Our next question will come from John Pitzer with Credit Suisse.

Hi.

This is actually [Strau] for John Pitzer.

Thanks for taking our question.

Any update or thoughts you can share with regards to any potential transactions with regards to Atmel, Steve?

There's nothing to say.

There's absolutely nothing to say and Europe is [inked] on the other side.

Next question, please.

Well, my second question would be with regards to the Hampshire acquisition and extension into the touchscreen technologies, could you update us on which end markets you're most focused on and when we might see the first product being introduced?

Again Ganesh.

Well, Hampshire already had a set of product lines and they were shipping into a set of customers.

They are predominantly targeted at the industrial segments and where there is touchscreen in requirements there.

And there's a little bit of that that goes into things like the restaurant terminals and that kind of stuff.

So it's not something that is awaiting some work to be done for revenue generation.

It is already in revenue, although it is small in its size and primarily it is not waiting on a consumer electronics boom.

It's really aimed at primarily the industrial control industry.

It has lots of opportunities we believe in some of the other market segments and that's part of what Microchip will do is develop and take that technology into these newer segments where we have channel and other coverage capability.

Moving on we'll hear from [Gil Alexandra with Darfil Associates]

Hello, Gil.

Good evening.

Could you give us any guess, you may have mentioned it, what your tax rate could be next year, a range?

Our tax rate will be approximately 15%, in that range, somewhere in the 14% to 16%.

And if you look at the 8-bit fuel controllable market, what percentage of that market do you have?

Ganesh?

It's been in the 30s, about the mid-30s or so off the programmable segment is where Microchip has our share at.

I thank you very much.

Moving on we'll hear from Steve Eliscu with UBS.

This is Steve Eliscu for Uche Orji.

First question regarding under the utilization charges, when you get to the point where you're no longer incurring that, should we expect some sort of snapback in gross margin back up to somewhere in the 55% neighborhood?

Or I think, Steve, you mentioned about a more gradual change.

How are you thinking about that right now?

Well, so the quarter in which we increased production from the current utilization is the quarter you immediately see a bounceback in gross margin.

How much you see depends on where you take it.

If the demand is so strong, distributors are rebuilding inventory and all that that you take it immediately from 60 to 100 the bounceback would be very, very dramatic.

That's unlikely to happen.

So it's just depends on where will our take would be in terms of internal plan for revenue and based on that we will set the internal production to that level and there will be appropriate bounceback in the gross margin.

Okay.

That's helpful.

With regards to the touch area you've talked about inductive touch.

You've talked about the touchscreens with the Hampshire Company.

How are you thinking in terms of as a percentage of overall growth that you're getting from touch, the inductive piece and the touchscreen?

Are those small or are those going to contribute in a major way to the overall touch growth?

We never break that out.

Why would we want to tell anybody how successful we are being into any area and thus either attracting competition or investment or whatever?

So that's just too detailed of a breakdown.

Yes.

I was just looking qualitative.

I guess -- okay.

That's fine.

One last question.

Just based on your guidance it seems like you're looking for essentially zero interest income, if I did the math right.

Is that the right way to think about it, the interest and other?

No, I don't think so.

No, that's not correct.

We're still earning interest income.

Can you give a range that might be helpful there?

Yes.

So I think maybe what you're thinking is we -- on the interest income line we are earning income but we have interest expense associated with our convertible debt which is about $6.3 million per quarter.

So I guess if you look at the net of those, it's a very small number.

Okay.

Great.

Thank you very much.

Our next question will come from Brendon Furlong with Miller Tabak.

Good afternoon, gentlemen.

How are you doing?

Quick question on 16-bit.

I don't know if you can offer some color on fiscal year '10.

Obviously you are growing 8-bit this quarter.

What are your thought going forward on 16?

We -- it's been growing very strongly.

We expect it to continue to grow well into fiscal year '10.

It is obviously growing a lot faster than Microchip average and that trend is not abating.

We expect it to do very well in fiscal year '10.

My second question would be one of your, I guess call them private equity competitors seems to be under a little bit of stress.

Do you think that's offers some benefits to you in the next, couple years, well, next year I would say?

It's been benefiting us for the last ten years and we'll continue to benefit.

Okay, great.

Thank you.

And it appears at this point that we have no further questions.

Gentlemen, I'll turn the call back over to you for additional or closing remarks.

Okay.

We'll be seeing many of you at conferences we go to this quarter.

Which is the next one?

Thomas Weisel conference.

Thomas Weisel conference coming up.

So we'll see some of you on the road.

Thank you very much.

Bye bye.

Once again that does conclude today's conference.

Thank you for your participation, and have a wonderful afternoon.