GAAP              % ofRevenue    Non-GAAP1         % ofRevenue 
 Revenue                       $226.7 million                   $226.7 million                
 Gross Margin                  $123.3 million    54.4%          $125.8 million    55.5%       
 Operating Income              $52.7 million     23.3%          $63.1 million     27.8%       
 Other Income (Expense)        ($1.4) million                   ($2.0) million                
 Income Tax Expense            $6.8 million                     $7.9 million                  
 Net Income                    $44.5 million     19.6%          $53.2 million     23.5%       
 Earnings per Diluted Share    24 cents                         29 cents                      
                                                                                              
 (1) See the "Use of Non-GAAP Financial Measures" section of this release.                    


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Net sales for the second quarter of fiscal year 2010 were $226.7 million, up 17.5% sequentially from net sales of $192.9 million in the immediately preceding quarter, and down approximately 16% from net sales of $269.7 million in the prior year's second fiscal quarter. GAAP net income for the second quarter of fiscal year 2010 was $44.5 million, or 24 cents per diluted share, up 62.5% from GAAP net income of $27.4 million, or 15 cents per diluted share, in the immediately preceding quarter, and down 41.3% from GAAP net income of $75.7 million, or 40 cents per diluted share, in the prior year's second fiscal quarter.

Non-GAAP net income for the second quarter of fiscal year 2010 was $53.2 million, or 29 cents per diluted share, up 51.9% from non-GAAP net income of $35 million, or 19 cents per diluted share, in the immediately preceding quarter, and down 36.3% from non-GAAP net income of $83.5 million, or 45 cents per diluted share, in the prior year's second fiscal quarter. Our non-GAAP results exclude the effect of share-based compensation, any gain or loss on trading securities, the impact of our acquisition activities and non-cash interest expense on our convertible debentures associated with the adoption of the Financial Accounting Standards Board's Accounting Standards Codification Subtopic 470-20, Debt with Conversion and Other Options -- Cash Conversion, which requires us to account separately for the liability and equity components of certain convertible debt instruments in a manner that reflects our nonconvertible debt (unsecured debt) borrowing rate when interest cost is recognized. A reconciliation of our non-GAAP and GAAP results is included in this press release.

Microchip also announced today that its Board of Directors declared a quarterly cash dividend on its common stock of 34 cents per share. The quarterly dividend is payable on December 2, 2009 to stockholders of record on November 18, 2009. Microchip initiated quarterly cash dividend payments in the third quarter of fiscal 2003.

"During the September quarter we experienced strength in all geographies and product lines, allowing us to exceed our revenue, gross margin and earnings per share guidance that we revised positively in early September," said Steve Sanghi, Microchip's President and CEO.

"We achieved GAAP gross margins of 54.4% and non-GAAP gross margins of 55.5%. Non-GAAP gross margins were up over 400 basis points from the June quarter, and we expect another 150 to 200 basis points of gross margin improvement in the December quarter as we continue to increase production levels in our factories in response to improving business conditions," continued Mr. Sanghi.

"Our microcontroller business delivered excellent results and revenue was up 16.6% sequentially, and we shipped a record 38,086 development tools. Our 16-bit microcontrollers posted a very strong sequential revenue growth of 49.1%, as well as a 70.3% growth from the year-ago quarter," said Ganesh Moorthy, Chief Operating Officer. "Our analog business executed on all fronts and revenue grew an exceptional 25.5% sequentially."

Eric Bjornholt, Microchip's Chief Financial Officer, said, "Inventory levels on Microchip's balance sheet decreased by $5.4 million in the September quarter compared to the June quarter. Inventory days declined from 108 days at June 30, 2009 to 96 days at September 30, 2009. Days of inventory at our distributors remained flat to the June quarter levels. We have aggressively increased our manufacturing output so that we can continue to meet the needs of our customers."

Mr. Bjornholt continued, "In the September quarter our cash, short-term and long-term investment position increased by $34.6 million after payment of our quarterly cash dividend of $62.1 million. We expect our cash generation to remain strong for the balance of fiscal year 2010."

Mr. Sanghi concluded, "We are extremely pleased with the performance of our business and excellent execution by our employees. Our book-to-bill ratio for the September quarter was 1.15, resulting in our opening backlog position for the December quarter being significantly higher than our backlog entering the September quarter. While there are fewer shipping days in Europe and the Americas this quarter, based on the improved visibility and general business conditions, we expect revenue to be up 4% to 8% sequentially."

Microchip's Recent Highlights:

During the quarter, Microchip shipped 38,086 development systems, a new record that demonstrates the continued strong interest in Microchip's products in the face of a tough economy. The total cumulative number of development systems shipped now stands at 843,010.

8-bit microcontroller innovation continued at a brisk pace this quarter, with Microchip's first PIC® microcontroller family to feature its enhanced Mid-range 8-bit core. The family's increased memory and core capabilities deliver enhanced support for both C and Assembly programmers, and "LF" family members feature Microchip's nanoWatt XLP technology”for extreme low power consumption”enabling designs to achieve world-leading battery lifetime.

Microchip expanded the family of 8-bit PIC18 ˜K' devices that feature nanoWatt XLP technology, adding 5V operation. The PIC18F87J93 8-bit family was also introduced, with direct-drive LCD, and enhanced analog and capacitive-touch-sensing peripherals for medical and metering applications.

Growth for the nanoWatt XLP portfolio of eXtreme Low Power PIC microcontrollers also continued among Microchip's 16-bit families. The new PIC24F04KA201 family combines 20 nA sleep currents and small packages at less than $.99 each in high volume.

Adding to Microchip's comprehensive portfolio of mTouch capacitive and inductive touch-sensing solutions, the new AR1000 controllers are the embedded industry's most innovative analog resistive touch-screen controllers; further solidifying Microchip's position as the broadest touch-sensing solutions provider in the semiconductor industry.

Microchip enhanced its connectivity capabilities with low-cost, standalone, IEEE 802.3 compliant, 100 Mbps Ethernet interface controllers that can connect to nearly any microcontroller via an industry-standard Serial Peripheral Interface (SPI) or a flexible parallel interface.

The Company's broad analog and interface portfolio also continued to expand at a rapid pace, including the industry's first 12-bit Quad Digital-to-Analog Converter (DAC) to feature non-volatile EEPROM, which enables the DAC's configuration to be loaded automatically at startup. Microchip also introduced single- and dual-cell Li-Ion & LiFePO4 battery chargers with over-voltage protection to enable safer, longer-lasting portable devices.

New development tools included free uninterruptable power-supply and power-factor-correction reference designs, using Microchip's dsPIC33 GS series of digital-power-conversion DSCs; a new starter kit for the PIC18 portfolio of high-performance 8-bit microcontrollers; and new boards and software tools for designing graphics displays using PIC microcontrollers. Microchip is also running its own "cash for clunkers" program, where competitor's tools can be exchanged for a discount on Microchip's most popular development systems.

While some other companies have been slashing their customer training budgets and cancelling annual conferences, Microchip added the new Embedded Designer's Forums, a worldwide series of technical learning events focused on innovative technologies that will help designers stay ahead in today's competitive environment. The forums are running from October 2009 through February 2010 at 120 locations across North America, Europe, South Africa, Australia, New Zealand, China, Japan, Taiwan, Korea, ASEAN and India.

Third Quarter Fiscal 2010 Outlook:

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially.

                                       GAAP                        Non-GAAPAdjustments     Non-GAAP1                
 Revenue                               $236 to $245 million                                $236 to $245 million     
 Gross Margin2                         56.2% to 56.7%              $1.6 to $1.8 million    57% to 57.5%             
 Operating Expenses2                   30.1% to 30.3%              $8.0 to $8.2 million    26.8% to 27.0%           
 Other Income (Expense)                ($2.7) to ($2.9) million    $1.6 million            ($1.1) to ($1.3) million 
 Tax Rate                              12.1% to 12.5%              $1.8 to $2.0 million    12.8% to 13.2%           
 Diluted Common Shares Outstanding3    187.5 to 188.3 million      1.7 million shares      185.8 to 186.6 million   
 Earnings per Share                    27 to 29 cents              5 to 6 cents            33 to 35 cents           


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Inventory is expected to grow between 6 and 12 days from September 30, 2009, while remaining below our internal target of 115 days.

Capital expenditures for the quarter ending December 31, 2009 are expected to be approximately $20 million. Capital expenditures for all of fiscal year 2010 are anticipated to be approximately $35 million. We are investing in equipment to support the expected revenue growth of our new products and technologies and plan to take advantage of low-cost equipment opportunities in the marketplace.

We expect net cash generation during the December quarter of approximately $65 to $75 million before the dividend payment of $62.3 million announced today. The amount of expected net cash generation is before the effect of any stock buy back activity.

Microchip's Board of Directors authorized a stock buy back of up to 10.0 million shares in December 2007. At March 31, 2009, approximately 2.5 million shares remained available for purchase under this program. Future purchases will depend upon market conditions, interest rates and corporate considerations.

Calendar Year 2010 Internal Plan:

In order to provide more insight into our business, Microchip is providing information about our internal plan for calendar year 2010. It reflects the results we expect from our multi-year demand creation activity that has generated a large number of new designs. Many of these designs are with new customers in emerging markets and applications that are outside our traditional core areas, which we believe will result in increased market share.

 Calendar Year 2010 Internal Plan    GAAP             Non-GAAP1     
 Revenue                             $1.05 billion    $1.05 billion 
 Gross Margin(2)                     57.7%            58.5%         
 Operating Expenses(2)               29.6%            26.7%         
 Operating Profit                    28.1%            31.8%         
 Earnings Per Share                  $1.29            $1.50         


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1 Use of Non-GAAP Financial Measures:

Our Non-GAAP adjustments, where applicable, include the effect of share-based compensation, any gain or loss on trading securities, the impact of our recent acquisition activities and non-cash interest expense on our convertible debentures and the related income tax implications of these items.

We are required to estimate the cost of certain forms of share-based compensation, including employee stock options, restricted stock units and our employee stock purchase plan, and to record a commensurate expense in our income statement. Share-based compensation expense is a non-cash expense that varies in amount from period to period and is affected by the price of our stock at the date of grant. The price of our stock is affected by market forces that are difficult to predict and are not within the control of management. The value of our trading securities varies in amount from period to period and is affected by fluctuations in the market prices of such securities that we cannot predict and are not within the control of management. The non-GAAP adjustments related to the impact of our acquisitions and a portion of our interest expense related to our convertible debentures are non-cash expenses related to such transactions. Our acquisitions of patent portfolio licenses are non-recurring events in our business. Accordingly, management excludes all of these items from its internal operating forecasts and models.

We are using non-GAAP gross profit, non-GAAP research and development expenses, non-GAAP selling, general and administration expenses, non-GAAP operating income, non-GAAP other income (expense), non-GAAP income tax expense/tax rate, non-GAAP net income, and non-GAAP diluted earnings per share which exclude the items noted in the immediately preceding paragraph, to permit additional analysis of our performance. Management believes these non-GAAP measures are useful to investors because they enhance the understanding of our historical financial performance and comparability between periods. Many of our investors have requested that we disclose this non-GAAP information because they believe it is useful in understanding our performance as it excludes non-cash and other charges that many investors feel may obscure our true operating costs. Management uses these non-GAAP measures to manage and assess the profitability of its business. Specifically, we do not consider such items when developing and monitoring our budgets and spending. As described above the economic substance behind our decision to exclude such items relates either to these charges being non-cash in nature or to the one-time nature of the events or, in the case of our trading securities, because such item is difficult to predict and not within the control of management.