Mr. Sanghi concluded, "The guidance we provided for the September quarter which reflected our caution on business conditions turned out in retrospect to be spot on and was a harbinger for broader industry weakness.  We continue to be cautious about the outlook for the December quarter, and based on anticipated end-market demand, we expect our non-GAAP total net sales in the December 2018 quarter to be between $1.362 billion and $1.438 billion.  Our non-GAAP earnings per share are expected to be between $1.49 and $1.64."

Microchip's Highlights for the Quarter Ended September 30, 2018:

• Announced the industry’s first security-specific automotive tool, the CryptoAutomotive™ In-Vehicle Network (IVN) TrustAnchor/Border Security Device (TA/BSD) development kit, enabling OEMs and tier one suppliers with tools to secure existing automotive networks.
   
• Our new BlueSky Global Navigation Satellite System (GNSS) firewall enables critical infrastructure providers to harden the security of their operations from GPS threats and delivers a more reliable and secure service.
   
• Extended high-resolution audio beyond audiophiles and into mass market Bluetooth wireless products with the introduction of the IS2064GM-0L3, a fully-certified, Bluetooth^® 5-compliant System-on-Chip with Sony’s LDAC audio codec technology.
   
• Introduced a new network synchronization IC product family designed specifically for 5G wireless infrastructure equipment, providing advanced phase measurement and adjustment capabilities that simplify next-generation transport and wireless equipment design.
   
• Announced the MGC3140 automotive-qualified three-dimensional (3D) gesture recognition controller, providing a durable single-chip solution for advanced automotive HMI designs.
   
• Announced a new release of the Libero® system-on-chip (SoC) PolarFire Design Suite, introducing lower static power devices to the PolarFire field-programmable-gate array (FPGA) family and delivering even greater productivity.
   
• Introduced the PAC1932/33 two- and three-channel power monitoring devices that measure from 0V to 32V on a single chip, including the industry’s first two-channel device with native 16-bit resolution.
   
• Unveiled the MCP39F511 flexible dual-mode power monitoring IC that measures both AC and DC modes with industry-leading accuracy of 0.1 percent error across a wide 4000:1 range.
   
• Announced the dsPIC33CK 16-bit Digital Signal Controllers (DSCs), designed to deliver faster deterministic performance in time-critical control applications.
   
• RTGA high-speed signal processing radiation-tolerant field programmable gate arrays (FPGAs) achieved Qualified Manufacturers List (QML) Class V qualification by the Defense Logistics Agency (DLA), opening the door for the devices to be used in the most critical space missions with the highest standards for quality and reliability.
   
• Announced new data center storage solutions, including the industry’s first 24G SAS (SAS-4) expanders for server and networked storage in the SXP 24G family, the SmartROC 3200 and SmartIOC 2200 24G SAS and PCIe Gen 4 tri-mode storage controllers, the low power Switchtec™ Gen 4 PCIe switches with high density and reliability, and the industry’s highest performing enterprise Gen 4 PCIe Controller in the Flashtec™ NVMe 3016.
   
• Expanded storage adapter solutions with the SmartRAID 3162-8i, featuring integrated on-board cache protection, and the SmartRAID 3162-8i/e, including support for maxCrypto™ secure encryption.
   
• Announced the availability of Bitec’s DisplayPort™ intellectual property (IP) core optimized for PolarFire FPGAs, enabling advanced image quality in small formfactor embedded displays with the PolarFire family’s smaller size and 50 percent lower power.
   
• Microchip’s CEO, Steve Sanghi, was honored as one of the Phoenix Business Journal’s ‘Most Admired Leaders’ in September.

Third Quarter Fiscal Year 2019 Outlook:

The following statements are based on current expectations.  These statements are forward-looking, and actual results may differ materially.  We are not able to provide guidance on a GAAP basis as we are not able to predict whether inventory at our distributors will increase or decrease in relation to end-market demand.  As evidence of this uncertainty, in recent years, we have seen net inventory at our distributors increase or decrease by a significant amount in a single quarter.  Our non-GAAP revenue will be based on what we believe reflects true end-market demand as we measure revenue based on when product is sold by our distributors to an end customer.  The table below provides our guidance on a non-GAAP basis for the December 31, 2018 quarter.

¹    See the "Use of Non-GAAP Financial Measures" section of this release.
²   See Footnote 2 under the "Use of Non-GAAP Financial Measures" section of this release.
³    Represents expected cash tax rate for fiscal 2019 excluding any transition tax payments associated with the Tax Cuts and Jobs Act.
⁴   Earnings per share is calculated based on the diluted shares outstanding of Microchip on a consolidated basis.

• Microchip's inventory days in the December 2018 quarter are expected to be in the range of 117 to 127 days excluding the impact of acquired inventory mark-up.  Our actual inventory level will depend on the inventory that our distributors decide to hold to support their customers, overall demand for our products and our production levels.
  
  
• Capital expenditures for the quarter ending December 31, 2018 are expected to be about $50 million.  Capital expenditures for all of fiscal 2019 are expected to be between $230 million and $250 million.  We are continuing to invest in the equipment needed to support the growth of our production capabilities for fast-growing new products and technologies and to bring in-house more of the assembly and test operations that are currently outsourced.

¹  Use of Non-GAAP Financial Measures:  Our non-GAAP adjustments, where applicable, include the effect of share-based compensation, expenses related to our acquisition activities (including intangible asset amortization, inventory valuation costs, excess capacity charges to normalize acquired inventory levels, severance and other restructuring costs, and legal and other general and administrative expenses associated with acquisitions), non-cash interest expense on our convertible debentures, adjustments for a manufacturing excursion issue with one of our suppliers, losses on the settlement of debt, and losses on available-for-sale investments.  Due to our required adoption of the new revenue recognition standard on April 1, 2018, our non-GAAP adjustments include the effect of our distributors increasing or decreasing their inventory holdings.  For the second quarter of fiscal 2019, our non-GAAP income tax expense is presented based on projected cash taxes for fiscal 2019, excluding transition tax payments under the Tax Cuts and Jobs Act.  For the second quarter of fiscal 2018, our non-GAAP income tax expense is presented in a manner that excludes the tax impact of non-GAAP adjustments calculated using the applicable tax rates in the jurisdictions where the adjustments occurred, tax adjustments in accordance with ASC 740-270, and one-time tax events.

Following our required adoption of the new revenue recognition standard effective April 1, 2018, our non-GAAP adjustments will now include the effect of our distributors increasing or decreasing their inventory holdings.  Under the new GAAP revenue recognition standard, we are required to recognize revenue when control of the product changes from us to a customer or distributor.  We focus our sales and marketing efforts on creating demand for our products in the end markets we serve and not on moving inventory into our distribution network.  Therefore, the elements of our internal performance and executive and employee compensation metrics that are based on sales and operating results will be measured on a non-GAAP basis using the value of the end-market demand for our products.  We use non-GAAP net sales for these purposes because we do not believe that the underlying value of our business benefits from increases in the value of inventory that is held in the supply chain.  As many of our products are designed into customer applications with relatively long lives, such value is only realized when the end market demand is created and the supply chain sells the inventory to the end customer.  We believe the use of non-GAAP net sales is also important to investors and users of our financial statements as it reflects the final outcome of our sales activities whereas our GAAP net sales are based on estimates made earlier in (or before the end of) the process of creating and fulfilling demand is complete. We also manage our manufacturing and supply chain operations, including our distributor relationships, towards the goal of having our products available at the time and location the end customer desires. Therefore, we believe that it is useful to investors for us to disclose non-GAAP results that reflect the value of the end market demand for our products.  These non-GAAP results include adjusting GAAP net sales, cost of sales, gross margin and EPS for the change in distributor inventory holdings.