It's 9:00 A.M., the 2019 annual meeting of the stockholders of Microchip Technology Incorporated will please come to order. I am Steve Sanghi, CEO and Chairman of the Board of Microchip Technology. I would also like to introduce additional members of the audience. First, I will introduce the other members of the Board of Directors, and they are Matt Chapman, recently retired CEO of software assessment company, Northwest Evaluation Association. Next is L.B. Day, President of L.B. Day & Company. Esther Johnson, retired executive of Carrier Electronics. Wade Meyercord, President of Meyercord & Associates. Next, I will introduce the company's executive staff that are in attendance today. Ganesh Moorthy, President and Chief Operating Officer. Eric Bjornholt, who's the Senior Vice President and CFO, is not in attendance today. Steve Drehobl, Senior Vice President of MCU Division and Technology Development.
Mitch Little, Senior Vice President of Worldwide Sales and Applications. Rich Simoncic, Senior Vice President of Analog Power and Interface. Mathew Bunker, Senior Vice President of Back-End Operations and Memory Products. Lauren Carr, Senior Vice President of Global Human Resources. Mike Finley, Senior Vice President of Fab Operations. Patrick Johnson, Senior Vice President of Mixed Signal and FPGA. Sumit Mitra, Senior Vice President of 32-bit MCU and Wireless Products. Mitchel Obolsky, Senior Vice President of Networking and Data Center. Finally, Mark Reiten, Vice President of Licensing Division. Four partners of the firm of Ernst & Young, the company's independent registered public accountant firm, are here today. They are Eric Lewis, Ron Butler, David Damron, and Matt Randolph. I would also like to introduce Robert Suffoletta, who's in the back, a partner with the law firm of Wilson Sonsini Goodrich & Rosati, who serves as the company's outside legal counsel.
Pursuant to the company's bylaws, I have been appointed by the board of directors to serve as the chairman of the meeting. Rob Suffoletta will serve as secretary of the meeting. Notice of this meeting, stating the time, place, and purposes, was mailed on or about July 15, 2019, postage prepaid, to each stockholder of record at the close of business on June 25, 2019. Affidavits of mailing have been received by the company and are available for inspection at this meeting. 238,034,746 shares of common stock were outstanding at the close of business on June 25, 2019, and are entitled to vote at this meeting. With respect to the voting of your shares, if you have already mailed in your proxy and you do not want to change your vote, then you do not need to do anything at this time.
If you did not turn in your proxy, if you wish to change a proxy you previously submitted, or if you hold a proxy to vote the shares of another stockholder, please submit those proxies to us at this time. Lynn, please collect these proxies now. Anyone? If there's anyone here who did not submit a proxy and who wishes to vote their shares in person, please raise your hand and Lynn will distribute a ballot to you. We'll collect those ballots when we open the polls for voting in a few minutes. Anybody who needs a ballot? In accordance with the provisions of Delaware law, the board of directors has appointed Rob Suffoletta to serve as the inspector of election at this meeting, and he subscribed the oath of his office prior to the meeting.
Rob has informed me that a quorum is present, and I declare the meeting open for business. If there are any questions that relate directly to one of the proposals, I would like to receive that question at the time that we consider each of the proposals. Otherwise, we have reserved time after we complete the business matters of the meeting for a presentation on the company, followed by a question-and-answer period. Please hold all questions not related to the proposals until the question-and-answer period. The first proposal is to elect five directors to serve for the ensuing year and until their successors are elected and qualified. A nominee for director shall be elected if the votes cast for such a nominee's election exceed the votes cast against such nominee's election. Nominations for directors will now be received. I recognize Sumit Mitra.
My name is Sumit Mitra. I nominate Steve Sanghi, Matthew W. Chapman, L.B. Day, Esther L. Johnson, and Wade Meyercord for election as directors of the company.
Mitch Little?
I second the nominations.
Since there were no other nominations received, the nominations are now closed. The second proposal is to approve a French sub-plan under our 2004 Equity Incentive Plan. The affirmative vote of the holders of the majority of the shares of common stock represented at the meeting is required to adopt the proposal. Is there any discussion from any stockholder on this proposal? A motion calling for a vote on this proposal will now be received. I recognize Mitch Little.
My name is Mitch Little. I move for the adoption of the following resolution. Resolved that the proposal to approve a French sub-plan under our 2004 Equity Incentive Plan, as more fully described in the company's proxy statement dated July 15th, 2019, be approved.
I don't have anybody second. The third proposal is to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm of Microchip for the fiscal year ending March 31, 2020. The affirmative vote of the holders of the majority of the shares of common stock represented at the meeting is required to adopt the proposal. Is there any discussion on this proposal? A motion calling for a vote on this proposal will now be received. I recognize Rich Simoncic.
My name is Rich Simoncic. I move for the adoption of the following resolution. Resolved that the proposal to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm for Microchip for the fiscal year ending March 31st, 2020, as more fully described in the company's proxy statement dated July 15th, 2019, be approved.
Mathew Bunker?
I second the motion.
The fourth proposal is to hold an advisory non-binding vote regarding the compensation of our named executives. The affirmative vote of the holders of the majority of the shares of common stock represented at the meeting is required to approve this proposal. Is there any discussion from any stockholder on this proposal? A motion calling for a vote on this proposal will now be received. I recognize Mathew Bunker.
My name is Mathew Bunker. I move for the adoption of the following resolution. Resolved that the compensation of our named executives, as more fully described in the company's proxy statement dated July 15th, 2019, be approved on an advisory non-binding basis.
Rich Owalski.
I second the motion.
The fifth proposal is to consider a stockholder proposal requesting our board to report on our processes for identifying and analyzing human rights risks to workers in our operations and supply chain. The affirmative vote of the holders of the majority of the shares of common stock represented at the meeting is required to approve this proposal. At this time, I would like to introduce Kate Monahan, shareholder engagement manager of the Friends Fiduciary Corporation, who will be speaking for a few minutes regarding this proposal. Ms. Monahan.
Thank you. Good morning, fellow shareholders and members of the Microchip board of directors. My name is Kate Monahan, and I am the shareholder engagement manager at Friends Fiduciary Corporation. We are long-term shareholders of Microchip. I hereby move proposal 5, asking our company to report on its process for identifying and analyzing potential and actual human rights risks to workers in its operations and supply chain. Microchip lags behind its peers in terms of its human rights risk mitigation and disclosure. A recent KnowTheChain report ranked Microchip 35th out of the 40 ICT companies it benchmarked. Proxy adviser ISS supports this proposal, noting the company lags behind its peers in every area and does not appear to have board and management oversight of human rights risks, a supplier code of conduct, or a comprehensive supplier monitoring process. Migrant workers globally are prime targets for exploitation.
Often, they pay exorbitant fees to recruiters, which traps them in debt bondage. Their identification documents might be confiscated, limiting their freedom of movement and leading to forced labor and human trafficking. The electronic sector is at particular risk. Raw materials used in electronics products are also often produced with forced labor, and a Verité study found that nearly one-third of migrant workers in Malaysia's electronic sector are in situations of forced labor. Companies can face reputational damage and legal repercussions if they do not proactively manage human rights risks in their supply chains. Several countries, including the U.S., U.K., and Australia, have recently passed laws requiring greater corporate transparency in regards to forced labor, and a 2016 law allows U.S. Customs and Border Protection to seize goods suspected of being made with forced labor.
After facing negative press, major consumer-facing companies and Microchip customers such as Apple, have increased their due diligence of their own suppliers and routinely cut laggards loose. Microchip acknowledges this as a business risk in its most recent 10-K. The company's own defense of its program and its rebuttal to our proposal fails to clearly specify the scope or rationale of its programs. We note significant gaps between what the company does or discloses and what investors are requesting. We recognize Microchip has already taken some steps to recognize and mitigate risks related to human rights abuses in its operations and supply chain. This proposal is calling for specific data so that investors may better assess the company's performance on this issue as part of our own due diligence.
We believe working to eliminate human trafficking in the supply chain is both a moral and a business imperative and urge shareholders to vote for proposal five. Thank you.
A motion calling for a vote on this proposal will now be received. I recognize Rich Owalski.
My name is Mitch Obolsky . I move for the following resolution, resolve that our board report on our processes for identifying and analyzing human rights risks to workers in our operations and supply chain, as more fully described in the company's proxy statement dated July 15th, 2019.
Patrick Johnson.
I second the motion.
The polls are now open for voting on the proposals before the meeting. The time and date of opening of the polls is 9:12 A.M. today on August 20, 2019. Lynn, please collect the ballots of those stockholders who wish to vote in person. If you have a ballot, please raise your hand so that we can collect them. Anybody who needs a ballot? Anybody wants to change the ballot? There's one there. While he's voting, as we close the business portion of this meeting, please stay in your seats, and then I'll make a presentation of the company, and then the question and answer period will be after the presentation, not during the business portion of the meeting. Please stay seated after I say the meeting is closed. We'll allow him time to fill it without pressure, so I'll just step off the desk.
The polls are now closed. The time and date of closing of the polls is 9:15 A.M. today, August 20, 2019. Will the Inspector of Election please announce the vote? Rob.
With respect to proposal 1, I hereby declare that all the nominees have been duly elected as directors of the company to serve for the ensuing year and until their successors are elected and qualified. With respect to proposal 2, I hereby declare the approval of our French sub-plan under our 2004 Equity Plan has been approved. With respect to proposal 3, I hereby declare the proposal to ratify the appointment of Ernst & Young LLP as the independent registered public accounting firm of Microchip for the fiscal year ended March 31, 2020 has been adopted. With respect to proposal 4, I hereby declare that the compensation of the company's named executives has been approved on an advisory, non-binding basis.
With respect to proposal five, I hereby declare that stockholder proposal requesting our board to report on our processes for identifying and analyzing human rights risks to workers in our operations has been approved.
This concludes the formal portion of our meeting. Before I adjourn the meeting, is there any further business? If not, I will entertain a motion to adjourn. Mitch Little.
I move that the meeting be adjourned.
Ganesh Moorthy.
I second the motion.
All in favor say aye.
Aye.
Any opposed, say no. Ayes have it. The meeting is adjourned. Please stay seated. All right. Before I begin this presentation, I wish to inform you that during this presentation, I'll be making some projections and forward-looking statements regarding the future financial performance of Microchip. These statements involve predictions. The actual results may vary materially. I refer you to Microchip's filings with the SEC regarding some important risk factors about the company. This is a larger, broader disclosure. Don't expect you to read it. We'll start with the latest business results. Our fiscal Q1 for fiscal year 2020 ended June. We announced that our end market demand was $1.35 billion, which was up 0.7% sequentially. It was up 10.9% from a year ago quarter. The GAAP revenue, which is based on selling revenue recognition, was $1.323 billion.
For the Q2, we guided the revenue for GAAP to be between $1.323 billion-$1.375 billion, which was sequentially up about 2% at the midpoint. We declared record quarterly dividend of $0.366 per share. Microsemi integration and accretion is running ahead of schedule that we had outlined more than one year ago when we first acquired Microsemi. Based on the multi-quarter inventory correction that we have experienced and the industry has experienced, and the correction we have seen at our various distributors and end customers, we expect the revenue growth to resume despite a fairly challenging business environment. Under that challenging business environment, we have guided a range of 0%-4% growth for this quarter with a midpoint of about 2%.
We're executing on a Microchip 2.0 initiative, which involves total system solutions for our customers and delivering products and solutions that are smart, connected, and secure. For any new stockholders here, just a very brief corporate overview. We are a leading total system solutions provider with high-performance standard as well as specialized microcontrollers, digital signal processors, and microprocessors. Lots of analog products in the mixed signal, analog, interface, security solution area, clocks and timing solutions, wired and wireless connectivity solutions, FPGA solutions that came to us with the acquisition of Microsemi, nonvolatile EEPROM and Flash IP solutions, Flash IP solutions. $5.5 billion in revenue in fiscal year 2019, 18,000 employees worldwide, and we're headquartered near Phoenix in Chandler, Arizona.
Our vision, our very broad long-term vision is to be the very best embedded control solutions company ever, helping our customers in embedded control solutions by delivering solutions that are smart, connected, and secure. This slide shows our annual end market demand growth. The green section of this graph is our largest business, which is the microcontrollers. Blue section is analog, black is FPGA, and the yellow section has many things put together in it. LMO stands for licensing, multi-market, and others. Lots of small product lines bundled all in there, which makes about 10% of our business. A couple of points to make on this graph. First of all, since fiscal year 1993 when we went public, that would be 27 years. This is a graph that is up and to the right with just phenomenal growth over the years.
A couple of dips here along the major industry mega events like the 2001 technology bust and 2009 global financial crisis. Otherwise, the business has constantly grown. Secondly, we have posted 115 consecutive quarters of non-GAAP profitability, an indicator that we have really not seen represented by any other company in our industry to our knowledge. This is really a unique streak of profitability that we have achieved. In the microcontroller market, we have been a constant share gainer for a very large number of years. We just went back to 2003 here. The prior 10 years, we came from number 23 to number 8.
On this graph since 2003, we have marched up constantly, as shown by the red line, to become number three supplier of microcontrollers by 2016, a position we have maintained at number three, but we are closing the gap every year to the number two and number one, with our long-term goal to be the leading supplier here of microcontrollers. This one puts it more numerically. From a very humble beginnings on the left-hand side, really at the bottom, we are closing on about 18% market share of 8, 16, 32-bit microcontrollers all combined. Looking at the analog business, which we began in early year 2000 timeframe. Thank you very much. It's really hot in Phoenix, and it's easy to dry up.
This slide shows from fiscal year two, and over the last 18 years, you can see our growth in analog that has come both organically as well as through acquisitions. We are currently at about a $1.6 billion run rate on analog products. FPGA is a business that came to us with the acquisition of Microsemi last year. On this slide, I have put many quarters prior to our acquisition, which was not on the Microchip clock, going back to fiscal Q1 of 2015, to put this a little bit more in perspective. As you can see, the business was kind of up and down, stable at about, this is quarterly, at about $70 million a quarter run rate. Then in the last several quarters, the business has grown significantly, and in the last quarter, we just cleared the first quarter ever over $100 million.
You can see that this business is going through substantial growth, which was not true back in the history if you look at it. Microchip 2.0 is just a term we have used to describe the first 25 years or so of Microchip was Microchip 1.0, building substantial business, gaining significant share in microcontrollers, years and years of consistent profitability, doing business with lots of small and large customers around the world, building about 110,000-plus customers, lots of factories producing the product. The Microchip 2.0 transition is to bring all the products we got from various acquisitions into a total system solution concept that I will talk more about. When you look at a customer board, very often we have multiple chips, sometimes the entire board built up of solutions coming from Microchip. That is a central promise of Microchip 2.0.
We're also the leading customer preference to design with our microcontrollers, time after time after time. Surveys have been done asking the customers, "Who's your leading preference? Who would you design with for your next design?" The answer is, number one, Microchip is always on the top. Number three, multiple growth drivers in our business, and I'll talk about some of them. Non-GAAP gross margin target of 63% of revenue with multiple drivers. Last quarter, our non-GAAP gross margin was 62%, and we have about a 70 basis points gross margin charge coming from underutilization of the factories because of the downside environment. As the business improves and those factories go back to producing more product, that itself sort of takes it to 62.7. We are pretty close to this long-term gross margin target. Non-GAAP operating expense target of 22.5% of revenue.
Our end market mix is skewed to industrial and automotive for the classic Microchip, when I say classic Microchip, it does not include the Microsemi, but all that business is also augmented by Microsemi. Microsemi brought us strength in three other areas, which is aerospace and defense, computing and data center, and communication. Combined together with Microchip classic business, now we have almost, not totally equal, but very strong play in six end markets, industrial, automotive, consumer appliances, defense and aerospace, computing data center, and communication. Long-term model with industry-leading operating profits. Let me talk about some of these. First of all, to build the total system solution could have taken us years and years and years building all organically.
We went the route of building organically as well as augmenting those solutions with a string of acquisitions that have provided the functionality we can take it to the customers today. This slide is a good demonstration of that. Over the last 10 years, the slide shows about 17 acquisitions we have done. Some of those are large public companies, like Microsemi, before that Atmel, before that Micrel, and there was Silicon Storage Technology, there was SMSC. A number of them are also fairly small companies, that many of them were private companies that we purchased them at very reasonable prices for a private company to augment our solutions to be able to provide total system solution today. This is really what we're able to present today to the customers.
I'll try to be non-technical on this slide, but if you start from the beginning where it says sensors. The real world is analog. The temperature doesn't go from zero to 100 or zero to one. Temperature goes by small degrees and it's analog functionality. In a room with air conditioner, you're sensing the temperature. In another application, you may be sensing the motion or velocity or motor control, position of the motor or anything. The world starts from some sort of sensor, and the output of the sensor is an amplified filter from noise. A to D converter converts it to digital output. That goes into a microcontroller, processor, FPGA, which then processes that information based on the programming that is put into the device, compares it to reference, and makes some decisions.
Then on the right-hand side, what does the output of the microcontroller or processor does? It can move a motor, it can drive a power, it can go from D to A, or it can light up an LED, blink some switches, some lights or whatever. This shows an embedded control environment where you take the sensor from a real-world, process with analog, and then into a microcontroller or processor, and then output then does some real-life event, like turn a motor, light up a switch or something. Then the top and bottom are just various other functional blocks customers need to complete their applications. I'll start from the bottom. We have storage solutions with PCIe switches, adapters, controllers, then optical networking. Lots of connectivity solutions available with USB for smart hubs, switches, transceivers, and bridges.
We have auto and industrial communication available with MOST bus, RS232, CAN, and LIN. In the wireless area, we have various protocols, Wi-Fi, Bluetooth, LoRa, Zigbee. Also have Microchip's proprietary protocol called MiWi. We have wired Ethernet solutions with switches, controllers, EtherCAT, PHY, and others. When you look on the top, there's some encryption and security. Just increasing number of applications these days require security, and many times they don't have it. I recently, just a couple of weeks ago, spoke at a Masters Conference with the same team of smart, connected, and secure, and I spent a large amount of time talking about security. There were 1,000 customers, embedded control designers in the audience that are designing embedded systems that are connected. There's a big buzzword, everything really needs to be connected to Internet.
It's amazing that how companies are still so careless, designing and selling products that will be connected to the network or connected to the Internet, which means they can be hacked, and there is not enough security put in there. There is not a day goes by or week goes by, you hear about there was a major hack somewhere, the stores got hacked, the credit card got hacked, all sorts of other hacking incidents. So this was an appeal to our customers that they need to put the security at top 1 or 2 concerns. In various surveys done, I think the numbers are really low. Only about 26% of the embedded control designers who are designing end equipment today consider security to be their top number 1 and number 2 concern.
Their concerns are power and cost and all the other things and finding the solution, and security is somewhere down in the totem pole. We are taking the lead, almost as an industry spokesman, to raise the awareness of encryption and security into the embedded control design. I took a couple example. One was where hackers used a thermostat, which was in the aquarium of a lobby of a casino, and that thermostat was connected to Internet. They went through the thermostat in the aquarium of the lobby of the casino and got into the network and stole the entire database of the high rollers and sold it to the competition. In another case, a very popular case, you might recall a few years ago, where a Jeep Cherokee on a Detroit freeway was hacked, and the hackers took control of the Jeep away from the driver.
No damage was done, they were just doing an experiment, and nobody got hurt. The plaintiff's lawyers, on behalf of all of the Jeep Cherokee owners, still sued the company that their Jeeps are now at risk and people had all sorts of claims how they cannot use their Jeep now because their wives and daughters and mothers could be driven to an unsafe place by a hacker taking control of the Jeep. I think taking all these examples, Microchip is taking a leadership role in encryption and security advising our customers. The power management block, DC-to-DC converters, supervisors, LDOs, and all that. This is the revenue by end market we have achieved together with Microchip and Microsemi. As I mentioned earlier, there are six major markets now we have exposure to.
The largest one is industrial with 28%, automotive with 18%, consumer with 16%, computing with 15%, computing is computing/data center, communication is 13%, and aerospace and defense is 10%. Microchip is a top 10 semiconductor player in each of the automotive and industrial markets among all other competitors, and we are number one for aerospace and defense. There is no one that's even a close second to us in serving the aerospace and defense market. I'll talk about some growth initiatives. Very quickly, there are six mega trends that people talk about in the industry today, and we have exposure to all of these six mega trends. The products and solutions we're building, how we're going to market, some of the messages from Microchip, there'll be increasing amount of focus in providing solutions in these six markets.
First is the 5G that is supposed to change the world because it provides so much connectivity and so much cost effectively. 5G phones should soon be available, and 5G infrastructure with front haul, back haul, and middle haul, all of those starting to get deployed, will have significant number of our products from communication segment, microcontrollers, oscillators and discrete parts, MEMS, microcontrollers, and other analog products going into the 5G infrastructure. Second is the Internet of Things. Everything everybody talks about these days is really being connected. If you look at your home today, I'm sure you can, I certainly can, I can access my thermostats, I can access my air conditioners, I can access most things in my home that are connected to internet, and I can change them and control them or lock them or unlock them. Data center.
Microchip is a major player in the data center market, both with power management products we provided in data centers prior to the Microsemi acquisition and a large number of connectivity products that allow data center customers to access data from memory and connect it to the microprocessor card. Those are some of the solutions we provide today from Microsemi. Most popular electric car is Tesla, and Microchip has many chips in Tesla in various different functional blocks of the car. We're developing lots of additional solutions with advanced technologies like silicon carbide, which will provide very high voltage available for electric vehicles for charging the battery and all that. Number fifth is the artificial intelligence and machine learning. We're working on two fronts there.
In one, in our licensing group, we are developing the technology and licensing and enabling many of our customers to be able to use our Flash-IP and technology for AI and machine learning. Second is in our advanced microcontrollers and processors and FPGAs, we are putting AI and machine learning algorithms and protocols to be able to enable our customers to do that. Finally, ADAS and autonomous vehicles, whether it's a driver assist, whether it's just a lane change, whether it's a speed control, or it's a fully autonomous vehicle, whenever that happens, I don't have a guess of that in future. The thing is, to do all that, there are a large amount of sensory inputs that have to go into the car. Sensing where the neighbor car is, where the guy in the next lane is, there's a pedestrian, signals, traffic signals.
There's a large amount of stuff that has to be read, and all that information has to be fed into the car, which means the block I had shown you, starting from the sensor, amplify the input, filter it from noise, convert it to digital, put it into the microcontroller, make some decisions, and then carry out those decisions. That signal chain is going to be repeated hundreds of times as the supplier who is going to provide the autonomous vehicle tries to put a cocoon around the car with all these things sensing 50 feet or more around the car, all that information available in the cockpit. You can just imagine to make that application work, how much sensory input has to come, how much it has to be processed, and then making a decision, and then carrying out the output.
Those are the six mega trends which really would benefit from Microchip solutions, our expertise, and as a result, provides us opportunity for us to grow our business. Show you a few charts that are going to look all up and to the right, and unless you're talking about defects in our business, up and to the right usually means good thing, higher growth, higher revenue, higher profit, higher other things. This first one is the end market demand from fiscal year 9 to fiscal year 2019, we have seen a compounded annual growth rate of 19.8%. This is the non-GAAP gross profit. Over the same period, we have seen a 20.6% compounded annual growth rate. This next one is non-GAAP operating income, 22.4% compounded annual growth rate. Annual non-GAAP net income and diluted EPS.
The bars are the non-GAAP net income dollars, again, up and to the right, and the little blue line with the dots is the non-GAAP diluted EPS. You can see that EPS over this time frame, it's only fiscal year 2012 to fiscal year 2019, has gone from about $2 to $6.50 or so, tripled. Free cash flow as a percentage of revenue. The bars are free cash flow in dollars. In fiscal year 2019, completed on March 31, we created a free cash flow of $1.45 billion. Essentially that's the debt we paid down last year, almost $1.4 billion. The blue line is the free cash flow as a percentage of sales. You can see that it has gone up a little bit every year, a couple of points down. Return to the shareholders.
We have returned approximately $5.2 billion to the shareholders over this 10-year period. $3.8 billion have been returned to shareholders in form of dividends, and $1.4 billion have been returned to shareholders in terms of share buybacks. Very strong trend. The dividend per share really has gone from about $1.33 per year to about $1.46 per year over this time frame. Dollars have grown significantly. We used to give about $250 million a year in dividend, and in fiscal year 2019, we went to $350 million in dividend. Growth coming from two ways. One, the dividend per share has been growing every year, and secondly, the number of shares have grown. Putting it all together, financial results, guidance, and non-GAAP long-term models, kind of eye chart a little bit.
Plotted over 3 years, fiscal year 2017 to fiscal year 2020, the net sales have gone from $844 million to $1.3 billion. I'll pick the gross margin has gone from 55.8% to 62%. That's a 620 basis points improvement in gross margin over time. Operating margin has gone from 27.4% on the left to 36.2% on the right. That's almost 900 basis points improvement in operating margin over this 3-year period. Diluted EPS has gone from $0.84 on a quarterly basis to $1.41. These are phenomenal growth numbers by any stretch of imagination. It'd be a hard time poking holes in this one. Looking at the box at the left here, this is a Q2 fiscal year 2020 guidance. Net sales, as I said, about a 2% growth on the center, otherwise 0 to 4% sequentially.
Gross margin, flat to the prior quarter at the midpoint of 62%. The rest of the numbers are there. The long-term model, including Microsemi, we have guided to a long-term model of 63% gross margin. As I described before, we are at 62%, take about 70 basis points of under absorption. When that goes away with growth, it becomes 62.7%, we're pretty close to it with all the other improvements that I'm making. Increasing number of questions from stockholders lately have been, is this long-term model too conservative? I haven't answered it, and I'm not going to answer it today either. Operating margin of 40.5% long-term models. Summarizing the presentation today, we are a consistent revenue grower and market share gainer with multiple growth drivers, as I described today.
A very high margin business model and very shareholder-friendly company that has constantly given returns to shareholders through dividends, stock buyback, and stock price growth. Microsemi integration is going very well and the accretion is ahead of schedule. We're executing on our Microchip 2.0 initiative of total system solutions with smart, connected, and secure products and solutions. Finally, premium long-term non-GAAP financial model of 63% gross margin, 22.5% operating expenses, and 40.5% operating income. Thank you very much. At this time, I will entertain questions from stockholders. If you have a question, please raise your hand, wait for me to recognize you. After you're recognized, please state your name and also state your relationship to the company. If you're a stockholder, employee, reporter, whatever you are, state your relationship to the company, and then ask your question. Yes, sir.
Could you talk a little bit more about the impact of the internet, what I call the industrial internet?
Industrial Internet?
Yeah.
Okay. Can you state your name for the record and-
Jerry Braverman.
Are you a stockholder?
Yes.
Again, please state your name and your relationship to the company before you ask the question. The question is, can I comment on the industrial Internet? As I understand it, I think the question is really when you hear the term IoT, most of the time people think IoT is cell phones connected to various appliances and vending machines and home thermostats and air conditioners and others. I think your question is the IoT connectivity in the industrial world. It's really a very good question. Microchip is putting a lot of effort. There are going to be billions and billions of devices connected to the Internet. In fact, a very large number of devices, about one-third of them, are not going to be connected in the home. They're going to be connected in the industry.
Today, industrial world is using that connectivity in all different ways. Machines on the factory floor and robots and others connected to the central network are getting data. You can remotely stop them, control them, change anything. There is a large amount of work being done even in industry like, pick one, farming. Today, by connectivity and satellite information and others on a very large field, you can spot the areas of the large field where crop production is lower. You could see the patches, and then they could be treated for improving the efficiency of harvesting from the soil. I take another example, trucking, industrial cars, and fleets. Today, they're all connected from a central station. They know on a map where every single truck is.
Any large truck hauling equipment and sensitive goods and other that makes a sudden turn and makes a hard stop, the central station knows about that event of a hard stop, which could be analyzed for further driver training or awareness or drug use on the road by drivers and others. There are just hundreds and hundreds of examples everywhere where the industrial world is putting Internet connectivity to very good use. I think that's your question. Any other questions? Yeah.
Thank you, Steve. Alan Sullivan. I used to work here, and I still have a little stock. Financial question there. Are equity kickers?
What?
There are equity kickers that are mentioned in the borrowings.
Equity kickers?
Yes. As in, if the stock price gets to a certain point, then equity kickers kick in.
Probably talking about convertible notes that have-
Yes. I've tried to figure those out, and they're a little mysterious, probably intentionally phrased in the documents. I'm just wondering what's going on there.
Okay. What he's talking about is convertible notes. Microchip has about $4.2 billion of loans, which are convertible notes, maturing some in 2023 and some in 2025. We have about $684 million of convertible notes that are very long-dated, which mature in 2037. What happens in those convertible notes is, I can actually describe why we did it first, I'll show you how they work. When you straight borrow money, we have done that too, we owe about $4.8 billion of straight debt that we have borrowed from banks that we are paying back. We paid back $1.4 billion last year. In that, you borrow cash, you pay back in cash. Prior to this tax law changing last year, the cost of bringing money from overseas here was very, very high.
You almost had a 35% federal tax to pay, some state tax to pay. You almost lose close to 40% of the cash you bring in from overseas. If you bring $1 billion, you pay $400 million in tax and only use $600 million. It was a very, very difficult exercise, and all the money we were generating at Microchip, free cash flow, was all being generated overseas because all the U.S. cash we were generating were going to pay stockholder dividends, invest in capital, and pay the interest on the U.S. loans. After doing all that, for years, we were really not generating any free cash flow in U.S. We were generating free cash flow only overseas. The cost of bringing that money to U.S. was prohibitive.
Therefore, when we needed money, the instrument we used was convertible notes, because when the maturity comes in, hopefully our stock price has gone up over five, seven, 10 years of the note's maturity. When you get there, the stock price has gone up, then you can really have the stockholder get paid in stock rather than cash, which we didn't have. That's the reason we did it. After the tax law change, the money is fungible. The worldwide money is the same now, and we constantly bring money from overseas to pay our loans down. Never say never in this business, but as I see today, in future, I would not see a need for us to be doing convertible notes. We could do straight debt and pay that down with cash, whether it's produced here or it's produced overseas.
That's kind of how they happen. Now, getting to the instrument itself, the convertible loans have a much, much lower interest rate compared to straight debt. Most of these instruments we have, the coupon on them on a yearly basis, I think it will average around 1.5%. Some are below that. Some are higher than that. They will average maybe 1.5%, maybe a tad higher. The loans we have, straight loans, the interest on them is 4.2%. Paying 1.5% on convertible versus 4.5% on the straight debt, you can see that the convertibles are very good for cash flow. When you're short of cash, you're borrowing money, you're really buying other companies, you're paying dividend, doing all that. For cash preservation, especially the U.S. cash preservation, those were very good instruments.
Why would an investor take 1.5%, loan you the money at 1.5% when they could get 4.5%? Why? Because they get upside from stock. That's the equity kicker in the stock. These are very complex instruments, often not meant for individuals. They're largely bought by institutions who buy in hundreds of millions of dollars at a time. If an individual wants to buy convertible instruments, very often people buy through a convertible mutual fund, where you don't need to have expertise in understanding those instruments and let a mutual fund manager make those picks for you. If you were confused reading those, I don't blame you. They are complex. I get confused too. Thank you. That was a good question. Anybody else? If there are no other questions, we'll wrap it up. Thank you very much for attending.