Good morning. It's now 9 am the 2018 annual meeting of the stockholders of Microchip technology, Incorporated, will please come to order. I'm 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. Matt Chapman recently retired CEO of Software Assessment Company, Northwest Evaluation Association Association.
Elby Day, president of Lby Day And Company, Esther Johnson, retired executive of Carrier Electronics, and Wade Mycord, President of Myercord And Associates. Next, I will introduce the company's executive staff that are in attendance today. Vinesh Murthy, President and Chief Operating Officer Eric Beonholt, Vice President and Chief Financial Officer Steve Drayhobel, Vice President of MCOA Division And Technology Development Mitch Little, vice president of worldwide sales and applications, Rich Simonsick, vice president of analog power and interface business unit, Matthew Bunker, Vice President of Back End Operations And Memory Products Group, Lauren Carr, Vice President of Global Human Resources, Mike Findlay, who's the vice president of fab operations, is not in attendance today. Patrick Johnson, vice president of mixed signal and SPGA Business Unit, Schmidt Mitra, vice president of 32 bit MCU and wireless business units, and Michibalski, vice president of MCU 16, Networking And Data Center Business Units And Automotive Information Systems Group. A vice president, a lot of things.
I thought we fixed it. 3 partners of the firm of Ernst And Young, the company's independent registered public accounting firm are also here today. They're Eric Lewis. David Demeron, and Matt Randolph. Certain other members from Eya Yee's team are also present here.
I would also like to introduce Rob Cefletta, a partner with the law firm of Wilson SONCini Goodrich and Resati, who serves as a company's outside general legal counsel, Rob is in the back there. Pursuant to the company's bylaws, I have been appointed by the Board of Directors to serve as chairman of this meeting, Rob Zafletta will serve as secretary of the meeting. Notice of this meeting's setting the time, place, and purposes was mailed on or before, on or about July 12 2018 postage prepaid to each stockholder of record at the close of business on June 21, 2018. Epidivates of mailing have been received by the company and are available for inspection at this meeting.
200,235,437,000
744 shares of common stock were outstanding at the close of business on June 21, 2018 and are entitled to vote at this meeting. Now just some matters 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 yet or if you wish to change a proxy, you previously submitted, or if you hold a proxy to both the shares of another star folder, please submit those proxies to us at this time. Judy, please collect these proxies now.
Anyone? Lastly, if there is anyone here who did not submit a proxy and who wishes to vote their shares in person, Please raise your hand and Judy will distribute a ballot to you. Any stockholder that needs a ballot. We will collect these ballots when we open the poll for voting in a few moments. In accordance with the provisions of Delaware law, the board of directors has appointed Rob Safletta to serve as the Inspector of Election at this meeting and he subscribed the oath of his office prior to the meeting.
Raab has informed me that a quorum is present and I declared 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 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. So please hold all questions not related to the proposals until that question and answer period. The first proposal is to elect 5 directors to serve for the ensuing year and until their successes are elected and qualified. A nominee for director shall be elected if the votes cast for such nominees election exceed the votes votes cast against such nominees election.
Nominations for directors will now be received. I recognize Cathy Cleavenger.
My name is Kathy Cleavenger. I nominate Steve Sangey, Matthew W Chapman, L. B. Day, Esther L. Johnson, and Wade F Meyer Kord for Election as directors of the company.
Matthew Bunker. I second the nomination. Since no other nominations were received prior to the deadline, the nominations are now closed. The second proposal is to ratify the appointment of Ernst And Young LLP as the independent registered public accounting firm of Microchip for the fiscal year ending March 31, 2019, 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 from any of the stockholders?
Not emotion calling for a vote on this proposal will now be received. I recognize Robert Williams. My name is Robert Williams. I moved for the adoption of the following resolution, resolved. That the proposal to ratify the appointment of Ernst in Young LLP as the independent registered public accounting firm of Microchip for the fiscal year ending March 31, 2019, as more fully described in the company's proxy statement dated July 12, 2018, be approved.
Shumeet Mitra? I second the motion. The 3rd proposal is to hold an advisory non binding vote regarding the compensation of our named executives, the affirmative vote of the holders of a majority of the shares of government stock represented at the meeting is required to approve this proposal. Is there any discussion on this proposal from any of the stockholders? If not, then emotion calling for a vote on this proposal will now be received.
I recognize Patrick Johnson.
My name is Patrick Johnson. I moved 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 12, 2018, be approved on an advisory non binding basis. Steve.
The polls are now open for voting on the proposals before the meeting The time and date of the opening of the polls is 9:08 am today, August 14, 2018. Judy, 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 with Bellard? So after we finished the formal portion of this meeting and voting and the results are announced, I will momentarily adjourn the meeting.
So please say seated. And right after that, we reconvene for the presentation. But in between that pause, just stay seating. You can stretch your legs stand up for a second if you like. The polls are now closed.
The time and date of closing of the polls is 9:09 am today. August 14, 2018, will the Inspector of Election please announce the vote?
With respect to proposal 1, I hereby to clear that all the nominees have been duly elected as directors of the company to serve for the ensuing year until their successors are elected and qualified. With respect to proposal 2, I hereby declare that the proposal to ratify the appointment of Ernst And Young LLP as the independent registered public accounting of Microchip for the fiscal year ending March 31, 2019, has been adopted. With respect to proposal 3, I hereby declare that the compensation of the company's named executives has been approved on an advisory non binding basis.
This concludes the formal portion of the meeting. Before I adjourned the meeting, is there any further business? Many of the stockholders. If not, I will entertain a motion towards John, Eric Bjornhole. I moved the meeting being adjourned.
Ganesh Murti. I second the motion. All in favor, say, I. Any opposed to no? I'll have it.
The meeting is adjourned. Please stay seated. At this time, we'll make a presentation of the company. Are we ready? Presentation is up on Okay.
Before I begin, there's a long safe harbor statement. I will not read it all, but I wish to remind you that during this presentation, I will be making projections and other forward statements regarding the future financial performance of Microchip. These statements always involve predictions and the actual results may vary materially I refer you to the filings with the SEC regarding some important risk factors about the company. With that, this is a recap of our fiscal q1 of fiscal year 19 business results that we just announced late last week. It was a record quarter in every respect, record GAAP net sales, record non GAAP net sales, We also achieved a record non GAAP gross margin of 62.2 percent, first ever in the history of the company record non GAAP operating income of $473,500,000, record non GAAP net income of $405,800,000 record non GAAP earnings per share of $1.61, which was up 22.9 percent from a year ago, We declared record quarterly dividend per share of $0.365 per share.
As you know, we also closed the acquisition of microsemi on May 29. Our bookings have continued to be strong with a record high backlog And we are executing on the Microchip 2.0, which entails total system solutions for our customers with products that are smart, connected, and secure. And I'll introduce you to Microchip 2.0 lock mode during this presentation. So our vision in Microchip 2.0 is to be the very best embedded control solutions company ever. Products as well as customers applications that are smart, connected, and secure.
So before I go into microchip 2.0, We'll rapidly recap the microchip 1.0, which is really the history of microchip for the last 25 years. Which has seen consistent growth from Microchip in revenue and profits, perennial market share gains, a very high margin business model. The company has been very shareholder friendly with consistently increasing dividends. And consistently increasing free cash flow. And we have executed a very, very successful M and A strategy going back more than a decade where the company is built up and grown its revenue by a number of very successful acquisitions that we have integrated.
This slide shows the annual net sales growth going back all the way to fiscal year 93 when we went public. So this is 25 years of record largely up into the right. There have been couple of notable spots where because of a significant industry upheaval. 1 was in year 2001 when the entire industry crashed and other one was in 2009 during a major global financial crisis where you see that, you know, the sales took a dip for the year and those events looking back now just look like a minor bump on the road. The last bar on this slide fiscal year 2019 is just based on run rate of the last one quarter times 4.
The bars are also divided into our major product lines, microcontroller being the largest product line in green, analog in blue, Small Memory Business And Small FPGA Business And Licensing Business. The slide also shows 100 consecutive quarters of non GAAP profitability that we believe is unprecedented in the industry. This shows the market share gains in the total microcontroller market. I could have plotted it going way back prior to 2003 when Microchip really was at the bottom behind 25 other players in U. S.
Europe Asia and Japan. And then the red line really tracks the market share gains of Microchip reaching to number 3 position behind that in assets and NXP, both of which are a result of a large number of mergers in those companies also. The NASA is a merger of Hitachi NEC in Mitsubishi for 3 larger Japanese giants. And NXPs and merger for the old Phillips business, plus they acquired free scale, plus number of other small acquisitions So, you know, without any of those, microchip ranking, would it be higher, would be even higher, but microchip has acquired too. This shows the MCU market share in percentage terms.
This is microchip revenue dollars divided by the market data reported by SIA regarding the size of the microcontroller market. So you could see, again, going back all the way to 1993, we've had very, very substantial market share gain largely organic, but in the last several years, the market share gains have also been achieved through acquisitions The big jump in calendar year 16 is a result of acquisition of Atmel, which had a significant microcontroller business. This chart ends at calendar year 17. So, you know, any business got from Microsemi is really not on this chart. That would be in future when we put the calendar year 2018 on it.
This is the analog yearly revenue. We began in the analog business back in 1998 from a very, very small step, and then we did a number of acquisitions and dramatically grew our own business also for a long time, we had a goal of building a $1,000,000,000 analog business. This quarter, the quarter we just finished the June quarter, not only we a $1,000,000,000 we crossed the $1,250,000,000 and a large portion of that addition came from the acquisition of Microsemi. Annual non GAAP net sales. I'll show you series of these charts.
They all have one common message. They all show substantial compounded annual growth rate, and all these charts are largely up into the right. This one is sales. This one is a gross profit showing 18.6 percent comp 100 annual growth rate. This one is EBITDA, also showing 18.3% comp 100 annual growth rate.
This is free cash flow as a percentage of sales. The bars show total free cash flow in dollars. You can see in fiscal year 2018, we produced a little over $1,200,000,000 of free cash flow. And the blue line shows it in percentage. On the very left, I think we were at 27% and to the very right, we are in a low 30% free cash flow as a percentage of sales.
This shows a cumulative dividend paid in, you know, in dollars as well as in, cents per share. So we have overall paid about $5,000,000,000 that have been returned to shareholders, $3,500,000,000 have been in dividends and $1,400,000,000 have been in share buybacks. Our current dividend is about a run rate of $1.45 46 in that range. So, you know, ending the Microchip 1.0 submission, in the last decade We've also been expanding our solutions through large number of acquisitions and this shows the history of our acquisitions by year It kind of does show what the company is brought, but it's too detailed to really cover here. These slides are on our website.
And if you want to further study what each of the acquisition brought, that's only available for you to look at. Our latest acquisition was microsemi that brought us large amount of SPGA business, analog business, also some specialized microcontrollers for storage and other applications, a larger defense business, Each and every acquisition here has been quite successful added to Microchip, not only sales, but you know, Microchip's earnings per share has been accretive. And, the combination of all those acquisitions has built a scenario where in the past, you know, go back 10 years ago, Microchip will largely sell a micro controller or an analog part in a customer socket. And increasingly now we can take a customer's board and have 5, 6, 8, 10, even higher number of microchip parts populating that board because we pretty much today make microcontroller, all sorts of analog, converters, power management, RPMs. We made U.
S. Be ethernet, FPGAs, many specialized microcontroller solutions, flash memory, e squared, static RAM, and therefore, by by all these, we are able to complete a customer solution largely built by Microchip Parks and many times Only other thing the board has is the resistors and capacitors and battery and switches from somebody else and we take the entire silicon real estate. That's not in every application and that's still a dream in the works, a vision in the works, but increasing amount, we are able to sell more and more of microchip chips onto a single customer board. And that's really what leads us to a microchip 2.0 to be in a position now with all these acquisitions to have a vision to be the very best embedded control solutions company ever that delivers products and solutions that are smart, they're connected, and they're secure. So here are some of the elements of Microchip 2.0.
Starting with the total system solution and embedded control, we also enjoy the leading customer preference to design with our MCUs year after year when EE times survey when they ask a question to the customers in your next design whether it's 8 bits 16 bit or 32 bit, you know, which solution or which architecture or which products, which company would you choose from? And the leading answer has been my chip. And subsend substantial difference to the number 2 or number 3. We have multiple growth drivers in our business today. A non GAAP gross margin target is 63%.
Last quarter was another all time record of 62.2%. So I think we are knocking on to that long term target, although temporarily the number will go down with the acquisition of Microsemi, whose margins were a little bit lower than us. Last quarter, we only consolidated 1 month of Microsemi business into our numbers this quarter when we consolidated all 3 months, the gross margin actually goes down a little bit. So we have some work to do to get to this longer term gross margin of 63%. Non GAAP operating expense target of 22.5 percent This is very similar story.
The core microchip is already there. We gotta get the microsemi to integration to those kind of numbers. End market mix is skewed to industrial and automotive. Certainly, that was true for classic microchip. With the acquisition of Microsemi.
We have also picked up a fair amount of exposure to aerospace and defense to the data center market. So our end market mix has gotten more broader, more diversified, with larger number of opportunities. And the new long term model with industry leading operating profits, we're guiding to 40.5 percent operating profits longer term. Last quarter was 38.9. So you can see that we are in that range and getting better.
In the past in various presentations, I have shown 5 to 8 slides showing end customer boards with a substantial amount of products coming from Microchip. We have hundreds of those slides and for about more than a year, we've been picking 5 different slides to show how broadly in a larger number of applications We are populating those boards with microchip only products. Today, I only just picked 1 and, and that's a Google IoT engagement plus form. I love this one because not only it has large number of chips from Microchip, you can see by all those arrows, You know, you have a battery charger chip from Microchip, buck boost from Microchip, light sensor from Microchip, then you have a another chip that is any debug Dragon, you know, serial USB, a temp sensor, and then The beauty is that this one single board shows our our microchip 2.0 in the works. Smart, connected and secure.
Smart is through a microcontroller from Microchip, connected is through a a chip that is a Wi Fi chip from Microchip and secure it through a security chip from Microchip. So one single board and this been launched by Google. They did a press release and a lot more information is available on Google's website and also Microchip website. But this single, application, essentially, customer can utilize this board to adopt any of their applications and adapted to connect to the internet. This single application shows a microchip 2.0 in the works with solutions that are smart, connected, and secure, and also a large number of other chips coming from Microchip.
The only thing here That is not from Microchip, again, our connectors and board and battery and power and other things. So this is really one of the best example microchip 2.0 in works. This shows a number of parts for customer project and design. As I've been telling you that we've been getting a larger and larger of microchip parts on the customer's board, this is that in this time frame of a course of about 7 or 8 quarters, We've had a 26% increase on the average in number of parts from Microchip that customers are putting on their boards. This is the same thing with percentage of projects with more than one product family in design.
So again, in the history, you would have 1 business unit from Microchip engaged with the customer and sell a either a microcontroller or a power management or something, but this shows the percentage of projects at customers which have more than 1 microchip division, 1 microchip business unit, 1 microchip family being designed in. There's a 58% increase in this last 6, 7 quarters. So that's sort of the demonstration of Microchip 2.0 in the works. We have built a very high profitability financial model. So this shows quarter ending June 30, and the first column and a long term model in the second column, our non GAAP gross margin was a new record last quarter at 62.2%, long term model at 63 non GAAP operating expenses last quarter was 23.3 and our long term goal is 22.5 non GAAP operating profit, 38.9 percent going to 40.5% and non GAAP earnings per share last quarter was $1.61 So that would be a run rate of about 6.40.
And what we have guided to in our long term model is in fiscal year 'twenty one, a total earnings per share of $8. Now that was the number we gave when we announced the Microsemi acquisition in our last earnings call, we actually said that that $8 is conservative, but we did not provide a new number. So summarizing the presentation today, we are, microchip is a consistent revenue grower and market share gainer. With multiple growth drivers of the business. A very high margin business model and shareholder friendly.
Microsemi acquisition closed in integration is heavily underway. We delivered the accretion from Microsemi in the first quarter which was the last quarter. And, we already said in our earnings call that the accretion for September quarter will be higher than the $0.15 that we originally guided, but we did not really give a total number. Executing on micro 2.0 total system solutions, which are smart, connected, and secure, and a very premium long term non GAAP financial model of 63% gross margin, 22.5 percent operating expenses, and 40.5% operating income. Thank you very much.
And I'll take your questions. If you have a question, please raise your hand state your relationship with the company. If you're a stockholder, say so. If you're an employee, if you're a reporter, if you're a correspondent, you're an analyst, just state your relationship with the company then ask your question. We don't have any questions from the web audience.
Okay. Not open to the phone for asking questions. If you have any questions, they're only from the audience here. Okay. I do not see any questions.
So, hopefully you understood it all. Thank you very much for coming.