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CompanyName:LinearTechnologyCorpCompanyTicker:LLTCSector:Technology
Industry:Elect ronicsEventDescription:Q22015EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page1of 28
LinearTechnology(LLTC)EarningsReport:Q22015ConferenceCallTranscriptThefollowingLinearTechnologyconferencecalltookplaceonJanuary14,2015,11:30AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
PaulCoghlan;LinearTechnology;VP,Finance,CFOLotharMaier;LinearTechnology;CEOBobSwanson;LinearTechnology;ExecutiveChairman
OtherPart icipants
CraigHettenbach;MorganStanley;AnalystWilliamStein;SunTrustRobinsonHumphrey;AnalystToreSvanberg;StifelNicolaus;AnalystDavidWong;WellsFargoSecurities;AnalystWillsMiller;CreditSuisse;AnalystJimCavallo;CorVelCorporation;AnalystAmitShah;NomuraSecurities;AnalystRossSeymore;DeutscheBank;AnalystJoAnneFeeney;ABRInvestmentStrategy;AnalystChrisCaso;SusquehannaFinancialGroup;AnalystChrisStanley;Unidentified;AnalystAmbrishSrivastava;BMOBankofMontreal;AnalystSteveSmigie;RaymondJames;AnalystCJMuse;ISIGroup;AnalystCraigEllis;B.Riley;AnalystVivekArya;BankofAmericaMerrillLynch;AnalystDeeponNag;MacquarieCapitalPartners;AnalystDougFreedman;RBCCapitalMarkets;AnalystGilbertAlexander;Unidentified;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator:
Gooddayandwelcometothe2015fiscalsecond-quarterearningscall.Today'sconferenceisbeingrecorded.Atthistime,IwouldliketoturnthecallovertoMr.PaulCoghlan.Pleasegoahead.
PaulCoghlan(VP,Finance,CFO):
Goodmorning.WelcometotheLinearTechnologyconferencecall.I' llbejoinedthismorningbyBobSwanson,ourExecutiveChairman,andLotharMaier,ourCEO.Iwillgiveyouabriefoverviewofourrecentlycompletedsecondfiscalquarterandthenaddressthecurrentbusinessclimate.WewillthenopenupaconferencecalltoquestionstobedirectedatBob,Lothar,andmyself.
Itrustyouallhaveseencopiesofourpressrelease,whichwaspublishedyesterday.First,however,I'dliketoremindyouthat,exceptforhistoricalinformation,themattersthatwewillbedescribingthismorningwillbe
CompanyName:LinearTechnologyCorpCompanyTicker:LLTCSector:Technology
Industry:Elect ronicsEventDescription:Q22015EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page2of 28
forward-lookingstatementsthataredependentoncertainrisksanduncertainties,includingsuchfactors,amongothers,asnewordersreceivedandshippedduringthequarter,thetimelyintroductionofnewprocessesandproducts,andgeneralconditionsintheworldeconomyandfinancialmarkets.
Inadditiontotheserisks,whichwedescribedinourpressreleaseissuedyesterday,wereferyoutotheriskfactorslistedintheCompany'sForm10-QforthequarterendedSeptember28,2014,particularlyManagement'sdiscussionandanalysisoffinancialconditionandresultsofoperations.Secondly,SECRegulationFDregardingselectivedisclosureinfluencesourinteractionswithinvestors.
We'veopenedupthisconferencecalltoenableallinterestedinvestorstolistenin.Thepressreleaseandthisconferencecallwillbeourforumtorespondtoquestionsregardingourestimatedfinancialperformancegoingforward.Consequently,shouldyouhaveanyquestionsregardingourestimatesofsalesandprofits,[or]otherfinancialmattersfortheupcomingquarter,aswellashowtheymightimpactourincomestatementmodelandourbalancesheet,thisisthetimewearefreetorespondtothesequestions.
Asyoucantellfromourpressrelease,thejust-completedDecemberquartergenerallymetourexpectations,withsalesdownthe5%sequentially,whichapproximatedthemidpointofourguidance.EnteringtheDecemberquarter,wehadcommentedthattheDecemberquarterhistoricallyhasbeenseasonallyslowforus,particularlyautomotiveandindustrialcustomerswhotemporarilytightentheirdemandtominimizecalendaryearandinventorylevelsandtocompensateforannualshutdownsthatcoincidewithDecemberyear-endholidays.
WehadnotedthattheDecemberquarterhasaveragedbeingdown6%overthelastfouryears,sothisyear'sdown5%resultsapproximatedthehistoricalaverageandwasmorereflectiveofseasonalitythananystructuraldemandissues.Althoughquarterlysalesdeclined5%sequentially,theygrew5%year-over-year.
Grossmarginandoperatingmarginwereimpactedbythereductioninsales,althoughtheywereatthemidpointoftherangewehadforecast.Netincomewasdown5%,asaresultofthe5%reductioninsales,partiallyoffsetbyalowertaxrate.TheUSCongressreinstatedtheResearchandDevelopmenttaxcredit,for2014.Thispositivelyimpactedourquarterlytaxrate,reducingitfromanestimated26%toanactual22%.
Bookingsweredownmodestlyfromthepriorquarter;however,wedidhaveaslightlypositivebook-to-billratio.Asoccurredlastyear,thebookingsrateincreasedinthesecondhalfofthequarter.Onceagain,cancellationsinthequarterwereminor.Wecontinuetobelievethatinventoriesworldwideatcustomerswererelativelyleanexitingthequarter.Withregardtoourmajorendmarkets,industrialhadthelargestincrease,andcommunicationshadthelargestdecrease,justtheoppositeoflastquarter,althoughnoneofthesechangeswereparticularlysignificant.
Withregardtothedetailofourfinancialresults,salesdecreasedby5%fromthepriorquarter.Thegrossmarginpercentage,at75.4%,wasimpactedbythereductioninsales,andconsequently,wasdownfrom76%lastquarter.Averagesellingpriceat$1.88increasedfrom$1.87lastquarter.
Operatingexpenseswereunchanged,havingbenefitedfromaone-weekshutdownattheendofDecember.Operatingincomeandpre-taxincomeof44.9%ofsalesweredownfrom47%inthepriorquarterduetothereductioninsales.TheCompany'seffectivetaxratedecreasedto22%from26%lastquarter.
Finally,netincomeof$123.6milliondecreasedfrom$129.5millionreportedlastquarter,aslowersaleswerepartiallyoffsetbyalowertaxrate.Ourreturnonsalesof35.1%wassimilartolastquarter's34.9%.Forthesecondquarterinarow,ourdilutedsharesoutstandingwereslightlylower,aswepurchasedsharesinthequartertooffsetanypotentialdilutionfromemployeestockoptions.Worldwideheadcountincreased1%,mostofwhichwasinouroverseasfactories.
Insummary,theeffectoftheitemsIjustlistedonthepublishedquarterlyresultswasthatrevenuewas$352.6
CompanyName:LinearTechnologyCorpCompanyTicker:LLTCSector:Technology
Industry:Elect ronicsEventDescription:Q22015EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page3of 28
millionforthesecondquarterofFY15,comparedtothepreviousquarter'srevenueof$371.1million,and$334.6millionreportedinthesecondquarterofthepreviousfiscalyear.GAAPdilutedearningspershareof$0.51,whiledown$0.02fromthepreviousquarter'searningspershareof$0.53,were$0.07betterthanreportedinthatsecondquarterofFY14,whichhadlowersalesandhigherinterestexpensecomparedwiththisquarter.
TheCompanynolongerhasinterestexpensecomparedwith$12millionofinterestexpenseinthesecondquarterofthepriorfiscalyear,asaresultoftheextinguishmentofitsconvertibleseniornotesattheendofFY14.Earningspersharethisquarterwouldbe$0.56withouttheimpactofstockoptionaccounting.
Duringthesecondquarter,theCompany'scash,cashequivalents,andmarketablesecuritiesincreasedby$45.2million,to$1.073billion,netofspending,$65.8milliononcashdividends,and$34.7milliononstockpurchases.TheCompanyalsoannouncedthatitwouldraiseitsquarterlydividendby11%,from$0.27pershareto$0.30pershare.Atthecurrentstockprice,theCompany'sdividendyieldis2.7%.ThecashdividendwillbepaidonFebruary25tostockholdersofrecordonFebruary13.
Lookingforward,theMarchquarterishistoricallyagrowthquarterforus.Althoughtherearesomeweakerregionsintheglobaleconomy,theUSAisstrong.Ourbook-to-billratiowasslightlypositiveintheDecemberquarterandwetypicallyseestrongbookingsmomentumintheautomotiveandindustrialmarketsintheMarchquarter.
Accordingly,wearecurrentlyforecastingrevenuestogrowsequentiallyby4%to7%inourfiscalthirdquarter.Overall,wecontinuetobeoptimisticabouttheincreasedelectroniccontentinourendmarkets,especiallyautomotiveandindustrial.
NowIwouldliketoaddressthequarter'sresultsonaline-by-linebasis,startingwithbookings.Bookingsdecreasedthisquarteroverthepreviousquarter,althoughwehadamodestpositivebook-to-billratioandbookingsincreasedeverymonthwithinthequarter.Geographically,bookingswereupintheUSAanddowninternationally.Withininternational,bookingsweredowninAsiaandEuropeandflatinJapan.
Byendmarkets,industrialwasupthemost,andcommunicationsdownthemost.Atthistimeeveryquarter,wegiveyouabreakdownofourbookingspercentagesbyendmarketstogiveyouinsightintothosemarketsthatdriveourbusiness.Industrialcontinuestobeourlargestarea.Industrialwas44%ofourbookings,upfrom43%thepreviousquarter.
Withinindustrial,USAandJapanwereup,andEuropewasdown.ThisincreaseinindustrialpositionsuswellfortheMarchquarter.Ourindustrialbusinessisverybroad-based,bothgeographicallyandbyendproducts.Thecommunicationsarea,at19%,wasdownfrom20%lastquarter.Europewasflat,whereasChinaandtheUSAnetworkingandinfrastructurecompaniesweredown,whichistheoppositeoflastquarter.
Cellphonecontinuestobeaverysmallpartofourbusinessandroundstolessthan1%ofourbusiness.Computerremainedat9%ofourbusinessagain,whiledownmodestlyinabsolutedollars.Withincomputer,weserviceopportunitiesinnotebooks,desktops,tablets,servers,storagedevices,andprintingandimagingendproducts.
Automotivecontinuestobeafocusedareaforusandremainedat19%ofourbookings,whiledownmodestlyinabsolutedollars.Inthelast10years,aswehaveemphasizedthismarket,ithasquadrupledasapercentofourbookings.TheexpansionofexistingLinearpartsintonewcarmodelsandalsonewpartsfornewprogramscontinuetohelpus.
Ourbatterymonitoringproductsforhybridandelectricvehiclesareachievingexpandingmarketacceptance.Inaddition,wecontinuetodistinguishLinearasahigh-qualitysupplierinimportantinternationalautomotivemanufacturers.
CompanyName:LinearTechnologyCorpCompanyTicker:LLTCSector:Technology
Industry:Elect ronicsEventDescription:Q22015EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page4of 28
Consumer,whichhasbeenoursmallestendmarket,remainedat3%ofourbusiness,whiledowninabsolutedollars.Finally,themilitary,space,andharshenvironmentproductsremainedat6%,althoughupinabsolutedollars.TheUSAandEuropearethepredominantgeographicareasforthisbusiness.
Insummary,thisisagooddistributionofbusinessbyendmarketsforus,withourlargestareascontinuingtoshowthemostoverallanalogmarketshare.Whereasfiveyearsago,14%ofourbusinesswasincellphoneandhighinconsumer-relatedmarkets,nowonly3%ofourbusinessisinthesegenerallycommodityandvolatileanalogareas.
Ontheotherhand,automotive,whichwas8%ofourbusinessfiveyearsago,isnow19%ofourbusiness,andindustrialhasgrownfrom35%to44%ofourbusiness.Withregardtowhereourbookingsareactuallycreated,59%arecreatedinternationally,and41%intheUSA.Internationallyovertime,wehavebeenhelpedbythestrengthofourJapaneseandEuropeanautomotivecustomers.
Movingfrombookingstosales,netsalesdecreased5%fromthepriorquarter,whileimproving5%fromthesimilarquarterintheprioryear.Salesdecreasedsimilarly,bothinternationallyandintheUSA.Withininternational,salesdecreasedthemostinEuropeandtheleastinJapan.
Insummary,theUSAis27%ofsales,similartolastquarter.Europe,at19%,wasdownfrom20%lastquarter,whichisnotunusualforEuropeintheDecemberquarter.Japan,at16%,wasupfrom15%lastquarter.AsiaPacific,at38%ofsales,wassimilartolastquarter.
Grossmargin,at75.4%ofsales,wasdownfrom76%lastquarter.SlightlyhigherASPwasmorethanoffsetbylowerfactoryefficiencies,largelyduetoabsorbingfixedcostsoveralowersalesbase.ASPat$1.88increasedfrom$1.87lastquarter.TheCompanydidshutdownfortheDecemberholidayweekthisquarter,asitusuallyhas.
R&D.R&Dat$65.1milliondecreased$500,000fromlastquarter,whileincreasingasapercentofsalesfrom17.7%lastquarterto18.5%thisquarterduetothedecreaseinsales.Savingsandlaborrelatedcosts,duetolowerprofit-sharingandtheholidayweekshutdown,werepartiallyoffsetbyR&D-relatedsuppliesandotherexpenses.
SG&A,selling,general,andadministrativeexpense,at$42.5millionincreased$448,000fromthepreviousquarter's$42.1million,andincreased,asapercentofsales,from11.3%to12.1%,duelargelytothedecreaseinsales.AsinR&D,laborcostswerelower,duetolowerprofit-sharingandtheholidayshutdown.Thesesavingswereoffsetbyhighernon-laborrelatedcommunicationscostandotherexpenses.
Operatingincome.Asaresultoftheabove,operatingincomedecreasedby$16.2million,andasapercentofsales,declinedfrom47%to44.9%,primarilyduetothedecreaseinsales.44.9%operatingprofitisstillstrongprofitabilityandclearlyputsusaheadofourpeersinthisfinancialperformancemeasure.
Interestincomewasminor.Consequently,pre-taxprofitsapproximatedoperatingincome.TheCompany'spre-taxprofitswere$158.5million,downfrom$174.9millionlastquarter.Pre-taxprofitsarenow44.9%ofsalesversus47.1%lastquarter,again,withthedecreaseduetolowersalesvolume.
Ourquarterlyeffectivetaxrateof22%decreasedfrom26%lastquarter.TheUSCongressreinstatedtheR&Dcreditfor2014.ThisresultedinabenefittotheCompany'seffectivetaxrate,whichwasreducedthisquarterby4percentagepoints,3ofwhichrelatedtopriorquarters.Weexpectnextquarter'staxratetobe25.5%beforediscreteitems,ifany.
Theresultingnetincomeof$123.6millionwasdown5%fromthe$129.5millionreportedinthepreviousquarter,largelyduetothedecreaseinsales,partiallyoffsetbylowertaxes.Theresultingreturnonsalesof35.1%wassimilartothe34.9%reportedinthepreviousquarter.
CompanyName:LinearTechnologyCorpCompanyTicker:LLTCSector:Technology
Industry:Elect ronicsEventDescription:Q22015EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page5of 28
Theaveragesharesoutstandingusedinthecalculationofearningspersharedecreasedby210,000shares.Shareincreasesrelatingtostockoptionexercisesandemployeerestrictedstockgrantswereoffsetbystockpurchasesintheopenmarket.GAAPearningpersharewas$0.51,downfrom$0.53thepriorquarter,againduetolowersales.Withouttheimpactofstock-basedcompensationof$17.9million,thedilutedearningspersharewouldhavebeen$0.56pershare.
Movingtothebalancesheet,cashandshort-terminvestmentsincreasedby$45.2million.Forthe115thconsecutivequarter,theCompanyhadpositivecashflowfromoperations.TheCompanyprovided$148millionincashflowfromoperations,ofwhich$65.8millionwasemployedtopaycashdividends,$34.7milliontopurchasecommonstock,and$16.2milliontopurchasefixedassets.Ourcashandshort-terminvestmentbalanceisnow$1.0729billionandrepresents62%oftotalassets.
Accountsreceivableof$148.6milliondecreasedby$26.9million,ascollectionsfromahighersalesquarterarereplacedwithreceivablesfromalowersalesquarter.Consequently,ourdaysalesandaccountsreceivablewere38days,lowerthanthe43daysreportedinthelastquarter.
Inventory,at$100.1millionincreased$2.5millionfromlastquarter.ThisincreasewasinfinishedgoodstobuildupshippableinventorypriortoChineseNewYearwhenourAsianfactorieswillbeclosedforaweek.Rawmaterialsandwork-in-processinventorywereflat.Ourquarterlyaverageinventoryturnsis3.5times,downslightlyfrom3.8timesinthepriorquarter.
Deferredtaxesandothercurrentassetsof$99.7millionincreased$12.8millionfromthepriorquarter.Thiswaslargelyinprepaidtaxes,partiallytorecognizethebenefitfromthereinstatementoftheR&Dcredit.Property,plant,andequipmentincreasedby$3.2million.Wehadadditionsof$16.201millionanddepreciationof$13.005million.Mostoftheadditionswereformanufacturingequipmentinfabricationandtestandassemblyworldwide.
Wehaveincreasedourcapitalexpendituresthisyearinresponsetoproductionrequirementsweanticipateincalendar2015.Weexpectadditionstoberoughly$80millionanddepreciationroughly$50millionforFY15.Identifiedintangiblesdecreasedby$550,000asinpastquarters,duetoquarterlyamortization.Goodwillremainedunchanged.Finally,ontheassetsideofthebalancesheet,ourreturnonassetswas28.9%,similartolastquarter's30.9%,slightlyimpactedbythereductioninsales.
Movingtotheliabilitysideofthebalancesheet,accountspayabledecreasedby$7million,largelyduetotimingdifferencesonrecurringpayableitems.Accruedincometaxes,payroll,andotheraccruedliabilitiesdecreasedby$22.7million.Anincreaseinourprofitsharingaccrual,whichispaidoutsemi-annually,wasoffsetbyadecreaseinourincometaxaccrual.
Deferredincomeonshipmentsintodistributionincreasedmodestlyby$378,000,asourshipmentstoourUSdistributorsweremarginallygreaterthanwhattheyshippedouttotheirendcustomers.Ouraccountingisconservativeaswedonotrecordasaleonourbooksuntildistributionhasmadeasaletotheirendcustomer.
Worldwide,wecontinuetobelieveourinventorylevelsarelean.Wecontinuetocloselycontrolourinventoryatdistributorstoproperlypositiontheinventoryrelativetopotentialdemand.Intotal,currentliabilitiesarerelativelysmall,andtherefore,wehaveastrongcurrentratio.Ourcurrentratiowas8.4to1versuslastquarter's7to1.
Deferredtaxandotherlong-termliabilitiesof$120.3millionincreasedby$10.4million,largelyduetoincreasesinlong-termtaxesonvarioustaxtimingdifferences.Changesinthestockholderequityaccountswereprimarilytheresultoftheusualquarterlytransactionsfornetincome,dividendspaid,andemployeestockactivity.
Asstatedearlier,theCompanyannounceditwillpayaquarterlydividendof$0.30pershare.TheCompany
CompanyName:LinearTechnologyCorpCompanyTicker:LLTCSector:Technology
Industry:Elect ronicsEventDescription:Q22015EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page6of 28
believesthatpayingadividendisanimportantwaytoreturnvaluetoitsshareholders.TheCompanybeganpayingadividendin1992,andhasincreasediteveryyearsince,andcurrentlypaysapproximatelya2.7%yield.
Lookingforward,wearecomingintothesecondhalfofourfiscalyear,whichisnormallyourstrongesthalf.TheMarchquarterishistoricallyastrongquarterfortwoofourlargestendmarkets,industrialandautomotive.Thefollowingfactorsimpactourguidance.
Onthemacroeconomic[front],theUSeconomyisstrongandisprojectingstrongergrowththanreportedinrecentyears.Ontheotherhand,Europe,China,andJapanareexperiencingreductionsingrowth.Thedollarisstrong,whichhasplusesandminuses.Similarly,oilpricesarelow,whichalsohaspositiveandnegativeeconomiceffects.
FromaLinear-specificstandpoint,wehaveapositivebook-to-billratiogoingintotheMarchquarter.WehadgoodbookingsmomentumattheendofDecemberandsofarbookingshavebeenofftoagoodstartinJanuary.ChineseNewYearisthisquarter.Ourforeignfactorieswillbeclosedforaweek.It'salwaysinterestingtomonitorAsiamomentumposttheNewYearholiday.Finally,wecontinuetobelieveinventoryatcustomersarelean,basedonourcontinuingminorcancellationactivity.
Summarizingthesevariousdatapointshasgivenusapositivebiasintheshort-term.Consequently,wearecurrentlyforecastingrevenuesfortheMarchquartertogrowsequentiallyinthe4%to7%range.Dependingonsales,operatingmarginasapercentofsalesshouldimprovemodestly.Ourongoingeffectivetaxrateshouldberoughly25.5%priortodiscreteitems,ifany,thatmayarise.
Insummary,lookingbeyondthesenear-termmarketevents,themajormarketopportunitiesthatdriveourbusinessdemonstratecontinuinggrowth,particularlyintheindustrialandautomotiveendmarkets.Increasedanaloginnovationsinourotherendmarketswillalsobenefitus.
Webelieveweareintherightmarketsattherighttimewiththerightinnovativeproductstoexecuteourstrategyandexploitourgrowthopportunities.Wearestrongintheareaswewanttobe--industrial,communicationsinfrastructureandnetworking,andautomotive--andbelievethatweareinaninnovation-drivenenvironment.
Ourstrategyisdifferentiatedfromourotheranalogcompetitors.Wedominateindifferentendmarkets,weareamorereliablesupplierwithconsistentlylowerleadtimesandbettersupport,andourtechnologyandsupportisvalued,asisevidencedbyourhigheroperatingmargins.
Finally,atthistimeofyear,wereviewourdividend.Wehaveincreasedthedividendeveryyear,althoughmodestlyinthelastseveralyears,aswehaveaccumulatedcashtopaydownourdebt.InMay2014,weextinguishedthedebt.Consequently,goingforward,weareabletoreturnmorecurrentcashtoshareholders.Therefore,wehaveannouncedincreasingourquarterlycashdividendby11%,from$0.27ashareto$0.30ashare.
Sinceextinguishingthedebt,wehavealsoincreasedourquarterlysharebuybacks.Thisquarter,weboughtback725,000shares,andforthesecondquarterinarow,wehavenothadanincreaseinouroutstandingshares.Increasingourdividendandoursharebuybackswillhaveusdistributingroughlythequarterlycashthatwegenerateonshore.
IwouldnowliketoopenuptheconferencecalltoquestionsbeaddressedeithertoBobLotharormyself.
QUESTIONS&ANSWERS
Operator:
CompanyName:LinearTechnologyCorpCompanyTicker:LLTCSector:Technology
Industry:Elect ronicsEventDescription:Q22015EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page7of 28
(OperatorInstructions)
CraigHettenbach,MorganStanley.
CraigHet tenbach(Analyst-MorganStanley):
Great.Thankyou.QuestionsforLothar.Althoughthenear-termenvironmentwasdescribedasyouhavesome--apositivebiashere,themacrohasbeenabitchoppybyregion,sojustwantedtogetasenseoftheimplicationsof,foryourcustomers,intermsofdesignwinsyouhaveandhowtheyseebusinessandrampingthosewins?Hasthathadanyimplications?
LotharMaier(CEO):
Designwinsandintodesignsales,thatisalongmulti-yearperiod,solookingatthatquarter-to-quarterisalittlebithardtodo.Iwouldprobablystepbackalittlebitandsayjustlookatthemarketsthatwearefocusedon--theautomotiveandindustrialmarketsandthecommunicationsmarkets.
Thosemarketsarereallythegrowthdriversfortheanalogbusinessandwearehighlyconcentratedinthosemarkets.Soabetterthingtolookatitisratherthanwhatdesignswinswe'vegotinthisquarterisjustlookingathowwearepositioned,theCompanyrelativetothemarkets,andwhatmarketsaredoingwell.WeareaboutasgoodalignedasIwouldsaywe'veeverbeen.
CraigHet tenbach(Analyst-MorganStanley):
Gotit.Thanksforthat.Andasafollow-up,canyoutalkaboutthewirelesssensornetworksbusiness.Iknowit'searlystages,butjustwhatthecustomer'sappetiteisforthoseproductsandanykeyapplicationsasthatbusinessemergesthatyouwouldcallout?
LotharMaier(CEO):
Yes.WedidtheDustacquisitionnowalmostexactlythreeyearsagoandwe'veseengrowthinsalesofthoseinitialproductseverysingleyear,butgrantedit'sonamodestbase.About1.5yearsago,wereallyintroducedthefirstnewproductsposttheacquisition.Thesearethesingle-chip5800seriesDustproducts.
Thoseproductshavebeenverywell-receivedinthemarket.There'salotofinterestinit.We'vemeasureditintermsofhowmanydemonstrationkitsthatwegiveoutandhowmanydemoswedo.Butintermsofitbecomingasignificantpartofourbusiness,wearestilllookingatafewyearsforthattohappen,butIcantellyoutheinterestisveryhigh,theproductsareverygood,andtheyarereallydesignedspecificallytowardsmoreindustrialapplications,notconsumerapplications.
CraigHet tenbach(Analyst-MorganStanley):
Gotit.Thanksforthat.
Operator:
WilliamStein,SunTrustRobinsonHumphrey
WilliamStein(Analyst-SunTrustRobinsonHumphrey):
Great.Thankyoufortakingmyquestion.I'mhopingtodiginthemarginsalittlebit.TheycameinslightlybelowconsensusandIunderstandyou'readdingabitofcapacity.Inthepast,youtalkedabout$400millionperquarterasthe[as-tooled]capacityandthenwecandosomematharounddrop-throughonrevenuegrowthas--wherewe'dexpectmarginstoramp.Canyourecalibrateusonthatmetric?What'syouras-tooledcapacitytodayandwheredoyouanticipatemarginsgoinglonger-term?
CompanyName:LinearTechnologyCorpCompanyTicker:LLTCSector:Technology
Industry:Elect ronicsEventDescription:Q22015EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page8 of 28
LotharMaier(CEO):
Yougotitprettymuchrighton.Wearetooleduptodoaround$400million.Wecangrowbeyondthatwithouthavingtodoanybrick-and-mortartypeofexpansion,soitwouldjustbecapitalequipmentandpeoplethatwouldbeaddedsothecostwillbegradualaswegrowbeyondit.Themargins,asweapproachofthatnumber,wewillcontinuetoimprove.
PaulCoghlan(VP,Finance,CFO):
Ifyoulookbackatthesimilarseasonalityquartersin2011and2012whenoursaleswerereducedbyamountssimilartolastquarter,theimpactthegrossmarginwassimilar,about6/10ofapoint,soIdonotthinktherewasanythingunusualingrossmarginthathappenedinthequarterthatjustended.
WilliamStein(Analyst-SunTrustRobinsonHumphrey):
That'shelpful.Thanks,Paul.MaybeIcanjustfollowupwithoneonyouroutlookforcommunicationsequipmentandwirelessbasestations,inparticular.Younoteditwas--itcertainlydidn'tfalloffacliffbutitwasslightlyweakerinthequarter.I'mwonderingifyouhaveanyoutlookforthefullyearandifyouhaveanycolorbyregionthatwouldbehelpful?Thankyou.
PaulCoghlan(VP,Finance,CFO):
I'mimpressedyou'veaskedusthatquestionbecauseourhistoricalaccuracyinpredictingwhat'sgoingtohappenincommunicationsinfrastructureisnottobeproudof,althoughcomparatively,withtherestoftheindustry,maybewe'reequallyaspoor.Soforus,it'sreallyhardtotell.China,asyouknow,tendstobesporadicontheirimplementationoftheinfrastructurebuild-out.
MyguessisthenegativesyouhearoutofChinaarethatdemandisweakeningabit,althoughstillstrongcomparativelywithotherregions.AlthoughIwouldthinkloweroilpricesareprobablygoingtohelpChinainthenear-termandmaybespursomeavailablespendingforthem,andwhoknows,maybethatwillplayintothatmarket.
WilliamStein(Analyst-SunTrustRobinsonHumphrey):
Thanksforthatoutlookandcongratsonthegoodoutlook.
PaulCoghlan(VP,Finance,CFO):
Thankyou.
Operator:
ToreSvanberg,StifelNicolaus
ToreSvanberg(Analyst-StifelNicolaus):
Yes.Thankyou.Thefirstquestion,ifIlookatthecalendaryear2014,yoursaleswereup9%year-over-year.Asyoulookattheputsandtakesoftheeconomythisyear,Iknowit's--andIrecognizeit'searlyonandyoudon'tgiveannualguidance,butisthereanythingouttherethatwouldsuggestwhyyouwouldn'tbeabletoatleastrepeatthatagainherethisyear?
PaulCoghlan(VP,Finance,CFO):
We'regoingintothestrongesthalfofouryear,whichisthefirsthalfofthecalendaryear,sotheguidancewe'vegivenyou--themidpointofthatguidancewouldhaveusgrowing7%year-over-year,upfrom5%thepreviousquarter.Ourhopeis--long-term,ourgoalistocontinuetogrowroughly10%.
CompanyName:LinearTechnologyCorpCompanyTicker:LLTCSector:Technology
Industry:Elect ronicsEventDescription:Q22015EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page9of 28
Wegrewlastcalendaryear9%.Itisstillearlytolookat2015.WethinktheMarchquarterwillbeoff,forus,toareasonablestart,aswehaveguided.Soforus,rightnow,wedon'tforecastfortheyear,asyousaid,butwewouldhopewewoulddosomethingsimilaratthisstagetolastyear.
ToreSvanberg(Analyst-StifelNicolaus):
Verygood,andPaul,basedonyourcommentsaboutoperatingmarginbeupmodestlyintheMarchquarter,shouldweinferthatOpExwillbeflatsequentiallyorwilltheimprovementcomeprimarilyfromsalesandgrossmargin?
PaulCoghlan(VP,Finance,CFO):
Theimprovementwouldcomeprimarilyfromsalesandgrossmargin.Operatingexpensewillbeupabit.WewillnothaveashutdownintheMarchquarter.WedidhaveashutdownintheDecemberquarter.ThefirstweekoftheMarchquarterwastheweekbetweenChristmasandNewYear's,sothereweresomeextravacationthere.That' llsoftenalittlebittheshutdownimpactgoingintotheMarchquarter,buttheprimarygamewillbethepercentagefollow-throughfromtheincreaseinsales.
ToreSvanberg(Analyst-StifelNicolaus):
Okay.I'mjustgoingtosneakinonelastfollow-up.Yourinventorydaysarenowat105.Theywere100dayslastquarter.ThatisalittlebithigherthanwhatitisusuallyforLinear.YoumentionedsomeinventorybuildorbufferbecauseofshutdownsrelatedtotheChineseNewYear,butisthereanythingelsestructurallygoingoninthemarketthatiscausingyoutomaybeholdalittlebitmoreinventorythanhistorically?
PaulCoghlan(VP,Finance,CFO):
Idon'tknowifit'sstructurally.Thereareafewthingsidiosyncratictous.Ifyougobackto,Idon'tknowwhathistoricbaseyou'resaying,butifyougobackafewyears,ouraveragesellingpriceishighernow,sothatifwemaintainasimilarnumberofunits,ourinventoryvaluewouldbehigher.
Wehavelessconcentrationofsalesinthecomputermarketthanwehadseveralyearsago,sowehaveabroaderdisbursementofoursales.Thenthemixofourproductsismovingmoretowardsnewerproductsandthenewerproductsaremorecomplexthantheolderproducts,carryabithigherASP--
Unident if iedCompanyRepresentat ive :
Longercycletimes.
PaulCoghlan(VP,Finance,CFO):
Andalittlelongercycletimestobuild.Thenifyouaddtothatthemodulebusiness,whichwehave,thathasrawmaterialpartsthatourchipsalesdonothave,sothatrawmaterialwouldhavebeenimpactedbymodulesales,andthemodulesaleshavebeenquitestrongforus.Sooverall,ifyouaddallthosepiecestogether,youwouldgettothereasonwhytheinventoryoverallhasincreased.
ToreSvanberg(Analyst-StifelNicolaus):
That'sveryhelpful.Thankyouverymuch.
Operator:
DavidWong,WellsFargoSecurities.
DavidWong(Analyst-WellsFargoSecurities):
CompanyName:LinearTechnologyCorpCompanyTicker:LLTCSector:Technology
Industry:Elect ronicsEventDescription:Q22015EarningsCall
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Thanksverymuch.Canyougiveussomeideaofwhereincarsyourproductsareused,andinparticular,whatapplicationsegmentsinautomotivehavedrivenautomotivegrowingasapercentageofyourtotalsales?
LotharMaier(CEO):
Ifyoulookbackafewyears,themajorityofourautomotivesalesreallycameinthenavigationandinfotainmentpartofthevehicle.Ifyouprobablylookinthelastfiveyears,we'veheldthatbusiness,thenavigationportion,prettysteady,andthegrowthwe'veseeniseverythingotherthannavigation,soit'sinthedrivetrain,it'sinsensors,it'sineverythingelsearoundthecar,theBMSproductshavebeenagoodgrowthforus.
Basically,we'reprobablyaboutone-halfinnavigationtypeofapplicationsandtherestisaroundthecar.Certainly,thepartthat'sgrowingthefastestisthenon-navigationandifyouwant,betterfuelefficiency,youwillwantbetter--loweremissions,thosetypesofenhancementsareallgoingtocomefromthenon-navigation,inaninterestingthoughthathavecomeupdon'tstartedtocomeupinthelastfewyearsisthatthenewcarsfortheleading-edgecarsarejustjammedfullofsensors.Andthisiscameras,itisradarsystems,itislasersystems,itisimagedetectionsystems.
Andalotofthat--there'salotofthatelectronicsactuallygoesbackthroughthenavigationsystemconsolethat'stheirandsothere'sgoodgrowthwethinkitgoingforwardandpeopletalkalotaboutthisautonomousdriving.that'salongwaysawaybuttheastepinthatdirectionisallofthesesensingapplicationsandthat'sanareathatweseealotofinterestintheautomotivecustomers.
DavidWong(Analyst-WellsFargoSecurities):
Great.Thanks.Andjusttopushonanearlierquestionifyourwererunningatwhatyou'dconsidertobeoptimalutilizationwhatgrossmarginrangewouldyoubeinandinthelongrangewhatwouldoperatingmargindothinkyoucouldgetto?
LotharMaier(CEO):
Wellthere'ssomanyvariablesinthatotherthanjustgettingto400+millionbutwewouldthinkwecouldgetourgrossmarginstowardsthehigh70percentagenumbers.We'vedonethatinthepastsoweprobablycomeclosetobutmaybenotexactlyhitourprevioushighpeaksandthenoperatingmarginsisoursalesweretogrowwellonaquarterlybasis,sothatwegettothe400andbeyondquickerratherthanslowly,thenoperatingmarginscouldprobablygetbackinthe50%range.
DavidWong(Analyst-WellsFargoSecurities):
Great.Thanksverymuch.
Operator:
JohnPitzer,CreditSuisse
WillsMiller(Analyst-CreditSuisse):
Hello.ThisisWillsMillercallinginforJohnPitzer.Congratsontheresultsandthankyouforlettingmeaskaquestion.Thelasttimeyourquarterlyrevenuewashoveringjustbelow$400millionwascalendaryear2010atwhichpointgrossmarginwasabout78%andoperatingmarginswereinthelowtoMidshipman50%range.
IfIgrowrevenueseasonallyoverthenextcouplequartersIgetrevenuebackinthatrange.WhatmarginsshouldweexpectthoselevelsifIassumeabout80%incrementalgrossmarginandIgetabout76%grossmarginisthisreasonableandintherightballpark?
CompanyName:LinearTechnologyCorpCompanyTicker:LLTCSector:Technology
Industry:Elect ronicsEventDescription:Q22015EarningsCall
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PaulCoghlan(VP,Finance,CFO):
Sothemathyoujustexplainedtomequicklysaidthatifwegrowto$40millionagainIdon'tknowhowfastyougotustherebutyouarehavinggrossmarginat76%.Yousaid.
WillsMiller(Analyst-CreditSuisse):
Correct.
PaulCoghlan(VP,Finance,CFO):
Whichiswhatgrossmarginwehadlastquarterwhenwewereat$370million.Somyguessiswecoulddoalittlebetter,we'dhavetoseehowitplaysoutandwhatfactoryefficienciesweareabletoachieve.Butmyguessisyouare76%mightbealittleconservativebutnotdramaticallyfaroff.
WillsMiller(Analyst-CreditSuisse):
Okay.Thanks.
PaulCoghlan(VP,Finance,CFO):
Allhighnumberstobeginwith.
WillsMiller(Analyst-CreditSuisse):
Thankyou.ThatwashelpfulandthenfromagainmarketperspectiveIwaswonderingifyoucouldbreakyourendmarketsintermsoftheexpectationsforyouryear-to-yeargrowthfor2015.
PaulCoghlan(VP,Finance,CFO):
Well,,theonewethinkthere'sthemostgrowthprobablypotentialwouldbeautomotive,industrial,touswouldbesecond,butthere'sgoodinnovationgoingoninothermarketsaswell.WehavePOEproductsthatarequiteattractiveandotherproductsthatarequiteattractiveit--RFproductsetceterainthecommunicationsmarketssothosearethethreethatconstitutethelionsshareofourendmarketsforsure,roughly90%andweseegrowthopportunitiesinallofthembutprobablyautomotivewouldbethefastest-growing.
WillsMiller(Analyst-CreditSuisse):
Thankyou.
Operator:
JimCavallo,CorVelCorporation.
Jim,yourlineisopen.
PaulCoghlan(VP,Finance,CFO):
Resultsweresogood,Jim,you'rejustspeechless.
Operator:
Checkthemutefunctiononyourphone,Jim.
JimCavallo (Analyst-CorVelCorporation):
Canyouhearmenow,guys?Sorryaboutthat.
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PaulCoghlan(VP,Finance,CFO):
Yes.Jim,Icanjust.
JimCavallo (Analyst-CorVelCorporation):
Okay.Sorryaboutthat.IapologizesoPaulyouguyshavebeengrowingareallynicepercentyear-over-yearclipforahandfulofquarters,leftcouplequartersclosertoverifypercentor7%range.Youcommentedthatyouthinkyourgoalis10%growth.
Theendmarkets,allofyourendmarketscollectivelydon'tgrow10%sothatwouldimplyyourabilitytogainshare--whichmarketsdothinkyou'dbeabletomostgainshareinandwheredothinkthatsharewouldcomefrom?
Ifnotfromspecificcustomercompetitors--whatproductsdothinkyoucouldgainshareintomakeupthedifferencebetweenyour10%growthtargetsandtheendmarketswhichcollectivelydon'tgrowatthat?
LotharMaier(CEO):
Yes.MaybeIcantakeastabatthat.Ifyoulookattheoverallanalogmarket,it'smaybea$44billionmarket.Andifyoulookatwhatsegmentsaregrowinginthatmarket,it'sreallylong-term,theindustrialmarkethassteadilygrown,10yearsago7%oftheanalogmarket.Today'sover20%ofthemarket.
Asimilarstoryisintheautomotivemarketwhereafewyearsago--itwasnotabigpartofthebusiness,nowit'sover20%andsotheindustrialandautomotivemarketsfortotalanalogaremaybe43%ofthemarketandtheirgrowingroughly2%or3%marketshareeveryyear.Soinafewyears,automotiveindustrialisgoingtobethelionsshareoftheanalogmarketandthat'swhereweasacompanyareveryfocusedon.
Sonotonlyareweinthemarketsthataregrowingthefastest,it'sbecomingabiggerandbiggerportionofourbusinessaswell.
Sograntedmaybetheoverallanalogmarketisgrowingslower,howwelookatitiswe'reinthesegmentthat'sgrowingfastestandwedon'tevennecessarilyhavetotakemarketshare.Wejusthavetoridealongwiththegrowthoftheautomotiveandindustrialmarketsandthentoalesserextent,justhangontothebusinesswehaveinthecommunicationsandthatwillallowustodothis10%growth.
BobSwanson(ExecutiveChairman):
Yes.Ifyoulookatthenumbers,iftheoverallmarketgrowsby5%,that'sa$2billionincreaseincrementally.Ifwecanget$150millionofthe$2billionwe'vejustgrownby10%soit'snotlikewehave80%marketshareoreven20%.Wehaveasmallmarketshare.
JimCavallo (Analyst-CorVelCorporation):
SoifIcouldspecificallyonthefollow-upfocusontheautomotivebusiness,Ithinkthatautomotivehasbeenaterrificmarketforthewholeindustryanditcertainlyforlinearinparticular.Foralittlewhilenow.AndifIthinkabout2%to3%long-termglobalautounitgrowthandabout5%contentperboxthatwouldmakethatmaybea7%or8%coremarketinanaverageyear.
Doyouthinkthoseestimatesarewrong?Oragain,doyoujustthinkthesharegainthatyoucanhavewithinautomotivecanmakeupthegapbetweenthat?Andthat'smaybe40--orgoingforward50%ofyourbusiness,buttheother50%stillwouldn'tgrowat10%.I'mjusttryingtobridgethegapbetweenthe10%targetsandevenatthebestendmarketlookinglikelong-termthat'sprobably7%or8%growth.
LotharMaier(CEO):
CompanyName:LinearTechnologyCorpCompanyTicker:LLTCSector:Technology
Industry:Elect ronicsEventDescription:Q22015EarningsCall
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Yes.it'sprobablynotaccuratetotrytolookatourgrowthinautomotiverelativetohowmanycarsgetsoldeveryyear.Andevenjusttakinginaveragenumberofincreaseinelectronics,wearefocusedontheleadingedgeofproductsincarsandtheamountofelectronicsthat'sgoinginthesehigh-endcarsandthat'sreallywherealotofourbusinessis--isgrowing--Idon'thavethenumberbutI'msureisgrowingalotquickerthanthe7%thatyouquoted.
Andso,we'renotintherun-of-the-milltypeofelectronicsinthecar.Weare--carsaregettingvisionsystems.They'regettingstopstartsystems.They'vegotEV'sandATVsandsothat'sthebusinessthatwearetargetingatandmysenseisthat'sprobablygoingtogrowsubstantiallymorethanthe7%youquoted.
JimCavallo (Analyst-CorVelCorporation):
Veryhelpful.
PaulCoghlan(VP,Finance,CFO):
Jim,inthepaperlastweekouthere,theysaidthattherewasabroadsurveydonebyautotrader.comandthey--andtheresultsofwhichwerethattheconsumersinthatsurveysaidtheywouldspendupto$1500extraformoreelectronicsintheircar.
Sothatit'snot--theotheradvantageweallmayhaveinautomotiveisthepurchaserofcarsiswillingtospendmoreforhisnextcar.Soit'snotjustthepurereplacement.SoIdon'tknowifthatmightimpactyour7%somewhatifthatholdstobetrue.
BobSwanson(ExecutiveChairman):
Well,andthatreportalsotalkedaboutintheiropinionwewerejustatthebeginningofthiselectronicsimplementationinautomobiles.Andtheotherthingitsaidissomethingthatwespeculatedonthatthreetimesasmanypeoplemakeadecisiononbuyingacarbasedonelectronicsinitthathorsepower.Whichisprettyinteresting.
JimCavallo (Analyst-CorVelCorporation):
Sure.That'sallincrediblyhelpful.Iappreciateallthatverymuch.
PaulCoghlan(VP,Finance,CFO):
Thanks,Jim.Haveaniceday.
Operator:
AmitShah,NomuraSecurities
Amit Shah(Analyst-NomuraSecurities):
Yes.Thanksalot.Iwaslookingatthefive-yearand10yearmediangrowthratesfortheMarchquarter,whichisabout4%.Andonethingthatpeoplearestrugglingtoreconciletodayishowyoucanbeguidingforbetterthannormalgrowthgiventhemacrobackdropwhich,Paul,youarticulatedismixed.
YoumentionedstrengthinNorthAmericabutasapercentageofyourbusiness,that'sonly25%,whereastheotherregions--Europe,Japan,andtherestofworldwhichyouindicatedourdecelerating,compromise--orcomprisedtheremaining75%.
PaulCoghlan(VP,Finance,CFO):
Well,firstofall,youarecorrectinsayingthat27%ofoursaleswereintotheUS,butIalsomentionedinmy
CompanyName:LinearTechnologyCorpCompanyTicker:LLTCSector:Technology
Industry:Elect ronicsEventDescription:Q22015EarningsCall
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openingcommentsthat41%ofthedemandwecreatedwascreatedintheUS.Sothat--someoftheactualmanufacturingandsellingofthathavebeendoneoffshorebutthedemandwascreatedintheUS.
Secondly,andI'mnoeconomistbuthistoricallyiftheUSeconomy'sbeenstrong,that'sthebestofhavingstrengthinanyoftheothereconomies.SotheUSeconomytendstohavemoreofaworldwideimpactifit'sstrongthenifEurope'salittleweak,orJapan'salittleweak,orChinaisalittleweak.AndChina,beingalittleweak,it'sstillgrowing7%sothat'saprettysolidnumber.
Andthen,whenwelookatoilprices,,peopleIknowWallStreeteverydayforthepastcoupleweekshasletusallknowthatloweroilpricesisbadforthestockmarketbutforconsumerdemand,forpeoplethatmaywanttobuyacar,orbyaproductwhoseoilpricesdropped50%,Idon'tknowifwefullyanticipatedeconomicallywhatthatimpactwillbeinthenextyearortwoorso.
Soyousaidourmidpointalittlehigherthanthe4%andyoualludedtobutnotdramaticallyhigherthanthat.Sowefeelwecandowhatwe'veestimated.
Amit Shah(Analyst-NomuraSecurities):
Andthispointonoilprices,Paul,isaninterestingone,andyoumentionedthatithaspotentialpositivesandnegativesforlinear.I'mcuriouswhatyouthinkitmeansforyourindustrialbusiness.Myimpressionwouldbethatthiswouldnegativelyimpactyourindustrialbusiness,butbasedonyouroutlook,itsoundslikethingsareprettygood.
PaulCoghlan(VP,Finance,CFO):
Idon'tknowwhyoffhandyouwouldthinkitwouldbenegative.Oneofthesignificantcoststoanindustrialcompanyisgenerallythecostofenergy,heat,light,andpower.Andtotheextentthatcostisless,thatwouldgivethemoneythattheycouldfindprojectslikesomeoneearlieraskedusabouthowourwirelessbusinessisgoing.
Andthoseareprojectsthatindustrialcompanieshavetodecidetofundandtheydon'tliketoabort.Soiftheyhavealittlemorelowerexpenses,thatcangivethemmorecashtohelpfundtheprojectslikethat.Whatparticularlydidyouhaveinmindastowhyloweroilpriceswouldharmindustrialcompanies?
Amit Shah(Analyst-NomuraSecurities):
Well,myunderstandingofthatmanyofthesecompanieshave20%toasmuchas50%oftheirexposure--revenueexposuretotheoilandgasmarketsandgiventhedeclineinthecommodity,thatmightaffecttheirCapExinvestmentsandthereforespendingonprojectsthatlinearmaybetiedto.
PaulCoghlan(VP,Finance,CFO):
Well,--again,Ihaven'theardthatpercentagebutIwouldpersonallythinkthatindustrialcompanieshavemuchgreaterexposuretotheautomotiveendmarketthantheywouldtothedownholeexplorationendmarket.SothatcertainlyinEuropealotofindustrialcompaniesfeedintotheautomotivemarket.Andtheyare,ifyouhavelowerfuelcosts,youmayhavepeoplewillingtobuyanewcarsooner.
LotharMaier(CEO):
AndmaybeifIcouldadd,isfromanindustrialcustomer,thebenefitoflowoilpricesisnotjustintheirelectricalbillsbutalotofrawmaterialshavetheiroriginsinpetroleumaswell.Andso,you'llseeabroaderimpactaswellwherejustthecostofrawmaterialsthathavetheirsourcewithpetroleumarealsogoingtogodownwhichIcanonlyseebeinggoodforourindustrialcustomers.
BobSwanson(ExecutiveChairman):
CompanyName:LinearTechnologyCorpCompanyTicker:LLTCSector:Technology
Industry:Elect ronicsEventDescription:Q22015EarningsCall
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Yes.Isawanotherstatisticthatsaidthatwhatthis$50barrelpricemeansittoconsumersintheUSalone.Itisanextra$400millionadayofextramoneytheyhavetospend.They'regoingtobuythingsthatdriveallkindsofmarkets.
Amit Shah(Analyst-NomuraSecurities):
Yes.I--yourlogicmakessense.Youwouldn'tknowitthoughlookingatthewayindustrialstocksaretradingtodaybutIappreciatethefeedback.Thankyou.
BobSwanson(ExecutiveChairman):
Ittakesawhile.
PaulCoghlan(VP,Finance,CFO):
ThankyouAmit.
Operator:
RossSeymore,DeutscheBank.
RossSeymore (Analyst-DeutscheBank):
HelloguysbutIwantedtoswitchtheconversationoverontothecashusageperspective.Youraisethedividendwhichisgreat.Congratulationsonthat.Canyoujusttalkaboutwhatyourgoalinreturningcashtoshareholdersis?
AndspecificallyIwantedtogetintothepercentageofyourongoingcashflowandeventhecashthat'sonyourbalancesheetthatdomesticallyheld.Itseemslikeeverydollarofyourdomesticallyheldcashflowisgoingbacktoshareholdersbutthevastmajorityofthatisgoingtobeinthedividend.Soanycoloraroundyourframeworktherewouldbehelpful.
PaulCoghlan(VP,Finance,CFO):
Well,our--thepercentageofourdomesticcashthatoriginates--letmerestartagain.Thepercentageofourcashthatoriginatesdomesticallyisprobablysomewhereinthe70%to75%.Theamountof--the70%to75%needstofundthecorporateexpendituressowecan'tuseouroffshorecashtopaythedividendwecan'tuseouroffercashtobuybackstock.Wehavetouseourdomesticcashtodothat.
Ifyouweretolookatourbalancesheetyouwouldnotgetthesameproportion70%ofthecashbeingonshoreand30%offshorebecausejustafewmonthsagowepaidoffabigpieceofdebt.Weextinguishedthatdebt.Soonourbalancesheet,maybeaslittleas10%or15%ofourcashisonshorewhereasthecashthatgetsgeneratedisdramaticallyhigherpercentage.
Sowhenwelookatthecashwehave,welookat--wedon'tneedtoaccumulatemorecashtopayoffdebtaswehadbeendoingforseveralquarters.AndI' llremindyouthatwas--andforseveralyears.Thatwastopayoffdebtthatwasincurredtobuyback27%ofthesharesoutstanding.
Sowhenwelookat--wenolongerhavethatneedforcashandwelookatthedividendandtherepurchaseofsharesourtoppriorityistocontinuetohaveastrongdividendandtoincreasediteveryyear.Andconcurrent,withsomewhatsecondaryprioritywouldbetobuybackstock.
RossSeymore (Analyst-DeutscheBank):
Great.Thankyou.Shiftinggearsalittlebittoadifferenttopic,theCOMsbusinessyouansweredearlierthequestionaboutwhatwasgoingonintheCOM'sinfrastructureoratleasttakeyourbestshotofasyoujoked
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about.Outofthat19%or20%ofsalescanyougiveusaroughestimateonhowthatsplitsbetweenwirelessinfrastructureandWirelinewouldbetheothercategory?
PaulCoghlan(VP,Finance,CFO):
Thisisaguessbecauseweaccumulatethedatabycustomers.Soasyoumightimagine,somecustomersyoucanpickalargeChinesecustomerandthatcustomerwouldbebothinnetworkingandwirelessinfrastructureforexample.Butwitharoughcut,myguessiswirelessinfrastructuremaybe40%ofourCOM'sbusinessandnetworkingandthecloudandallofthosegoodopportunitiesforusatroughly60%.
RossSeymore (Analyst-DeutscheBank):
Perfect.Thankyou.
PaulCoghlan(VP,Finance,CFO):
60%ofourbusinessincommunications.
RossSeymore (Analyst-DeutscheBank):
Gotit.Thanksagain.
PaulCoghlan(VP,Finance,CFO):
You'rewelcome.
Operator:
JoAnneFeeney,ABRInvestmentStrategy.
JoAnneFeeney(Analyst-ABRInvestmentStrategy):
Yes.Thanksandcongratsonthatniceguidance.FirstaspecificquestiononinventoriesI'mwonderingifyoucanshedalittlebitoflightonthesituationatyourdistributorsbothUSandinternationallyandintermsofsellinversussellthroughoverthelastquarterandwhathastranspiredsofarinJanuary.
PaulCoghlan(VP,Finance,CFO):
Well,ourUSdistributor's,asIsaid,Ericdeferredincomeatdistributorshardlychangedsowhatweshippedintodistributorslastquartervery,verycloselyapproximatedwhattheyshippedoutandIdon'tthinkit's--andit'sprobablyquitesimilarornotprobablydoesitisquitesimilarforourinternationaldistributor.SoIdon'tthinkwe'vebuiltanyinventorydisturbancelastquarter.
JoAnneFeeney(Analyst-ABRInvestmentStrategy):
Thanks.That'shelpfulandthenalonger-termquestion.Maybetheissueoflong-termgrowthprospectscameupearlierinacoupleofquestionsanditwasreallyhelpfulclearforcashinontheautoside.
I'mwonderingthoughlonger-term,ifyouaretryingtotarget10%doyouthinkthatthiswayofdoingitrelyingontheelectronicscontentincreasesinautoandindustrialwouldbesufficienttogeneratealong-termprospectof10%orsogrowth?Ordoyouneedtoseeaturntowardsagreateraggressivenessinacquisitionsandwhatmetricswouldyoubehappywithtodofurtheracquisitions?
LotharMaier(CEO):
Wecandoourgrowthplansreallywithouttheneedofacquisitions.Ithinkthathistoryhaveproventhatout.
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Andaswetalkedaboutearlierwe'reconfidentthattheautomotiveandindustrialmarketsaregoingtocontinuetogrowbothindollarsandinmarketshareoftheoverallanalogmarket.
Andsowe'vegotallofourdesignefforts--ornotallbutmostofourdesignefforts,oursaleseffortsandmanagementfocusonthosemarkets.Soasautomotiveandindustrialgrowthandifweholdourownintomedicationstheoddsareprettygoodthatwe'llachievethese10%peryeargrowthtargetsthatwehavebarringnochangesinthemacroenvironment.
Butasmentionedearlier,fromaproductstandpoint,fromamarketstandpoint,fromamarketpenetrationstandpoint,we'reaboutaswellpositionedaswe'veeverbeen.
BobSwanson(ExecutiveChairman):
Andagain,with3.5%ofthe40+billion-dollaropportunity,sobesidestheopportunityhasneverbeen--neverreallybeentheissueforlinear.
JoAnneFeeney(Analyst-ABRInvestmentStrategy):
Okay.That'shelpful.Andthenjustonequickquestionbacktothisquarter'sguidance,itisassomeoneuploadedabitaheadofseasonalpatternsofthelastfewifyoupostrecoveryfromtherecessionsoI'mwonderingifyoucangiveusasplitofthebreakdownoftheguidancethatcomingfromelectroniccontentinversuscomingfromapickupinthosestrongendmarkets.
Areyouabletoseparatethosetwoatall?
PaulCoghlan(VP,Finance,CFO):
Notbyquarter.No.Wewouldn'tbeabletodothat.That's--wecouldn'ttellyouthatbynextquarter.
JoAnneFeeney(Analyst-ABRInvestmentStrategy):
Okay.Thanks.
PaulCoghlan(VP,Finance,CFO):
You'rewelcome.
Operator:
ChrisCaso,SusquehannaFinancialGroup.
ChrisCaso (Analyst-SusquehannaFinancialGroup):
Yes.Thankyou.Iguessjustsummingupsomeofyourearliercomments,woulditbesafetosaythatwhatyouareseeinginyourOutlookissomedegreeofstrengtheninginthebusinessandyoumentionedwhereyouwereversusnormalseasonalityandtheguidanceisalittleaheadofwhereitwaslastyear.Butwe'rehoveringclosetonormalseasonalitysoI'mjustinterestedinthetonefromcustomersifvisitisindeedsomethingtoseeimprovingconditions.
PaulCoghlan(VP,Finance,CFO):
Well,Ithinkourguidancelastyearwas--ita3%to6%andnowit's4%to7%sothey'revery,verysimilar.AndlastyearareDecemberquarterwasdownonepercentagepointor1.2percentagepointsandthisyearit'sdown5sowhenyoulookatoverall,wethink--businessisifwelookvis-à-visthepastcoupleofyears,wethinkthemacrooutlookparticularlyintheUnitedStatesisabitstronger.Wethink--wesensewe'refeelingthatalittlebitfromtheUScustomers.
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WhenIwasdrivinghomelastnight,theysaidthesurveythattheydooftheconfidencelevelofanAmericanbusinessmanwasatthehighestit'sbeensince2008,thiscommentaryIheardonthenewsdrivinghome.Sooverall,intheUS,,peoplehaveseenseveralgoodquartersinarowonthemacrosidesotheUSwehopeshouldbeagoodmarketforus.
ChrisCaso (Analyst-SusquehannaFinancialGroup):
Andjustasafollow-on,Ibelieveinyourpreparedremarks,youtalkedaboutthebookingsupinthesecondhalfofthequarter,couldyoucharacterizeisthatnormalseasonalbehaviorforyourbusiness?
PaulCoghlan(VP,Finance,CFO):
Yes.Ifyoulookatitourleadtimesarefor--4to6weeks.SosomebodyorderingearlyintheDecemberquarterwouldbeorderingforshipmenttotakeplaceinthemonthofDecember.AndinthemonthofDecember,wetoldyouparticularlyinEurope,yougotalotofvacations.Andalsoindustrialandautomotiveplants,someofthemintheUSandEuropehaveshutdownsattheendofDecember.
Soifyoukindoflookatthatrelativetoleadtimesandthenyousay,willthen,probablyonceyougettowardsoftheendofNovemberpeoplearelookingatshipmentcominginthenewyearinJanuaryandthattheyprobablywouldpickuptheirorderpatterngreaterthanthewhattheywantedshippedinDecember.SoIthinkit'sjuststraightforwardasthat,Chris.
ChrisCaso (Analyst-SusquehannaFinancialGroup):
Okay.Thatmakessense.Thankyou.
PaulCoghlan(VP,Finance,CFO):
You'rewelcome.
Operator:
ChrisStanley.
ChrisStanley(Analyst-Unidentified):
Hello.Thanksguys.Justaquickoneandthenaclarification.Soitsoundslikeyouarebusinessoverallmaybegottenalittlebitbetterbutroughlyintheseasonalrangeoverthelastwhatever3,6,12months.Doyouthinkyourvisibilityasimprovedatallorhaseverythingmoreorlessthesameasitwasthreemonths,sixmonths,12monthsago?
PaulCoghlan(VP,Finance,CFO):
Ithinkit'spre-similar.Imean,ifthecustomerdoesn'thavealotofinventory,thenityourvisibilityisaboutthesameasit'sbeenforthelast12months.Youknow?Wehavelittlecancellations.Sometimesyougeta911call,somebodyinahurrytogetproductssoweprobablyhavemoreofthatthanwewouldhaveiftherewasalotofinventoryoutatthecustomers.SoIthinkthevisibility'sbeensimilar.
ChrisStanley(Analyst-Unidentified):
Okay.Thanks,Paul,andthenjusttwoquickhousekeepingwaswhatshouldweassumeforthetaxrategoingforward?Andthenyoutalkedalittlebitaboutthestrongerdollar,ifthedollarcontinuestoappreciatewhatwouldbetheimpactonyourbusinessoryourPNLifany?
PaulCoghlan(VP,Finance,CFO):
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Industry:Elect ronicsEventDescription:Q22015EarningsCall
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Okay.Atthefirstwhat--theongoingtaxratewillbe25.5%,probablythroughtotheendofJuneandthenonceyougetintothesecondhalfofthecalendaryear,orournewfiscalyear,ifthearethecredithasn'tbeenapproved,thatwouldprobablyhavea.75%oronepointimpactontheeffectivetaxrate.SoIguessforthenextsixmonthstheonewehaveprovided--wedon'thavediscreteitemsshouldbegoodafterthatitmightgetalittlehigherdependingontheR&Dcredit.
Thedollar--itthat'salwaysatoughquestionbecausehistorically--formeanyway,whenIlookatitasafinancialguyinaclosedroomIthinkifthedollargetstronger,thatwillhurtyouinternationally.Yetmyexperiencehasbeenastrongerdollarreallyhasn'thurtinternationally.Itchangesdramaticallyquicklyandthenkeepsgoingupanddown,thenitimpactsyou.Butifitstrengthensbitbybitandstatekindofstableinthatpattern,asoddasitmaysoundIthinkhistoricallythathasn'thurtourbusiness.
ChrisStanley(Analyst-Unidentified):
Okay.Thanks,ithasn'thappenedinsolongIforgotwhatitwaslike.
PaulCoghlan(VP,Finance,CFO):
Yes.Wedoaswell.Yes.
ChrisStanley(Analyst-Unidentified):
TimetogoshoppinginEurope.
PaulCoghlan(VP,Finance,CFO):
Thereyougo.Haveanicevacation,Chris,takethefamilythissummer.
Operator:
AmbrishSrivastava,BMOBankofMontreal.
AmbrishSrivastava (Analyst-BMOBankofMontreal):
Thankyou.Ijusthadaquickoneontheindustrialsideguys,youhaveputtogetheraprettylongandimpressivestreakofcloseto10%growthontheyear-over-yearbasisandI'mjustlookingatthebookings.Couldyoujusthelpusunderstandkindofwhatarethe--andIknowit'saverydiversebusinessbutwhataresomeofthespecificdriversforyourbusiness?
Andthenjustlookingforward,doyouseeanychangestothatintermsofanyapplicationsthatshouldbecontinuingmacro?Ordoyouexpectkindofthesamegoingforward?Thankyou.
PaulCoghlan(VP,Finance,CFO):
Well,Ithinktheareasthat--asyoucorrectlystated,andthankyouforthat,isavery,verydiversebusiness--theindustrialbusiness.Butifyouaskedmetopickmaybethetop3or4ofours,probablymedical,andyoucanseethere'smoreautomationgoingoninthemedicalworldwhenyouandIvisitourGP,he'sgotmoreequipmentinhisofficeandhospitalsarebuyingmoreequipmentthatformandfitandfunctionofequipmentisgettingsmallersotoupgradeequipmentandthereisalower--asmallerfootprintforhospitals.Ithinkmedicalequipmenthasbeenprettygood.
FactoryautomationhasbeenverygoodoverrecentyearsandIthinkifyouthinkofthechangesintheautomotiveindustry,alotofthoseiftheautomotiveindustry'sgrowingfactoryautomationwithroboticsandstufflikethatwouldprobablygrowconcurrentlywithit.
Andthenanotherstrongareaforusistestandmeasurementsothatasthere'smoreelectronicsshowingup
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inanypartofyourlife,beitinsideacar,beitinsideyourhouse,allofthatelectronicsneedstobetestedandmeasured.SoIthinkmoresortoftestequipmentcouldbehelpful.
SoIthinkthosearesomeofthedrivers.Sensorbusiness,Lothareludedtoearlier,that'sabigpartofmanufacturing.Alternatesourcesofenergy,solarpower,greentech,thosedidn'texistyearsago.They'renotasstrongasthefirstonesImentionedbutthey'rethere.
Andevensomethinglikebroadcastwhichwasn'tbigyearsagowiththemovetoHDTVandbetterandbetterclarityandcamerasandthedatabeingsentoverthelines,allhasanimpactontheindustrialworld.
AmbrishSrivastava (Analyst-BMOBankofMontreal):
Andthe(AST's)arehigherhereversusautomotiveisthatafairassumption?
PaulCoghlan(VP,Finance,CFO):
Generally,that'safairassumption.
AmbrishSrivastava (Analyst-BMOBankofMontreal):
Okay.Thankyou.
Operator:
SteveSmigie,RaymondJames.
SteveSmigie (Analyst-RaymondJames):
Great.Thanksalot.JustwantedtotouchonAsiaalittlebitmore.ThegovernmentthereseemstobereallytryingtopushmoreinvestmentsinsemiconductorsatanationallevelinChina.Andalsothere'sbeensomemovementIguessinChinatouselessAmericantechnologymaybeforsecurityreasonsetcetera.SoI'mwonderingifthathasimpactedyourbusinessatallorifyouthinkthatevenwill?
LotharMaier(CEO):
I'vehearditbothofthose.Ican'tsaythatIcanputmyfingeronanyinstancewherethathashadanyimpactonussomaybelong-termitcouldbebutpresentlywehaven'tseenanyimpact.
SteveSmigie (Analyst-RaymondJames):
Okay.Agreat.AndthenjustonEurope,asyoumentioned,thingsalittlebitsofterthere.Doesthatever--haveyouseenthattobeanysortofmeaningfulcolororisitjustyouhavesomanycustomersthatit'smoreofthegeneraltonekindofnervousaboutitdoesn'treallyoverallimpactdemand.AndultimatelysomeofEuropeancustomersseemtobemoreultimatelyshippingproductselsewheresomaybebackintheUSorevenintoChineseautocustomersor--SoisthesoftnessinEuropesomethingthatwoulddramaticallyimpactyou?
LotharMaier(CEO):
IknowwesaidsoftnessinEuropebutwereallymeanttoimplythatthatsoftnesswasseasonalityandwherefactoriesareslowingdowndoingshutdownsintheDecemberquarter.Wedidn'twanttofivethatwethoughttherewassomesoftnessintheEuropeanbusiness.
Andagain,somuchofEuropeanproductionisforexportsoreally,evenifthereissomesoftnessintheEuropeaneconomy,itwouldprobablybecushionedabitbecausethateconomyisprettymuch--atleasttheproductsweareinareveryhighlyexportdriven.
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SteveSmigie (Analyst-RaymondJames):
Okay.Great.Lastquickwhenjusttofollowuponthequestionaboutthestrongerdollar.SoIthinkyouguysandmanyofthesemiguyspriceindollars,soasyouseeforexamplethedropinothercurrencies,andjusttryingtoclarify,soyourpointwaseventhoughyouseenthedropsintheseothercurrenciesithasn'treallyseemedtohavemuchofanimpactonyourdemandfromathoseguysthatmighthaveEuropeancurrencytobuywithisthatwhatyouaresayingthere?
PaulCoghlan(VP,Finance,CFO):
Well,certainlyyourcustomer--firstofall,rememberwesellgenerallyhighperformanceproductssowearesellingproductswherethere'snotalotofsocketforsocketcompetitionforus.Sooncewewinthedesign,we'reprettymuchintheir.
Sothenifthedollarstrengthens,thenourcustomer--theendcustomerifhe'sinEuropeorJapan,wouldhavetopaymore.Nowifit'sadistributor,let'ssay,hemaycometousandsaycanwehelphimoutalittlebit?Andwemayormaynotdothat.Anddependingonthecircumstance.
SoIthinkwhatwe'resayingisifweweresellingalotofcommodityproducts,withsourcesfromdifferentpartsoftheworld,forthesameproducts,astrengtheningdollarwouldhavemoreofanegativeimpactthanacompanylikelinearwhichdoesn'tsellcommodityproductsanddoesn'thaveasmuchcompetitionfrommanyotheranalogsourcesaroundtheworld.
SteveSmigie (Analyst-RaymondJames):
Okay.Thankyou.
Operator:
CJMuse,ISIGroup.
Unident if iedPart icipant :
Heyguys.Thisis(Ida)callinginforCJ.Thankyoufortakingmycall.Couldyoumaybeprovidesomeadditionalcoloronsomeofyoursmallersegmentsincomputerconsumermilitaryanyareasofstrengththatyouareseeingtheir?
PaulCoghlan(VP,Finance,CFO):
ThemilitaryItoldyouwasalittlestronger.Sothat--butImeanit'sonly6%ofourbusiness.Consumerremainedat3%sotherereallyisn'tmuchtotellyouthere.Computerisa--it'sa9%ofourbusiness.Wehavesomeveryvaluedcustomersandthatspace.
Idon'tthinkthere'sbeenanykindofdramaticshiftsthere.Therehasn'tbeenanythingthatwould--Iwouldcautionyouthatcoulditleadthatnumbertosignificantlygouporsignificantlygodown.Ithinkwe'reprettywell-establishedwhereweareandhaveabroadgateofcustomersinthatbutit'sonly9%ofourbusiness.
Unident if iedPart icipant :
Great.Thankyou.AndthentherebeenalotofquestionsaroundEurope.DoestheuncertaintyandinstabilityinRussiadoanythingforyouguysorisyourexposuretheyareprettyminimal?
PaulCoghlan(VP,Finance,CFO):
WellourdirectexposuretoRussiaisveryminimal.
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However,iftheRussiansituationweretogetbadenoughthatitconcernedEurope,WesternEurope,well,thenthatcouldimpactWesternEuropespendingpatternspotentially.OrlikeifRussiadidn'tsupplythemanynaturalgasorfuelforthewinter,Imean,thatcouldimpactsomecompaniesbutwedon'tseethathappening.
ButIthinkoverall,ifyouhavetalkedtoaEuropeanbusinessman,probablyfeelsthere'snothingdramaticwhentheyimpactthembutayearagohewasn'teventhinkingaboutRussiaandnowheisthecanaboutthepoliticalsituation.
Unident if iedPart icipant :
Great.Thankyousomuch.
PaulCoghlan(VP,Finance,CFO):
You'rewelcome.
Operator:
CraigEllis,B.Riley.
CraigEllis (Analyst-B.Riley):
Thanksfortakingthequestionsandthereallyjustacoupleclarifications.Paul,firstoninventory,withthepointthattheonhandincreaseinthefiscalsecond-quarterbeingduetoplannedfacilityshutdownsaroundChinesenewyear.Wasthatmeanttoimplythatweshouldexpecttheinventorybasetogobackdownby5orsoexitingthisquarterorwerewherethepointsonthechangeinthecompositionofinventoryreallymeanttoimplythatwillprobablystayatthesecurrentlevelsaswelookahead?
PaulCoghlan(VP,Finance,CFO):
We,atthemomentwethinkthatinventorywillgodownattheendoftheMarchquarterbutagainwehavetoseehowthatplaysoutbutnotgodowndramaticallybutwethinkitwillgodown.
CraigEllis (Analyst-B.Riley):
Okay.Andthentheotherfollow-upwasjustonsomeofthecommentsaroundthestrengthofthatyou'dexpecttoseeintheUS.Asyoulookinsidetheordersthatyouseeninthebusinessrecently,whetheritbeonanapplicationbasisforthoseordersthataredrivenintheUSorbycustomertype,smalltomedium-sizedbusinessversusverylargeindustrialorautoOEMs,areyouseeingachangeinsomeofthoseareasrelativetowhatyouwereseeinglastyearatthistimethatleadfortheconfidencetotheOutlook4%to5%toplinegrowth?
PaulCoghlan(VP,Finance,CFO):
That'shard.Imean,wetoldyouthatourindustrialbusinessoverallgrew.Thebookingsinagroup.Andthat'swhereyou'dhavemoreofthesesmallercustomersasopposedtodoingsomethinglikecomputerorcommunications.
So--andwhenwelookatourexpectationsofoursmallercustomerbase,wethinkthey'llbeusing--weweredesigninginmoreproducttheresoIthinkit's--overallIthinkit'sprobablyearlytomakeanywowcallthat'sallpickedupbutonthemarginit'sprobablypickedupabitandwe'llseeastheyeargoesonifitpicksupevenmoretohelpusobtainthegoalswesaidearlierforannualyear-over-yeargrowth.
CraigEllis (Analyst-B.Riley):
That'sit.Thanksguys.
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PaulCoghlan(VP,Finance,CFO):
You'rewelcome.
Operator:
VivekArya,BankofAmericaMerrillLynch
VivekArya (Analyst-BankofAmericaMerrillLynch):
Thanksfortakingmyquestion.I'mwondering,Ibelieveyouhadmodelinyouroverseasmarketswhereeveryoneisseeingalotofvolatility.Doyouthinkthatimpactsyourvisibilityinanyway--onjustcurious--whatyouhaveonyourdashboardtomonitoroverseasdemandtrendsbeyondjustthereportsfromthedistributionchannel?
PaulCoghlan(VP,Finance,CFO):
Well,alotofthis--someofmyoverseassalesalthoughtheygodowntodistribution,it'soursalesforcethatisdealingwiththecustomeranddesigningintheproduct.
Soforexample,inJapan,almostallofoursalesgothroughdistributorsbutyetwehaveaverysignificantsalesforceandalotoftheactualsellingactivitytakesplacewiththemsowe'vegotdirectknowledgefromoursalesforce.Thanin--andtheninplaceslikeEurope,whatwasyourquestionthereagain?
VivekArya (Analyst-BankofAmericaMerrillLynch):
Know,justingeneral,Paul,becauseyouareinthatsellinmodelinoverseasmarketsandthat'swhereweareseeingthemostflexbecauseofoilpricesandothermacrofactors,I'mjusttryingtoreconcilethatwithseasonalfactorsthatyouarenoticingandI'mwonderingifthevisibilityisimpairedinanywaybecauseyouaremoreofasellinmodeloverseasversusthroughhereintheUS.
LotharMaier(CEO):
Justapointofclarificationeventhoughweareselling,wealsoknowwhattheysellthrough.Sowehavevisibilityintowhattheyselloutandintowhatcustomerstheysellinto.Soit'sjustnotablackbox.Wedon'tshipinandthenforgetaboutit.Weknowitsellsthrough.
VivekArya (Analyst-BankofAmericaMerrillLynch):
Gotit.Understand.Andthenthesecondquestionisonthe--Ibelievequestionswereaskedaboutyourcashbalancedomesticcashbalance.I'mwonderingwhatyourplansareforyouroverseascashbalancewhichIthinkisover80%ofthecashandIbelieve20%,25%ofongoingcashgenerationwhatyouthinkisthemostreductiveuseofthatcash?
PaulCoghlan(VP,Finance,CFO):
Well,presently,ifwewereto--firstofall,wherewecanemployitoverseas,anyplantexpendituresorthingslikethatthatwehave,weemployitforthosepurposes.IfittoemployeeitweneedtobringitbacktotheUnitedStates,eitherforcorporatepurposesorforsomeUSfixedassetinaddition.Thenwe'dhavetopaytaxonit.
AndcurrentlywiththeUSgovernmenttalkingalotabouttaxreform,wethinkitwouldn'tbewisetopay35%taxonsomethingthatthewholetaxsituationmaychange.Sothatpresently,weareleadingthecashwhereitisandnothavinganyplanstorepatriate.
VivekArya (Analyst-BankofAmericaMerrillLynch):
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Allright.OnelastoneifImay,Ithinkyoumentionedautoasakeygrowththedriverandthealsomentionedthatchannelsarelean.Butdoyouseeanyconcernwiththebuilt-infinishedcarinventoriesbecausemanypeoplehavementionedthatinChinaforexample,thebuildcarinventoriesareatmultiyearhighs--isthataconcernatallforyou?
PaulCoghlan(VP,Finance,CFO):
Well,China,wehaveaverysmallautomotivebusinessthereinChina.Wealreadytoldyouwesellalotofhighend--it'sahighendcarsintoEuropeandJapan.I'mnotsure--areyousayingthere'shighinventoryinthose?
VivekArya (Analyst-BankofAmericaMerrillLynch):
No.Imessing,doyoumonitorfinishedcarinventoriesalso--orwhenyousayyourchannelsareleanyou'reonlylookingatyourspecificchannels?Oryour--
PaulCoghlan(VP,Finance,CFO):
Weonlylookatourchannels.Welookatdesigninginproducttogetagreatercontentofourproductincars.Thataregoingtobeproducedthreeyearsfromnow.
VivekArya (Analyst-BankofAmericaMerrillLynch):
Understand.Thankyou.
PaulCoghlan(VP,Finance,CFO):
You'rewelcome.
Operator:
DeeponNag,MacquarieCapitalPartners
DeeponNag(Analyst-MacquarieCapitalPartners):
Thanksalotfortakingthequestion,guys.YouspokealotabouttopunitgrowthopportunitiesinautoisapossibletogiveusanideaofyourexposurebyapplicationontheCOMssideandwhetheryouthinkofopportunitiesinnewtechnologieswhetheritbesmallcellsonthewirelesssideof25or100gigonthewirelessside?
LotharMaier(CEO):
I'mnotsurewehadthatclosevisibilityinthatmarketbutIwouldsaythe--onthesortofinfrastructureside,weseegoodopportunitiesprobablymoreinthesortofthesmallerTECOfemtotypeofbasestationapplicationsratherthanthesortofthebigironones.
SoIthinkthat's--whichisprobablytheyselltwoorthreetimesasmanyofthesmallonesastheydothebigonessothat'sanareaprobablyifIhadalittlecover--colortoitbutmoredetailthanthatIdon'thaveany.
DeeponNag(Analyst-MacquarieCapitalPartners):
Andisthatbasicallyjustradioexposureandexposureonthebackcallaswell?
LotharMaier(CEO):
Wehaveonthebackcall--wehaveontheRF.Wehaveonthepowerthatpowersthesebasestations.Wehavemixedsignalproducts.E2aconverters.Inthoseapplicationsaswell.Wekindofsell--acrossthe
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portfolio--there's--inalotofthesesmallbasestation,theywanttomovepowerdataoverthesameethernetcablessowe'reseeingopportunitiesforourPOEproductswheretheyprovideboththepowerandthedatatrafficforthesesmallbasestationssoI--wouldsaythere'sprobablygoodopportunitiesforusinthesesmallerstations.
DeeponNag(Analyst-MacquarieCapitalPartners):
Great.That'sveryhelpfulandonefinalonejustahousekeepingthing.TheactualturnsUsamaDiscoverquarterandrequiredturnsyourexpectingintheMarchquarter.
PaulCoghlan(VP,Finance,CFO):
Wedon'tsaywiththeactualturnsultimately--weneverhavesoIdon'thavethatnumberinfrontofmewhattheywereinDecember.ButweanticipatetermsintheMarchquarterbeinginthemid-50%range.
DeeponNag(Analyst-MacquarieCapitalPartners):
Great.Okay.Thanksalot.Appreciateit,guys.
Operator:
(OperatorInstructions)WilliamStein,SunTrust.
WilliamStein(Analyst-SunTrustRobinsonHumphrey):
Thanksfortakingmyfollowup.Paul,maybeIwillaskyoutoopineagainonadifferentandmarketIknowit'smuchsmallerpartofyoursalesbutthemilitary,space,harshpartofyourbusiness,we'veheardsomeviewsaboutthatmarketimprovingandI'dliketohearyourthoughtsbeyonditjustthecurrentquartermaybeforthefullyear.
PaulCoghlan(VP,Finance,CFO):
Ithinkourbiasthereiswe'vealsoseensomeimprovementinthatbusiness.It'sasmallpieceofourbusinessat6%.SoIdon'thavealotmorecolorthanthatwhenItalkedtothemilitarypeople,theyaretalkingaboutmoreactivitythanwasayearagoandtheyaretalkingaboutapickupinthat.
WilliamStein(Analyst-SunTrustRobinsonHumphrey):
Andisthatmorestrictwillstufforcommercialair?
PaulCoghlan(VP,Finance,CFO):
Ithinkit--Idon'tknow.Yougotmethere.Ithinkit'samixofboth.Ithinksomeofthe--someofitnowmightbeasyoumoveintothestartoftheyear,budgetsopenup.Anditcouldbesomethingthatyouprobablymightneedtopulseforawholeyeartoseeifit'sabigtrendorifitisn'tjustseasonal.AndIdon'thaveinfrontofmethebreakdownbetweencommercialandmilitary.Mostofourbusinessiscommercial.SoIwouldhavetosayitleansmoretowardsthatbutIdon'thaveagoodanswer.
WilliamStein(Analyst-SunTrustRobinsonHumphrey):
Okay.Thankyou.
PaulCoghlan(VP,Finance,CFO):
You'rewelcome.
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Operator:
(OperatorInstructions)DougFreedman,RBCCapitalMarkets.
DougFreedman(Analyst-RBCCapitalMarkets):
Higuys.Thankssomuchfortakingmyquestion.IfIcouldaskwhatalittlebitonthestrategicfront.YouwereaskedbrieflyaboutiftherewasanimpactfromChinaandyourinterestininvestinginthesemiconductorindustry.IsthatthereawayforlineartotakeadvantageoftheinterestoftheChinesetoinvestintheindustry?
We'reseeingtheminvestinthingssuchasassemblyandtestaswellassubsidizingwafersandRoadprojectsoverthere.Isthereanythingthatyou'vedonetotakealookatanywayinwhichyoucouldbenefitfromtheirinterestininvestingintheindustry?
PaulCoghlan(VP,Finance,CFO):
Well,I' lltakeafirstcrackatit.For--particularlyacoupleofyearsago,therewas--invoketomoveyourassemblyortesttoChina.Wedidn'tdoitandthenandthentherewasalotofemployeeturnoverinChinasothatthe--andalsothewagerateswerestartingtopickupinChina.
Sothatmajor--themajordifferencebetweenChinaandsayplaceslikePenangforexamplewhereweare.Thosedifferencesarestartingtonarrowandthengiventhisstablenessoftheworkforcekeptussayingwewouldrather--butisn'tthatwhatyoumeant?WillwebemorelikelytoopenupassemblyortestinChina?
DougFreedman(Analyst-RBCCapitalMarkets):
Justfindawaytotapintothecapitaliftheyarebasicallymakingavailablefortheindustryinaneffortto--semiconductorcontent.
PaulCoghlan(VP,Finance,CFO):
ProbablythatwouldbetheonlythingwhereweareverycapitalintensiveifsomeofthehealthybutIdon'tknowifwegothereforanotherfat.Notatthistime.
DougFreedman(Analyst-RBCCapitalMarkets):
Great.Thanks.
BobSwanson(ExecutiveChairman):
No.LinearTechnologystrengthisitsengineeringIPandsothat'swhatseparatesusfromeverybodyandmyguessisthat'swhatthey'dliketorequireandthatwouldbethelastthingthatwewouldgiveaway.
DougFreedman(Analyst-RBCCapitalMarkets):
Allright.Great.Thankssomuch.
PaulCoghlan(VP,Finance,CFO):
You'rewelcome.
Operator:
GilbertAlexander.
Gilbert Alexander(Analyst-Unidentified):
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Thanks.Fortakingmyquestions.Iassumeallyouroverseassalesareindollars?Indollars?
PaulCoghlan(VP,Finance,CFO):
Yes.
Gilbert Alexander(Analyst-Unidentified):
Thankyou.Andcouldyoujustforhousekeepinggiveusyourcapitalexpendituresindepreciationforthisyear?
PaulCoghlan(VP,Finance,CFO):
Weestimateforthisfiscalyearit' llbe$80millionforechoand$50millionfordepreciation.
Gilbert Alexander(Analyst-Unidentified):
Thankyou.
PaulCoghlan(VP,Finance,CFO):
You'rewelcome.
Gilbert Alexander(Analyst-Unidentified):
MayIjustaskonethingandmaybethisgoesback15years?AndI'mbasicallyaconsumeranalysts.AndIdon'thavemuchgrowthinthefoodindustry.Whydoyouhavetodosequentialsalesinearningswhenyoucouldjustdothequarterlastyeartothequarterthisyear?
Iknowtheindustrylikesitbutisitnecessary?
PaulCoghlan(VP,Finance,CFO):
We--you'veopenaquestionwemightarguethatanyquarterlydatatospendsomuchtimeon,givenofthelong-termnatureofourbusiness,isasnotasnecessaryastheattentionitgetsbutit'sjust--theonlywayIcanansweritforyouisit'sbeenthatwayhistorically.Peopleinourindustry--theelectronicsinvestorslookmoreatquartertoquarter.
Gilbert Alexander(Analyst-Unidentified):
Thankyouverymuch.
PaulCoghlan(VP,Finance,CFO):
You'rewelcome.
Gilbert Alexander(Analyst-Unidentified):
Andcongratulations.
PaulCoghlan(VP,Finance,CFO):
Thankyou.
Operator:
Itappearswehavenofurtherquestionsatthistime.
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PaulCoghlan(VP,Finance,CFO):
Okay.Well,thankyouverymuchforyourattention.Wewishyouallahappyandsuccessfulyounewyearandhaveagoodday.Goodbye.
Operator:
Thisdoesconcludetoday'sconference.Haveagreatday.
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