Download - Linear Technology (LLTC) Earnings Report: Q3 2016 ... · given the general business climate but based upon our third-quarter bookings and our current run rate, we are currently projecting

CompanyName:LinearT echnologyCorpCompanyTicker:LLT CSector:T echnologyIndustry:Electronics

EventDescription:Q32016EarningsCallMarketCapasofEventDate:10.76BPriceasofEventDate:46.37

©2014TheStreet,Inc.Al l R ightsReserved Page1of21

LinearTechnology(LLTC)EarningsReport:Q32016ConferenceCallTranscriptThefollowingLinearTechnologyconferencecalltookplaceonApril20,2016,11:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

DonZerio;LinearTechnologyCorporation;VPFinanceandCFOLotharMaier;LinearTechnologyCorporation;CEO&Director

OtherPart icipants

DavidWong;WellsFargoSecurities;AnalystCraigHettenbach;MorganStanley;AnalystRossSeymore;DeutscheBank;AnalystEvanWang;StifelNicolaus;AnalystJohnPitzer;CreditSuisse;AnalystC.J.Muse;EvercoreISI;AnalystCraigEllis;B.Riley&Co.;AnalystAmbrishSrivastava;BMOCapitalMarkets;AnalystVivekArya;BankofAmerica;AnalystCodyAcree;DrexelHamilton;AnalystSteveSmigie;RaymondJames&Associates,Inc.;AnalystHarlanSur;JPMorgan;AnalystWilliamStein;SunTrustRobinsonHumphrey;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheLinearTechnologyCorporationfiscal2016third-quarterearningsconferencecall.

Today'sconferenceisbeingrecorded.

Atthistime,IwouldliketoturntheconferenceovertoDonZerio,VicePresidentofFinanceandChiefFinancialOfficer.Pleasegoahead,sir.

DonZerio (VPFinanceandCFO):

Goodmorning.WelcometotheLinearTechnologyconferencecall.I'mjoinedtodaybyBobSwanson,ourExecutiveChairman;andLotharMaier,ourCEO.

Iwouldliketoremindyouthatinourpresentationtodayandouranswerstocertainquestionsthatmayfollowwemaymakeforward-lookingstatementsthataredependentoncertainrisksanduncertaintiesincludingbutnotlimitedtoourfinancialresultsforfutureperiods,ourabilitytoproduceandsellexistingproducts,thetimingandintroductionofnewproductsandprocessesandgeneralconditionsintheworldeconomyandfinancialmarkets.

Inadditiontotheserisks,pleaserefertotheriskfactorslistedintheCompany'sannualreportonForm10-KforthefiscalyearendedJune28,2015andoursubsequentquarterlyfilingsonForm10-Q.




Also,SECRegulationFDregardingselectivedisclosureinfluencesourinteractionwithinvestors.Accordingly,thisconferencecallwillbeourforumtorespondtoquestionsregardingourestimatedfinancialperformancegoingforward.Shouldyouhavequestionsregardingourestimatesofsalesandprofitsorotherfinancialmattersfortheupcomingquarter,thisisatimewearefreetorespondtoyourquestions.

Asnotedinourpressrelease,whichwasreleasedyesterdayjustafterthemarketclose,revenuefortheMarchquartercameinatthehigherendofguidanceat$361.1million,up4%fromtheDecemberquarter.Grossmarginincreasedto76.2%from75.7%benefitingfromthehighersalesbase,afullquarterofproductioninourfabsandcertainothermanufacturingefficiencies.Recallthatoursecondquarterhadlessproductiondaysinourfabsduetoholidaysandplantshutdowndays.

Operatingmarginimprovedto45%ofsales,upfrom43.1%duetothehighergrossmarginandonelessweekofoperatingexpensesaswehad14weeksinoursecondquarter.Oureffectivetaxratewasslightlyhigherinthethirdquarterat21.75%versus19.5%inQ2onlowerdiscretequarterlyitems.Netincomeandearningspersharewere$128.4millionand$0.52pershare.

Alltold,thiswasaprettygoodquarterandwearehappywiththeresultsgivenglobalmacroeconomicconditionsthatarestillprovidingsomeheadwinds.Webeatthemidpointofourguidance,weincreasedgrossmarginandoperatingmarginandourbookingsincreasedoverthepriorquarteratalevelthatshouldallowustogrowinthefourthquarteraswell.

Thetransportationmarketcontinuestogrownicelyandwe'reseeingrecoveryintheindustrialmarketandtoalesserextentthecommunicationsmarketwhichhasbeenweakforsometime.We'reseeingrecoveryacrossabroadbaseincludingdistributionandthesmallerandmidsizecustomers.

Ingeneral,inventoriesinthechannelappeartobeinbalanceandwebelieveweareshippingtoendcustomerdemand.However,thereremainspocketsofweaknessincertaingeographiesandthecomputermarketremainsparticularlyweak,thoughthatisnotamajormarketforus.Weremaincautiousgiventhegeneralbusinessclimatebutbaseduponourthird-quarterbookingsandourcurrentrunrate,wearecurrentlyprojectingrevenuetobeup2%to5%intheJunequarter.

Turningtobookingsbyregionandmarketsector.Asareminder,wehavepostedbookingsbymarketandrevenuebygeographyforthequarteronourwebsiteatlinear.comunderinvestorrelationssupplementalinformation.Wepostthisinformationbytheendofourbusinessdateonthedaywereleaseourresults.

Totalbookingsincreasedforthequarterandwehadapositivebook-to-billratio.BookingsincreasedinbothNorthAmericaandtheinternationalmarket.

Withininternational,bookingswereupineachofourmajorgeographicregionsEurope,JapanandAsia-Pacific.WecontinuetodoparticularlywellinChinaasbookingswereupthemostinthatregiononthestrengthofautomotive,thoughourindustrialbusinessisgrowinginthatcountrytoo.

Withrespecttobookingsbymarketsector,bookingswereupineachofourmajormarketsthatrepresent86%ofourbusinessindustrial,transportationandcommunications.Inoursmallermarkets,militaryspacegrewmodestlywhilecomputerandconsumershoweddeclines.Thecomputermarket,particularlyPCsandnotebooks,continuetobeparticularlyweak.

Industrialcontinuestobeourlargestmarketat44%ofourbookings,upfrom43%thepreviousquarter.IndustrialbookingsincreasedineachofourmajorgeographicregionsledbyNorthAmericaandEurope.

Thebreadthofthisincreaseacrossourcustomerbaseisgivingussomecomfortthatthenoticeable




weaknessweexperiencedinthismarketoverthepastseveralmonthsisinrecoveryandthattheinventorycorrectionthatresultedisbehindus.WebelieveweareshippingtoendcustomerdemandandtheinventoriesinthechannelandattheOEMsareatleaststableifnotlean.

Turningtotransportationbookings,thismarketcontinuestoshowthehighestpercentagegrowthanditwas24%ofourbusinessthispastquarter,upfrom23%.TheincreaseinbookingsintransportationwasdrivenprimarilybyAsia-PacificbutwesawgrowthinJapanandtheUSaswell.

TheUShasbeenasmallertransportationmarketforusbutwearemakinggoodstrideshereandit'supnicelyforthequarterinpercentagetermsandopportunitiescontinuestoincrease.

EuropebookingsweredownintransportationmodestlyinthequarterbutcomingoffarelativelystrongQ2.TransportationgrowthinAsia-Pacificcontinuestobestronganditwasourhighestregionintotaltransportationbookings,overtakingbothEuropeandJapanforthefirsttime.

Asyoushouldknowbynow,wehavebeenparticularlysuccessfulwithourpartsintheChinaandKoreamarket.

AsIhavenoticedinpreviouscalls,Chinaisall-inonelectricvehiclesasonepartofthesolutionfortheirsevereairpollution,offeringincentivestobothbusinessesandconsumerstobuildandbuyelectricvehiclesincludingautos,taxisandbuses.

OursuperiorBMSpartshavewonussignificantbusinessinChinawhereweenjoyveryhighmarketshareforbatterymanagementsystems.Ourtransportationbusinessinthisregionshouldcontinuetogrowstronglyfortheforeseeablefuture.

Communicationsremainat18%ofourbookingsforthequarterbutaftertwoquartersofsequentialgrowthwearehopefulthatthismarketisbeginningtoshowsomelife.Thelargebasestationsandinfrastructurepieceofthismarketcontinuestobeweakbutthatisnolongerasizablepieceofourcommunicationsbusiness.

Weareseeinggrowthinoptical,networkinganddatacomwhichistheareaofthemarketthatwefocus.ThismarketwasstrongestforusintheUSwhileEuropewasflatandAsiawasdownslightly.

Thecomputermarketwas6%ofourbookings,downfrom7%lastquarterwithadecreaseprimarilyinNorthAmericawherethemajorityofthisbusinessisbooked.

Asstatedlastquarter,thismarketisdownasexpectedasitissufferingduetoweakernotebooksalesandstoragedevices.Thismarketmaycontinuetodeclineabitmoreforusovertheshorttermasnotebooksalescontinuetodecline,butlongertermweexpectgrowthopportunitiesaswehavecompellingproductsindevelopmentthataddressthehigherendofthismarketwhereinnovationandsuperiorfunctionalityarestillneeded.

Bookingsformilitaryspaceandharshenvironmentproductsincreasedmodestlythisquarterandremainat6%ofourbusiness.Militaryhasreboundedslightlyfromtheweaknessweexperiencedinthefirstquarterwhilethespacebusinesshasbeensomewhatflatforthepastyear.Wedoexpectthespacebusinesstopickupassatellitelaunchactivityincreases.

ThisispredominantlyaUSmarket,thoughwedobooksomebusinessinEurope.Bothregionssawanincreaseinbookingsthisquarter.

Finally,consumer,oursmallestendmarketwherewetakebusinessopportunisticallywhenfunctionalityandperformancestillmatter,thismarketdecreased2%ofourbusiness,downfrom3%lastquarter.




Withregardtowhereourbookingsareactuallycreated,62%werecreatedinternationallyand38%inNorthAmerica,thesameaslastperiod.

Movingtosales,salesincreasedby4%fromthepriorquarterandweredown2.9%fromtheprior-yearquarter.GeographicallysaleswereupthemostinEuropefollowedbyNorthAmericaandAsia-PacificbutweredowninJapanwhichisnotunusualasMarchistypicallytheirfiscalyear-end.USsaleswereupforbothOEManddistributionwhererevenueisrecognizedonasell-throughbasis.

Onaregionalbasis,NorthAmericawas28%ofourbusiness,upfrom27%lastquarter.Europewasupto21%thisquarterfrom19%lastquarter.Japandeclinedto13%ofourbusiness,downfrom15%lastquarter,andAsia-Pacificdecreasedfrom39%to38%ofsalesbutwasupinabsolutedollars.

Turningtotherestoftheincomestatement,grossmarginwasupfrom75.7%to76.2%.Thisisagoodresult,particularlysinceouroverseasassemblyandtestoperationshadlowerproductiondaysduetoChineseNewYear.

Grossmarginwasaidedbythehighersalesbasewhichreducesfixedoverheadperunitandanincreaseinouraveragesellingpriceto$1.97,up$0.05from$1.92lastquarter.

Thefourthquarterisafullproductionquarterforallofourplantsandweexpecttogrowsales.SoIdoexpectsomemarginexpansionsubjecttotheproductmixwithinsales.

R&Ddecreased$0.2millionsequentiallyto$69.6million,primarilyduetolowerlaborandfringecostastherewasoneextraweekinthepriorquarter.Inaddition,legalcostsweredown.

Partiallyoffsettingthesedecreases,vacationcostandprofitsharingincreased.Vacationcostswerehigherastheywerenoshutdowndaysandmuchlessvacationtakeninthethirdquarterthanduringtheholidayseason.

SG&Adecreased$0.4millionsequentiallyto$43million.SimilartoR&D,thiswasmostlyduetolowerlaborandfringecostfromonelessweekinthequartercomparedtoQ2.Inaddition,othercostdecreasesuchasadvertising,travelandforeignsalescostsfromforeignexchange.

SimilartoR&D,thesedeclineswerepartiallyoffsetbyhighervacationcostandprofitsharing.Operatingincomeincreasedby$13millionto$162.5millionrepresenting45%ofoursales.Interestandotherincomeincreasedslightlyto$1.6milliononhigherinvestedcashnetofsmalllossfromforeigncurrencytransactions.

Ourquarterlyeffectiveincometaxratewashigherthisquarterat21.75%versus19.5%lastquarterduetolowerquarterlydiscreteitems.Nextquarterabsentdiscretetaxitemsifanyweexpectourannualeffectivetaxratetobeinthe24%to24.5%range.

Netincomefortheperiodwas$128.4million,up$6.9millionandwas35.6%ofsales,upfrom35%.Theaveragesharesoutstandingusedinthecalculationofearningspersharedecreasedby116,000shares.Theweightedaverageofstockrepurchasesboththisperiodandlastperiodmorethanoffsetvestingofemployeestockawards.

GAAPearningspersharewas$0.52,upfrom$0.50inthepriorquarter.Withouttheimpactofstock-basedcompensationof$19.9milliondilutedearningspersharewouldhavebeen$0.59pershare.

Lookingatjustafewmajorcomponentsofourbalancesheet,duringthecurrentquartertheCompany'scash,cashequivalentsandmarketablesecuritiesincreasedby$55.3millionto$1.36billionnetofspending$78.2milliononcashdividendswhichhavebeenincreasedto$0.32pershareandspending$32.6milliononstockpurchasesofapproximately800,000shares.Capitalexpendituresforthequarter




were$13.2million.

Accountsreceivableof$152.9millionincreasedby$7.8milliononthehighersalesbaseandDSOwas39days,upfrom38daysaswehadanextraweekofcollectionsinthesecondquarter.Inventoryat$94.2millionwasessentiallyflatversusthepriorquarterandwebelievetobeagoodprofiletosupportourbusinessandkeepleadtimesrelativelyshort.Ourquarterlyaverageinventoryturnswasupslightlyto3.7timesperyear.

Lookingforward,atthecurrentbookingsrate,weareguidingrevenuetobeup2%to5%intheJunequarter.Threequartersagowhenweannouncedourrevenuesforourfirstfiscalquarterwouldbedownsignificantlyourexpectationwasthatthesuddendropwasmoreofashort-termcorrectionratherthanadeepdowncycle.Atthispointitappearsthatourreadingofthetealeaveswasaccurate.

Inventoriesinthechannelnowappeartobeinbalanceifnotlean.Weareshippingtoendcustomerdemand,bookingshavepickedupandourlargestmarket,industrial,appearstobeinrecovery.However,itisstillafragilemarket.

TheglobalmacroeconomicclimateisnotparticularlyfavorablewhencertaingeographiesremainweakandGDPof2%isconsideredgoodgrowth.Nevertheless,wefeelgoodaboutourstrategyandthegrowthopportunitiesaheadinthemarketswherewehavefocusedourresourcesandproductdevelopment,particularlyintheindustrial,transportationandcommunicationsmarkets.Thesearethemarketsthatwilldrivethegrowthinhighperformanceanalogandthedecisionsthatwemadeseveralyearsagoandexecuteduponnowleaveuswell-positionedtocapitalize.

IwillnowopenuptheconferencecalltoquestionstobeaddressedtoBob,Lotharorme.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

DavidWong,WellsFargo.

DavidWong (Analyst-WellsFargoSecurities):

Thanksverymuch.Don,couldyougiveussomefeelofyourattitudetocashonthebalancesheetanduseofcash,andinparticularwhatyouseeintermsofstockrepurchasesgoingforward?


Yes,David,asyouknowweretiredourconvertiblenote.It'sbeenabouttwoyearsnow,andafterhavingdebtserviceforsevenyearsweenjoynothavingit.Soforthetimebeing,wecontinuetolikenothavingthedebtservice.

Weprefertouseourexistingcashtofundourdividendandstockrepurchases.Andsoforthetimeperiodthatpositionhasn'tchangedbutit'snotthatwe'renecessarilyagainsttakingsomedebt.We'vedoneitinthepast,butcurrentlywe'vechosentouseourexistingcashtofundourstockrepurchases.

DavidWong (Analyst-WellsFargoSecurities):

Great,thanks.

Operator :

CraigHettenbach.




CraigHettenbach (Analyst-MorganStanley):

Greatthankyou.JustaquestiononthecommentonChinaandEVs,justintermsofcertainlyit'sstillasmallmarketasapercentageoftermsbutthedollarcontentopportunityismuchhigher.I'mcurioustogetyourthoughtsonjustfromadesignperspectiveandwhatyou'reseeingfromcustomershowthatinfluenceswhatyouthinkabouttheopportunityoverthenextone,two,threeyears?

LotharMaier (CEO&Director):

WhenyouthinkaboutChinayouknow,particularlywhenwhatwe'vetalkedaboutisthisEVmarket,it'snotjustcars,it'staxisandtoalargeextentit'salsobusesandsomemachinery.AndwhenwewinbusinessontheBMSsidewetypicallywinbusinessaroundtherestofthecaraswell.

Sograntedthesetypesofvehiclesarestillarelativelysmallpercentagethecontentcanbetwo,three,four,10timesasmuchasinaconventionalcarandthenumbersmaybeweresmallbutappeartobegettingquiteabitbigger.Ifyoulookathowmanyplug-inandelectriccarsChinaproducedin2015itwasaround300,000andthat'sgoingtodoublewethinkin2016.AndrightnowwiththeincentivesthattheChinesegovernmenthasputinplace,theydon'tappeartobeanendtothis.


Gotit.AndifIcouldjustfollowupjustonthetopicofBMS,Ithinkyouguysareonyourthirdoffourthgenerationofproducts.Sojustseeminglyitisabigopportunitybutjustkindofthingsyou'redoingonatechnologyfronttomakesurethatyoumaintainkindofleadershippositionforthesetypeofproducts.


Yes,andit'sinterestingbecauseeveryOEMdoesitalittlebitdifferent.Sothereisn'tlikeonesolutionthatsolveseverybody'sproblems.Somepeoplehaveefficiency,somepeoplewantprecision,somecustomerswantcommunication.

Soit'sadifferentsetofrequirementsfromcustomertocustomer.Andsoit'sjustanever-evolvingfield.Andtherequirementsareobviouslyit'sprecision.

Thelithiumbatteriesareveryexpensive,andsoifwecanmakethemeasurementsmorepreciseitmeanstheyhavetopurchaselessbatteries.Whenyourbatterysystemstopsworkinginavehiclethat'saplug-inorahybridthecarstops,sotheyarelookingforthingslikeredundancyandbackupsystems.Soit'saprettycomplicatedproductwithalotofdifferenthooksinitandeveryOEMhasadifferenthotbutton.


Okay,thanksforthatcolor.

Operator :

RossSeymore.

RossSeymore (Analyst-DeutscheBank):

Higuys,congratsonthesolidquarterandguide.JusthadaquestionontheASPsideoftheequation.

Don,youmentionedthebenefitthatthathadalittlebittothegrossmargin.Butjustkindofmoreholistically,Ithinkthat$1.97wasupnicelysequentiallyandyearoveryearbutIthinkit'salsothehighestwe'veseenforyourCompanyasfarasIcanfindinhistory.CanyoujusttalkalittlebitaboutwhatisdrivingASPsupforyourCompanyovertimeandifinthesinglequartertherewasanyparticularly




uniquemovements?


WellIthinkjustingeneralthestrategychangethatwemadeseveralyearsagoasyouknowtodefocusoutofconsumerandmoretowardsindustrialandtransportationandcommunicationjustoverthelastseveralyears,thatstrategyinandofitselfisgoingtohelpourASPanditdid.Andyou'llalsoknowthatwe'vehadgoodsuccessinourmodulebusinesswhichcontinuestogrowquitefranklybeyondourexpectations.Andthat'sanothergreatproductthatwecontinuetoseejustrunning.

AndtheASPonthemodulesisquitehighandwe'realsotalkingtodayaboutoursuccesswithbatterymanagementsystemswhichalsoisarelativelyhighASPproduct.SoourstrategyingeneralandthesuccessofcertainofourproductsiscontinuingtodriveASPhigheranditcertainlywouldn'tsurpriseusifwegotover$2.


Yes,justtohighlight,weusedtohaveASPsevengreaterthan$2foralongperiodoftime.You'dhavetogobackabout15yearstoseethat.Andasweenteredintotheconsumerbusiness,wesawourASPsdrop.

Ithinkthelowquarterforuswaslike$1.38.Andthenwe'veseenasteadygrowthbacktowhatwethinkisprobablylikelyforusistogetabove$2hereinthefuture.

AndwefeelthatwayforthereasonsthatDonsaid.We'vegottheseBMSproducts,wehavemoduleproducts.Andifyoulookatvirtuallyeverythingthatwe'vegotinthedesignpipelinearereallyproductsthatshouldwarrantpricesabove$2.


GreatandIguessasmyfollow-up,justswitchinggearstotheindustrialside,it'sgoodtoseethatit'sactingbetterandyougavealotofcoloronthat.Iguessifwecouldjustcompareittoayearagoatthistime,itlookslikeyourrevenuesareinthesameballparkforwhatyoureportedintheMarchquarterandseeminglywhatyou'reguidingforthatsubsegmentinJune.Couldyoujustcompareandcontrastwhatgivesyoutheconfidenceinhowyou'refeelingaboutthatatthesamelevelofrevenuestodayversusayearagowhenofcoursewewereontheprecipiceofthatcorrectionshort-livedbutcorrectionnonethelessintheSeptemberquarter?


Yes,priortothatcorrectionwewereonaprettygoodMarchintermsofimprovementsinourindustrialbusiness.AndIthinkwehadacorrectionforquitefranklyreasonsIdon'tfullyunderstandbecausewedidn'tloseanycustomers,wedidn'tloseanybusiness.AndsoIthinkwhatwe'reseeingnowisthatindustrialbusinessthatroughlyayearagowasdoingprettygoodforusresettingandtakingoffwherewewereaboutayearago.


Great,thankyou.

Operator :

ToreSvanberg,Stifel.

EvanWang (Analyst-StifelNicolaus):




Yes,hi,thankyoufortakingmy--thisisEvanWangcallinginforToreSvanberg.Thankyoufortakingmyquestion.

Thefirstquestionisoncommunications.Youhavetalkedaboutthepotentialofbeingonarebound,Iwaswonderingifyoucancharacterizethisalittlebitbasedonmaybethebookingsfromthefirstcoupleofweekssofarthisquarterastothesteepnessofthisrecoveryandgoingforwardevenoutacoupleofquartersifyoucould?


Well,youknowanyofourmarketsreallydon'tgetdrivenbywhat'shappenedinthefirstfewweeksofaquarter.Thesethingsevolveliterallyoveryears.Andwe'veseensomestressonourcommunicationsbusinessbecausehistoricallyitwasroughlyevenlysplitbetweenthebasestationandthenetworkingpartofthebusiness.

Andovertheyearswhatwe'vebeenseeingisthebasestations,whichhavebecomesomewhatcommoditized,thatbusinessdecliningandtherestofthebusinesswassortofthenetworkingandinfrastructurepartofthebusinessimproving.SoIthinkwhatwe'reseeingnowisthefactthatwe'vegivenupmostofthebasestationbusiness.Wedon'thavealotofbasestationbusinesstoloseanymore.

Andwhatwe'reseeingisjustthepickupofthenetworkingbusinesswhichwe'vebeenseeingreallyforyearsandthat'sbecomingalittlebitconspicuousnow.Therearealsosomesegmentsinthenetworkingbusinessthataredoingwell.Donmentionedtheopticalbusiness.

WhereverthereisalotofinnovationistypicallywhereLineardoeswell.Andtheopticalmarketsgoingbetween10Gto20Gto40Gto100to200,400G,asthatprogressiongoesthere'salotoftechnologyinvolvedandwhenthathappensthat'sgoodforus.Soforustheopticalmarketrightnowisdoingquitewell.


Great.Myfollow-upquestionisforthelongerterm,youcitedthatthemacroremainsweak.Andgiventhestrengthandyourfocusmarkets,isthisstillamajorconcernforyouordoyouseethestrengthinthesemarketsufficienttofuelyourgrowth?


It'sanissueforus.WereallyliketoseesomestrongglobalGDPgrowthsoit'sanobviousheadwindtous.ButatthemomentIthinkwe'vegotenoughgoodproductsandgoodmarketsthatwecanbuckthatheadwindtosomeextent,butquitefranklywe'dhavealotstrongerbusinessifweweren'tfacingheadwindlikethat.


Youknow,ImentionedJapan.Japanisweak.ThereisdefinitelysomeseasonalitywithJapanthispastquarter.

AsImentionedMarchistypicallytheirfiscalyearendandsotheywilltakelessdeliveryandsuch.ButIthinkthere'ssomerealweaknessinJapan.IthinktheymaybeaffectedbyChinasomewhatbutthere'sstillpocketsofweaknessoutthere.

There'snotmanyregionsaroundtheworldifatallthatareexperiencinganykindofgrowth,something3%orbetter,Imeanyoudon'tevenseethat,likeIsaid2%isconsideredstrong.Soit'scertainlynotagreatmarketouttherebutIthinkinthemarketsthatwefocuswe'recertainlyholdingourownandwe




can'tusethemacroeconomicenvironmentasanexcuse.Wehavetocontinuetogrowandwethinkwecandothat.


Thankyouverymuch.

Operator :

JohnPitzer.

JohnPitzer (Analyst-CreditSuisse):

Yes,goodmorningguys.Thanksforlettingmeaskthequestion.

Don,inyourpreparedcommentsyoutalkedaboutyourexpectationfortheJunequarterfortheretobeadditionalgrossmarginleveragebaseduponsomeofthefixedcostabsorptionmaybeoffsetbymix.CanyouhelpusquantifyhowmuchweshouldseefortheJunequarter?Isthisasimilarincrementalmarginthatwe'veseeninMarch?

Andthenonasimilarvein,ifyoulookatwheregrossmarginsaretoday,andIalwaysfeelsillyaboutaskingthisquestion,youstillhaveabout200basispointsofupsidetowheremarginswerekindofbackinthat2010timeperiodaround78%.Isthereanythingstructurallydifferentaboutthebusinesstodaythatshouldn'tallowyoutoatsomepointgetbacktothatmarginprofile?


Youknow,John,youhavetorememberwherewewereinthemarketbackin2010.Imeanthatwasasnapbackfromthe2008,2009creditcrisisandrecessionandsothewholemarketwasifyourecallwassortofpedaltothemetal.Ourfactoryutilizationatthattimewasveryhigh.

WestillhadsomeconsumerproductsthatwerelowerASPbutalsolowercostthathelpedgettothatveryhighgrossmargin.Notthatwecan'tgetbacktherebutthat'ssortoftheperfectenvironmenttogetbacktoagrossmarginthatisinexcessof78%.SoIthinkthat'sdifferentandyouhavetolookatwhatthatenvironmentis.

Andsecondly,thereissomecosttotheautomotivemarket,youknowthequalityandthereliabilitythatisexpected.Soyes,there'shigherASPtherebutthecostdependinguponwhichproductyou'retalkingabouthasquitehightestcost.Sothere'sthataswell.

Butevenonaslightlylowergrossmarginthegrossmarginperunitishigher.Sowe'llmakethattradeoffeveryday.SoImeanthere'sjustalotofvariabilitiesthatgointogrossmarginwhichiswhyIcan'tnecessarilygiveyouatargetforwhatourgrossmarginisgoingtobenextquarter.

Idon'tknowwhatthemixisgoingtobeyet.I'mnotexactlysurewhatourcapacitylevelwillbeinthefactory.AllIcansayislook,wejustgrewabout$13millionandaddedhalfapoint,50basispoints.

Idon'tknowifIcanpromiseanother50basispoints.Butassumingwegrow,assumingwehavearelativelysortofconstantkindofmixinourproductsIwouldexpectthatwewouldbeabletoaddtogrossmarginintotal.Whetherit's20basispointsor30basispointsorevenhigherIcan'tsayrightnow.


That'shelpful,Don.Andthen,Lothar,maybeasmyfollow-up,aquestionaroundgrowth.

AndIunderstandthatthecompareisprobablynotfairbecausethere'sbeenalotofrepositioningofthe




Company.Butifyoulookatthetop-linegrowthsince2010totheendofthisyearit'sbeensortofflattishandagainalotofrepositioningwithinthatfive-yearperiod.

I'mkindofcuriousashowyouthinkweshouldthinkaboutyourgrowthratefromheregiventherepositioningandthefocusoftheCompanyintheendmarkets.Andifnotonanabsolutebasisrelativetowherethesemimarketisgrowing,howmuchfasterdoyouthinkyoucangrowonanongoingbasis?


Yes,Ithinkyou'vegotaprettygoodobservationthere,that2010asDonsaidearlierwaskindofapeak.Therewasahugedownturnandthentherewasahugecorrectioninthenitcorrectedagainafterthatcorrection.

Andifyoulookbackinthelastseveralyears,we'veseensteadybutmodestgrowthandIthinkweneedtwothings.Oneisweneedtheoverallmarkettogetbetter.Andsoifwe'regoingtogetbacktowhatwealwayssaywe'dliketogroworwethinkwe'reentitledtogrowis10%we'vegottogetsomedecentGDPgrowth.

IfyoulookatourCompanyfromwherewe'repositioned,fromaproductstandpoint,fromanendmarketstandpoint,wecouldn'tbeanybetterpositionedthanwearepresently.SoI'mnotworriedatallaboutthethingsthatareinourcontrolbecauseIthinkwe'vemanagedthatprettywell.

Wejustneedalittlebitofhelpfromthemarketandthere'snoreasonwhywecan'tgrow8%or10%inayear.Wedonothaveaproductoramarketissue.


Hey,John,letmejustfollowuponthat.Ifyougobackto2014,wehadaboutfiveifnotsixquartersinarowwhereyearoveryearweweregrowinginthathighsingledigit9%,10%.Andthat'swhatwethoughtwecoulddoandwethoughtwecouldcontinuetodoitwhenmostoftheconsumertransitionwasbehindus.

Soallthenewbusinessandnewopportunitieswenowfeltafterseveralyearsofreplacingbusinesswasnowadditiveontop.Soweweresortofthere.Andobviouslyafter2014wefelloffthatpaceasdidcertainlytherestofthemarketaswell.

Butcomputergotweak,communicationsgotweak,industrialgotweakonus.Soagainthere'ssomemacroeconomicheadwinds.ButtoLothar'spoint,withalittlebitmorestabilityandalittlebitmoregrowthonaveragearoundtheglobewethinkwecangrowbackupatthat10%rangeandwethinkwe'vealreadyshownwecandoit,wejustneedsomehelpfromthemarket.


Great,thanksguys.

Operator :

C.J.Muse,ISIGroup.

C.J.Muse (Analyst-EvercoreISI):

Yes,goodmorning.Thankyoufortakingmyquestion.

Iguessfirstquestion,whenyouthinkaboutconsumernowwhenwehadroughlya$28millionrunrate,clearlymuchmoreleveragetoyourthreecorebusinesses.Howshouldwethinkaboutnormalseasonality




patternsinthislowgrowthenvironmentcoupledwiththatmixshift?


Forwhichmarket?


Sorry,I'mthinkinginaggregateforyouguys.


I'msorry,C.J.,canyouaskthatquestionagain?


Sure.Thinkingaboutseasonalpatternsinthebackhalfoftheyear,recognizingthatyouaremuchmorefocusedtoyourB2Bbusinessandlesssoontheconsumerfrontandhowthattranslatesintowhatweshouldexpectintothebackhalfoftheyear.


Soareyouaskingaboutsortoftheseasonalityofourbusinessgoingforward?


That'sright.


Well,youknowthereusedtobesortofasomewhatregularpatternorcycletoourbusinessseveralyearsago.Andmaybetheconsumercomponentofthatthatwehadthatatonetimewasdoubledigits,maybethatfactoredintothat.Sowithconsumergonethereseemstobemaybelessofanormalpattern.

Butjustingeneral,clearlythefirsthalfofthecalendaryearourfiscalthirdandfourthquartersisseasonallystrongforLinear,particularlybecauseoffocusonindustrialandtransportation.Soweassumethatthatwillstaythatwaygoingforward.WehopetogrowinQ4.

Goingonbeyondthatit'sverydifficultofforecastthisbusinessoverthenextquarterjustbecauseoftheeconomyandsomevariabilityinthebusinessandourcustomers.Butwewouldexpectthatcomingoutofthefourthquarter,historicallythefirstquarterhasbeen,ourfirstfiscalquarterhasbeenaflattishtoupslightly,downslightlytypeofquarterandthenQ2hasgenerallybeen,that'stheDecemberquarter,hasgenerallybeenourweakerquarterwherewegodownslightly,althougheventhispastyearthatpatternwaschangedbecauseSeptemberwasthedownquarterandwewererecoveringintheDecemberquarter.

Soyoulookathistoryandwhathappensandthereissomewhatofapatterntherebutitseemstohavechangedeveryyear.SoI'mnotsureIwouldputtoomuchontheseasonalityotherthanclearlythefirsthalfofthecalendaryeartendstobestrongerquartersforus.

Iwouldthinkthatthatwouldcontinueabsentsomemajorchange.Ihopethatanswersyourquestion.BecauseIdidn'treallyunderstandit.


That'shelpful.IguessmovingtoOpEx,youguided31%orlessofsalesforthepriorQandyoucameina




littleabovethat.CuriouswhatdrovethatandhowshouldwethinkaboutthatpercentagegoingintotheJunequarter?

AndthenifIcouldjustsneakonelastquestion,itwouldbeareyouseeinganyimpactinyourbusinessfromtheearthquakeinJapan?Thankyou.


Well,thelatteroneIdon'tbelievethatwe'reseeinganyimpact,atleastnonethatweknowofyet.Sothat'stheeasyone.

It'sfunny,IguessIgotcaughtontheoneminormissImadeontheincomestatementwhereIdidsaythatIexpectedtobeinthe31%rangesimilartoQ1ifnotbetter.Andsoat31.2%that'sexactlywhatwherewewereinourfirstquarter,soIthinkthat'swhatIsaid.ButinfairnessIexpectedittobealittlebetter.

Andthere'stwothingsthat--andwe'renottalkingaboutalotofmoney.Ithinktogetdownto31%ouroperatingexpenseswouldhavebeenabout$600,000or,$700,000less,notalot.

ButonethingIdidn'tfactorintowassurprisinglyitisvacation.Thewaywedoouraccountingforvacation,Ithinkit'sthewaymostcompaniesdoit,iswhenemployeesaretakingvacationyouactuallygetaP&Lbenefitandthenwhentheyarenottakingvacation,vacationchargesgoup.Andit'sthewayyouaccruethevacationaccrual.

SoonethingthatIdidn'tfactoriswhenyouhaveaholidayperiodlikeChristmasandNewYear'sandthenwealsohadshutdownsaswell,peopleusetheirvacationsothattheycangetpaidratherthantakingtimeoffwithoutpay.Sothisquarterthatsortofsnappedbacktheotherwaybecauseafterpeopleusetheirvacationthere'shardlyanyvacationtakenatall.

SotheimpacttothatquitehonestlywasalittlehigherthanIexpected.Andsoat31.2%quitehonestlyIwouldhavethoughtthatwewouldhavedonealittlebitbetter.Butgoingforward,Ithinkthat31%ofsalesisgiveortakeisprobablywhereyou'regoingtofindus.

Thesecondthingthere,andIthinkI'vebeentalkingaboutthisthelastcoupleofquarters,isonanannualbasis,ifyoutakeoutstockcompensation,ouroperatingexpensesaregenerallyincreasinginthe3%to4%range.Andthat'ssortoftypical.

Butstockcompensationwhichisnon-cashisincreasingsomewhathigherthanthat.Andit'ssolelybecauseouroldergrantsthatweregrantedfiveyearsagoweregrantedinthelow$30range.Well,thosearefallingoffofbeingreplacedbyhighergrants.

Sothatphenomenoniscausingstockcompensationtoincreasequarteroverquarteralittlefasterthantherestofourcashoperatingexpenses.Sothere'salittlebitofpressurethere.Thatwillturnaroundeventually,butfornowthat'swhyyoumightseeouroperatingexpensesintotalgrowingmaybealittlehigherthanyou'dexpect.


Veryhelpful.Thankyou.

Operator :

CraigEllis,B.Riley.

CraigEllis (Analyst-B.Riley&Co.):




Thankyoufortakingthequestionandcongratulationsontheresults,guys.Don,thefirstquestionistoyouandit'sjustafollow-uponthebasisfortheguidance.

Ithinkyoupredicatedtheguidancerangeonbookingsatcurrentrates.Socanyoujustreminduswhatthemonthlybookingslinearitywouldtypicallylooklikeinthefiscalfourthquarter?


Well,youknow,thispastquarter,whichisnotunusualwhenyouseethebookings,weactuallyhadslightlyhigherbookingsinJanuarybuttheystabilizedprettywelloverthequarterenoughtoallowustogrowaswesaid.ButwhenyoulookatJanuaryforexampleit'snotunusualthatbookingsincreasedcomingoutoftheDecembercalendaryear-end.Andtheremighthavebeensomepre-bookingforChinesenewyear.

Sothat'swhatyou'vegottobealittlecarefulwhenyoutrytoreadintothenextquarterwhenyou'reonthecallbaseduponacoupleofweeksofbookingsforthecurrentquarter.Becausetheresometimesendsupbeingaspikejustcomingoutofthedifferentfiscalperiods.

IsaidIthinkwe'veseenjustingeneralourbookingsperdayhavestabilizedsomewhat,sowe'rehopingthatthatwillcontinue.WecontinuetotalktoourcustomersandIthinkourfeedbackingeneralistheyarefeelingprettygoodabouttheirbusiness.WetalkedaboutseasonalityandQ3andQ4aregenerallystrongerforLinearTech,theyarestrongerfortransportationandindustrial.

Thetransportationmarketcontinuestogrownicelyforus.Sojustbaseduponthatinformationthat'swhywe'refeelinggoodaboutourposition,that'swhywe'refeelingprettygoodthatwecancontinuetogrowinthefourthquarter.

Andbeyondthat,wejustreallydon'tknow.It'sverydifficulttoforecastlongeroutfartheroutthanthefirstquarter.Sowe'rejustgoingtohavetoseewhathappens.


Okay,I'mgoingtotakeanotherswingatitbecauseIwaslookingforsomethingalittlebitdifferent.Ifwelookbackhistorically,wouldwetypicallyseethatMayandJuneareaboutonparwiththebookingsintensitythatwouldbeseeninAprilorwouldtheytypicallybenorthorsouth?Oristherenotadiscernibleinapatterntomakeacallontheintra-quarterlinearitybymonth?


Idon'tthinkthere'senoughofapatternotherthanthatgenerallyourbookingsinthefirstcalendar,firsthalfofthecalendartendtoberelativelystrongtofuelthegrowthinthosequarters.Youknowourleadtimesarerelativelyshortatfourtosixweeks.Sowedon'thaveabookingsthatgooutmonthsandquarterstoletusgiveustoomuchinsightonthefuture.


Yes,IthinkwhatDonissayingisthere'sanuancehere.Imeantypicallyourbookingsandbillingsareprettydoggoneflatthroughaquarter.Andtheremightbesomeinventorypositioningourcustomersdoattheendofthequarterthatpicksupthebookingsatthebeginningofthenextquarter.

Butwe'retalkingaboutnuancesherenot--wedon'thaveahockeysticktypepatternofourbusiness.It'svery,verylinearbothfromabookingsandabillingstandpoint.





That'shelpfulfollow-upguys.Thefollow-upquestionistoyouLothar,itwashelpfultogetthecoloronthecommunicationsbusiness.Thebasestationmixouthasbeenwell-known,you'vebeenverytransparentonthat.

Myfollow-upquestion,though,asyoulookatthetrendsinoptical,networkinganddatacom,areyouseeingdifferentialratesofgrowthinanyofthosemarkets?Andifso,whereareyouseeingthebettergrowth?

Andthenrelatedtothat,canyougiveussomesenseastothesizeofthosedifferentbusinessessowecanputthatgrowthinbettercontextinsideofcommunications?Thankyou.


Iwouldsaywherethere'salotofpotentialbusinessforusgoingforwardIwouldsayit'sintheopticalarea.Asamentionedearlierthere'salotofinnovationgoingonthereandtheuseofopticalisexpanding.

Itusedtobethefiberwasforlong-haulcommunicationsandmostofthatfiberisinthegroundalready.Andreallywherefiberisbecomingmoreandmoreimportantisshorterdistances,withinbuildings,serverracktoserverrackindatacenters.

Andsothat'stheareawherevery,veryhigh-speedcommunicationsisneededanditneedstofitinavery,verysmallformatandheatdissipationisabigissue.Sowe'vegotsolutionsforthosetypesofapplicationsthatmakethatopticalmarketkindofaprettyinterestingmarketforusrightnow.


Thanks,guys.

Operator :

AmbrishSrivastava,BankofMontreal.

AmbrishSrivastava(Analyst-BMOCapitalMarkets):

Hi,thankyouandIwillborrowthesillyhatfromJohnPitzerfromtheearlierquestion.Ijustwantedtodrillinalittlebitmoreonthegrossmargin.Andhewasrightit'skindofsillytobeaskingthatgivenwhereyouguysareat.

Butbasedoneverythingyousaid,theASPsseemtohaveaseculartrendupwards.Ontheautoside,shouldcost,thecostpenaltybeabatingasyouimproveyouryields?

Andthenpickanormalizedutilization,shouldn'tgrossmarginthenshouldhaveasecularupwardtrajectoryifwelookoutlongerterm?


Youknow,Ithinkyou'reright.ImeanIthinkwe'rebeingmaybealittlebitmodesthereinthatyouknowifIlookbackatwhathappenedin2010,ifthosethatcircumstanceshappenedagaintousnowwhereifthegrowthreallytookofflikewewereseeingbackthen,Iwouldfeelprettyconfidentthatwecouldgetto78%grossmargins.

We'retalkingaboutapercentageortwo.Andourfactoriesarenot100%loadedrightnowandIthinkthere'ssomeefficiencieswecanpickup.Butagainthisiswe'retalkingaboutacouplehundredbasispoints.





Yes,yes.AndIwasn'taskingfornextquarter.Somyquickfollow-upthenisonsomethingyoumentionedontheautomotiveside.

YousaidUSyou'reunderrepresentedandyou'reseeingprogress.WhatspecificareasareyouseeingprogressintheUS?Thankyou.


Well,Ithinkthe,youknowthere'sthevehicleitselfandthere'sthesuppliersandweplayinallofthat.Ithinkclearlytodatewe'vebeenmoreaccessiblewithmoreoftheluxurymodelcarsinEuropeandJapanandwe'vebeensuccessfulwiththeelectriccarsinChinaandthat'snottosaywehaven'tbeensuccessfulintheUS,it'sjustbeenmoresoontheinternationalmarket.

ButIthinkthatclearlytheADASopportunitiesandtheautonomousdrivingvehicleinthefuture,IthinksomeoftheeventhebigthreeautomakersintheUSdon'twanttobeleftbehindtheresotheyarestartingtojumpinaswell.SoIthinkthattypeofmarketIthinkiscomingmoresofromtheUSandwecertainlythinkwe'llplayinthere.

SointermsofdollarsIthinkinternationallytendstothetransportationbusinessforusisdrivenmostlyfromoverthere.Butwe'redefinitelyonapercentagebasisareincreasingtheUSbookingsandsales.Andwethinkthat'sgoingtocontinuetogrow.


Okay,thankyou.Goodluck,guys.

Operator :

VivekAryawithBoAMerrillLynch

VivekArya(Analyst-BankofAmerica):

Thankyoufortakingmyquestion.Firstoneontransportation,veryimpressivegrowth,andIthinkyoumentionedthebatterymanagementsystemandtheopportunitythere.Couldyougiveusasenseofthecompetitivelandscape?

AreyoutheonlyCompanyinthatspace?Doyousenseanycompetitioninthatspaceatall?Andbeyondbatterymanagementsystemswhataretheotherareasoffocusintransportation?


Asfarascompetition,werecognizedprobablyalmostadecadeagothattherewasgoingtobetheemergenceofthisBMSproducts.Andsowereallywerefirsttomarketwithaviableproduct.Andwe'reinafourth-generationproductrightnowinproductionandwe'vegotsixth-andseventh-generationproductsandbeyondindevelopment.

Andsograntedit'sgettingtobeavisiblemarketandcompetitorsrecognizeitandsotherearecompetitorsinthisspace.ButIthinkwefortheforeseeablefuturehaveaprettygoodtechnicalleadrelativetothecompetition.Thesearecomplicatedchips.

Imeantheyarevery,verycomplicated.AndasImentionedearlierthereisnowaythatonecompetitorisgoingtocomeinwithonechipbecauseeveryOEMhasadifferentpreferenceofwhattheywant.Sothere'smanyvariationsontheBMSproduct.




Soeventhoughwekindofcallitaproductit'sreallyafamilyofproducts.AndIthinkwe'vegotagoodtechnicalleadonthecompetition.

Intermsofautomotiveingeneralthere'sjustgreatopportunities.Thecarcompaniesareannouncingthis48voltbatterysystems,youaregoingtoseethemstartingwithmodelyear2016,2017andbeyondyouaregoingtoseeitreallypickingup.Whenthathappensthere'sgoodopportunitiesforus.

SiliconValleyhereisbecomingthenewDetroit.EveryOEM'shereinSiliconValley.Acoupleof--thereissomespeculationthere'ssomenewentrantsintheautomotivebusinessdevelopinginSiliconValleyaswell.

TheoneelectriccarmanufacturerhereinSiliconValleyisdoingwellandsoIthinkthedomesticmarketforusisgoingtobegoodforautomotive.It'sbeenalittlebitslowforuswhenwedealtwithsortofthebigDetroitautomobilecompaniesbutwewereIthinkalittlebithardonourselvesbecauseeventhoughwedidn'tselltoomuchdirectlytotheOEMswehadaprettygoodcontentintheUScarsbecausetheybuyalotofsubassembliesfromoverseas.Sowhatwe'reseeingnowissortoftheindigenousdesignwinshappeningintheautomotivemarketintheUSwhichwehaven'thadreallystrongupuntilthelastfewyears.


Gotit,veryhelpful.Asafollow-upthisisperhapsabroaderindustryquestionbutwhenIlookattheindustrialendmarketnotjustforLinearbutacrosstheboard,inthelastfewyearswehaveseenverymodest2%,3%,4%GDP-likegrowth.

Butgiventhatsemiconductorsaresupposedtoexpandcontentinmostoftheirendmarkets,whyhasgrowthbeensolowinindustrial?Arethereputsandtakesaroundpartsofindustrialthataregrowingversusdecliningandwhatisanacceptablegrowthrateinthatendmarket?Thankyou.


Boy,that'sahardone.Youknowonethingabouttheindustrialbusinessis40%ofourbusinessinourlargestmarket.Thereissomanycustomers,somanydifferenttypesofbusinessinthatmarketit'shardtoinfertrendsandpatterns.

SoIdon'tthinkIhaveagoodanswerforyouandIdon'tthinkLothardoeseitherbecauseheissittingthereshakinghishead.ButIjustthinkthatoverthelastyearorsotheglobalmarketasyousaidhasbeen,hasn'tbeenparticularlystrongandindustrialmarketIthinkyou'vegottostartwithGDP.Andsolikewesaidweneedhelpfromthemarkettogrowthat.

Butoverthelongerperiodoftimewhenyoulookattheanalogmarketthegrowthmarketshavebeenindustrialandtransportation.Andalongwithcommunicationsaswellthat'swherewefocusedourbusiness.Sowefeelconfidentthatthisslowgrowththatyou'reseeingoverallinindustrialisgoingtoturnaroundandgrowabitfaster.

Againoursalesgenerallyhavebeentwoorthreeyearsoutfromwhenwegetfromoursalesandourwinstoproduction.Soweseewhat'sgoingonwithourdesignwinsthatwillshipinacoupleofyears.Sowefeelprettyconfidentthatourstrategyoffocusingonindustrialmarketisagoodoneandwefeelstronglythatyou'regoingtoseegreatergrowthinindustrialthanwhatyou'vebeenseeing.


Thankyou.




Operator :

CodyAcree.

CodyAcree (Analyst-DrexelHamilton):

Thanksguysfortakingmyquestions.Maybejustfollowingupthereonindustrial,canyoutalkaboutsomeofthesubsetswhereyou'restartingtoseesomeoftheimprovementsinordervisibility,maybesomeofthosepocketsthatarestillstrugglingGDPdependent?


Yes,theindustrialmarketnothinghappensfastinanalogandnothinghappensevenslowerinfactintheindustrialbusiness.Butifyoukindofstepbackandlook,there'ssomemarketsthataredoingokay.Sortoftheinstrumentationmarketisdoingwell.

Themedicalbusinessisdoingwellforus.Anythingattachedtoexploration.O ilandgasrightnowisnotparticularlystrongbecauseoftheobviousreasonbecauseofthelowgasprices.

Certainlyifgaspricesstartedtogoupagainwe'dseeapickupinsortoftheexplorationpartofthemarket.Someofthealternativeenergystuffwe'restartingtoseesomeinterestinsolarandwind.Thatcouldbeagoodmarketforusaswellinthefuture.

Wepickthatupintheindustrialbusiness.Soit'slike1,000differentstories,there'sjustnotabigtrendthatfallsthroughthatmarket.

Andit'snotmadeupofbigcustomers.It'slotsofmedium-sizecustomers.Soit'snotlikeonepersonoronecustomerdominatesthisbusiness.


AndmaybeifIjustaskyoutoreadthetealeavesIguessalittlebit,asyoupushthroughthebeginningsoftheyearandyou'vestartedtoseethesebetterbookingsinpartsofcommsandthroughoutindustrialandintransport,doyougetasensethatthisisreallyjustasnapbackfromaninventorycorrectionorabitofseasonality?Orareyouoptimisticthatyou'vebuiltanymomentumherethateitheritwouldbeCompanyspecificorjustendmarketspecificthatismorethanjustabouncebackfromaninventorycorrection?


Ithinkwehadmomentumgoingintojustpriortothedropinsales.AndasImentionedearlier,therewasnoreasonforthedropinsales.Wedidn'tloseanycustomers,wedidn'tgetkickedoutofanyprograms.

ItjustwasaninventoryresetandIthinkyou'reseeingthatresettakingplacehereinthelastcoupleofquarters.AndIthinkwe'llpickupthemomentumthatwehadbeforethisinventorycorrection.Andifyoulookatwherewe'restrongintheindustrialandtheautomotivesegmentsoftheanalogmarket,thatmakesup50%ofthetotalanalogmarketandit'stheonlytwomarketsinanalogthatreallyhaveanysortofsustainedgrowth.

Soit'snotlikewe'reinthewrongmarkets.We'rekindofintherightmarketsandwe'restronginthosemarketsandthosemarketsaregrowing.SoIthinkfromamomentumstandpoint,Ithinkwe'rewell-positioned.





Thanks,guys.

Operator :

SteveSmigie,RaymondJames.

SteveSmigie (Analyst-RaymondJames&Associates,Inc.):

Great,thanksalot,guys.Iwantedtofollowupalittlebitontheopticalmarket.Iwashopingyoucouldtalkalittlebitaboutwhereyouseeyourstrengthsarepart-wise,solaserdrivers,etc.?Andasthisdatacentermarketramps,aretherecertaindistances,speedsthatyouareparticularlygoodatthatyouthinkyouareleveredto?


It'snotsomuchthespeeds,meaningthatwhenthespeedsgoupthereissomehugerequirements,there'stheseverycomplicatedASICsthatareinvolvedintheseopticalsystems.Theyhavemany,manypowerrailsthatneedtobepoweredandithastobedonewithveryhighefficiencybecausethesethingsareinverysmall,compact,notverywellcooledlocations.

Sothere'salotofelectronicstogetthisopticalstufftoworkandIthinkwe'vegotsomegoodsolutionsinsmallfootprints.Ourmicromodulesdowellinthatarea.Theyhaveafootprintthatyoucan'tdodiscreetly,sothoseproductsdowellinoptical.Andit'sreallyinthesortofnotthephotonicspartofititself,it'sinthesupportoftheelectronicsthatgointothephotonics.


Okay,great.Andthenjustsorrytonitpickonindustrialhere,butyouguystalkedaboutsomepickuphere.

Howmuchofthatwouldbewhatyoutalkedaboutalittlebitthereasjustsortofreturningbacktonormaldemandpostsortofinventorycorrectionversusendmarketdemandpickingupversusyouguysjusthavinggooddesignsthataretakingoff?SoIguesswhatI'mtryingtogetathowmuchofthisisjusttrueendmarketdemandpickingupversusgoodstuffthatyouguyshavedone?


Wethinkit'sacombinationofboth,really.Imeanbookingsbackthreequartersagotheyalmostfelloffacliffalittlebitsurprisinglyandwherecustomersthatwerebookingatasteadypatternsuddenlystoppedbookingandthatwaslargecustomersaswellassmallercustomers.

SoIthinktherewasacoupleofquarterswheretheytooktheirinventorylevelsdown,maybetocoincidewiththeirownlowergrowthoptimisticgrowthrates.Butevenwesaidbacktheneventhoughtherewasweaknessandyousawthedeclineinbookings,mostofourcustomers,andwe'retalkingthousands,werestilloptimisticabouttheirbusinessandtheyweregrowing.

SoIthinkit'sprobablyboththattheyaregettingbacktotheirusuallevelsofbooking,theirinventoriesareagoodprofile.Butwethinkwe'regrowingfromthere.Sowethinkwe'vegotgrowthaheadthatthisismorethanjustsortofthesnapbackfromacorrection.


Great,thankyou.

Operator :




HarlanSur.

HarlanSur (Analyst-JPMorgan):

Goodmorning,thanksfortakingmyquestion.Justonequestionontheemergingproductsportfolio,youguysmentionedthemicromoduleproductsIthinkinanswertooneofthepriorquestions.

Itisoneofthemoreinterestingproductareasbecauseitismoresortofsystems-levelfocus,systemandpackage.Questioniswhatendmarketsorapplicationsareyouguysseeingmosttractionforthesemicromodulesandhowfastdoyouseetheseproductsgrowingifyoulookatthepipelineofyourdesignwins?


Yes,thesemicromodulesarenotdesignedspecificallyforanyendmarket.Theytendtobeforthemostpartprettygeneralpurpose.Weprobablyinitiallydevelopedtheseproductstoaccesssmall-andmedium-sizecustomers,customersthatwecouldn'tsendourapplicationengineerstovisit.

Sowegivethemthesemodules,whichlikeyousaidiskindofasysteminapackage,it'sadoneanalogsolution,alltheyhavetodoissolderitdownonaboardandthatworked.Wesellthesetomany,manysmall-andmedium-sizecustomerswhodon'thavethein-houseexpertise.Somewhattooursurprise,they'vealsodoneverywellinlargeandsophisticatedcustomerswhodohavein-houseanalogcapabilitiesbutwewinthatbusinessreallyontwofronts.

Onefrontisbecauseit'sdone,theygetatime-to-marketadvantage,andtwo,it'sinafootprintthateveniftheycoulddotheanalogdesignthemselvestheycouldneverdoitinassmallofafootprint.Sobutallthosethingsarenotdirectedtoonespecificmarket.Weprobablyinitiallysawstrengthinsortofthecommunicationsmarketwiththemicromodules.

Nowit'sexpandedtoallovertheplace.Weevenhavemodulenowthatgoesintoautomotiveapplicationsandmysenseiswe'reprobablygoingtoseemoreofthataswell.Soit'snottargetedtoanyspecificendmarket.

HarlanSur (Analyst-JPMorgan):

Great,thanksfortheinsights.

Operator :

(OperatorInstructions)WilliamStein,SunTrust.

WilliamStein (Analyst-SunTrustRobinsonHumphrey):

Great,thankyoufortakingmyquestion.Gentlemen,earlieronthecallIthinktherewerealotofquestionsaroundautomotiveandyouhavespokenatgreatlengthaboutbatterymanagementsystems.

I'mwonderingifyoucantalktous,inparticularinChina,I'mwonderingifyoucantalktousaboutdemandtrendsasyouanticipatetheminthecomingyearastheincentivesthattheChinesegovernmentisrunningrightnowwouldseemtoannualizeintheSeptembertimeframe.Doyouthinkthatisgoingtobeaheadwindtoyourautomotivedemandnextyear?


That'sahardread.AndallIcankindofsayis,well,IreadthestatisticsaboutwhattheChinesegovernmentisforecastingintermsofthesalesofhybridsandelectricandplug-inhybridvehiclesand




theyarecertainlyforecastingcalendaryear2016isgoingtodoublefromwhatitwasin2015.

Ifit'sgoingtodoubleagain,Idon'tknow.Thenumbersaregettingtobeprettylarge.Butwhatwedoknowisthatthemarketfromourcustomerseemstobeprettystrong.

Theyareallsayingtheyaregoingtogrowgoingforward.Weobviouslytakewhatourcustomerssaysometimeswithagrainofsaltintermsoftheirforecast.Butcertainlythereactionwegetfromourcustomerbaseisthatthisisn'taone-yeartypeofevent.

Thesenseisthisisgoingtocontinue.Ifyou'vetraveledinChinaatallthepollutionisincrediblybad.AndIthinktheyjusthavetofundamentallydosomethingtoaddressitandthisisoneofmanythingsthattheyaredoing.


Itsoundslikeyourautomotiveexposuretheremaybeabitmoremixthanunitdependent.Sothat'shelpful,Igetit.AndonemoreifIcansqueezeitin.

Defenseendmarkets,we'veheardsomecompaniessuggestthatthebidtheyareseeingfromthebigcontractors,thelargercustomersinthisspacehavebecomebiggerandmorestrategic.AndI'mwonderingifyou'reseeingthatbiddingactivityandwhetherit'sturnedintoanybacklogthatyoumightbeabletodiscuss?


Themil/spacebusinessforushasbeenprettysteady,meaningit'sbeen6%ofourbusinessforalongtimeandittendstogrowapproximatelyastheCompanygrows.Butyoudomakeagoodpoint.Ican'tsayI'veseenanythingbuttherearesomerumblingsouttherethatthatmightgetbetter.

Wepickupspaceinthataswellandthere'salotofpeopleouttheretryingtofigureouthowtoputrocketsandsatellitesintospaceandweparticipateinthatbusinessaswell.SotherearesomethingsthatallowustobealittlebitoptimisticbutIcan'tsayI'vegotanythingIcanputmyfingeron.


Well,that'shelpful.Thankyou.

Operator :

Gentlemen,itappearswehavenomoretelephonequestionsatthistime.


Okay,thankyouforjoiningusonourconferencecalltoday.Welookforwardtotalkingtoyouagainnextquarter.Haveagoodday.

Operator :

Ladiesandgentlemen,thisdoesconcludetoday'sconference.

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