Analyst Conference Summary

Linear Technology Corporation

conference date: April 18, 2007 at 7:30 AM
for quarter ending: April 1, 2007 (fiscal Q3 2007)

Forward-looking statements

Overview: Continued profitability despite revenue and earnings decreases. Revenues were within high end of guidance.

Basic data:

Revenue was $255.0 million, a sequential decrease of 5%, and down 9% from year-earlier.

GAAP net income was $98.6 million, a sequential decrease of 6%, and down 11% from year earlier. Non-GAAP net income was put at $111.8 million or $0.37 per share (mainly from excluding stock-based employee compensation).

EPS was $0.32 per.

Cash and short-term investments ended at $1.8 billion. Has no debt.


June quarter is difficult to forecast. Inventory appears to be balanced, but customers are cautious. Expect revenue to increase 3% to 6% with operating margins up similarly.

Conference Highlights:

Overall business environment continued to be weak. Orders increased in quarter and the book-to-bill ratio was positive. Believes inventory correction is over and semiconductor industry will return to growth.

$3 billion stock buyback plan announced. Will use cash and a $1.7 billion convertible note to do it.

$25.2 million was spent to repurchase 0.8 million shares.

Inventories ended at $50.7 million, up from $39 million on July 2, 2007 and up $5 million sequentially. 4.7 turns.

Stock based compensation had a $0.05 impact on EPS.

Bookings were up in all geographic areas, but Japan was down. U.S. was best. Industrial and Automotive bookings did best. Communications increased in absolute dollars, but declined as a percentage of bookings. USA was 34% of sales, up from 31% from last quarter.

Gross margin was 77.8%. It was adversely affected by inventory reserves, but mainly was from lower revenues.

ASPs rose to $1.67 from $1.59 last quarter.

Expenses were $78.1 million. Cost of sales was $56.5 million. Operating income was $120.3 million. 28% effective tax rate, 1% lower than expected.

Planning one week shutdown in wafer production plants to decrease inventory.


Buyback color? Can't make comments on convertible private placement. About half of stock purchase would be in June quarter, the rest in Q3 and Q4. Doing because market has undervalued Linear; management believes will grow faster than market believes.

Guidance to increased revenues? Inventory reduction seems to be tapering off. March is historically strong for Linear, so was disappointing, but increased bookings is best future industry.

Automotive market has a lot of opportunities as autos get more electronics. Linear has diverse products in auto.

Does not believe customers are ordering in excess of their needs yet.

How will buyback plan affect dividend plan? Thinks can keep up with continuing dividend growth.

What in mix helped improve gross margins? Improved in industrial and automotive, down in consumer, but margin did not change much, only 0.1%. Cell phone area is becoming more competitive, margins are eroding there. ASPs went up because cell phone segment was lower percentage of mix. Some cell phone chips have fallen in price by a factor of 2 or 3 just over 2 years.

High performance analog products can still have good prices. Consumer segment will grow slowest. Linear can transition out of low-margin markets into high-margin markets.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2007 William P. Meyers