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Linear Technology Corporation (LLTC)

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Linear Technology (LLTC)

F1Q11 (Qtr End 9/26/10) Earnings Call

October 13, 2010 11:30 a.m. ET

Executives

Paul Coghlan - VP, Finance & CFO

Bob Swanson - Executive Chairman

Lothar Maier – LLTC Management

Analysts

Tore Svanberg - Stifel Nicholas

Christopher Danely - JPMorgan

David Wong - Wells Fargo

Ross Seymore - Deutsche Bank

Tim Luke - Barclays Capital

John Pitzer - Credit Suisse

Uche Orji - UBS

Jim Covello - Goldman Sachs

Doug Freedman - Gleacher & Company

Craig Berger - FBR Capital Markets

Adam Benjamin - Jefferies & Co.

Craig Ellis - Caris & Company

Shawn Webster - Macquarie Capital

Terence Whalen - Citi

Steve Smigie - Raymond James and Associates

David Wu - GC Research

Chris Caso - Susquehanna Financial Group

Presentation

Operator

Good day everyone and welcome to the Linear Technology Corporation Fiscal 2011 First Quarter Earnings Conference Call. Today’s conference is being recorded. At this time for opening remarks and introductions I would like to turn the call over to Mr. Paul Coghlan, Chief Financial Officer. Please go ahead sir.

Paul Coghlan

Hello. Good morning and welcome to the Linear Technology conference call. I will give you a brief overview of our recently completed first quarter of our fiscal year 2011 and then address the current business climate. We will then open up the conference call to questions to be directed either at myself; I’m Paul Coghlan, Chief Financial Officer and Lothar Maier who is our CEO or Bob Swanson, who is our Executive Chairman.

I trust you have all seen copies of our press release which was published last night. First though however I would like you remind you that except for the historical information, the matters we will be describing this morning will be forward looking statements that are dependant on certain risks and uncertainties including such factors among others as new orders received and shipped during the quarter at the time of the introduction of new processes and products and general conditions in the world economy and financial markets.

In addition to these risks which we described in our press release issued yesterday, we refer you to the risk factors listed in the Company’s Form 10-K for the fiscal year ended June 27th 2010, particularly management discussion and analysis of financial condition and results of operations.

Secondly SEC Regulation FD regarding selective disclosure influences our interaction with investors. We've opened up this conference call to enable all interested investors to listen in. This press release and this conference call will be our forum to respond to questions regarding our estimated financial performance going forward.

Consequently, should you have any questions regarding our estimates of sales and profits or other financial matters for the upcoming quarter as well as how they might impact our income statement model and our balance sheet, this is the time we are free to respond to these questions.

As you can tell from our press release, this was another record quarter for us. This is the sixth consecutive quarter that the company has grown revenues and the third consecutive quarter that the company has achieved record quarterly revenues. We grew revenue 6% sequentially at the higher end of our guidance and more in line with our historical quarterly growth patterns after a year in which quarterly revenues grew sequentially, 14%, 9%, 21% and 18%. Our strategy of focusing on traditional analogue end markets, industrial automotive and communications has been instrumental in achieving these results.

Once again we had a positive book-to-bill ratio. Although bookings in total were less than the previous quarter, decreasing proportionately across all major end markets. During this quarter we added more capacity and our average lead times have decreased to eight weeks from 10 weeks as we continue plans to bring our lead times into our historic levels of four to six weeks. These improvements in lead times enabled customers to lower their backlog on us and adjust their bookings accordingly.

This quarter's operating income was impacted by a one time legal charge of $5.3 million. This reduced operating margins as a percent of sales from 54% to 52.6% compared with 53.1% last quarter.

Pre-tax income as a percent of sales was 48.7% versus 45.9% last quarter. As last quarter was adversely impacted by a non-cash charge on the early redemption of a portion of the company’s senior convertible notes. Net income for the quarter was 53.3% of sales compared with 34% last quarter.

With this quarters tax rate of 27.5% being modestly higher than last quarters 26%. This sequential sales growth was even more pronounced on a quarterly year-over-year basis as sales grew 65% operating income 106% and net income of 126%.

Head count increased in the quarter again largely in the factory areas. In summary the effect of the items I just listed on the published quarterly results was that revenue was a record 388.6 million for the first quarter of fiscal 2011 compared to the previous quarters record revenue of 366.2 million and 236.1 million reported in the first quarter of fiscal year 2010.

GAAP diluted earnings per share of $0.59 was net of the $0.02 legal charge and improved $0.05 over the previous quarters EPS and more than doubled from $0.27 per share reported in the first quarter of fiscal 2010.

GAAP net income of a 137.3 million increased to 12.7 million from the previous quarter and also more than doubled from 60 million reported in the first quarter of last fiscal year. EPS would be $0.67 on a pro-forma basis which excludes the impact of stock option accounting and the amortization of debt discount which is the theoretical difference between the company’s convertible debt actual interest and the interested would have potentially had to pay if it had used straight bank debt.

During the September quarter the company’s cash and short term investments balance increased by 93.6 million to 151.7 million. The company announced that it would again pay a quarterly dividend of $0.23 per share. This cash dividend will be paid on November 24 to stockholders of record on November 12. As we enter the December quarter there is more uncertainty than in recent quarters which makes forecasting difficult. Although we had another positive book to bill ratio, bookings decreased as the quarter progressed.

Customers are more confident and their ability to get parts and therefore may continue to adjust inventory levels and safety stock downward. Given the above we currently forecast that revenue will be flat to down 4% sequentially for the second quarter of 2011.

This upcoming December quarter has 14 weeks rather than the customary 13 weeks for us. The extra week will have little impact on revenues, however operating expenses primarily labor related cost will increase modestly.

In addition, the company expects to redeem roughly 400 million of its convertible senior notes on November 1 which will reduce net interest expense next quarter.

Now I would like to address the quarter’s results on a line by line basis. Starting with bookings, for the first quarter in several bookings were less than the previous quarter although we still booked more than we shift.

Cancellations although up from last quarter were still relatively minor. Geographically bookings decreased in each major area, U.S. both in OEM and disti and in Europe, Japan and Asia. Bookings decreased relatively proportionally in all end markets, except cell phone, which was minor to begin with.

At this time every quarter we give you a breakdown of our books percentages by end markets to give you insight into those markets that drive our business. Industrial and communications continue to be our largest areas.

Read the rest of this transcript for free on seekingalpha.com