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Linear (LLTC) Tops Q4 Earnings, Merges with Analog Devices

Linear Technology Corp.LLTC reported fourth-quarter fiscal 2016 earnings of 54 cents, which beat the Zacks Consensus Estimate by a penny. Earnings increased 3.8% sequentially mainly backed by higher revenues.

Linear Technology also announced that Analog Devices, Inc. ADI has agreed to acquire its business in a cash and stock deal worth $30 billion. Per the agreement, Linear shareholders will receive $46.00 in cash for each share and an additional 0.2321 of Analog Devices common stock for each Linear share. The deal is expected to be completed by the end of the first half of calendar year 2017, subject to regulatory approvals.

The acquisition is expected to be accretive to non-GAAP earnings and cash flow going forward. Also, the companies expect to realize $150 million in annual cost synergies in the first 18 months following the closure.The merger of these two companies will createan analog industry leader across a huge range of products, customer breadth and scale. The deal will expand Analog Devices' total addressable market to $14 billion from $8 billion, allowing it to tap the phenomenal demand in some of the most attractive markets, namely industrial, automotive, and communications infrastructure markets.

Following the news, share price rose more than 28%.

A quick look at the numbers:

Revenues

Linear reported revenues of $373.8 million, up 3.5% year over year but down 1.5% sequentially. The figures were slightly below the Zacks Consensus Estimate of $373.9 million and within the the company's guided range.

Margins

Gross margin was 76.4%, up 19 basis points (bps) sequentially and 33 bps year over year.

Operating expenses of $113.8 million increased 1.0% sequentially and 1.6% year over year. As a percentage of sales, research &development and selling, general & administrative expenses increased from the year-ago quarter. As a result, operating margin of 45.9% was up 95 bps sequentially but down 59 bps year over year.

GAAP net income was $132.4 million or 54 cents per share compared with $128.4 million or 52 cents in the previous quarter and $132.7 million or 54 cents a year ago. As there were no one-time items, pro-forma earnings were also 54 cents, flat year over year.

Balance Sheet

Linear exited the fiscal fourth quarter with cash, cash equivalents and marketable securities of approximately $1.45 billion compared with$1.36 billion in the prior quarter. Account receivables were $157.5 million, up from $152.9 million in the fiscal third quarter.

Linear generated $174.9 million from cash for operations and spent $13.0 million on capital expenditures. The company repurchased shares worth $8.1 million and paid $78.4 million as dividend.

LINEAR TEC CORP Price, Consensus and EPS Surprise

LINEAR TEC CORP Price, Consensus and EPS Surprise | LINEAR TEC CORP Quote

Conclusion

Linear Technology reported a strong quarter with earnings surpassing our expectations.

The company's business is well diversified among core markets, including industrial, automotive and communications infrastructure. The company has an impressive record of returning cash to shareholders through dividends and share buybacks, which should increase investors' confidence, in our view.

As a result of the pending transaction with Analog Devices, management did not provide any guidance for the upcoming quarter.

Linear carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the technology sector are NVIDIA Corporation NVDA , sporting a Zacks Rank #1 (Strong Buy) and Intel Corp. INTC , carryinga Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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