Linear Technology Earnings Call Nuggets: Managing Inventories and Macro Conditions

Linear Technology (NASDAQ:LLTC) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Managing Inventories

John Pitzer – Credit Suisse: Paul, my first question just on the inventory side, I think, it is up around 99 days which I think it was the highest we’ve seen in the data set. Always very little obsolesce risk, but I am kind of curious of how you guys are thinking about managing inventories. Will you keep factory loadings low in the March quarter or do you think December was sort of the bottom and you will just let inventories take care of themselves as revenue grows?

Paul Coghlan – VP of Finance and CFO: Let me take that. Really our goal going into this quarter is to keep our inventory flat. We did additional shutdowns in our factories in the December quarter and we are going to step that up a little bit more going into the March quarter. So, again going into the March quarter our goal is to try to keep our inventory flat. And I think you’re right, the risk of obsolescence in our inventory is very low.

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John Pitzer – Credit Suisse: That’s flat on the dollars basis, correct?

Paul Coghlan – VP of Finance and CFO: Yes.

John Pitzer – Credit Suisse: And then, I guess, as my follow up guys just quickly. If you look at the sequential growth in the March quarter is that mainly just seasonality around industrial and as you kind of look out through the balance of calendar year ’13, which end markets do you think will be the biggest driver of growth for you guys and if you could just specifically talk about, the comps market, the comps infrastructure market where we have all been waiting for sort of that LTE CapEx cycle to kick in, what’s your perspective there?

Paul Coghlan – VP of Finance and CFO: Well, first of all the improvement in the March quarter and looking out for the year if that were to continue, we think probably the biggest input on that would be somewhat improved global macroeconomic environment. The U.S. seemed to react reasonably well to the first step of the fiscal cliff for those anxiously waiting what happens in the second step. I think we’ve all felt good that a change in China seems to be supportive of growth in their marketplace. As I said earlier, Japan and Europe, I think are a little better positioned going into 2013 than they were exiting 2012. For us, as to which end markets, we think, we’ll see the most improvement, we see a lot of innovation in the industrial market particularly around energy efficiency and all the attributes that brings the industrial market. The automotive area, there is more and more electronics going into cars and that innovation, we think, benefits us. So, those we’re hopeful or optimistic will be good markets for us in 2013. I noticed just as in that side like maybe a few of you, I watch way too much football on the weekend, and I noticed that every single one of the automotive ads that I saw talked about some new electronic gadget they had in the car, whether it would be opening the hood with your foot, I mean opening the trunk with your foot or being able to fly in a plane and warm up your car in the parking lot while you were going through customs. So, I think those markets are going to be good for us in 2013, again if the overall macroeconomic environment is supportive.

Lothar Maier – CEO: Maybe on the part on the communications market. For us communications, is a pretty important market, it’s been 20%, 22% of our business plus or minus 1% for a long time, and I think we share a little bit of your feeling that at some point this market’s got to take off, because there’s just ever increasing demand for bandwidth and there just seems to be holding back on investment. I think Paul mentioned the fact that China’s leadership change is done and they’ve publically committed that they’re going to focus on infrastructure and at least my hope is, if they do that and it relates to the communications market, we may see some uptick there.

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Macro Conditions

Christopher Danely – JPMorgan: So, do you think that given inventory is low and that macro conditions are improving, what do you think the prospects are that we get or that the channel needs to have some inventory replenishment at some point in the first half of the year.

Paul Coghlan – VP of Finance and CFO: I think we think that inventory is low, so that if components picks up, then in addition to demand picking up, you’re probably right, there would probably be some pick up in inventory levels as well.

Christopher Danely – JPMorgan: Then to my follow-up, you guys said that sales are up but your profit levels are expected to be kind of flattish, can we assume that on the OpEx side, it’s expected to grow, but about as much as sales or is there anything else going on, on the OpEx front that we should be notified about?

Paul Coghlan – VP of Finance and CFO: No, there’s nothing else going on the OpEx side. What I said in my comments was that in absolute dollars, operating profit will go up, as a percent of sales, we thought it would be roughly in the same range because sales are going up modestly 1% to 4%.

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