Linear Technology Earnings Call Nuggets: Seasonality Outlook and Sales Growth in Automotive

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

Seasonality Outlook

John Pitzer – Credit Suisse: Paul, given that the June quarter tends to be one of your seasonally stronger quarters and as you move into the back half of the calendar year, some of your end market exposures go into seasonally weaker quarters. How are you guys thinking about seasonality for the year? Is it just irrelevant and being trumped by what happens to the macro the back half of the year, can you give me some color there?

Paul Coghlan – VP of Finance and CFO: I think our guess is, you answered it with your last comment that a lot is going to depend on the macro in the second half of the year. We have a lot of good opportunities as we talk to you about in industrial and automotive. Industrial does in a normal year have more strength in the front end of the calendar year than the back end, but given the somewhat conservatism among customers and they are holding relatively light, inventories in our belief. It’s kind of hard to predict that 2013 will have similar seasonal characteristics as historically happened.

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John Pitzer – Credit Suisse: Paul, specifically in your comments you talked about infrastructure still being a little bit slower than you guys had hoped. As you move into the back half of the calendar year, what do you think the puts and takes are on the infrastructure business specifically?

Paul Coghlan – VP of Finance and CFO: Well, I think, again it grew this quarter. It just did not grow as a percent of sales, reflective of the fact that we had more growth in industrial and automotive. For us, we’re like most of you kind of waiting to see the infrastructure build outs and what happens in those areas and when they take place, and geographically where they take place. I think overall, networking we think is reasonably okay. Our major customers there all increased their bookings somewhat modestly in the March quarter. But relative to industrial and automotive, we think growth in communications will be less than the other two areas…

John Pitzer – Credit Suisse: Then my last question on just about any metric, you guys tend to be at the high end of your peer group. Look, perhaps the one exception when you look at kind of dividends plus buybacks over the last four years, you guys have kind of been more at the low end of that peer group, high on divided, but low buyback and just given the resiliency of the business model and the cash flow generation capabilities, I know the ASR in ’06 didn’t go as well as you thought, but what are your thoughts around using cash to buy back stock and perhaps generate earnings growth and total returns.

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Paul Coghlan – VP of Finance and CFO: Well, you mentioned, two of the three legs of the stool. You mentioned dividends and you mentioned buybacks. The third was, we had debt, the convertible debt and we have been clear that we’ve been accumulating cash to pay down that debt. That debt is we can call that debt in May 2014 and have an intention to do that. So funds that might have been diverted to say buyback of some sorts have been set aside to pay down the debt. We did increase our buyback this past quarter again that though was attributable to the fact that we had more stock option exercises and wish to employ that cash to reduce the share count. So I think going forward. If you look at a few years I think we’ll have a balanced approach between increasing the dividend like we have every year and would hope to continue to do so, and also perhaps increasing our buyback activity to keep the share level flat.

Sales Growth in Automotive

Joe Moore – Morgan Stanley: I want to ask about autos. Your business obviously was very strong. We’ve seen a number of negative automotive sell through data points particular out of Europe and I know you guys have outgrown the auto market by a lot. But is there any possibility that you’ll see a delayed reaction to any of the weakness, or sort of lack luster sales in the U.S. and disappointments in Europe on sell through of cars?

Paul Coghlan – VP of Finance and CFO: Well, I think the benefit that we see from sales growth in the automotive comes really from two fronts. One is we obviously benefit when more cars get sold, number two is we benefit when the electronic content in cars goes up and the second one is something that’s clearly happening just the proliferation of electronic devices cars is pretty much unstoppable at this point. So, even if car sales — number of car sales don’t increase we are still going to see growth because of the content and some of our automotive customers, even though may be sales have been kind of lackluster in Europe, are seeing some pretty record sales in geographies outside of Europe, North America and China would be examples. And then our Japan automotive sales really had a pretty good uptick last quarter as well. So, it would be great if overall car sales increased, but even if they didn’t, we would probably continue to grow.

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Joe Moore – Morgan Stanley: Within automotive, is it the same kind of lead time inventory dynamic that you see elsewhere where people are ordering to a very short lead times and then expediting, or is the dynamic in autos different from other areas?

Paul Coghlan – VP of Finance and CFO: I think the dynamic is pretty much the same across our entire customer base. People just don’t want to carry much inventory and so they tend to place orders right at lead time and sometimes even shorter that our lead times and then expedite us.

A Closer Look: Linear Technology Earnings Cheat Sheet>>