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Linear Technology (NASDAQ:LLTC)

Q2 2013 Earnings Call

January 16, 2013 11:30 am ET

Executives

Paul Coghlan - Chief Financial Officer, Principal Accounting Officer, Vice President of Finance and Secretary

Lothar Maier - Chief Executive Officer and Director

Robert H. Swanson - Co-Founder and Executive Chairman

Analysts

John W. Pitzer - Crédit Suisse AG, Research Division

Christopher B. Danely - JP Morgan Chase & Co, Research Division

JoAnne Feeney - Longbow Research LLC

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

James Covello - Goldman Sachs Group Inc., Research Division

Joe Moore

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Shawn R. Webster - Macquarie Research

Steven Eliscu - UBS Investment Bank, Research Division

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Aashish Rao - BofA Merrill Lynch, Research Division

Ross Seymore - Deutsche Bank AG, Research Division

Craig Berger - FBR Capital Markets & Co., Research Division

Sumit Dhanda - ISI Group Inc., Research Division

Elizabeth Howell

Sanil V. Daptardar - Sentinel Asset Management, Inc.

Phillip Marriott - First Eagle Investment Management, LLC

Operator

Good day, everyone, and welcome to the Linear Technology Corporation Fiscal 2013 Second Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Paul Coghlan, Chief Financial Officer of Linear Technology.

Paul Coghlan

Hello. Good morning. Welcome to the Linear Technology conference call. I'm joined this morning by Bob Swanson, our Executive Chairman; and Lothar Maier, our Chief Executive Officer. I will give you a brief overview of our recently completed second quarter and then address the current business climate. We will then open up the conference call to questions to be directed at Bob, Lothar or myself.

I trust you've all seen copies of our press release, which was published last night. First, however, I'd like to remind you that except for historical information, the matters that we will be describing this morning will be forward-looking statements that are dependent on certain risks and uncertainties, including such factors, among others, as new orders received and shipped during the quarter, timely 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-Q for the quarter ended September 30, 2012, 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. The 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 a good time to ask them since we are free to respond to these questions.

As you can tell from our press release, the December quarter was difficult for us, with sales down 8.9%. Although within our guidance, it was at the low end. We believe our business will improve in the upcoming March quarter. Going into the December quarter, our expectations were low. We did not expect any pick up until the new calendar year. Following that guidance, bookings were down in October and November. However, that changed, and as December progressed, bookings became stronger than we were expecting. Generally throughout this quarter, customers continued to be very cautious and concerned over general, global macroeconomic conditions. They acknowledged in-demand opportunities, but were in a wait-and-see mode and running tight inventories. However, after the pickup in December, bookings activity has continued improving in January. We didn't see many cancellations or push-outs, but did experience some pull-ins late in the quarter, which is atypical for a December quarter. In summary, our bookings were down from the prior quarter, and we did have a negative book-to-bill ratio, although relatively close to parity. Sales decreased by 9%. Gross margin decreased from 75% to 74.4%. We again had shutdowns in all our factories, and this coupled with absorbing fixed cost over a lower sales base subtracted from gross margin. ASP improved modestly from $1.80 to $1.85, largely due to overall mix. Operating expenses decreased by 2% or $1.9 million as we reduced some variable spending, particularly in the labor area by having shutdowns in the holiday weeks and by reducing profit sharing.

Operating income at 43.5% of sales, down from 46.3% last quarter, was in our forecasted range, having been impacted mostly by the decrease in sales. Below the line, interest income and expense were unchanged. Finally, income taxes decreased due to lower profits resulting from decreased sales. Our effective tax rate of 27% was similar to the prior quarter. Resulting net income of $88.8 million is a 29% return on sales. Although down from last quarter, still very strong especially in these economic times. Headcount was similar to last quarter.

In summary, the effect of the items I just listed on the published quarterly results was that revenue was $305.3 million in the second quarter of fiscal year 2013, compared to the previous quarter's revenue of $335.1 million and $294.3 million reported in the second quarter of fiscal 2012. GAAP earnings per share of $0.38 decreased $0.07 from the previous quarter's earnings per share and was similar to the $0.38 per share reported in the second quarter of fiscal 2012. GAAP net income was $88.8 million compared with $105.2 million last quarter and $87.9 million reported in the second quarter of last year.

Earnings per share would be $0.44 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 interest it would potentially have had to pay if it had used straight bank debt.

During the second quarter, the company's cash and cash equivalents and marketable securities decreased by $20.6 million to $1,299,000,000 from the first quarter of fiscal year 2013. The company's cash, cash equivalents and marketable securities balance decreased primarily due to the company accelerating the payment of its March quarterly dividend payment into the December quarter to benefit shareholders due to fiscal cliff tax uncertainties. Concurrent with the December payout, the company's Board of Directors approved an increase in the company's quarterly dividend, from $0.25 per share to $0.26 per share. This marked the 21st consecutive year the company has increased its dividend. At the current stock price, the company's dividend yield is approximately 3%. The company's commitment to increase its dividend despite various economic cycles underscores its belief in the strength of its business model and a strong financial position. The cash dividend was paid on December 28 to stockholders of record on December 17.

Looking ahead to the March quarter. We believe that although we are still in a challenging global economic environment, we can see improvement. Going into the quarter, we had commented that worldwide macroeconomic conditions had worsened from previous quarters. Now we believe, although there are remaining concerns, particularly around spending and debt in the U.S.A., that globally, including the U.S.A., macroeconomic conditions have improved. We also believe that inventories worldwide at customers were tight exiting the end of the calendar 2012 as evidenced by our own experience with more customer pull-ins than push-outs. Our bookings improved in December and continue to strengthen in January.

Historically, the March quarter is strong for us as there are fewer holidays in the U.S.A. and Europe, which generally helps our industrial business to get off to a good start. Accordingly, we are estimating that we will grow quarterly revenues sequentially in the 1% to 4% range. Operating profits, we expect to grow also given our modest growth projections to be in a similar range as last quarter as a percent of sales.

Now I would like to address the quarter's results on a line-by-line basis. Starting with bookings. Bookings decreased this quarter over last quarter, but did again gain momentum at the end of the quarter. We again had a negative book-to-bill ratio, although once again close to parity. Geographically, bookings were flat in the U.S.A. and down internationally. By end market, bookings in absolute dollars were down in most areas, relatively flat in industrial and up modestly in military and space.

At this time, every quarter, we give you a breakdown of our bookings percentages by end markets to give you insight into those markets that drive our business. Industrial and communications continue to be our largest areas. Industrial was 42% of our bookings, up from 40%, although relatively flat in absolute dollars. Geographically, the distribution among regions within industrial was similar to last quarter. Our industrial business is very broad-based, both geographically and by end products. The communications area at 21% was down from 22% last quarter. Within communications, the wireless infrastructure area was weaker than networking equipment. Cellphone continues to be a very small part of our business and rounds to less than 1% of our business.

Computer declined from 12% to 11% of our business last quarter. Within computer, we service opportunities in notebooks, desktops, tablets, servers, storage devices and printing and imaging end products. Solid-state drive showed the most strength, with PCs and notebooks having the most decline. Automotive decreased from 17% to 16% of our business. Contrary to our last quarter, Japan and Europe declined the most, whereas the U.S.A. and Asia showed modest improvement. Expansion of existing Linear parts into new car models and also new parts for new programs, especially in the hybrid and electric vehicle area, continue to help us. Our battery monitoring products for hybrid and electric vehicles are achieving expanding market acceptance.

In addition, we continue to distinguish Linear as a high-quality supplier in important international automotive manufacturers. Consumer has been our smallest end market remaining at 3% of bookings, although declining in absolute dollars. Finally, military, space and harsh environment products grew from 6% to 7% of our business. U.S.A. and Europe are the predominant geographic areas for this business.

In summary, overall, this is a good distribution of business by end markets for Linear. Whereas 4 years ago, 16% of our business was in cellphone and high-end consumer-related markets, now only 3% of our business is in these generally commodity and volatile analog areas. Note, we have a good balance of where our bookings are actually created, with 44% of them created in the U.S.A. and 56% internationally, similar to last quarter.

Moving from bookings to sales. Net sales decreased 9% from the prior quarter, while increasing 4% from the similar quarter in the prior year. Sales decreased in all major geographic areas, mostly in the international areas, with Europe having the largest decline. In summary, the U.S.A. at 29% of sales was up 1% from the prior quarter, and Europe at 17% of sales was down 1%. The seasonal holiday period and macroeconomic issues in Europe contributed to this reduction. Japan at 15% was similar to the prior quarter and Asia-Pacific at 39% of sales was also similar to last quarter.

Gross margin. Gross margin at 74.4% of sales declined from 75% in the previous quarter, largely due to absorbing fixed cost over a lower sales base. This reduction was partially offset by ASPs, increasing from $1.80 to $1.85, largely due to slight changes in mix. And also the benefits from lower profit sharing costs in the quarter benefited gross margin. The factories continued having shutdowns in the quarter.

R&D. Research and development at $57.3 million decreased $1.5 million from the $58.8 million reported last quarter. However, increased as a percent of sales to 18.8% from 17.5% due to lower sales volume. Labor costs decreased primarily due to shutdowns during the holiday weeks and lower profit sharing. These labor savings were partially offset by increases in other R&D expense related categories.

SG&A. Selling, general and administrative expense at $37.1 million decreased by $414,000. However, increased as a percent of sales to 12.1% from 11.2%, again, due to lower sales volume. Labor costs decreased, again, largely due to reduced profit sharing and shutdowns during the holiday weeks. Non-labor related costs increased modestly in the period.

Operating income. As a result of the above, operating income decreased by $22.4 million or 14.4%. As a percent of sales, it decreased to 43.6% from 46.3% last quarter. Spreading fixed cost over reduced sales base largely contributed to the decline. However, this is still strong profitability and clearly puts us ahead of our peers in this financial performance measurement. Both interest expense at $6.8 million and the amortization of debt discount at $5.2 million were similar to last quarter. Interest income of $1 million was also similar to last quarter. As a result of all the above, the company's pretax profits were $121.7 million, down $22.4 million from last quarter. Pretax profits are now 40% of sales versus 43% last quarter, with the reduction due primarily to the lower sales volume.

Our quarterly effective income tax rate was 27%, similar to last quarter, and once again, we had no discrete tax items. Year-end legislation in the U.S.A. pertaining to the fiscal cliff reinstated the R&D credit. The impact of this will benefit our effective tax rate in the upcoming quarters. The catch-up effect will lower our effective rate in Q3 to roughly 20%. Our estimated ongoing effective tax rate in Q4 and beyond without discrete items will be approximately 25.5%, down from the 27% reported in recent quarters. Resulting net income of $88.8 million is a decrease of $16.3 million from the previous quarter, due mostly to lower sales volume. The return on sales was 29%, down from 31% last quarter. The average shares outstanding used in the calculation of earnings per share increased by 840,000 shares. The company purchased 200,000 shares on the open market this quarter. GAAP earnings per share was $0.38, which was a decrease of $0.07 from the prior quarter.

On a pro forma basis, without the impact of stock-based compensation of $16 million and noncash interest expense of $5.2 million, diluted earnings per share would have been $0.44 per share compared with $0.51 last quarter and $0.45 in second quarter last year.

Moving to the balance sheet. Cash and short-term investments decreased by $20.6 million. During the quarter, the company both increased the dividend and accelerated the quarter's dividend into the month of December. This resulted in $61.5 million of additional dividends in this quarter without which the company would have had an increase rather than a decrease in cash and short-term investments. In summary, $99.7 million was provided by operations. $15.7 million was provided from the exercise of stock options by employees, $120.6 million was paid in 2 cash dividends, $4.7 million was used to purchase fixed assets and $10.7 million was used to repurchase both common stock purchased in the open market and restricted stock from employees.

For the 107th consecutive quarter, the company had positive cash flow from operations. Our cash and short-term investment balance is now $1,299.4 million and represents 68% of total assets. Accounts receivable of $145.2 million decreased by $7.2 million from last quarter due to the decrease in shipments. Our days sales and accounts receivable were 43 days, up slightly from 42 days last quarter.

Inventory at $85.2 million increased $3.5 million from last quarter. Raw material inventory increased $420,000, work in process inventory increased $4.2 million and finished goods inventory decreased $1.2 million. With shutdowns and holidays, we had on average 2 less production days than last quarter. Relative to inventory, this was more than offset by the 9% reduction in sales. We continue to believe investing modestly with inventory while maintaining our production capacity will again enable us to best service customers when demand increases.

In summary, our quarterly average inventory turns is 3.7x, down from 4.2x last quarter. Deferred taxes and other current assets of $69.3 million were generally similar to last quarter's $69.9 million. Property, plant and equipment increased by $7.7 million. We had modest additions of $4,652,000 and depreciation of $12,354,000. Most of the additions were for building improvements and for fabrication equipment.

For fiscal 2013, we continue to expect additions of roughly $25 million and depreciation of roughly $50 million. Other noncurrent assets decreased by $2.4 million, largely due to the amortization of long-term intangible assets.

Finally, on the asset side of the balance sheet, our return on assets was 18.3%, down from last quarter's 21.9%, primarily due to the reduction in sales. Our current ratio was 9.8:1, up from 8:1 last quarter.

Moving to the liability side of the balance sheet. Accounts payable increased by $228,000, largely due to timing differences on recurring payable items. Accrued income taxes, payroll and accrued liabilities decreased by $38.3 million. The largest items here are our profit sharing accrual, income taxes payable and accrued interest payable on our convertible debt. Our interest payable accrual decreased as we had a semiannual interest payout this quarter. The profit sharing accrual increased as we had our quarterly charge but no payout since payouts are made in the first and third fiscal quarters. The largest change was a decrease in our income tax accrual as we had 2 quarterly federal tax payments this quarter and no fiscal 2013 required quarterly tax payment last quarter. Deferred income on shipments to distribution was similar to last quarter, since it decreased by only $116,000 as our shipments to U.S. distributors were similar to what they shipped out to their end customers. Our accounting on shipments to U.S. distribution is conservative. We do not record a sale nor income in our results of operation until the distributor ships the product out to its end customer. We continue to closely control our inventory at distribution to properly position the inventory relative to potential demand.

Our senior convertible notes increased by $5.2 million. This increase reflects the noncash amortization of debt discount charged to the income statement. Deferred tax and other long-term liabilities of $151.7 million increased $8.4 million, largely due to deferred taxes on the earnings of our foreign manufacturing plants and deferred taxes on our convertible bond. Changes in the stockholder equity accounts were primarily the results of the usual quarterly transactions, net income for dividends paid and employee stock activity. Although this quarter, there were 2 dividend payments, which caused the reduction in stockholders' equity for the quarter.

As stated earlier, the company previously announced within the quarter that it was increasing its quarterly dividend to $0.26 from $0.25 per share. The company believes paying a dividend is an important way to return value to its shareholders. The company began paying a dividend in 1992 and has increased it every year since and currently pays about approximately a 3% yield.

Looking forward. Looking forward, we see our business improving and several factors are influencing our March quarterly guidance. On the positive side, historically, March is a growth quarter. Europe has its strongest quarter as there are more work days due to fewer holidays than the previous quarter. The distribution channels in the U.S. are also stronger in March, again, benefiting from fewer holidays. March also historically is a strong quarter for industrial companies as capital spending is usually higher. Most industrial companies are calendar fiscal year-end companies, and the new capital budget appropriation cycle commences at the start of the new year in the March quarter. This benefits both Europe and the distribution channels in the U.S., which generally have a heavier mix of industrial business.

For the first time in several quarters, we see global macroeconomics improving. Within the U.S., a portion of the fiscal cliff dilemma has been addressed with the recent income tax legislation. Although increasing taxes might not be positive for growth in the private sector, it does eliminate the uncertainty around taxation. Generally, the news out of China has been positive as it appears that the new Chinese administration is committed to mid-to-high single-digit annual growth. Europe appears to be making progress in its sovereign debt issues. Finally, Japan's business within China appears to be improving over recent quarters.

Relative to Linear-specific positive trends, business picked up in late December and so far in January has improved further. We have experienced stronger customer pull-in activity since late December than we expected, which supports our belief that inventory levels at customers are relatively low.

On the cautious side of our forecast, we have a slightly negative book-to-bill ratio coming out of the December quarter, and we did reduce backlog modestly. Although the macroeconomic outlook has improved, there are still concerns, particularly in the U.S.A., which is shortly facing a decision around the debt ceiling and spending around social programs. Chinese New Year takes place in the March quarter and how strongly business resumes after the holiday will impact business sentiment after the holiday.

Summarizing these various data points gives us a positive bias, and we currently forecast revenues to improve in the March quarter 1% to 4% over the December quarter. We expect operating income to grow in absolute dollars, but to remain generally similar as a percent of sales. Our effective tax rate will be lower in the March quarter, favorably impacting net income. The company expects to continue having limited shutdowns in the quarter.

Looking beyond these near-term market conditions, the major market opportunities that drive our business demonstrate continuing growth opportunity, particularly with higher electronics content in gas-driven and hybrid vehicles and energy efficiency and other technological trends in industrial applications. Increased analog innovations in our other end markets will also benefit us.

Finally, we are very well product and end market positioned to execute our strategy. We are strong in the areas we want to be: industrial, communications infrastructure and networking and automotive, and we believe we are in an innovation-driven environment. Our strategy is differentiated from our other analog competitors. We dominate in different end markets. We are a more reliable supplier, with consistently lower lead times and better support, and our technology and support is valued as evidenced by our higher operating margins.

I would now like to open up the conference call to questions to be addressed to either Bob, Lothar or myself.

Question-and-Answer Session

Operator

[Operator Instructions] We will take our first question from John Pitzer with Crédit Suisse.

John W. Pitzer - Crédit Suisse AG, Research Division

Paul, my first question just on the inventory side. I think it's up around 99 days, which I think is the highest we've seen in the data set. Always very little obsolescence risk, but I'm kind of curious of how you guys are thinking about managing inventories. Will you keep factory loadings low in the March quarter? Do you think December was sort of the bottom, and you'll just let inventories take care of themselves as revenue grows?

Lothar Maier

Let me take that. And really our goal going into this quarter is to keep our inventory flat. So we did additional shutdowns in our factories in the December quarter, and we're going to step that up a little bit more going into the March quarter. And 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.

John W. Pitzer - Crédit Suisse AG, Research Division

And Lothar, that's flat on a dollar basis, correct?

Lothar Maier

Yes.

John W. Pitzer - Crédit Suisse AG, Research Division

And then I guess as my follow-up, guys. Just quickly, as 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 comms market, the comms infrastructure market, where we've all been waiting for sort of that LTE CapEx cycle to kick in. What's kind of your perspective there?

Paul Coghlan

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. has seemed to react reasonably well to the first step of the fiscal cliff for those anxiously awaiting what happens in the second step. I think we've all felt good that the change in China seems to be supportive of growth in their marketplace. And 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 will see the most improvement, we see a lot of innovation in the industrial market, particularly around energy efficiency and all the attributes that brings to the industrial market. The automotive area, there's more and more electronics going into cars, and that innovation, we think, benefits us. So those we are hopeful or optimistic will be good markets for us in 2013. I noticed just as an aside, like maybe a few of you, I watched 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 be opening the hood with your foot, I mean, opening the trunk with your foot or being able to fly in, 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

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 has got to take off because there's just the ever-increasing demand for bandwidth, and they just seems to be holding back on investment. I think Paul mentioned the fact that China's leadership change is done, and they've publicly 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.

Operator

We'll move next to Christopher Danely with JPMorgan.

Christopher B. Danely - JP Morgan Chase & Co, Research Division

So do you think that given inventory is low and the 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

I think we think that inventory is low so that if confidence picks up that in addition to demand picking up, you're probably right, there would probably be some pickup in inventory levels as well.

Christopher B. Danely - JP Morgan Chase & Co, Research Division

Great. And then for 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 the OpEx front that we should be notified about?

Paul Coghlan

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'd be roughly in the same range because sales are going up modestly, 1% to 4%.

Operator

JoAnne Feeney, from Longbow Research, has your next question.

JoAnne Feeney - Longbow Research LLC

Just wondering a little bit more about the communication infrastructure spending. How much exposure do you have to the North American players who have made some very public statements about their increasing spending this year?

Paul Coghlan

I'm not sure how our breakdown for communications is in North America versus Europe. I don't have those numbers.

Lothar Maier

You know, JoAnne, we tend to follow it more by customer than by end market. So that when we talk about communications infrastructure, we're thinking of the Ericsson, Nokia, Siemens, Huawei, and we don't often focus on how they sell-through to geographic areas throughout the world. So we can't give you specific color on the U.S. alone.

JoAnne Feeney - Longbow Research LLC

Okay, fair enough. And then on the industrial side. It sounds like, given what you saw last quarter in the [indiscernible] is that largely driving your forecast for growth this quarter. I'm wondering if you could give us any kind of detail on the different drivers within industrial that you see starting to pick up this quarter, and how much visibility you have at this point?

Lothar Maier

For us, the industrial market is very broad-based, made up of literally thousands of small- and medium-sized customers. And so I think the uptick we see is broad-based across really a large profile of our industrial customers. There's not really one industrial customer that I can put my finger on and say, that's really the uptick we're seeing. I think it's much more broad-based.

JoAnne Feeney - Longbow Research LLC

Okay. Given the type of change like that you're seeing and, in fact, your automation perhaps but not energy or anything like that, so it's segment oriented.

Paul Coghlan

Well, one thing we've emphasized in several calls is the move in industrial to energy efficiency has been very clear to us. So that -- and that fits in well with our product portfolio because, as you know, we're pretty strong in power management products. So as well as our strength in the signal chain, our strength in power management means we can be a pretty complete supplier into there. So I think it's more the energy efficiency side and then just the continuing reaction to improvement in the global macroeconomic environment that will help us have a leading position in industrial.

Operator

We'll go next to Tore Svanberg with Stifel, Nicolaus.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

First question. Paul, just based on the sort of current bookings run rate you have right now, would you expect the bookings to be up sequentially for the March quarter?

Paul Coghlan

Yes, yes.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Okay, very good. And coming back to the inventory question, yes, the inventory days, I think, are probably the highest they've been. Is this sort of just a reflection of the current environment? Or is there anything structurally going on as well? I'm thinking about things like consignment programs out there. Just wondering if Linear is involved in any of that.

Lothar Maier

No, I think it's entirely just the incurrent environment. And just kind of let you know what our thinking is there, is that, on the one hand, we've got a certain installed capacity and what we're trying to do is keep that installed capacity in place. And the way we modulate that is by having shutdown days in our factories. And so what we're trying to do is balance the shutdown days with the sales, and that's really the exercise we go through. And the reason we do this rather than doing something more structural like closing a factory or letting a bunch of people go, is the fact that if you wind a few years back when we saw a pretty strong recovery in our business, one of the reasons we were able to really support, I think it was like a 90% growth in a 6-quarter period, is the fact that we went through kind of the same exercise. And so what we're trying to do is basically keep our capacity in place and modulate that capacity with some shutdowns. But if things do bounce back, we're going to be really well positioned.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

That's very helpful. Just last question. Could you talk a little bit about your CapEx plans for calendar '13 and specifically, how much capacity would that give you from a revenue perspective?

Lothar Maier

I think the CapEx we're looking at is really kind of tactical CapEx. We have a piece equipment here and a piece equipment there. We've got really the capital equipment already installed and purchased in place to do an extra $100 million or more sales. So the CapEx we would need would be for kind of one of technology or tactical reasons.

Operator

Moving next to Jim Covello with Goldman Sachs.

James Covello - Goldman Sachs Group Inc., Research Division

Do you need orders to continue to improve in February and March to hit the guidance? Or would that represent potential upset?

Paul Coghlan

Well, March is a 5-week quarter for us so we'd certainly need March to improve. Probably, if bookings continue at where we have now, we could meet the guidance. But we've gotten off to a good start in January.

James Covello - Goldman Sachs Group Inc., Research Division

Great. I get it -- so you meant bookings continue to improve in February versus January? Or January -- continuing where they are in January or where they were in the December month?

Paul Coghlan

If the improvement we've seen from December to January continues, that's what we need to be...

James Covello - Goldman Sachs Group Inc., Research Division

Okay, great. And then just kind of structurally, you mentioned the football games and the car content, the electronic content in cars increasing. Where do you -- what inning do you think we're in, in that transition both for the industry and for Linear in terms of increasing silicon content in autos?

Paul Coghlan

Oh, I think -- we think we have a ways to go. I don't know as we can tell you whether we're 1/3 or 2/3 of the way there. But there's more and more electronics showing up in cars, every new model that comes out. And I think one of the things that I hope is obvious to investors is, there's a tremendous amount of electronics showing up in the gas-driven car. So for a while, when we were first talking about this, we were fearful that investors thought all we were talking about was hybrid or electric vehicles. But in reality, there's way more opportunities for us with electronics taking over both key functions in a gas-driven car, as well as comfort in a gas-driven car. So I would think relative to innings, if it were a doubleheader and you were saying how about comfort features? Comfort features, we're maybe halfway through the game is what's being added relative to their complexity. If you're talking about features that are key to driving the vehicle and the safety of the vehicle as it's being driven, we're in the early innings of that game.

Lothar Maier

Yes. I think one thing that makes us pretty optimistic about this market is if you look at virtually every improvement that occurs in a vehicle, the root of that improvement is electronics.

Operator

Moving on to Joe Moore from Morgan Stanley.

Joe Moore

It's Joe Moore. Just -- can you talk about what you think is the underlying reason for the bookings pattern? I would have thought you entered the December quarter with pretty lean customer inventories and pretty short lead times. The bookings weakness in the first couple of months reflect more inventory depletion or was it just demand? And then as it recovered, what do you think drove that? Was this what the demand profile really looked like? Or was there some other aspect that kind of caused that month-to-month volatility?

Paul Coghlan

Well, I think there were 2 that are somewhat probably interrelated. First of all, as we started the last quarter, there was a lot of worldwide concern about the U.S. fiscal cliff and what was going to happen. And if you had -- if you remember just a few months ago in October and November, there was, among the political sectors of our country, there was a lot of jousting and angst, and people, I think, thought maybe it'll be clear that this fiscal cliff would be settled in around Thanksgiving and then it became clear that, that wasn't going to happen. And then it became clearer that this was going to run up to the deadline. And so I think there was some concern as to just what would take place. And then as you got closer to December, then I think the feeling was, "Look, these guys do realize they have to do something." It probably won't be as comprehensive as everyone wished, but even if it's not as comprehensive, something would be a benefit to the business community. So that kind of attitude started to pick up late in December. So I think from the 30,000-foot level, that's what might have helped bookings. If you go down to ground level, I think inventories had run very, very tight as people were waiting for these decisions. Also, you had companies at year end wanting to have their balance sheets look as best as they could. Maybe they ran that a little too tight, and then, at least relative to our business, we thought in hindsight. And then as the quarter came to its very -- its last couple of weeks, we saw a pickup in activity for us, and that pickup in activity generally was accompanied with the customer saying, "Can you ship it to me as soon as you can?" So I think it's those 2 factors.

Joe Moore

Okay. And so that political uncertainty early in the quarter, you think, manifested itself in end demand for your customers being worse? Or was that just a function of inventories were already low but they took them down even further, trying to kind of clean things up into year end and that's where they went too far?

Paul Coghlan

I don't know, Joe, if I can answer end demand on a month-to-month basis. I think -- I'm not sure they said to everyone don't buy anything. I think what the message was on our customers was only buy what you absolutely need because if this fiscal cliff thing goes south, we're going to have a really slow start to the new year. If the new China administration turns politically to a more conservative direction, all of that, I think, they just didn't want to bet inventory on the come on that.

Operator

Moving on to Romit Shah from Nomura.

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Paul, just to clarify, is March of '14 a weak [ph] Quarter for you?

Paul Coghlan

No, no. Not this year. One out of every 6 years, I think, Romit.

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

You said that there was -- you had 5 weeks in March, maybe I misunderstood the month-to-month.

Paul Coghlan

Yes, yes. Every one of our quarters are 13 weeks. The first 2 months each have 4 weeks and the last month has 5 weeks.

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Okay, okay, got you. My real question was on OpEx. My understanding is that in -- Linear's cost structure is highly variable, which is why in past downturns, earnings have held up a lot better than many of your peers. But if I look at revenue and OpEx over a 2-year period, so December '10 through December '12, revenues are down about 20% while OpEx is down a little bit, like 4%, 5%. Could you, Paul, talk a little bit about why OpEx hasn't fallen sort of at the same rate as revenue?

Paul Coghlan

Well, first of all, if you compare the current year's OpEx with the previous year's OpEx, we had, as you correctly point out, we had a greater savings in OpEx last year on the downturn in income at that quarter. However, between that point and this point, we bought this small company, Dust, and Dust has very heavily -- the talent was very heavily oriented towards the engineering area. So in R&D, we probably picked up in operating expenses relative to Dust, a little north of $2 million. So if you take that $2 million out, then you look at merit increases, if you look at the situation the company was in and many of our competitors were in a year ago, there was much more concern about whether March could fall off dramatically following a December falloff than this year. So you had not only shutdowns in companies like Linear and not only reduced profit sharing, but in some cases, you also had holds on increases to merit for the year and you had other issues like that as people were really battening down the hatches a little more so than they did this particular quarter. So I think if you add Dust, merit, not battening down the hatches as much, you'd get pretty close to where we are now logically to where we were a year ago.

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Okay. So then looking forward, if revenue continues to grow throughout the year, would the goal for you guys be to keep R&D and SG&A flat in terms of dollars?

Paul Coghlan

Well, no. I mean, first of all, to be very clear, we've had shutdowns. And it's our hope that we don't have to continue these beyond the March quarter. So any shutdowns we have had, we would eliminate those. Now we think we could clearly manage those within the amount that revenue would grow, so it wouldn't be -- it wouldn't show up to you as an oddity. But certainly, in absolute dollars, R&D and SG&A would increase. Then all the current people you have, have their merit increases during the year. Then some other areas where we've been pretty tight in the down quarters, we'd probably spend a little more. But I doubt it would be viewed as frivolous or that Linear's overspending. But certainly, I think the absolute number would go up.

Lothar Maier

But on the other side, I don't think we have a lot of pressure right now to need to add additional headcount to SG&A as well.

Operator

Shawn Webster from Macquarie Bank has your next question.

Shawn R. Webster - Macquarie Research

I know this has kind of been asked in a couple of different ways, but I was wondering if you could say what your turns expectation is for the March quarter?

Paul Coghlan

Yes, I could. I have to look it up for a moment. Do you have a follow-on question? If you ask that...

Shawn R. Webster - Macquarie Research

Yes. The follow-on was, well, a couple of them. One was on lead times, if you could share with us what your lead times were and if anything is tightening up or is that still in the 4- to 5-week period?

Paul Coghlan

Okay. Answering your first question. Our turns business is in the mid- to high-50s percent, which is similar to the previous quarter and then relative to previous couple of quarters. And then relative to our lead times, our published lead times are 4 to 6 weeks. If you need it sooner, I'm sure we could accommodate that for you.

Shawn R. Webster - Macquarie Research

Okay. And then on the gross margin side of things. You did -- just to reiterate, you said that you were having factory shutdowns in the March quarter, just to check that. And then two, did you have any inventory reserves in the December quarter?

Paul Coghlan

Yes, we are having shutdowns in the March quarter, and yes, we did increase our inventory reserves in the December quarter.

Shawn R. Webster - Macquarie Research

Was it very significant in terms of the increase?

Paul Coghlan

Relative to previous quarter, it was roughly in the range of that. So I wouldn't say it was dramatically increased but it was prudently done and it did increase the reserves.

Operator

Steve Eliscu with UBS has your next question.

Steven Eliscu - UBS Investment Bank, Research Division

First question, I just want to follow on the discussion you had with Jim on automotive. I mean, some of the 2014 models start to roll out over the year. Are there any new areas driven especially by new regulations that will drive continued growth in this area outside of hybrids and electrics? For instance, things like start-stop systems on conventional vehicles and just more LED lighting like with running lights, things like that.

Lothar Maier

Yes, our sense -- it isn't, I would say, being mandated by regulations right now. I think these features that are being added to vehicles, which are kind of little bit of offshoots from hybrid vehicles, is really driven by fuel efficiency. And a lot of the car manufacturers who aren't ready to make the step, full step into electric and hybrids, there's kind of a middle ground with having small batteries and putting stop-start systems in. And when you do that, particularly the stop-start systems, all of the mechanical functions that used to be in a car, your water pump, your air compressor, your air-conditioning compressor, all of those things mechanical have to become electrical. And so even in pretty much conventional gas engines, when you add the stop-start feature in, it drives a lot of electronics. And as you said, it's LEDs, it's really throughout the car. But again, it's driven not by regulation, but by the fuel economy. I mean, if you kind of fast-forward a little bit, there's some talk to do some CO2 emission regulation. But right now, that doesn't look like it's going to be mandated anytime soon, particularly not in the U.S., and maybe in several years, you'll see some of that in Europe. But there's just a lot of improvements that come in cars and a lot of them are driven by safety and fuel efficiency and they all have their root in electronics.

Steven Eliscu - UBS Investment Bank, Research Division

So it sounds this year -- just continued incremental improvements as opposed to any step function driven by regulation.

Lothar Maier

Car companies are trying to take -- improve efficiency by taking weight out of the car. This whole 48-volt battery systems that they're talking about was kind of a good talking point 4, 5 years ago. It looks like that's probably coming back. And again, that's just driven for fuel efficiency and weight reduction.

Steven Eliscu - UBS Investment Bank, Research Division

And just as a follow-up question in the communication sector. You talked about enterprise, sounds like fairly flattish and driven -- more or less macro-driven. Is there anything we should look out in that segment where it's more broad-based in terms of the end customers that could drive some greater growth in that part of the market this year?

Paul Coghlan

No. I don't think we know of anything in particular to drive greater growth. Energy efficiency also comes into play in those type products and networking products and infrastructure products. But other than that particular technological drive, I don't know much. And then trying to get those products smaller, of course, they're always aimed at that.

Operator

And we'll move on to Chris Caso from Susquehanna Financial Group.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Wondering if you could speak with regard to some of the geographic trends you mentioned in your comments, specifically in Europe and China. And I guess, Europe has been one of the areas of weakness over the past couple of quarters, and typically, it's seasonally a little better in the first quarter, and -- just to see if that's what you're seeing right now. And I guess, the expectations for the Chinese market the first quarter taking into account the New Year holiday.

Paul Coghlan

Well, relative to Europe, Europe is historically stronger in the March quarter and then there are more days, if you will, there's very few, if any, vacation days in the March quarter in Europe, so productivity is usually higher on a per-day basis on a -- based on the number of days. Secondly, I think the political climate within Europe hasn't worsened. If anything, I think this sovereign debt issue, I think on the margin, people think Greece has responded well, maybe too well some folks think. So I think this whole sense that it's not a choice between dramatic austerity or kind of laissez-faire, lots of money coming from Germany, that the answer is somewhere in the middle. Seems to be that most of Europe is kind of coming to that point. So I would think the macro sense in Europe, as we go into 2013, is a little better. I mean, it's still not, on average, what Europeans would like it to be, but I think it's still a little better. And then, what was the second part of your question?

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

The one in China.

Paul Coghlan

Oh, China. Then relative to China, I think everything we seem to read about the new regime is that they want to -- they're economically focused. They want growth to be 7%, they've said. They don't seem to be pushing regulation harder or other issues like that. So pretty much everything we've read seems to be optimistic there. And then the kind of angst between them and Japan over those islands seems to be ebbing a bit. So overall, I think that in Asia, the climate for Japan and China is probably, from our perspective, is we would view it as more positive than we viewed it a quarter ago.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Okay. And then, I guess, as a follow-up. Just with respect to your comments on the factory shutdowns and it sounds like you can take a little additional shutdowns in the March quarter, and perhaps if you hit your targets, they subside in the June quarter. I guess we should expect some impact on the gross margin line on that, perhaps a little bit lower in March. And then if you do, if things do turn out as planned, that improves a bit in June. Is that the right way to think about it?

Paul Coghlan

Yes, yes. Generally, when you take shutdowns, it does have more of a negative impact on gross margin. But I would caution you that that's probably pretty minor for us at this stage, so I don't think it would be a significant impact. But you are correct, it would have some impact. And then once you go back to full production, you obviously get more absorption with the same number of headcount and the same machinery utilization, so you get some benefit out of that. So you are correct there, Chris.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Just as a final. As you eliminated all the shutdowns, is there a metric we can use in terms of how much potential fixed cost leverage you would have going forward? And typically, you guys, it hasn't moved that much historically, but where your gross margins are now, it's a decent amount below where you peaked in, say, 2010. So perhaps is there more leverage on the way up now than perhaps you've seen in the past?

Paul Coghlan

Well, I think, first of all, if you wanted a metric, it'd probably be, if you looked at our sales, our peak sales were at 388 and then, I think, we have roughly a 79% gross margin. I don't think we think there's any reason we can't do something similar as we go back up and cross into, hopefully, $400 million per quarter.

Operator

We'll move on to Aashish Rao from Bank of America Merrill Lynch.

Aashish Rao - BofA Merrill Lynch, Research Division

I wanted to follow up on the OpEx question earlier. I mean, the SG&A leverage has been impressive, but R&D spending has increased a couple of points over this downturn. Now some of this is due to Dust, but wondering if the analog sector is also facing any kind of rising R&D challenges that many of your digital counterparts are facing? Or I mean, is this -- or is it the 2% to 3% rise in R&D intensity the last couple of years temporary and you expect that to reverse when sales rebounds?

Lothar Maier

Yes. I don't think there's a structural change in terms of our R&D spending relative to achieving sales growth. I think the uptick in R&D is really related to the fact that sales went down, and quite frankly, we don't want to part with our R&D talent. And so just like I said, there's really not so much pressure on us as sales go up, that we have to do any dramatic increases in R&D spending. I think we're adequately staffed, certainly, at the current sales level and we could grow quite a bit of sales before we have to make any substantial R&D additions.

Aashish Rao - BofA Merrill Lynch, Research Division

Okay, cool. And then as my follow-up, at CES last week, several companies were showing demos of sensors and other chips with -- which harvest the ambient energy for use in consumer and industrial applications. I mean, this is something you've highlighted over the last year or 2. So I'm just wondering if you could talk about progress to date vis-à-vis your energy-harvesting products and when you expect it to become a meaningful contributor to sales.

Paul Coghlan

It's a field that is emerging right now and so I think we've got some leading-edge products. But in terms of when it's going to become a substantial part of our business, I think that's still some years away.

Operator

Moving on to Ross Seymore from Deutsche Bank.

Ross Seymore - Deutsche Bank AG, Research Division

Lots of the questions asked and answered. So just one quick one for me. Those rush orders or pull-ins that you talked about in December and thus far in January, can you give us a little more color of what end market those are coming from?

Paul Coghlan

We don't -- to be frank with you, I could give you maybe a better input that they were geographically pretty dispersed, which was good. I wouldn't know what end market, to be frank with you, because I've summarized the end market data, Ross, at the end of the quarter and I do that by kind of looking at customers. And this wasn't just 1 or 2 customers nor was it, I don't want to overstate it, nor was it hundreds of customers. But I really can't focus that in on any particular end market. I know there was a little bit of automotive that was mentioned so that -- and normally, you never see a pull-in in automotive and that was a bit of a surprise. But I think that was just -- that was raised to my attention just because of the uniqueness of it rather than that it would be industry-wide trend.

Ross Seymore - Deutsche Bank AG, Research Division

Was it more disty or OEM based?

Paul Coghlan

A little of both, probably more OEM than disty.

Operator

Craig Berger from FBR Capital Markets.

Craig Berger - FBR Capital Markets & Co., Research Division

Is there still any lingering impact from fiscal cliff in your Mil-Aero defense? And also, is there any impact from fiscal cliff in other parts of the business?

Paul Coghlan

Well, frankly, we were, at least I was, surprised Mil-Aero went up last quarter, but it's a small part of our business. It went from 6% to 7%. But certainly, the Mil-Aero people tell us that, particularly in the United States, there is -- business is slower than it would have been a couple of years ago. Europe's actually doing pretty well in that business for us slightly. And then relative to the fiscal cliff, I mean, I think there's still some concern about the U.S., I'm sure I don't have to tell you that. And then maybe China, there's a little less concern now about fiscal cliff. Europe, I think nobody think that's been solved over there, the economic problems, but they think the likelihood of it really falling off the rails isn't going to happen.

Craig Berger - FBR Capital Markets & Co., Research Division

Can you -- did you guys give any indication on fab utilizations in the quarter just ended or where they may go in March?

Lothar Maier

We don't track that specifically, but we're doing shutdowns. And I think the way to look at it is from a capacity standpoint, the company is tooled up to do $400 million in sales. We did $305 million, so we've got a lot of headroom.

Craig Berger - FBR Capital Markets & Co., Research Division

Great. Last question for me. One of your competitors is having pretty good success with highly integrated parts. I know they're targeting handset. You guys don't play as much there. But what do you think of that as a strategy? And are you pursuing any highly integrated parts?

Lothar Maier

I think you'll find that the parts that we design and make now are already highly integrated. I think maybe the difference is, is what markets they front-sell into. And so the parts we make now are much, much more complicated or on finer feature technologies than we did 5, 6 years ago. But again, we're focused -- those types of products into the industrial, automotive and communications market. I'm not sure exactly who you're referring to, but I can guess. And I think that is true, there's a focus there on integration, but it's in different markets than we're targeted. And you see it in the margins that they get.

Operator

Moving on to Sumit Dhanda with ISI Group.

Sumit Dhanda - ISI Group Inc., Research Division

Paul, one question for you first. The pickup that you saw in December in bookings, can you just add a little more color? Was the October the low point in bookings? Was November the low point in bookings? And would you say the order of the pickup you saw, was it 10%, 15% from the lows? Any color you can add would be great.

Paul Coghlan

Yes. I don't know as we want to get into giving you monthly bookings numbers. So -- because just a couple of days can impact that, so I don't want to be -- so there. But I can tell you, on a month-to-month basis, if that helps, if you give me just a moment, on a month-to-month base, November was the low month.

Sumit Dhanda - ISI Group Inc., Research Division

Got you. Okay. And then a couple more questions. The industrial business was flat in dollar terms, which seems like a better performance than most of your peers, at least in terms of how they guided for the December quarter. Anything in particular you might attribute that to?

Paul Coghlan

No, not really. I mean, there's nothing really. Unless maybe some guys were -- I told you, we had some pull-ins and stuff although I couldn't identify which particular end markets to a previous questioner. I said it's generally felt across the board. So industrial, maybe people picked up a little more inventory or felt they were too, too low rather than pick up inventory, but there's nothing really I can point to as a trend specific there.

Sumit Dhanda - ISI Group Inc., Research Division

Okay. And then my last question here, you know your deferred income...

Paul Coghlan

We don't seem helpful with your questions there. We're striking out...

Sumit Dhanda - ISI Group Inc., Research Division

That's all right. Maybe the third time's the charm here. The deferred income line has been running flat at this $41 million, $42 million level. I know you indicated that the inventories are lean. But if we go back and just look historically other than 1 or 2 quarters here or there, at similar revenue levels, you used to run a lower deferred income line. So I'm just curious, are you doing more business through distribution? Has the mix of product changed in distribution? Is there something that might account for this fact relative to your commentary that inventories are really lean?

Paul Coghlan

Well, what's your starting base number?

Sumit Dhanda - ISI Group Inc., Research Division

I guess, you can go back and look at similar instances when revenues were running in the low $300 million and you know your deferred income line ran in the 30s at the time. And I guess, we're doing -- we did $305 million in December and doing $42 million now, so maybe that's sort of a reference point.

Paul Coghlan

Yes. I don't know which your start number is. I think if your start number is high 30s, the difference, if any, isn't great. That line has more than -- it's primarily deferred income on distribution. It does have some deferred royalty stuff in it that wasn't there a couple of years ago. That's not a big number, but it is a small -- but it is -- does impact it a bit. So again, I don't see any change in our...

Sumit Dhanda - ISI Group Inc., Research Division

And the mix in distribution -- through distribution has stayed fairly static, would you say, versus OEMs?

Paul Coghlan

Yes.

Operator

Moving next to Elizabeth Howell from Raymond James.

Elizabeth Howell

So in terms of your $850 million debt payment coming up in May 2014, just how are you planning to pay that down in terms of cadence? And if you're going to -- if you plan to take out additional financing?

Paul Coghlan

At the moment, this $845 million -- which it will be -- we would plan to pay that down out of funds the company would have at that time and not seek additional debt.

Elizabeth Howell

And would you need to repatriate some cash or...

Paul Coghlan

Presently, we don't believe we will need to repatriate some cash.

Elizabeth Howell

Okay. And then just -- what's the minimum level of cash you want to run your business?

Paul Coghlan

Oh, I don't know, $75 million.

Operator

[Operator Instructions] We'll move next to Sanil Daptardar with Sentinel Investments.

Sanil V. Daptardar - Sentinel Asset Management, Inc.

Just a question on, when you look back historically, you had the best year in fiscal 2011. During the last 2 years, world economy has been an issue. But when do you think that you can get back to that $1.5 billion in revenue range?

Paul Coghlan

If you can answer the economic part of the question, I'll answer the Linear part -- without sounding to be cute here. The economy, we haven't had a strong, vibrant economy worldwide in these past couple of years. So when you do have a strong economy, there's a little more innovation and stuff that people are willing to invest in and spend money on. And so -- and I can't really project when that's going to happen. I did say at the start of the call that, if you go back to the past 2 conference calls, in each of them, we said, the macroeconomic climate had worsened. This one, we said, it's improved. So maybe that's a good trend going forward, if that rate of improvement continues over the next couple of quarters, U.S. gets its kind of fiscal cliff stuff behind it, then we could probably be in a better macroeconomic environment. At which point, we feel we could grow pretty well and reach levels we previously had not reached.

Sanil V. Daptardar - Sentinel Asset Management, Inc.

But from a company perspective, if you just look at your own product portfolio or the holds you might be having or certain markets that you may not be targeting, do you think that you want to be in those markets, you want to grow in those markets? Or do you want to have some new direction in order to grow the company? Or you still have to depend on the economy in that case?

Lothar Maier

Yes, I think we're already in markets that we want to be in. And then we have invested in some markets that we think may be important in the future. We made an investment into Dust. We made some investment into energy harvesting. So we put the seeds out into other markets which we're obviously hopeful are going to grow. And I think the biggest influence for us is really just what happens in the macroeconomic. Does confidence come back into the market? And I think we'll probably benefit more from that because we're -- I think we're well positioned in markets that if things become more confident, are going to grow. And it's really about what's happening in the market, I think, from a product standpoint, from a customer standpoint. If you look at how we're engaged with our customers from an R&D standpoint, I would say customers' interest in our products and our customers' efforts in new product development, I don't think that has slowed. If anything, it's probably picked up somewhat as people try to engineer their way out of the slower business environment. So I think it's really all about the economy.

Robert H. Swanson

Yes, talking about market, I mean, we demonstrated in our annual report that the 2 markets that we're focused on, automotive and industrial, outgrew the overall analog market. So we're in the right markets. We're in the markets growing the fastest.

Sanil V. Daptardar - Sentinel Asset Management, Inc.

Okay. Now in terms of the inventory days, is this kind of a new norm to carry inventory somewhere on books or in -- somewhere around 80, 90 days now? You and -- where you were in the -- few years ago, it was down to 70s, now you're into 80s and 90s now. So...

Paul Coghlan

I think on a per-day basis or an inventory turns basis, inventory should improve as our sales go up.

Operator

Moving on to Phil Marriott with First Eagle Investment Management.

Phillip Marriott - First Eagle Investment Management, LLC

And it's on ASPs over a longer term. As I looked over the last couple of calendar years, 2011, 2012, ASPs have apparently taken sort of a step function, up in the $1.80 plus or minus range versus sort of the mid-$1.55 range in calendar '07, '08 and '09. And I'm curious to what you would attribute that increase in ASP. My guess is that it's driven by mix towards industrial and auto, but curious if you could address that. And then related, what you expect ASPs to do over the next few years and what the assumptions might be behind that?

Lothar Maier

Right. The increase in ASP is really driven by 2 things. Probably first off, it's driven by the fact that we don't participate much in consumer business anymore. So cellphones is not a big part of our business, and it was a significant part of our business a few years ago. So that's a contributor. And then I think there's another contributor that really has taken effect in the last 5, 6 years, is the fact that the world of single-function analog products is -- there's just not a lot of those products anymore being built. It's a lot more integration complexity. We've introduced module products which have much higher ASPs. And I think there's really 2 things. It's, one, kind of in the short term is gotten us up to this sort of $1.80 range, which is the less consumer business. And I think the thing that's going to push us forward -- and we used to have an ASP that was above $2, and it's not unreasonable to assume that in a few years, that we'll have that again because most of the products that are in development and being released to the market are products that have ASPs at $2 or above. And so the new products are also driving the increase in ASPs.

Operator

And at this time, there are no further questions in the queue. I'll turn the conference back over to our speakers for any additional or closing comments.

Paul Coghlan

Well, thank you very much for your attention today. Thank you for the well-thought-out questions. We're looking forward to the March quarter. We feel business has improved a bit and look forward to talking to all of you a quarter from now. Have a good day. Bye-bye.

Operator

And that does conclude today's teleconference. We thank you all for your participation.

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