Executives
Paul Coghlan – Chief Financial Officer
Lothar Maier – Chief Executive Officer
Analysts
John Pitzer – Credit Suisse
Adam for Tore Svanberg – Thomas Weisel Partners
Doug Freedman – Broadpoint
James Covello – Goldman Sachs
Ross Seymore – Duetsche Bank
Steven Smigie – Raymond James
Craig Berger – Fbr Capital Markets
Joanne Feeney – Ftn Equity Capital
Uche Orji – UBS
Blayne Curtis – Jefferies
Christopher Danely – J. P. Morgan
David Wu – Global Crown Capital
[Terrance Leyland – Citigroup]
Auguste Richard – Piper Jaffray
[Wayne Jarvis – Janco]
Romit Shah – Barclays Capital
Kevin Rottinghaus – Cleveland Research
Linear Technology Corp. (LLTC) Q3 2009 Earnings Call April 15, 2009 11:30 AM ET
Operator
Welcome to the Linear Technology Corporation fiscal 2009 third 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.
Paul Coghlan
Good morning. Welcome to the Linear Technology conference call. I will give you a brief overview of our recently completed third quarter and fiscal 2009 and then address the current business climate. We will then open up the conference call to questions to be directed at Rob Swanson, our Executive Director who is with me and/or Lothar Maier, our Chief Executive Officer.
I trust you have all seen copies of our press release which was published last night. First however, I would like to remind you that except for historical information the matters we will be describing this morning will be forward-looking statements that are dependent on certain risks and uncertainties including such factors among others, is new orders received and shipped during the quarter, the 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 December 28, 2008, Particularly management discussion and analysis of financial condition and results of operation.
Secondly, SEC regulation FD regarding selective disclosure influences our interaction with investors. We have opened up this 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 statement model and our balance sheet, this is the time we're free to respond to those questions.
As you can tell from our press release, with revenues down 19% from the previous quarter, it was another difficult quarter as the company continued to experience the fall out from the ongoing credit crisis. Nevertheless, the company met its revenue guidance.
As we told you in our last conference call, the quarter got off to a slow start in early January and we expected business to improve somewhat from that point. Business did improve in late January. It tapered off again in early February and then improved again in late February and March.
Where we had expected business to improve seasonally in U.S.A. distribution and in Europe, business did not recover as many distributors and many small industrial customers world wide continued to remain cautious given the uncertainties in the credit markets.
However, these weaknesses were offset by improvements in infrastructure build outs, particularly in China, customer specific improvements in the cell phone area and some modest improvement in the military area. As a result, although the quarter was by no means strong in a historical perspective, we did have a slightly positive book to bill ratio.
Looking back on the past nine months, it appears that large customers reacted earlier to the world wide recession and credit crisis and have now seen some leveling in their business, whereas the smaller companies reacted later and are still in the process of assessing demand and their own individual risk profile. An example of this was U.S. distribution which was weaker this quarter than last and may weaken further in the June quarter.
Although revenues decreased 19% the company continued to control its variable costs where possible to reduce the impact on profits. To this point, the company reduced its operating expenses by a further $3.2 million after reducing them by $9.6 million in the previous quarter.
Consequently, the company delivered operating income of 36% and pre tax income of 34% of sales and remained positive cash flow and maintained cash flow from operations during this turbulent period.
Below the operating line, the company continued to take advantage of the discounted trading price of its convertible debt by purchasing and retiring another $30 million in face value of its 3 1/8 percent of its convertible senior notes callable in November 2010. This resulted in a gain of $1.7 million net of deferred issuance costs.
Also, the company's quarterly effective tax rate of 19.5% versus 22% last quarter was positively impacted by a discrete tax benefit related to the company's domestic manufacturing deductions.
In summary, the effect of the items I just listed on the published quarterly results was that revenue of $200.9 million for the third quarter of fiscal year 2009, decreased 19% compared to the previous quarters revenue of $249.2 million and decreased 32.5% or $96.9 million from the $297.9 million reported in the third quarter of fiscal 2008.
Diluted earnings per share of $0.25 decreased $0.18 per share from the second quarter of fiscal 2009 which had benefited from a $21 million gain or $0.07 on an EPS basis on the early retirement of debt. And earnings per share decreased $0.19 per share or 43% from the third quarter of fiscal 2008.
Net income of $54.5 million decreased $40.7 million of which $25 million was the result of debt retirement from the second quarter of fiscal 2009 and decreased $44 million or 45% from the third quarter of fiscal 2008.
During the March quarter, the company's cash and short term investment balance increased by $19.8 million to $920 million net of spending approximately $28.3 million to purchase $30 million in face value of its convertible senior notes.
The company also announced continuing payment of its quarterly dividend of $0.22 per share. This cash dividend will be paid on May 27 to stockholders of record on May 15.
Looking ahead to the June quarter, there is continued uncertainty in the market place and our customers continue to be cautious with their ordering patterns. Forecasting operating results in the current environment is difficult, particularly since lead times are shorter than usual as customers tend to order only what they urgently need.
However, we are encouraged going into the fourth quarter as we expect to see some stability in customer bookings. Our book to bill ratio was slightly positive in the March quarter. Accordingly, our current estimate anticipates that our fourth quarter revenues will be in the range of down 2% to up 4% over the third quarter.
In order to meet these expectations, turns business or bookings that are recorded and shipped during the quarter will need to remain at a high level as customers order to current demand. Also, we will continue to control costs where possible.
Subsequent to the end of the third quarter, we reduced our work force by approximately 130 employees to further reduce our cost structure. Over the past few quarters, in addition to lay offs; we have substantially reduced the variable compensation benefits and have taken other actions to reduce labor costs. We appreciate the sacrifices our employees have made in this regard to limit further work force reductions.
We expect these tight expense controls will allow the company to maintain pre tax profits in the low to mid 30% range as a percentage of net sales.
As managers, we can control spending and deploy our talents to best position Linear for growth and profitability when the markets return. In addition, we have shown good attention to asset management as our receivables have been reduced in concert with sales, thereby having our day sales and receivables remain at 47 days.
Also, inventory on our balance sheet was reduced by $1.7 million and our return on assets was 15%. Our current ratio is 7.3 to 1. Our ending on hand inventory at distributors was down from last quarter and lead times have trended down in the two to four week range.
From a strategic standpoint, we believe industrial, communications infrastructure and automotive will be attractive markets driven by the advances in communication capabilities, industrial innovation and the need for energy and fuel efficiencies.
Now I would like to address the quarter's results on a line by line basis starting with bookings. Bookings were similar this quarter to last. Cancellation activity at larger customers subsided whereas bookings from distributors both domestic and international decreased. Bookings increased at most end markets including communications, computer, military and high end consumer but decreased in industrial and automotive. Geographically, bookings increased in Asia Pacific and decreased in the U.S.A., Europe and Japan.
At this time every quarter we give you a break down 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 34% of our bookings down from 41% last quarter, but similar to several quarters before that.
Our industrial business is very broad based and most of it is booked through distributors. Our distributors in the U.S.A., Europe and Japan continue to reduce their inventories which related to the reduction in our industrial business.
Communications at 34% increased significantly from 25% last quarter. The cell phone business recovered from negative bookings last quarter to 6% of our overall bookings. The rest of communications which is infrastructure and networking also improved due primarily to strength in China infrastructure area.
Computer at 11% remained similar to last quarter although it increased slightly in absolute dollars. Automotive at 7% decreased from 8% last quarter with the largest decrease being in Japan. Automotive is an area that is suffering in the economy now. However, given the move to more fuel efficient vehicles is an area for emphasis for Linear.
We recently introduced a part for battery monitoring in hybrid and electric vehicles which has received early acclaim. In addition, we continue to distinguish Linear as a high quality supplier in important international automotive manufacturers.
Consumer at 6% was similar to last quarter although this category increased slightly in absolute dollars. Finally, the military space and harsh environment products at 8% was similar to last quarter and also did increase slightly in absolute dollars.
In summary, we have been transitioning over the last several years into more traditional analog businesses and less into consumer related end markets whereas 20% of our business in was cell phone and high end consumer related markets in 2005 and 16% in fiscal 2008. In the past quarter, this percentage was 12%. Note that 53% of our bookings were created internationally, down from 59% last quarter.
Moving from bookings to sales, net sales decreased 19.4% from the prior quarter and 32.5% from the similar quarter in the prior year. Sales were down both domestically and internationally. Within international, sales were down the highest percentage in Europe and up as a percentage in Asia Pacific, although down in absolute dollars.
In summary, the U.S.A. was 32% of sales versus 31% of sales last quarter. Europe was 14% versus 18% last quarter largely due to a reduction in shipments to our distributors. Japan was 14% versus 13% last quarter and Asia Pacific was 40% versus 38% last quarter.
Gross margin, gross margin at 73.8% decreased two percentage points from last quarters 75.8%. This decrease was due largely to lower factory efficiencies due to both absorbing fixed costs over a lower sales base of $48 million and due to lost absorption resulting from weekly factory shut downs.
These decreases were partially offset by a higher ASP and by lower profit sharing. Our ASP for the quarter was $1.59 versus $1.56 in the prior quarter.
R&D, research and development at $44.7 million decreased by $1.1 million but increased as a percent of sales to 22.3% from 18.4% due to the lower sales volume. Decreases in labor due to plant shut downs and lower profit sharing partially offset by increased stock based compensation, accounted for most of the $1.1 million decrease.
Selling, general and administrative expense decreased by $2.1 million but increased as a percent of sales to 15.1% from 13.1% due to the lower sales volume. Just as in R&D, decreases in labor due to plant shut downs and lower profit sharing partially offset by the increase in stock based compensation accounted for most of the decrease with lower legal, communication and travel expenses also contributing to this reduction.
Restructuring charge, the company incurred approximately $1.6 million in restructuring expenses in the December quarter for employee severance costs related to reduction in work force of approximately 100 employees in that quarter. This did not recur this quarter although a similar event will impact the upcoming fourth quarter.
As a result of the above, operating income decreased by $35.9 million. Therefore, operating income as a percent of sales decreased from 43.7% last quarter to 36.4% this quarter. This is strong profitability in this recessionary period and when sales have been reduced by 35% over two quarters.
Interest expense at $12.5 million was down $717,000 from last quarter due to the elimination of interest expense relative to the retired portion of convertible debt. Interest income of $5.4 million decreased by $717,000 also due to both lower average cash since $28 million was used to retire debt and also due to a lower effective interest rate from 2.6% last quarter to 2.34% this quarter. Since the government has responded to the economic crisis by lowering interest rates, interest income will probably be reduced by similar amounts next quarter.
Payment retirement of debt, the company reported a $1.7 million gain net of deferred issuance costs on purchasing and retiring $30 million in face value of the 3 1/8% convertible senior notes. In the December quarter the company recorded a gain of $21 million on the retirement of $200 million in this debt. Therefore comparatively, the company reported $19.3 million less in gain this quarter than last quarter.
As a result of all the transactions discussed above, the company's pre tax profits as a percent of sales declined from 49.3% last quarter to 33.7% this quarter which was within the range we had projected going into the quarter.
Our tax rate was 19.5% this quarter versus 22% last quarter. The ongoing effective tax rate was 28% this quarter, similar to last quarter. This quarter's rate was positively impacted by a discrete tax item related to the company's domestic manufacturing deduction. Last quarters rate had been positively impacted by Congress's re-enactment of the R&D credit retroactive to the beginning of calendar 2008.
The major tax savings items that will support our effective tax rate going forward are; the benefits from our holidays overseas, our tax exempt interest, our domestic manufacturing tax benefits and the R&D credit. The resulting net income of $54.5 million is a decrease of $40.7 million from the previous quarter due largely to the decrease of sales and the reduction in the gain on the retirement of debt. The resulting return on sales was 27.1% versus 38.2% report last quarter.
The average shares outstanding used in the calculation of earnings per share increased by 360,000 shares during the quarter primarily resulting from the investing of some restricted stock awards. The company currently has no non qualified stock options that are in the money, so that both basic and diluted shares used in the calculation of earnings per share are similar.
The resulting earnings per share is $0.25, a decrease of $0.18 from the prior quarter and $0.19 from the $0.44 reported in the second quarter last year. The difference between this quarter and last quarter on the gain from the early retirement of debt has a $0.07 EPS impact. On a pro forma basis, without the impact of stock based compensation earnings per share would have been $0.31 versus $0.48 last quarter.
Moving to the balance sheet, cash and short term investment increased by $19.8 million during the quarter. During the quarter, the company spent $28 million to purchase and retire $30 million in face value of its convertible debt. $103 million was provided by operations, $50 million was paid in cash dividends and $5 million was used to purchase fixed assets.
For the 92nd consecutive quarter the company had positive cash flow from operations. Our cash and short term investment balance is now $920 million and represents 62% of total assets.
Accounts receivable of $103.8 million decreased by $24 million or 19% from last quarter, a similar percent to the reduction in quarterly revenue. Our day sales on accounts receivable remained at 47 days.
Inventory at $53.2 million decreased $1.7 million from last quarter. Raw materials and finished goods were all down about $500,000 each. Most of our inventory is concentrated at the die bank stage in whip. From here it can relatively quickly be packaged and tested to meet individual customer requests.
Our inventory turn was 3.9 times, down from 4.5 last quarter due to the decrease in sales, not an increase in inventory. Lead times are short and we have many different products so having adequate inventory is important in this environment to maximize customer response time.
Deferred taxes and other current assets increased by $11.4 million from the December quarter primarily due to an increase in pre paid taxes on our intra company transactions.
Property, plants and equipment decreased by $5.6 million. We had additions of $4,926,000 and depreciation of $10,541,000. Most of the additions were for the initial construction costs for our new R&D building in Milpitas and also for test equipment.
We had planned to spend $65 million for capital additions in fiscal 2009 and now believe that that will be reduced to roughly $40 million and have roughly $42 million in depreciation for fiscal 2009. Other non current assets which totaled $72.5 million changed modestly by $1.9 million.
Moving to the liability side of the balance sheet, accounts payable increased modestly by $932,000. Accrued income taxes, payroll and other accrued liabilities increased by $844,000. The largest items here are our profit sharing accrual, income taxes payable and accrued interest payable on our convertible debt.
The profit sharing accrual decreased as we had one semi-annual payout only partially offset by a diminished quarterly profit sharing accrual. This decrease was largely offset by an increase both in income taxes payable and in interest payable on our convertible debt.
Deferred income on shipments to distribution was unchanged this quarter as our shipments to U.S. distributors were similar to what they shipped out to their end customers, both of which were down from last quarter. Our accounting on shipments to U.S. distribution is conservative. We do not record a sale or income in our results of operations until the distributor ships the product out to its end customer.
We continue to closely control our inventory distribution to properly position the inventory without any unneeded build up.
Convertible senior notes were reduced as the company paid $20.3 million to retire $30 million in face value of the notes. Deferred tax and other long term liabilities increased by $5.5 million due to several tax related items.
Changes in the stockholder equity accounts were primarily the result of the usual quarterly transactions for net income, for dividends paid and for employee stock activity. The company announced that it will again pay a quarterly dividend of $0.22 per share. The company believes that 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 now pays approximately a 4% yield.
Looking forward, I would like to close out our introductory comments by revisiting our guidance. Our guidance is based on inputs from our world wide sales force and inputs from our production control personnel who monitor bookings, cancellations; push outs or pull ins and customer lead time requests.
In addition to these inputs, we talk with distribution personnel and we analyze individual customer feedback. Forecasting is presently more complicated because customers have to consider not only the demand on them but also their ability to finance this forecasted demand.
The world wide credit crisis has had a big impact on this. Although we believe that the governments in the U.S.A. and other countries world wide have made progress in addressing credit and stimulus issues, more work needs to be done before a recovery will commence. We expect unemployment figures to continue to rise and consumer and industrial confidence to be cautious.
However, despite bleak economic reports, inventories are low. Backlogs are low and cancellations have diminished. With regards to inventories, we at Linear have been reducing inventory in U.S. distribution and internationally and have generally been shipping less to our distributors than they have shipped to their end customers, thereby enabling most distributors to reduce their inventory.
As I stated earlier, our experience is that many larger customers have had their demand on us improve from their low points in December and early January. However, many smaller customers looking through distribution continue to show weakness throughout the quarter. We sense a further decline may take place in U.S. distribution although some Japanese and European distributors may see some improvements as the June quarter progresses.
Combining the considerations of a positive book to bill ratio for the March quarter, significantly fewer cancellations, diminished beginning inventory positions at our distributors, a sense of stability in some larger accounts offset by continuing weakness among smaller accounts and general concerns about global economic conditions, led us to our guidance for the June quarter of revenues being in the range of down 2% to up 4%.
In these uncertain times there are measures that we can take to control costs since many of our costs, particularly in the labor area are variable. In the June quarter, we expect to have manufacturing; R&D and SG&A personnel continue to participate in payroll reduction programs with an impact similar to the March quarter.
In addition, profit sharing which has been historically high at Linear can continue to be reduced and we have had a modest reduction in head count. Discretionary spending in communications, travel and other areas will be closely controlled. As a result, we currently forecast that we can achieve pre tax profitability in the low to mid 30% of sales range which is in the 40% range on a pro forma basis excluding the effects of non cash charges for stock based compensation.
We want to emphasize that in another difficult economic period, in 2001 when the dot com bust, we remained very profitable and cash flow positive, unlike many of our competitors. We are therefore in a position to continue to invest in the future, specifically in developing unique analog circuits to meet the new needs in communications, industrial, automotive and other end markets.
In technology, the key is to be innovative and well positioned when growth resumes. Similar to the dot com era, we are seeing a pick up in designing activity. Customers often with fewer engineers as a result of their own layoffs are striving to get next generation and new innovative products to market.
In these circumstances, the quality and timeliness of design support are often more high regarded than more price breaks which plays to our strength. After the dot com bust, our sales for the next three fiscal years grew 18%, 33% and 30%. These are difficult times, but we hope to emerge again well positioned to outperform.
I'd like to now open up the conference call to questions to be addressed to either Bob, Lothar or myself.
Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from John Pitzer – Credit Suisse.
John Pitzer – Credit Suisse
Paul, just relative to the guidance on the June quarter, given that linearity in the March quarter probably was skewed more back to the month of March itself, I know that's pretty typical. I'm just kind of wondering why flat is the right way to look at it? Why don't you think you've established sort of a new higher base line than the run rate in the March quarter going into June especially with a positive book to bill for the full quarter which I'm assuming was probably improved month on month.
Paul Coghlan
It's a good question. First of all the March month for us has five weeks in it and the January and February months have four and that's typical in these quarters so that the last month would show progress over the first two can be attributable to that as well as an improvement in business.
Secondly, we told you that we had seen strength in some of our larger clients. Now strength being from a very low position in December and early January. We also told you though that the smaller customers as we see them evidenced through the distribution channels both in the United States and also in Europe and Japan, that they went backwards and we expect particularly in the U.S.A. will continue to go backwards a bit in the June quarter.
So you've got conflicting cross currents as we try to estimate the June quarter. Then towards the end of the June quarter, you'll start getting into the summer time period as well and we're not sure what impact that will have.
So given all of those factors, we thought the range of down 2% to plus 4% was appropriate. Now the average is 1% so it is a pick up, so that I think overall we think things will trend up.
John Pitzer – Credit Suisse
On the distribution side of the business, difficult question to answer, but how much of this do you think is attributable to end demand consumption versus just credit issues with some of the distributors and their incremental cost to borrow to grow the business?
Paul Coghlan
That's the $64,000 question. I think it's both. But one kind of contributes mainly to the other. We do believe that credit is tight. We do hear through distribution that some of these smaller customers are seeking larger credit lines through distribution probably because it's more difficult to get that credit through their banks.
Now on the other hand, you've had some pretty good results from U.S. banks reported in the last week, Wells Fargo among them, and in their results they're talking about increasing credit. So I see not in my personal life, but the personal life of people around me that mortgages are a lot less, but go try and get one without a two month harassment through your bank to get the credit approved.
So I do think credit is still an issue. I think that contributes to demand and I think there's just an overall cautiousness, but to tell you the break down of the relationship between demand and credit on a percent basis is more difficult than I can answer.
John Pitzer – Credit Suisse
Paul there's always concern about market share loss and some of the competition being price competitive and kind of pricing you out of the market? Does any of the results in either March or June reflect some of that or not? And I guess when you think about the innovation side of the curve, maybe a question for Lothar, what product areas do you think are going to have a higher innovation bid coming out of this downturn?
Lothar Maier
I'll take both. Interestingly enough in these tough market conditions, pricing has not been that big of an issue and I think people continue to value the products we have and value the support that we give our customers which in these particular times is a fairly big deal because many of our customers don't have and let go many of their engineering resources and they become more dependent on their suppliers to provide them with engineering support.
Markets that have continued to look still attractive to Linear is pretty much every market except for I would say anything related to consumer. Military space looks good. Even automotive is kind of in the tank right now. Long term, we think the automotive market is going to be a great market for Linear Technology. It values many of the attributes that we have.
Communications continues to be one of our biggest markets and we expect that to continue to be a big market for us. So I think in general, any market except for consumer is a good market going forward for Linear.
Paul Coghlan
You referred John to a market share loss in the first part of your question and I'm not sure where you got that from.
John Pitzer – Credit Suisse
I'm not saying that you are losing share. I guess it's just always a general concern that at this point in the cycle you see price competition and rather than competing, you guys walk away from business and I'm just kind of curious as to whether or not that's being reflected at all in either the March or the June guidance.
Paul Coghlan
No. First of all I made a comment in our introductory comments that many customers now have had reductions in their engineering work forces and the designing activity is actually higher now than it was a year ago, and that's similar to what happened in the dot com bust.
People come out of these recessions with new products. They don't come out of them with the older products sold less cheaply, so that we think on a market share standpoint, we're well positioned. We think we've done better than the competition, certainly in the last year and particularly in the last six months. So I don't believe market share is an issue.
Operator
Your next question comes from Adam for Tore Svanberg – Thomas Weisel Partners.
Adam for Tore Svanberg – Thomas Weisel Partners
I have a clarifying question. Earlier did you mention that a similar restructuring charge to the December quarter will be taken in June?
Paul Coghlan
Yes. We told you earlier that we had a layoff just a week ago and that encompassed 130 people.
Adam for Tore Svanberg – Thomas Weisel Partners
And it's about $1.6 million or so?
Paul Coghlan
Well the other layoff was 100 people so it will be more than the $1.6 million.
Adam for Tore Svanberg – Thomas Weisel Partners
You mentioned about the design activity and I was wondering if we could focus on that for a little bit. Can you provide a little bit more detail as to what areas you're seeing this design activity and also maybe how far you believe these activities may be a way from contributing to revenue?
Lothar Maier
We see the design activity really pick up in two directions. The first direction as Paul mentioned is during difficult times like this, our customers are very highly incentivized to get new products out so all of our customers are working hard to find new products that allow them to grow their sales and distinguish themselves from their competition. So there's a lot of activity happening in that direction.
Fortunately we have a very strong field application and sales, technical sales organization and we work closely with those customers to obviously help them design our products into their products. So that's kind of one direction we're seeing a pick up in design activity.
In these times also, we're seeing our customers look at ways to reduce the cost of their end product and so we see design activity there as well. So what we do is, we work with our customers and show them how they may be able to reduce the overall solution costs that they have for their products again by using LTC products, not by selling our products for less price, but helping our customers reduce the price or the cost of their end product.
We see that really in a broad swath of our customers. It's not concentrated in any one end market. Obviously the design horizons and the time from designing to dollars is different depending on the end markets. If it's a communications type of application, typically it's a shorter period of time. If it's a military space, it could be several years, and if it's automotive it's kind of in the middle ground.
So it really depends what the application is. But I think in these particular times where our customers are very aggressive in getting new products to the market, I think the time from design into dollars presently is probably shrinking.
Adam for Tore Svanberg – Thomas Weisel Partners
You had mentioned about your distributor inventory. I was wondering how much longer you believe they can continue to reduce inventory? Are we looking at a one quarter event or could that continue longer?
Paul Coghlan
Well it's been going on for several quarters so we would hope that it would stop at the end of the June quarter but at this stage, we don't know.
If I could ask the audience if you could limit your questions to two that way everyone could get a chance to ask their questions please.
Operator
Your next question comes from Doug Freedman – Broadpoint.
Doug Freedman – Broadpoint
Just building off of your comment about distribution, can you give us some idea of what you're seeing as far as sell out versus what the distributions are willing to place on you?
Paul Coghlan
As I said in the international area the sell out was a little stronger than they placed on us last quarter so that we think their inventories are well in control. We think their markets have gone down from the previous quarter. We don't think they'll go down as much next quarter but overall in the U.S. we think they'll go down a little or somewhat and international probably not.
Doug Freedman – Broadpoint
Can you also give us some commentary on what you're seeing as far as by product group, the power division, maybe amplifier, data converter, high speed, what you're seeing as far as end market demand there on the different product groups. And I was interested in your ASP comment. Is there any impact to the ASP trends as a result of what you're seeing in mix or any commentary you can offer?
Paul Coghlan
By our product groups, there wasn't much of a change. Where there was a change, it was an improvement in our high frequency and signal conditioning areas over the last couple of quarters. Some of that related to the build out of infrastructure in China which has been a good area for us. What was the second part of your question?
Doug Freedman – Broadpoint
Just if any of the ASP commentary related to mix or changes in the strength coming from power or the data converter or the high speed. Any color you can offer on the ASP side is helpful.
Paul Coghlan
I think ASP at the first quarter of the calendar is usually higher than other quarters because it has almost no consumer content in it and cell phone content is very low. So what you have, now this year, you also had industrial for us wasn't as strong as we normally have anticipated. But nonetheless, as you would quite probably we aware, consumer and cell phone sales would have been down for anybody in the March quarter so that ASP is at its strongest probably that quarter.
Relative to mix, we've told you we continue to try to have more of our business be in the traditional analog markets of industrial communications, military and less in consumer. So over time our guess is that our ASP's will tend to drift up rather than drift down.
But in a given quarter depending on some consumer cell phone content, they could go down.
Doug Freedman – Broadpoint
What is giving you that confidence of the upward trend in ASP's is sort of what I was trying to get at there?
Paul Coghlan
We continue to try to add value and the value we add is in the parts we design. If you look at our margins you can see that our margins are significantly higher than our competitors so we would hope that would lead your to believe that we service different elements of the overall market than our competitors.
We bring innovation to those markets and we charge a fair price for the benefit we bring. And, as you go more towards the industrial markets and more towards the military markets and subsequently automotive with some more complex chips, those carry a higher ASP.
Operator
Your next question comes from James Covello – Goldman Sachs.
James Covello – Goldman Sachs
Paul, you alluded to this a little bit but not specific to the shut down days in the upcoming quarter. It sounds like the plan is to maintain the same number of shut down days?
Lothar Maier
No, I think we're always looking for ways to better manage in these difficult times. We're going to continue to have some shut downs in the current quarter, probably not as many as we had in the last quarter. We're doing other things to address this from a cost standpoint.
We obviously as Paul said, we've had a layoff. We laid off 130 more people just this quarter. We have some additional variability in our cost through our profit sharing program and so we'll obviously look at that as well. But we'll probably not have as many shut downs but we're obviously looking at other ways we can reduce our costs as well.
James Covello – Goldman Sachs
If I could get one follow up on utilization rates, where do we think they head in the current quarter that we're in now?
Lothar Maier
A couple or three quarters ago we were at $310 million and we're now at about $200 million in sales so from a capacity utilization, we're down about equal to sales so down about a third.
James Covello – Goldman Sachs
And then you'll just run the factories in line with that sales figure for the current quarter?
Lothar Maier
That's correct.
Paul Coghlan
What we've done is we reduced head count. Obviously we have the same fixed costs in the factories, but we've reduced the head count to get it more in line combined with some lower shut downs but reduced head count to get it more in line with the production we need to match the sales.
Operator
Your next question comes from Ross Seymore – Duetsche Bank.
Ross Seymore – Duetsche Bank
Two questions, first on profitability and second on inventory. First on the profitability, congrats for holding it as high as you have. On the gross margin side of things is the issue that brought it down a bit in the March quarter, will those repeat, worsen or lessen in the June quarter, and then OpEx with the 130 person head count cut, how should we think about OpEx pre charge going in the June quarter versus the March.
Paul Coghlan
I think since sales we're forecasting to be in a similar range as what we announced. I think gross profit; there probably won't be much of a change in the gross profit area. There could be some minor change, but I don't think it will be significant.
And then in the OpEx side, given the items Lothar referred to, they could be down a bit but not very significantly. So I think you'll have a cost structure and a profit structure given sales if they remain in the same range would be sort of similar to the March quarter, maybe a slight improvement but not very much at all.
Ross Seymore – Duetsche Bank
If I look at inventory from peak quarter to trough quarter it looks like your revenues are down about 35% roughly and your inventory is not down nearly as much. Should we expect you to continue to work down inventory or are you assuming that you're kind of keeping it stocked in die bank for a snap back?
Paul Coghlan
We're a manufacturing company. Inventory is critical to how we service the customer base. I told you the lead times which were always low for us is even lower now. They're in the two to four week range.
Customers want very quick response. We have a broad base of customers so that we actually think if you step aside from the spreadsheets, we've done a good job in inventory in that we've actually been able to maintain or lower it given how concentrated we are as a company, as a manufacturing company.
But right now, as we said earlier, having it well positioned in whip and die bank we think is critical to meeting our sales forecast. You know, we have a lot of customer and we don't know who's going to order what at the moment in a given quarter. But we think we wanted to be in a position in order to meet our guidance that we can respond to where ever those orders come from.
So frankly having inventory down, having inventory where it is, even though it hasn't gone down as much on a turns basis as sales have gone down, we think it's well positioned at the moment and helps us execute and helps us differentiate ourselves from our competitors. So I wouldn't, if you're looking for big changes in inventory, I don't think you'll find them.
Ross Seymore – Duetsche Bank
One real quick one, tax rate going forward. How should we think about that for the June quarter and then maybe fiscal 2010?
Paul Coghlan
Tax rate is tough because you've got this spin 48 accounting pronouncement that meant that items that were blended into the tax rate in past years, starting a year ago or so now have to be broken out separately into a discrete item. So things like when audits you've had from government bodies are completing, you have to wait until they're finalized and see what the exact impact that will have and they show up as discrete items.
So our effective tax rate, if you backed out all the discrete items is 28% and we believe that's what it will be going forward. But these discrete items can come in and it's not clear for us the timing of them. So that's why we've gone from a 25% tax rate to a 22%, to a 19%. It's going to go back up this quarter much closer to the 28% but we may also have a couple of smaller discrete items.
So that's kind of a long winded way of saying I don't know. But I thought I'd give you some background into why I don't know.
Operator
Your next question comes from Steven Smigie – Raymond James.
Steven Smigie – Raymond James
Can you talk a little bit more about industrial bookings? It seems like they had softened and I'm just curious how much of that is seasonal versus some of the distributor issues you mentioned, and is this just the next shoe to drop? We saw computing, consumer weak, is industrial now falling off or is that the wrong way to think about it?
Paul Coghlan
That's a good question. Actually seasonally it would be the opposite. Seasonally we would have expected industrial to have improved in the March quarter. As I said in response to an earlier person's question, consumer is generally pretty weak in the March quarter and cell phone can taper off as well.
But this year because you've got the crisis going on and the recession world wide going on, what we found is that primarily driven by our distributors who are the ones that deal with the lions share of our industrial customers that they're business was off in the March quarter.
So I guess you could look at it as is this the other shoe to drop. I don't know if that's too strong a terminology, but I think it's fair to say as you have said, that maybe consumer and communications saw that drop off or the impact of the recession first, and now that's making its way into the smaller industrial type companies or smaller companies in any end market. So I think that's probably fair.
Steven Smigie – Raymond James
On your design and activity comment, can you talk about how the pattern looked in terms of design activity? As you moved through last cycle you saw the design activity pick up as things got worse. As the economy started to recover that design activity slow down again. Is there anything you can look at there that sort of helps you gauge where you are in the cycle relative to past times?
Lothar Maier
I think the design activity is, every time there is a big crash, the last time was the dot com crash, there's the same type of activity that we're seeing right now where people are looking at what happened to their business, where they need to reposition their products, how they can be competitive in the market place going forward.
So I think this is not too different to previous big downturns that our customers have experienced and so everybody is stepping up their design activities. But maybe one thing that's a little bit different this time over past is that our sense is that we've always had the sense that our customers have less and less analog design skill in house.
And it appears to be maybe this time a little bit more pronounced where they're becoming even more dependant on their suppliers like Linear technology to provide them their engineering support. So now there's just a lot of involvement between our engineers, our factory engineers and our field engineers with our customers and I think that even though that's a burden for us, it's a benefit in that our customers are bringing us in early in the design cycle and it gives us more than fair opportunity to get our products designed in.
Steven Smigie – Raymond James
Will there be another change in behavior as the economy improves that will give you a signal that the economy has improved?
Paul Coghlan
What you have is kind of like a caterpillar approach in technology where you have these step forwards in technology. Those sometimes center around when the markets are poor, people really feel they need to emphasize innovation. Then once the innovation comes to market, then you have some companies trying to take that innovation and lower the cost of it to meet more and more price points so they can distribute it more broadly.
So if you go back to 2005 and 2006 a lot of the growth in the analog market was in the consumer and/or the commodity end of the analog market as price points for things like cell phones and GPS equipment and locators and all kinds of other products kept dropping.
Now that there's kind of a saturation of those things and business has fallen off. Then you have a company saying we've got innovate. We've got to come out with the next generation products. And then that seems to be as Lothar said, historically that will work well for Linear.
But to tell you the third week of June we saw a change and that's going to tell you what impact that's going to have on the recession, it doesn't correlate that quickly.
Operator
Your next question comes from Craig Berger – Fbr Capital Markets.
Craig Berger – Fbr Capital Markets
Can you walk us through the puts and takes for operating expenses in the June quarter. You're still doing fab shut downs. It's not as much. You've also laid off additional heads. Can you just help us hone in on those numbers?
Paul Coghlan
If you wouldn't mind, maybe we'll just get to the end run and go through all the specifics because some of them we're still working on and we'd rather not disclose them broadly. But the specifics are, there will be a little shift in shut downs but that will be off set by other things we're doing, some of which Lothar has alluded to.
So I think if you're looking to model the March quarter and the June quarter, a real legitimate question that you raised is if you're having less shut downs won't the expenses be higher, and our answer to you is that we're having fewer shut downs because the shut downs have become a bit inefficient and now we're using other mechanisms to achieve the same or maybe a little better cost impact, but do it slightly differently.
So if you can kind of accept that rather than go through all the particular points, we'd appreciate it.
Craig Berger – Fbr Capital Markets
So flattish sequential?
Paul Coghlan
On a cost basis, yes.
Craig Berger – Fbr Capital Markets
And is that kind of a sustainable $75 million a quarter on OpEx? Is that kind of the sustainable level to think about going forward or when business comes back do we then get a ratcheting up of expenses?
Paul Coghlan
That's another very good question. With us you would get a ratcheting up of expenses. So I think the best way you should look at Linear Technology is that if you compare all the analog guys and you look at the dot com bust and you look at the now world wide recession, you see that Linear maintains its margins better than anyone else.
So Linear has a higher variable cost structure. Very critical within that cost structure is all of us at Linear participate in that cost savings in that we have high variable compensation, the variable portion of which gets greatly reduced. So in these periods of times, we continue to have these margins such as operating margin at 36%.
As the business picks up, which we hope it will shortly, some of the things like shut down, some of the things like profit sharing, the employees that have sacrificed on that, as business picks up, we'll start to go back to our more normal patterns on those.
So that's why if you look at a 15 year period, Linear consistently has higher margins than any of its competitors.
Craig Berger – Fbr Capital Markets
Looking at the gross margins, what is the change in head count or other cost structures changes do to your longer term gross margin profile?
Paul Coghlan
The changes there were head count. Our cost structure has a lot of fixed costs as you know. We have fabs and run fabs, so that there's been no change in the fixed cost nature. We haven't gotten rid of any equipment or closed any plants. So going forward, as business picks up we'll probably hire some people back but I don't think you'll see that in a poorer gross margin.
I think we do a pretty good job of keeping the gross margin in the 70% range, the mid 70's and I think you'll probably see us pretty consistent at that.
Craig Berger – Fbr Capital Markets
Your plans on inventory going forward, I know you've talked a little bit about where you're at right now, but to kind of keep dollars steady and grow the business into it?
Paul Coghlan
I think inventory, next quarter, we expect the quarter to be down 2% to up 4% as we said. So my guess is inventory will be kind of flattish next quarter. I don't think it will change much.
Operator
Your next question comes from Joanne Feeney – Ftn Equity Capital.
Joanne Feeney – Ftn Equity Capital
Could you clarify for us please how long does it take to go from die bank to delivery to the customer?
Lothar Maier
It's a relatively short amount of time. There really are two main steps. You have to package the product and then you have to test it. Typically we can do that in two to three weeks and on an expedited basis, we can even dramatically reduce that time.
Joanne Feeney – Ftn Equity Capital
How does that perhaps limit the turns business you're capable of in a given quarter and would you or under what conditions would you want to build some finished goods inventory to be ready to meet a higher turns business to make your guidance because it seems like that's a pretty high demand for this quarter.
Lothar Maier
We do carry finished goods inventories. Maybe it wasn't clear. The largest amount of inventory we carry is in die bank but we do have also finished goods inventory where we can respond very quickly to our customers, maybe not in large volume quantities but certainly for most of our part types we carry inventory and finished goods.
When we receive large orders from our customers, typically we have to service it through our die bank. But again, that time can be very, very short on the order of just a couple of weeks.
Paul Coghlan
You referred to we'd have a more difficult time this quarter meeting our turns requirements. I thought maybe you intimated that. That's actually not correct in that the turns requirement we have going into this quarter is actually a tiny bit less than the turns percentage requirement that we had last quarter.
But Linear has always had very, very low lead times. And if you have low lead times, that means just doing the math, you would have high turns. So that the customer only has to order four to six weeks or in this case, two to four weeks and the customer generally doesn't order outside of that.
Joanne Feeney – Ftn Equity Capital
It sounded like you guys were up around the 60% turns so I was just wondering if you felt like you needed to add to your finished goods inventory to meet that level of turns business given the lead times you're facing and given what you see in inventory in the channel.
Paul Coghlan
I think we can manage it the way we have been and not add much to inventory.
Joanne Feeney – Ftn Equity Capital
On the nature of demand and perhaps what you're seeing at the smaller distributions, do you think given that industrial seems to have come down after consumer and some of the other sectors in the economy, do you think that what's going on is that industrials are still falling in terms of aggregate demand and that inventories are still sort of catching up to that lower demand level? Or do you feel like demand has stabilized in industrials at this point?
Paul Coghlan
We would tell you we still think it's going down a bit. We told you that we expect in the U.S. industrial, especially that book to our distribution areas will go down a bit this quarter; not as much as last quarter, but a bit, so I would think that industrial is continuing to correct. I don't think there's a huge correction left to be made but I think its continuing to correct.
Operator
Your next question comes from Uche Orji – UBS.
Uche Orji – UBS
My question is to Lothar. As we look at your business mix, you talked about consumer as one of the areas where you're currently worried. Let me ask you about cell phones. What is your strategy in cell phones? How selective are you going to be given that we are starting to see commercialization of smaller ones, especially like smart phones now moving to the mainstream? How selective are you going to be in terms of how you play in this market?
Lothar Maier
In terms of our selectivity is we're very selective really on two fronts. We're very selective in terms of the pricing that we're willing to accept and the margin on that pricing for the cell phone business and I think even more importantly, we're very selective in terms of what we ask our design engineers to work on, meaning that we have not for some time have directed design engineers in the company to design products which service the cell phone market.
So we're pretty active in terms of backing away not just from cell phones but consumer, these sort of high volume consumer applications. So we don't think that this is a long term play for us, at least presently in this market. It doesn't provide us sort of the annuity value of our product design efforts.
So even though the sales may ramp up quickly, they'll fall equally quickly. So for us, we have been for some time very opportunistic in that market and we'll continue to be that way going forward.
Uche Orji – UBS
Have you had to walk away from major design wins you've had recently or walk from products where the margins have fallen below a thresh hold for you?
Lothar Maier
I don't think we've had a lot of walk aways because I think that Paul said, the cell phones is really only about 6% of our sales now. I think what we have more is that we just don't engage in new opportunities that just don't make sense for us.
Uche Orji – UBS
Let me ask too about ASP. I think in your remarks you talked about this recession being unique in the sense that there hasn't been much pressure on pricing. Can you speak to why you think that is the case or is it a question of when pricing will become a problem? Is there any reason there hasn't been that this time around and what do you think will happen going forward?
And then my last question is to Paul, if you can just tell us based on the revenue guidance you've given what we should model for gross margin for June quarter?
Lothar Maier
On the pricing side, there's really a couple of things that help maintain pricing. The first is that most of LTC's products are proprietary products so it's not easy for once we get designed in that a customer can quickly change to a competing product, so that provides a lot of stickiness to our pricing. So I think that's one.
And I think just kind of the reality is, business for everybody has dropped tremendously and it's pretty hard for your customer to come to ask you for a huge price reduction when the amount they're buying from you has dropped dramatically. So I think both of those things are really helping to keep a bit of a governor on price reductions.
Paul Coghlan
And before I answer the question that you asked me, just to embellish Lothar's comments a bit. All of the questions that you're asking us on pricing, bear in mind that only 12% of our business is in consumer and cell phone last quarter. Those are the areas where most pricing questions come up.
When you're trying to extrapolate from Linear and say Linear says there's no price pressure in the market, you've got to understand, Linear is just has a different end customer base than everybody else. It's much more bifurcated and you really need to keep that in mind on our responses to pricing.
Uche Orji – UBS
Just on that point, are you seeing pressure right now in that consumer area right now on full pricing?
Paul Coghlan
There's always pressure in the consumer area. There's always pressure, so yes.
Uche Orji – UBS
More than normal?
Paul Coghlan
You're not listening well to me. It's 6% of my business. I don't want you extrapolating on 6% of my business. I'm not a broad based consumer guy. So I just don't think you can take much from what I'm telling you on consumer. The price pressure is about the same which means it's consistent and it's always been there.
Relative to gross margin, I don't like to go down the income statement line by line. But I told you in the end I thought our profitability would be similar and pre tax would be in the low to mid thirties, but I would think in the gross margin, I don't think there will be much of a change.
Operator
Your next question comes from Blayne Curtis – Jefferies.
Blayne Curtis – Jefferies
Your bookings commentary seemed to indicate pretty much a pick up in the consumer markets where the supply chain data points have been the strongest. I was wondering if you could talk about why you haven't seen a pick up there.
Paul Coghlan
We did see a pick up. Our cell phone activity which is consumer related was negative last quarter and this quarter we told you it was positive so we had.
Blayne Curtis – Jefferies
I'm talking outside the computer and consumer.
Paul Coghlan
In computer and consumer, both of those markets as bookings as a percent of our overall remained exactly the same percentage wise as the quarter before. But they're relatively small. One is 6% as I've said a couple of times on this call and the other was 11%. So they're not areas of particular emphasis for Linear so if you want to compare us to Intel, it's a big deal to Intel computer obviously. To us, it's a smaller part of our business.
Operator
Your next question comes from Christopher Danely – J. P. Morgan.
Christopher Danely – J. P. Morgan
On the end markets, it seems like some were a little stronger than expected, some were a little weaker than expected on the booking side. Can you just give us your sense on the relative strengths and weaknesses of your various end markets for the rest of the year?
Lothar Maier
Well that's difficult because we don't have a lot of insight into how subsequent quarters are going to be so that's a really tough question in this environment. It's hard to project much further out than the quarter you're in.
We talked about designing activity. Overall, the company feels pretty well positioned. We have a lot of good stuff that's in the design stage, some of which will be close to being moving from design to production. If these customers do well, if the economy picks up, all those ifs that I don't know the answer to.
So I think we see strength in a lot of areas. We don't talk cell phone, is what you've asked. That's a small part of our business, but we've got some good strong customers there. The consumer side moves in and out a lot so the things that you're in, in the early part of the year, you're out the back part of the year and you're in some other new opportunity. We see some of those opportunities, but we don't know whether those designs will come to market yet.
Relative to communications, there's a lot of things we've done in communications, a lot of things we've done in communications infrastructure. We're seeing some of it start to pay back now in the China area, but there are many other competitors also doing well there. But if you look at Linear vis a vis a few years ago, I think we have stronger offerings in our ADD's, our high frequency products and some of our signal conditioning products in the communications infrastructure and networking areas than we had in the years past.
And then in industrial, a lot depends on if this stimulus package, how that's going to work, what type of projects that's going to fund, but just basic industrial need to become more efficient, less chemicals in the environment, pure water, all kinds of things like that, there's a lot of things in both signal conditioning and in power management that we have opportunities, and smaller companies throughout the world.
Many of you folks ask questions in the Asia Pacific area and every question we ever get is about the consumer markets and the cell phone markets. Nobody ever asks us if we're making any progress in industrial markets in that part of the world, and we are.
So I'm kind of giving you a motherhood answer I guess, but we see lots of opportunities in lots of areas, but we're in the middle of a big recession, so I don't know how the second half of the year is going to play out.
Christopher Danely – J. P. Morgan
You have said over the last couple of quarters you're comfortable with these record high inventory days. Assuming that we're in this I guess lukewarm at best demand environment for awhile, how do we get back, how do you get back to that 77% to 78% gross margin level if we're not going to be back to even $250 million in sales for a couple of years or something like that?
Lothar Maier
It's your call that it won't be that in a couple of years, it's not our call. We don't see the market stabilizing like that. But while we're at $200 million in sales, our gross margin is going to be less than $300 million because we're absorbing the fixed costs of the plant over a smaller sales base. So it's just as simple as that.
Now once the sales volume picks up we should see improvements in that because we're not opening up new fabs. So we've got pretty much the infrastructure we need. We do have the infrastructure from a bricks and mortar standpoint to be a couple of billion dollars not an $800 million company. So I think there would be improvements in the gross margin as it relates to volume.
But in the interim, with the broad base of customers that we have, with the emphasis on good support, we don't think there's going to be big changes in inventory, and we don't think if you were on this side of the phone, you would be making big changes in inventory either.
Christopher Danely – J. P. Morgan
I guess to paraphrase, you think that at some point over the next year you're going to have a couple of big pops in revenue that will burn down that inventory, is that why you feel comfortable?
Lothar Maier
No, I'm not going to burn down the inventory. The inventory I don't think will get much less. You mean my turns ratio would pick up, but I'm not burning anymore inventory. I'm moving it in and out and replacing it with newer stuff and selling the stuff I have. But yes, I think that when sales pick up, you'll see inventory turns pick up.
Operator
Your next question comes from David Wu – Global Crown Capital.
David Wu – Global Crown Capital
On the 130 people that you were having a head count reduction, what's the rough breakdown between the different segments of your organization and how long do you think you can keep your employees working on short weeks? It's been going on for a couple of quarters already. If we go four quarters it becomes more or less a permanent thing. How would that affect the attitude of the people involved?
Lothar Maier
The breakdown of the 130 people, roughly you could probably say half of them were manufacturing people and the other half were support and engineering people, so it was about 50/50.
In terms of how long we can do shut downs, that's a good question. This particular quarter we're going to reduce the number of shut down weeks that we're asking the employees to take. We have in the past been able to continue to do shut downs for extended periods of times. During the dot com bust we were pretty successful in keeping the majority of the Linear team together really during a tremendous drop in sales and one of the things we did is we avoided doing a lot of layoffs even though we did have some layoffs at that time.
But we used shut downs for quite a long period of time and very successfully managed to keep the team together and then when business turned around, we had a skilled set of people in place to support that growth. Quite frankly, we're hopeful that we're going to be able to pull that off a second time during this downturn in business.
Paul Coghlan
We do things differently here and we've had a very loyal and hard working, dedicated employee base, but part of the reason they are that strong is that in good times, we share a lot of profits with these people with all of us. So that what you have is people I think have an understanding at Linear that in tough times like this, they see us having less layoffs than any of our competitors. You can read the headlines and you see that.
They do see that we have reductions due to shut downs and reductions in profit sharing. But they also have vivid memories we hope of the profit sharing being very high, and that they see good products coming out. They see the company being well directed we hope. And then they say, look when this thing turns around, these tough days will be rewarded.
David Wu – Global Crown Capital
Is there a benchmark that you would go to no more hours worked or days worked. Is that number $250 million a quarter or is there a level of revenues that in your mind that you no longer ask your employees to chime in in the sacrifice so to speak.
Lothar Maier
I don't think we've got a specific number. It will depend on a lot of circumstances, but I think we would have to expect to see some fairly significant pick up in sales before we would be able to dramatically unwind some of the things we've done. I think, I'm hopeful that our employees are patient and understanding that it's just one of the things that we have to do in these tough times and that we're working hard to make sure that the whole LTC teams stays together.
Paul Coghlan
And remember, we can't tell you when it's going to reach the $250 million level. We're all anxious to get there to use your number. But remember, this is relative. Just as the sales are down for us, they're down for everybody else also. So an employee looks outside and sees that as well. That's a typical environment all around us.
David Wu – Global Crown Capital
How do you work these fabs? I understand the fabs should not be turned up and down every so often. How do you tune that factory that you have up in Oregon to run at efficient rates when you have these shut downs?
Lothar Maier
We really address the wafer pad issue a number of ways. One is obviously, we shut them down, and for us there isn't a lot of inefficiency that develops by doing the shut down. Obviously during the shut down, depreciation on the equipment continues, but you do have some savings. So we're pretty efficient in terms of being able to turn a wafer fab off and on.
In fact in our wafer fab here in California we actually do that every weekend. So we only run Monday through Friday in our California fab and every Saturday and Sunday we close it down. So it doesn't build a lot of inefficiencies.
On of the things that we did as part of the layoff last time at this recent one, was to eliminate the weekend manufacturing in our Washington wafer fab, so that fab is turning itself off an on also every week. So it doesn't present us with a lot of inefficiencies.
Operator
Your next call comes from [Terrance Leyland – Citigroup]
[Terrance Leyland – Citigroup]
Looking at your guidance, there's a 6% variance range from the top to the bottom of your sequential growth pretty similar to last quarter where there were a lot more moving parts going on, and I know that you mentioned things have firmed up and stabilized so what do you use that same variance range and what are some of the swing factors either by customer type or end market that would cause your sales to be up 4% versus down 2%?
Paul Coghlan
First of all the range last quarter I guess you're alluding to, and the last three quarters I had a 10% range, a 5% range and a 6% range. You're probably putting more importance to the difference between 5% and 6% than we are internally. We didn't look at it like you did and parse it that finely in coming up with the difference.
In the past we've often given ranges around the 3% range. So these are difficult economic times. Lead times are very short. Historically, the company has given ranges in around the 3% range. To have that double in a time like this to 6% seems quite reasonable to us.
The second part of your question is what would have to do well and what would have to do poorly. Please bear in mind that we're very, very diverse and one of the advantages of being very diverse is that you don't have a lot of eggs in any particular basket so that just as last quarter, you could look back at last quarter and say, boy you did a lousy job Paul because last quarter you said distribution might improve and Europe might improve and those didn't. On the other hand, you met your number.
So we get a lot of benefit from the diversity we have so looking out to the June quarter, it's some of these bigger customers, if they continue to improve a bit and if the smaller guys towards the end of the quarter improve, we'd probably be closer to the higher end of our guidance.
If the big guys were just replenishing some inventory and they pause a bit, and the little guy just plods along, then we'd be closer to the bottom end of it. But I think it's more global issues like that than any one specific industry in how I do this quarter. That will determine whether we're in the down two or the up four.
[Terrence Leyland – Citigroup]
I think both in the March and June quarters, these are seasonal when you're strongest and September and December a little bit softer because of your lower proportion of consumer trends in cell phone and computing. What could emerge do you think in the second half that would actually create some sequential seasonal strength given your lack of participation in these typically back end loaded markets?
Paul Coghlan
What could improve? In the consumer markets?
[Terrence Leyland – Citigroup]
Right. How do you look at seasonality in the back half of the year and could your sequential pick up in the back half of the year just cite your lack of participation in some of these more back half markets like consumer.
Paul Coghlan
Well first off, the market is so different now. We're in the middle of a recession that has a lot of the angst in it caused by credit crisis. So we've not experienced that in the past, so we don't have a good benchmark to measure this against.
Secondly, the front half of the year hasn't followed the historical trends. So the back half of the year, if it were to do well and I don't know if all the stimulus and the recession will be gone by the back half of the year, but if it were to do well, I think some of the markets that we're in presently that have underperformed like industrial and some communications parts of it and automotive could pick up.
Consumer and cell phone, it depends where you are in those markets. If they're end products that have high elements of technology with a reasonable cost content in them, we could do well in those. If its stuff that's being sold very inexpensively and mass marketed, that won't be areas that we'll be in.
So you're asking me to look in a crystal ball that's quite fuzzy given the recession and the credit crisis, so I can't help you much.
Operator
Your next question comes from Auguste Richard – Piper Jaffray.
Auguste Richard – Piper Jaffray
When I think about what's going on in the business it seems like the markets with more inertia, parts of the communication, industrial and automotive have taken longer slow down and taken a little bit longer to work down their inventories whereas higher speed or higher velocity markets seem to have worked through the inventory correction pretty quickly and have gotten a bounce. Am I thinking about this correctly? Is that kind of what you guys are observing?
Paul Coghlan
Yes.
Auguste Richard – Piper Jaffray
Okay. So in the more lethargic markets, which ones do you feel are the furthest from getting through their inventory correction?
Paul Coghlan
Each of them have their own nuances. Automotive in some respects might be furthest, but automotive was already undergoing some fundamental changes to get more fuel efficient, to deal with more hybrid and electric type vehicles. So it was stuff that we were in there that actually we weren't going to see much of a pick up anyway in 2009. It was going to start more towards the end of 2010 and then kind of hit a good stride in '11.
So I guess a global answer to you would be automotive that I think is one that still probably has to work down inventories world wide. And just driving by the dealerships around here, I'd say it's got a way to go.
Auguste Richard – Piper Jaffray
Industrial and communications look like they're cleared?
Paul Coghlan
Industrial is just so many customers. I don't have any kind of bell weathers. I don't have three or four companies I look at and I say, gee these guys are turning. What I look at is the distributorships which I have 50% to 60% content industrial. And then I try to extrapolate from them.
And I've told you I think they're going to get a little weaker maybe in the June quarter. Japan, I think some of these places, Japan and Europe had plant shut downs and things like that that probably aren't repeating in the June quarter, so towards the end of the June quarter, we may see some stabilization in the distributorships in those guys.
And also automotive. Like Japan, particularly in automotive, we seem to get the word that Japan thinks its inventories are more in line now than they were awhile ago. So I could paint you an optimistic picture. I could paint you a pessimistic picture. I think we're just kind of feeling our way through this.
Operator
Your next question comes from [Wayne Jarvis – Janco]
[Wayne Jarvis – Janco]
I was wondering if you could comment on overall standard Linear markets sort of trough to trough growth rates and peak to peak growth rates. It seems that Linear Technology is up slightly but how can you continue to add a few points to the industry growth rate. It can be through acquisitions. We really haven't seen much despite the stock market being down or new markets investing through R&D.
Paul Coghlan
When I try to answer that question I have to look historically. So you go back, if you say the last ten years, my guess is in the last ten years probably six or seven of those there's been greater growth in high performance analog than there's been in commodity analog. In a couple of those years, there's been faster growth in commodity analog where you had consumer products, cell phone build outs in third world economies, a lot more less expensive products being sold on higher volumes.
Generally when you come out of one of these types, and those usually lead to some sort of correction, when those of kind of gotten ahead of themselves, and you're kind of going through not a small correction, but a major correction. Then when you come out of these types of corrections as we've said earlier in this conference call, a lot of that is driven by more high performance, more kind of complicated innovative stuff. It's kind of tricky. It needs to be done just right and that feeds us well.
So go to the very first part of your question, if you were to go back to 2005, 2006 and 2007, you'd see if you looked at the analog market that standard Linear didn't grow as fast as application specific Linear did. But if you look at 2008, standard Linear grew a lot faster than application specific.
Now in some of the application specific like industrial application specific and automotive, that was starting to pick up. Automotive is going to drop back now, but I think in 2009 and '10, I think you'll see standard continue to outgrow the high volume application specific consumer end communications areas.
So if that happens, and you're a leader in that area which we have been and continue to be, I think that's when you find Linear continues to outperform its competition on its revenue growth as well as maintaining and increasing its margins.
[Wayne Jarvis – Janco]
Can you put a little more color on acquisition versus re-investing?
Paul Coghlan
I'm sorry, I didn't address that. We've never been acquisition oriented so we really are not active at all in that area. If you look at our margins and you look at the end markets as we talk about it, I hope you conclude that our calls are different than the other calls.
We talk about different markets and different profitability ranges etc. So for us to acquire a company in the other area of the market is really going into an area we don't have a particular interest in being in. We could kind of do that if we wanted on our own. So frankly we've never been much focused on acquisitions, aren't presently and I doubt if we will be in the near future.
Lothar Maier
And the market even today, $25 billion, $28 billion whatever it is, it's still huge relative to our penetration so the size of the opportunity has never really limited our ability to grow.
Operator
Your next question comes from Romit Shah – Barclays Capital.
Romit Shah – Barclays Capital
It looks like stock compensation expenses is increasing as a percentage of net income. Is that just in the current environment? Are you giving employees more stock options as a percentage of their total comp?
Paul Coghlan
Yes. What we did do, we did have some more stock granted at the beginning of the March quarter so that's what partially impacted the cost in the March quarter. You may recall we had kind of a bit of a snafu if that's the right word at the end of the December quarter in that we accelerated some stock options at the end of the December quarter and then on further reviewing the accounting there was a more conservative way to account for that, and then we changed to that.
So an expense we thought was going to go away remained in the numbers for the March quarter. And then in the March quarter we had some grants at the beginning of the March quarter. So you're correct. There's about $3 million plus more costs in stock based compensation, I think $3.7 million more this quarter this quarter than last quarter.
Romit Shah – Barclays Capital
But this isn't necessarily a one quarter thing. It's a way to incentivize employees with the low stock price and also helps support the margins?
Paul Coghlan
I don't know about help support the margins, I don't know what it has to do with that. But we're very cognizant that the employees are making sacrifices at this time and so we're trying as many ways as we can to incentivize the employee base. Lothar talked about a few things. There are other things that we do. So the employees are real critical to us. That's what makes us the success we are.
But when you said support the margins, what did you mean by that?
Romit Shah – Barclays Capital
I just assumed that if you're paying employees with a greater percentage of stock option, that expense gets mortised over a long period versus just a straight salary.
Paul Coghlan
That depends on the magnitude of the options and all of that. So I don't know if it's fair to draw that conclusion.
Operator
Your next question comes from Kevin Rottinghaus – Cleveland Research.
Kevin Rottinghaus – Cleveland Research
Your channel inventory, was it up or down in Asia specifically this quarter?
Paul Coghlan
You mean Asia Pacific?
Kevin Rottinghaus – Cleveland Research
Yes.
Paul Coghlan
Are you talking distribution?
Kevin Rottinghaus – Cleveland Research
Yes.
Paul Coghlan
We don't know. We had two guys looking at one another. One of them is thumbs up and the other one with thumbs down. Distribution inventory in Asia went down.
Kevin Rottinghaus – Cleveland Research
China's percentage of revenues, how big it is now and how big it was last quarter?
Paul Coghlan
I don't have it broken down by country but China improved last quarter. It's not a huge part of revenues. Its well under 15% but what it is specifically, I don't know.
Kevin Rottinghaus – Cleveland Research
Are you able to give any kind of color on how much the wireless infrastructure specifically helped out in the quarter?
Paul Coghlan
The wireless infrastructure from a booking standpoint, the whole infrastructure area went from 27% to 28% of our bookings. So that grew a bit in the quarter but not dramatically.
Kevin Rottinghaus – Cleveland Research
Was it stronger than the rest of your business as far as bookings? Was it your best area? Were there ones that were better in terms of growth in bookings?
Paul Coghlan
One was better because it started negative. So the best would have been cell phones because it started negative. But if you back cell phone out of it, you're correct. The strongest area for us would have been the infrastructure.
Kevin Rottinghaus – Cleveland Research
Did you say what your turns were and where they need to be this quarter?
Paul Coghlan
No, but the last quarter they were slightly over 60%. This quarter they're slightly under 60%.
Operator
There are no further questions at this time. I will turn the conference back over to our speakers for any additional or closing remarks.
Paul Coghlan
Thank you very much for your attention. We met our guidance last quarter. There are some areas we've seen some strength. There are some areas we still think there's some corrections in the market that need to take place. Overall, we think as we said, we think we'll be down 2% to up 4% and we wish you a good day. Bye.
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