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Linear Technology (NASDAQ:LLTC)

F3Q 2013 Earnings Call

April 17, 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

Joseph Moore - Morgan Stanley, Research Division

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

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

James Covello - Goldman Sachs Group Inc., Research Division

Steven Eliscu - UBS Investment Bank, Research Division

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

Aashish Rao - BofA Merrill Lynch, Research Division

Ambrish Srivastava - BMO Capital Markets U.S.

William Stein - SunTrust Robinson Humphrey, Inc., Research Division

Shawn R. Webster - Macquarie Research

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

David M. Wong - Wells Fargo Securities, LLC, Research Division

Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division

Craig A. Ellis - B. Riley Caris, Research Division

JoAnne Feeney - Longbow Research LLC

Operator

Good day, and welcome to the Linear Technology Corporation Fiscal 2013 Third Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to the conference over to Mr. Paul Coghlan. Please go ahead, sir.

Paul Coghlan

Hello, good morning. Welcome to the Linear Technology Conference Call. I'll be joined today by Bob Swanson, our Executive Chairman; and Lothar Maier, our CEO. I will give you a brief overview of our recently completed third 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 yesterday. First, however, I'd like to remind you that except for historical information, 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 December 30, 2012, 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'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 the time we're free to respond to these questions.

As you can tell from our press release, the March quarter was a good quarter for us, with sales up 3% which was towards the high end of our guidance. This time a quarter ago, we reported that business, which had been slow, picked up in December, and that this pickup carried through our January reporting date. This new rate of business continued throughout the current quarter. And whereas we entered the quarter with a negative book-to-bill ratio, we are exiting it with a positive book-to-bill ratio. Business has largely remained at this new level and not accelerated significantly beyond it.

Customers presently tend to be a bit bipolar; on one hand, conservatively ordering to the low end of our published lead times, and on the other hand, frequently expediting us to pull in shipments. This we believe is evidence of continuing end market demand and generally low inventories and also caution on accelerating growth potential due to the overall global macroeconomic environment. In summary, a quarter of good but measured progress.

Sales increased by 9%. Gross margin percentage increased from 74.4% to 74.8%. We again had shutdowns and/or holidays in all of our factories and expect them to continue at a slightly less pace in the June quarter. ASP at $1.84 was similar to last quarter's $1.85. More industrial and automotive businesses and less computer business helped margins modestly. Operating expenses increased modestly by $2.6 million. We again had shutdowns in the operating expense area, but do not plan for them to continue in the June quarter. Operating income at 44% of sales increased from 43.5% last quarter and was in our forecasted range. Below the line, interest income and expense were unchanged.

Finally, income taxes decreased significantly. The America [indiscernible] reenacted the R&D credit and made it retroactive to all of calendar 2012. This had an impact of roughly 10 points on our effective rate, of which 2 points will be ongoing [indiscernible] 5-point effect on this quarter's effective tax rate. As a result, the March quarter tax rate was 12.75% versus 27% last quarter. The resulting net income of $110,968,000 is 35.3% of sales versus 29.1% last quarter. This improvement is largely due to the reduced tax rate and partially due to increased sales. Headcount was down roughly 0.5% due to modest reductions in our foreign manufacturing plants. In summary, the effects of the items I just listed on the published quarterly results was that revenue was $314.5 million for the third quarter of fiscal year 2013, compared to the previous quarter's revenue of $305.3 million and $312.4 million reported in the third quarter of fiscal 2012.

GAAP earnings per share of $0.46 increased $0.08 from the previous quarter's earnings per share and $0.04 from that reported in the third quarter of fiscal 2012. GAAP net income was $111 million compared with $88.8 million last quarter and $98.5 million reported in the third quarter of last year. EPS would be $0.54 on a pro forma basis, which excludes the impact of stock option accounting and the amortization of debt discount, which is a 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, cash equivalents and marketable securities increased by $155.1 million to $1,454,500,000. In the previous quarter, the company accelerated the payment of its March quarterly dividend into the December quarter to benefit stockholders due to fiscal cliff uncertainty. Consequently, the company had no dividend payment in the March quarter, but had 2 in the December quarter. The company will pay a quarterly dividend of $0.26 per share, which is the per share quarterly rate that the dividend was raised to in December. That marked the 21st consecutive year the company has increased its dividend. The cash dividend will be paid on May 29 to stockholders of record on May 17.

Looking ahead to the June quarter, we are expecting modest growth. Global macroeconomic conditions, although improved from the second half of 2012, are still not robust. Two of our largest end markets, automotive and industrial, are growing faster than other analog end markets. Customers generally acknowledge growth, but continue to order cautiously to the low end of published lead times. As a result, we're currently estimating revenue growth in the same range as we guided last quarter, 1% to 4% for our fiscal fourth quarter. Operating profits we expect to grow also, but given our modest growth projections, to be in a range generally similar to modestly up from last quarter as a percent of sales. Now I'd like to address the quarter's results on a line-by-line basis.

Starting with bookings. Bookings increased this quarter over last quarter. They started strong relative to the previous quarter and continued at this improved rate. Contrary to the two previous quarters, we had a positive book-to-bill ratio. Geographically, bookings were up both in the U.S.A. and internationally. Internationally, bookings were up in Europe and Asia-Pacific, but down in Japan. Bookings were up in absolute dollars in every end market, except computer and mil space. There was particular strength in the automotive and industrial end markets. 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 continues to be our largest area. Industrial was 43% of our bookings, up from 42%. Geographically, Europe and Asia, as expected, were particularly strong, with Japan being the weakest. Our industrial business is very broad-based, both geographically and by end product.

The communications area at 20% was down from 21% last quarter, largely due to rounding as that area increased in absolute dollars. Most large communications infrastructure and networking customers were up modestly. Cell phone continues to be a very small part of our business and rounds to less than 1% of our business. Computer declined from 11% to 10% of our business and also modestly in absolute dollars. Within computer, we service opportunities in notebooks, desktops, tablets, servers, storage devices and printing and imaging products. Notebook and desktops showed the most decline.

Automotive was a robust area for us, increasing from 16% to 18% of our business. Europe and Japan were very strong, with the U.S.A. improving also and Asia-Pacific being relatively flat. The expansion of existing Linear parts into new car models and also new parts from new programs 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, which has been our smallest end market, remained at 3% of bookings, although increasing in absolute dollars. Finally, the military, space and harsh environment products declined from 7% to 6% of our business. The U.S.A. and Europe are the predominant geographic areas for this business. U.S.A. was somewhat impacted by the national budget savings expected out of the military area.

In summary, these end markets, this is a good distribution of business by end markets for us. Whereas 4 years ago, 16% of our business was in cell phone and high-end consumer related markets, now only 3% of our business is in these general commodity and volatile analog areas. On the other hand, automotive, which was 8% of our business 4 years ago is now 18% of our business, reflective of the increasing electronic content in vehicles concurrent with high standards for quality and reliability. Note that we have a good balance of where our bookings are actually created, with 43% of them created in the U.S.A. and 57% internationally, generally similar to last quarter.

Moving from bookings to sales. Sales increased 3% from the prior quarter and 1% from the similar quarter in the prior year. Sales increased in Europe and the U.S.A., somewhat offset by decreases in Japan and Asia-Pacific. In summary, the U.S.A. remained at 29% of sales, although up in absolute dollars. Europe at 20% of sales grew from 17% last quarter. The March quarter is usually seasonally strong for Europe as it comes off a December holiday-rich quarter. Japan at 14% was down from 15% last quarter. The new government has instituted strong stimulus, which while weakening the yen, may help exports moving forward. Asia-Pacific at 37% of sales was down 2 percentage points from the prior quarter, largely due to the Asian New Year holiday and seasonally less consumer sales in the March quarter.

Moving to gross margin. Gross margin at 74.8% of sales improved from 74.4% in the previous quarter, largely due to absorbing fixed costs over a higher sales base. Average selling price at $1.84 was similar to last quarter's $1.85. There was a slight improvement in mix as we had lower shipments into the computer end market. The factories continued having shutdowns in the quarter and will continue to do so in the June quarter.

R&D. R&D at $58.5 million increased $1.2 million from the $57.3 million reported last quarter. However, decreased as a percent of sales to 18.6% from 18.8% reported last quarter. Labor cost increased primarily due to fewer shutdown days, fringe cost on stock option exercises and modestly higher profit sharing on increased sales. Other non-labor-related R&D expenses decreased modestly in the period.

Selling, general and administrative expense at $38.5 million increased $1.4 million and increased slightly as a percent of sales to 12.2% from 12.1% in the prior quarter. Labor cost increased similar to that reported in R&D, largely due to fewer shutdown days, fringe costs on higher stock option exercises and modestly higher profit sharing on increased sales. Non-labor-related SG&A cost increased modestly in the period.

Operating income. As a result of the above, operating income increased by $5.6 million or 4.2%, and as a percent of sales, increased to 44% from 43.5% last quarter. Spreading fixed cost over an increased sales base largely contributed to the improvement. This is 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 $5.3 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 $127.2 million, up $5.5 million from last quarter. Pretax profits are now 40.4% of sales versus 39.9% last quarter, with the improvement due primarily to higher sales volume.

Our quarterly effective income tax rate at 12.75% was significantly lower than the 27% reported in the previous quarter. U.S.A. legislation pertaining to the fiscal cliff reinstated the R&D credit and made it retroactive through all of calendar 2012. Consequently, Linear reported 5 quarters of R&D tax credit benefit in the March quarter. In addition, the company reduced reserves for estimated tax liabilities for fiscal years that in the quarter became no longer subject to audit. Going forward, the company expects that its effective tax rate for the June quarter will be 25% and will include that quarter's benefit of the R&D credit. Resulting net income of $111 million is an increase of $22.1 million from the previous quarter, due mostly to a lower tax rate and partially to higher sales volume. Resulting return on sales was 35.3%, up from 29.1% last quarter.

The average shares outstanding used in the calculation of earnings per share increased by 1.8 million shares. This is a large increase for us and was due primarily to a significant increase in employee stock option exercises. Employees exercised approximately 2.1 million shares. The company purchased approximately 640,000 shares in the open market to partially offset this dilution.

GAAP earnings per share was $0.46, which was an increase of $0.08 from the prior quarter. On a pro forma basis, without the impact of stock-based compensation of $16.1 million and noncash interest expense of $5.3 million, diluted earnings per share would've been $0.54 per share compared with $0.44 last quarter and $0.49 in the second quarter of last year.

Moving to the balance sheet. Cash and short-term investments increased by $155.1 million. $127 million was provided by operations and $62.5 million was provided from the exercise of stock options by employees. $4.2 million was used to purchase fixed assets and $30.2 million was used to repurchase both common stock, purchased in the open market, and restricted stock from employees.

For the 108th consecutive quarter, the company had positive cash flow from operations. Last quarter, the company had accelerated the payment of its March quarterly dividend into the December quarter to benefit shareholders due to fiscal cliff uncertainty. Consequently, roughly $62 million of the quarterly dividend was paid in December and not in March, thereby favorably impacting the March quarter's cash generation. Our cash and short-term investment balance is now $1,454,500,000 and represents 70% of total assets. The company currently plans to use approximately $845 million of its cash to call its outstanding convertible bonds in May 2014.

Accounts receivable of $143 million decreased by $2.1 million from last quarter, although revenue increased by $9.3 million. This anomaly was due to heavy collections in early January, as some calendar year-end customers had delayed payments into the new calendar year. Our day sales and accounts receivable were 41 days, down from 43 days last quarter.

Inventory at $86.6 million increased $1.4 million from last quarter. Linear raw materials inventory decreased $235,000, WIP increased $1,016,000 and finished goods inventory increased $613,000. We continue to believe investing modestly in WIP inventory, while maintaining our production capacity, will again enable us to best service customers when demand accelerates. In summary, our quarterly average inventory turns is 3.7x, similar to last quarter. Deferred taxes and other current assets of $75.7 million increased $6.4 million, due primarily to an increase in deferred taxes on short-term timing differences on items treated differently for tax purposes than for book purposes.

Property, plant and equipment decreased by $8.2 million. We had modest additions of $4,169,000 and depreciation of $12,374,000. Most of the additions were for building improvements in our Raleigh, North Carolina design center and for manufacturing, test and fabrication equipment worldwide. For fiscal 2013, we expect additions to be roughly $15 million to $20 million and depreciation roughly $50 million. Other noncurrent assets decreased by $1.4 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 22.2%, up from last quarter's 18.3%, due primarily to improved net income for the quarter. Our current ratio is 12.9:1, up from 9.8:1 last quarter.

Moving to the liability side of the balance sheet. Accounts payable increased by $212,000, largely due to timing differences on recurring payable items. Accrued income taxes, payroll and other accrued liabilities decreased by $26.2 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 increased as we had no semiannual interest payout this quarter. The profit-sharing accrual decreased as we had our semiannual payout, partially offset by this quarter's charge. Payouts are made in the first and third fiscal quarters.

Finally, our income taxes are down due to the lower quarterly income tax charges discussed earlier. Deferred income on shipments to distribution decreased by $494,000, as our shipments to U.S. distributors were less than they shipped out to their end customer. Our accounting on shipments to U.S. distribution is conservative. We do not record a sale nor income in our results of operations 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 $5.3 million. This increase reflects the noncash amortization of debt discount charged to the income statement. Deferred tax and other long-term liabilities of $165.6 million increased $13.8 million, largely due to deferred taxes on several items, including stock option exercises and tax-deductible interest on a convertible bond. Changes in the stockholder equity accounts were primarily the result of the usual quarterly transactions for net income and employee stock activity. There was no dividend payment this quarter since there were 2 payments in the previous quarter. However, the company announced that it will pay a quarterly dividend of $0.26 per share on May 29 to shareholders of record on May 17. 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 pays approximately a 3% yield.

Looking forward. Looking forward, we see our business improving but modestly, as most customers seem to be measured in their outlook. Not pessimistic nor overly cautious, but just measured and somewhat still risk averse until they get better global growth projections. For us on the positive side, March was a good bookings quarter. Bookings definitely improved from the previous quarter, and we had a positive book-to-bill ratio. Our bookings were particularly strong in end markets of concentration for us: industrial and automotive. Both of these end markets are in innovation cycles, energy efficiency in industrial and higher electronic content in automotive. Both of these end markets are also the fastest growing within the analog industry. In the last 3 calendar years, the overall analog market grew at a 7% compounded annual growth rate. Whereas within analog, industrial grew at a 12.8% compounded annual growth rate and automotive at a 22.6% rate. Linear itself overall grew 12.5% compounded for the 3-year period.

For us, the signs that growth will be modest are: Although bookings improved from the prior quarter, they reached a new plateau within the quarter and did not accelerate further from there. Overall, customers are generally acknowledging growth, but booking to the low end of our published lead times and then expediting us to meet their current demand. So their inventories are low, but they are relatively risk averse to adding to inventory levels. Although our leading end markets are doing well, other important end markets, communications infrastructure and particularly computer, are showing little near-term expansion. Finally, the global macroeconomic outlook is in need of further improvement. U.S.A. is still wrestling with its budget and how to fund it. Europe has big elections forthcoming in Germany. Japan is struggling with deflation, and China is deciding on further growth incentives.

Summarizing these various data points again gives us a positive bias. And we currently forecast revenues to improve in the June quarter 1% to 4% over the March quarter. We expect operating income to grow in absolute dollars, but to remain generally similar to slightly up as a percent of sales. Our effective tax rate will be more normalized at a 25% rate in the June quarter. The company expects to continue having limited factory shutdowns in the quarter, but no shutdowns in the operating expense personnel area.

Looking beyond these near-term market conditions, the major market opportunities that drive our business demonstrate continuing growth, particularly in the industrial and automotive end markets. Increased analog innovation in 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, networking and automotive, and believe that 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'll go first to John Pitzer with Crédit Suisse.

John W. Pitzer - Crédit Suisse AG, Research Division

Paul, given that the June quarter tends to be one of your seasonally stronger quarters, and as you move into the back half of the calendar year, some of your end market exposures go into seasonally weaker quarters, how are you guys thinking about seasonality for the year? Is it just irrelevant and being trumped by what happened to the macro in the back half of the year? Can you give me some color there?

Paul Coghlan

I think our guess is you answered it with your last comment, that a lot is going to depend on the macro in the second half of the year. We have a lot of good opportunities, as we talked to you about in industrial and automotive. Industrial does in a normal year have more strength in the front end of the calendar year than the back end. But given the somewhat conservatism among customers, and they're holding relatively light inventories in our belief, it's kind of hard to predict that 2013 will have similar seasonal characteristics as historically happens.

John W. Pitzer - Crédit Suisse AG, Research Division

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

Paul Coghlan

Well, I think again it grew this quarter. It just did not grow as a percent of sales, reflective of the fact that we had more growth in industrial and automotive. But for us, we're like most of you, we're kind of waiting to see the infrastructure build outs and what happens in those areas and when they take place and geographically where they take place. I think overall networking, we think, is reasonably okay. Our major customers, they are all increased their bookings somewhat modestly in the March quarter. But relative to industrial and automotive, we think growth in communications will be less than the other 2 areas.

John W. Pitzer - Crédit Suisse AG, Research Division

And then, guys, for my last question, on just about any metric, you guys tend to be at the high end of your peer group with perhaps the one exception, when you look at kind of dividends plus buybacks over the last 4 years, you guys have kind of been more at the low end of that peer group, high on dividend, but low on buyback. Just given the resiliency of the business model and the cash flow generation capabilities, I know the ASR in '06 didn't go as well as you thought. But what are your thoughts around using cash to buy back stock and perhaps generate earnings growth and total returns?

Paul Coghlan

Well, you mentioned 2 of the 3 legs of the stool. You mentioned dividends and you mentioned buybacks. The third was we have had debt, the convertible debt. And we've been clear that we've been accumulating cash to pay down that debt. That debt is -- we can call that debt in May 2014 and have an intention to do that. So funds that might have been diverted to say, a buyback of some sorts have been set aside to pay down the debt. We did increase our buyback this past quarter. Again, that though was attributable to the fact that we had more stock option exercises and wished to employ that cash to reduce the share count. So I think going forward, if you look out a few years, I think we'll have a balanced approach between increasing the dividend, like we have every year, and would hope to continue to do so, and also perhaps increasing our buyback activity to keep the share level flat.

Operator

We'll go next to Joe Moore with Morgan Stanley.

Joseph Moore - Morgan Stanley, Research Division

I want to ask about autos. We've seen -- your business obviously was very strong. We've seen a number of negative automotive sell-through data points, particularly out of Europe. And I know you guys have outgrown the auto market by a lot. But is there any possibility that you're seeing -- you'll see a delayed reaction to any of the weakness, was there a lackluster sales in the U.S. and despite disappointments in Europe on sell-through of cars?

Paul Coghlan

Well, I think the benefit that we see from sales growth in the automotive comes really from 2 fronts. One is, we obviously benefit when more cars get sold. And number two is, we benefit when the electronic content in cars goes up. And the second one is something that's clearly happening, just the proliferation of electronic devices in cars is pretty much unstoppable at this point. So even if car sales -- number of cards sales don't increase, we're still going to see growth because of the content. And in some of our automotive customers, even though maybe sales have been kind of lackluster in Europe, are seeing some pretty record sales in geographies outside of Europe, North America and China would be examples. And then our Japan automotive sales really had a pretty good uptick last quarter as well. So it'd be great if overall car sales increased. But even if they didn't, we would probably continue to grow.

Joseph Moore - Morgan Stanley, Research Division

Great. And within automotive, is it the same kind of lead time inventory dynamic that you see elsewhere where people are ordering to very short lead times and then expediting, or is the dynamic different from other areas?

Paul Coghlan

I think the dynamic is pretty much the same across our entire customer base. People just don’t want to carry much inventory, and so they tend to place orders right at lead time and sometimes even shorter than our lead times and then expedite it.

Operator

We'll go next to Chris Caso with Susquehanna Financial Group.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Paul, I just wondered if you could clarify one of your earlier comments where I think you talked about the sell-through in distribution was greater than what you're selling into them to the deferred revenue. Does that imply that you drained some additional inventory out of the channel in the quarter? And maybe just comment on where the channel inventory is right now.

Paul Coghlan

The increase -- or the decrease in deferred revenue was very small. It was about, I think I said $464,000 or some number similar to that. So we shipped roughly -- not roughly, very close to the same amount into the channel as they shipped out, maybe just a little bit less. So I don't think there's anything significantly to read into that, other than that distribution channel just as the customer channel is carefully monitoring its inventory levels. And we also don't want too much inventory to build up in the distribution channel.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Okay, great. And I guess just in general, when you look at it from a seasonal basis and maybe from a cyclical basis, how would you characterize what you're hearing and what you're seeing from the customers now, relative to perhaps what we saw last year, where we saw low inventory levels in the channel and some better booking trends in the beginning of the year. And that kind of petered out towards the end. I mean, what kind of feeling do you get from the customers? What do you guys think at this point, given what you've seen so far?

Paul Coghlan

Well, I think there's still a concern in the customer base about the overall macroeconomics. The U.S. growth is relatively sluggish. It seems like even though we thought we crossed the tax barrier, that maybe we didn't. There's still talk about increasing taxes. The sequester, as you know, the arm wrestling match going on with that in Congress. Europe has its issues. Japan definitely has issues, although they're trying to address it with stimulus, see if that works. And then China has a -- so I think last year, there was, as you got into the second half of the year last year, there was, I think, bigger macro concerns that there would be something imminent. Now I think there are macro concerns but less optimism that there'll be something imminent, but also not a feel that the macro concerns are as dire as they could have been if things really went south at the end of last year. So I think if you're a businessman, you're kind of dealing with that environment. You have innovation going on in your marketplaces, particularly automotive and industrial relative to historic times as we've discussed. I think you still have opportunities to sell your product and opportunities to grow your product. But you're just balancing that whole thing very carefully and don't seem to want to make a big investment yet in inventory. Now if something positive happens in the macro side, if something happens that people say, I shouldn't be as cautious, we do think we can sell more. This could pick up in the second half of '13. But we don't know. And so in some ways, it's a little bit like Yogi Berra said, it's déjà vu all over again, but maybe not quite as stringent as the second half of last year.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Just as a final one, and given your business is perhaps not as seasonal as some of your peers in the back half of the year, is there something you see in the horizon which would really require those customers to start putting more inventory in place? Or is it just this is just going to continue for the foreseeable future until we see some more robust macro improvement?

Paul Coghlan

I think it's going to continue until we see more robust macro improvement. Now maybe if a few guys blink early, then something will happen. But right now, I would think it's going -- people want to see a little more macro improvement. Now that doesn't mean business is bad out there. It means it's just not growing as much as maybe folks expected it would going into the June quarter. It's still growing. It's still improving, but not quite as robustly as maybe some people would have expected.

Operator

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

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

Paul, could you talk a little bit about linearity of bookings and what you've seen so far here in April?

Paul Coghlan

Yes, bookings, as I'd said in my opening comments that bookings picked up early, very early in the quarter. As we told you 3 months ago, that early January had good positive signs. And the bookings have stayed -- they picked up and generally have stayed at that level. So they didn't go back at all. And we've kind of what -- I use the term reached sort of a newer plateau, but we're at that plateau presently.

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

Very good. And you talked about having no OpEx shutdowns next quarter, but you will still have some fab shutdown. When will that change, is it a certain revenue level or is it more sort of what you talked about before, customers maybe being a little bit more eager to order beyond short lead times?

Lothar Maier

Well, as Paul said, the OpEx, which is the all non-manufacturing employees, we've already made that decision as of this quarter. We will not have any more shutdowns. And the only shutdowns we have are in the wafer fabs presently. And what we're doing is every quarter, as business improves, we have fewer shutdown days. We will continue to have shutdowns going forward, but the number of days will decline. It's really just largely dictated by sales.

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

Very good. Last question. Looks like you're still getting a benefit to your tax rate this quarter, 25%. Is that a number we should also dial in for fiscal '14?

Paul Coghlan

Yes, I think that'll be a good number going forward.

Operator

We'll go next to Jim Covello with Goldman Sachs.

James Covello - Goldman Sachs Group Inc., Research Division

I wanted to follow up on the plateauing of orders and the fact that it sounds like orders did not drop off at the end of the quarter. I know that's a concern for a lot of folks. Were there any subsegments in which orders dropped off? Or did orders kind of plateau in all of the segments?

Paul Coghlan

Well, Jim, we really summarized orders by end market really for purposes of this call and for talking with the investment public. And I told you automotive was very strong, industrial was strong. I don't know of any change since the start of this quarter in the distribution of orders, which have remained, as we said, at this kind of plateau, which is a step up. So I don't have any color commentary to tell you as to whether it's one end market or the other in the last 2 or 3 weeks.

James Covello - Goldman Sachs Group Inc., Research Division

Okay, that's helpful. And then as a follow-up, your guidance, what does it assume about turns and those expedites, those occasional expedites you're talking about versus what you might normally see?

Paul Coghlan

Turns, I think, will be similar to last quarter. Last quarter we told you was in the mid-to-high 50s going into the quarter, which is -- should be easily manageable given our lead times are 4 to 6 weeks. And it's kind of hard to predict expedites. But the one thing that Lothar did tell you is, we've had significantly more expedites than normally we would have. But concurrent with that, people are ordering to the low end of our lead times. So hopefully, we can -- hopefully -- actually, hopefully, we'll have less expedites and people will order more to the midpoint of...

James Covello - Goldman Sachs Group Inc., Research Division

But no explicit expedites assumed in the guidance?

Paul Coghlan

I don't quite understand your question. I mean -- you mean -- what do you mean by explicit? Like do I need expedites to meet that?

James Covello - Goldman Sachs Group Inc., Research Division

Correct.

Paul Coghlan

No. No, we don't.

Operator

We'll go next to Steven Eliscu with UBS.

Steven Eliscu - UBS Investment Bank, Research Division

First question, I just wanted to follow up on what you mentioned earlier about good opportunities in the industrial segment in the back half of the year. And specifically, are there any energy efficiency mandates globally that kick in that could result in some type of accelerated growth relative to the macro trends?

Lothar Maier

I'm not aware of any mandates from governments to improve energy efficiency that's going to affect us. But I think there's just a general trend among most if not all of our industrial customers, where there's a preference for energy efficiency, obviously, as the cost of energy goes up pretty much everywhere. And that our customers, our industrial customers want better efficiency. They want smaller form factors. They want portability. And all of those types of factors benefits really our sales into the industrial market.

Steven Eliscu - UBS Investment Bank, Research Division

So your comments specifically are more around the design win pipeline that you see ramping up in the back half of the year. Is that correct?

Lothar Maier

No, I don't think the design win is going to have -- that's kind of a steady thing that happens all the time, from the time that we get a design in and win to when it goes to volume production takes longer than a quarter or 2. But I think what we're seeing is strength. It's really in business that we've won already that continues to look good. And obviously, on top of it, there's some new business as well.

Paul Coghlan

And I think your question centers around the comment I made earlier in response to a question. And the question was -- that we were asked was, in a so-called normal year, the industrial business for us is normally stronger in the first half than the second half. And the comment I made was given that this year, industrial overall business, not just industrials, off to not as fast a start as normally we would see that inventories have been very, very low. So the comment was that as inventory pressure eases up at all, then you could have the back end of the year not be typically seasonal because demand would pick up more as folks ordered more inventory and business picks up. So it was my response to that question that said industrial could pick up in the second half of the year.

Steven Eliscu - UBS Investment Bank, Research Division

Understood. And just as a follow-up question, just trying to get a sense of dynamics when you're talking about industrial and automotive as being strong. I mean, is this really a case where the industrial and auto are fairly close to what you would expect in a healthy macro and being weighed down by computer and military and communications? Or is -- would you just generally just say that they're all below trend line?

Paul Coghlan

No, I wouldn't -- we wouldn't say that. I think we told you auto got to 18% of our business. So even in absolute numbers, that's a very strong historical number for us. So I don't think they're the lesser of a bunch of weak end markets. I think industrial and automotive markets are doing well, pretty well right now. They could do a little better if inventory -- if they wanted a little more inventory. But I think they're doing reasonably well.

Robert H. Swanson

Historically well.

Paul Coghlan

Now computer as you all know, isn't doing as well. But we told you computer was down, but it was only down 1%. So it wasn't like the bottom fell out of the computer number. And then communications, we told you, was actually up in absolute dollars but down slightly as a percent, more reflective that bookings grew faster than sales have been in the quarter.

Lothar Maier

I think to add to that is, the industrial and automotive markets are quite frankly going through, as Paul mentioned earlier, an innovation cycle. And so they're strong for us not only on a relative basis, but on an absolute basis, we think there's just a lot of innovation and a lot of analog content going into those markets. And that's why they're the fastest-growing markets for us.

Operator

We'll go next to Romit Shah with Nomura Securities.

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

Paul, I know you made some comments earlier about turns. But on bookings for Q2, do you -- would you expect bookings to be up sequentially here in the June period?

Paul Coghlan

Yes. We don't know yet, but yes.

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

Okay. And then just on gross margins. I don't think anyone would ever ask you guys to apologize about gross margins. But as I look at the numbers today versus, say, March of 2010, sales are pretty similar, $310 million to $315 million. Your mix though is a lot more profitable. Consumer and computing are much smaller as a percentage of sales. And then your ASPs are higher, $1.85 versus $1.62, but gross margins are 4 points lower. And is that just extra capacity, lower utilization, what have you?

Lothar Maier

I think you've got it right there. We're tooled and staffed up for probably close to $400 million a quarter of sales. And so we're carrying some capital equipment and people and the inefficiencies associated with doing some shutdowns. And so as our sales increase, you'll see the gross margins get closer to historic.

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

And Lothar, if we just happen to stay in this, call it, stall mode for the foreseeable future, would you take any actions to bring down capacity and lower your fixed costs?

Lothar Maier

Probably not. I think we have some sort of natural attrition. We'd probably take advantage of that. But I don't think we have a huge amount of extra labor that we could get rid of. I do have a fair amount of capital equipment, which I'm burdened with, and I don't plan to get rid of that. So it's less of a labor issue than a capital equipment issue.

Operator

We'll go next to Aashish Rao with Bank of America Merrill Lynch.

Aashish Rao - BofA Merrill Lynch, Research Division

I wanted to talk a little more about computing. Other than autos, it was the only other end market that grew for you last year. It is seasonally weak in the first half. But I wanted to focus on servers, data centers, storage, all of which are faring much better than the broader PC market because of growth in big data. It also seems like many of your competitors have been getting out of this business. So just wanted a comment -- get your thoughts on your design win pipeline and growth prospects for the rest of 2013?

Paul Coghlan

I didn't know our competitors were getting out of this business, but let me see. I think you hit on a reasonably good point by saying that there's more to the computer market than just notebooks and desktops, and that you do have storage. And we've commented in recent quarters that, that in the past year has been a good area for us. And servers have also been a good area, particularly where energy efficiency is important. So computer is still an important area to us. We have design ins in some parts of computer. We have design ins in probably most parts of computer, actually, but with the PCs coming under a lot of pressure. There's more chip content and probably even more analog chip content in a desktop or a notebook than there is a tablet. So I mean, we're all, I think, as an industry semiconductor guys struggling a little bit with the evolution away from the PC. And that's what you saw in our number. But your point being there's more to computer than just PCs, that's well taken. And we have strength in some of those other areas.

Lothar Maier

I think just a little color on that is, is as the market goes away from sort of the PC, notebook or desktop and moves more to servers and remote storage, that's an area that has -- you've all read about these huge data centers that have big challenges when it comes to energy and the air conditioning used for those facilities. I think that's probably a plus for us. We've got solutions there that will benefit LTC. So we've never been particularly strong in desktops and notebooks, but the areas of storage and servers. If that grows, that's pretty good for us, particularly as there's growth in things like solid state drives.

Aashish Rao - BofA Merrill Lynch, Research Division

Okay, got it, cool. The last question on inventories. I mean, they're still at a 10-year or longer highs on a days basis. So any color on fab utilization levels and how you're managing inventory levels for the rest of the year?

Lothar Maier

Yes. As we said in the past, we're trying to manage the inventory to pretty close to flat, and I think we got actually pretty close to it last quarter. And we're doing shutdowns to try to hit that target. And I think that again is the goal for the current quarter. In terms of utilization, particularly as it relates to our wafer fabs, as I said earlier, we're tooled up for about $400 million in sales. If you kind of look at the midpoint of our guidance, that would suggest that we're running at just a little bit over 80% utilization.

Operator

We'll go next to Ambrish Srivastava with BMO.

Ambrish Srivastava - BMO Capital Markets U.S.

Just 2 questions, one on the industrial side. Could you share with us a little bit more granularity on where we are? You talked about the innovation cycle and what innings are we are in. And then specifically within that, what are the segments that Linear is strong in? So that was my first question. And the second on automotives, just remind us what is seasonality for you guys. My understanding is first half is stronger, but maybe I'm wrong on that front.

Lothar Maier

That's kind of a broad question, particularly as it relates to the industrial market. We've got literally thousands of customers in the industrial market space. And it's not like one customer in one market dominates. Even the industrial is broken up into different end markets: Medical, factory automation, green tech, solar, sensors, scanners, test and measure, security, just a lot of different market. And what I guess I could say is that, there's not one area that they I could say is particularly strong or weak. I think they kind of all are sharing the same sort of growth and innovation. And the move to energy efficiency is important to all the subsegments in the industrial market. So it's generally a floating of the overall industrial market.

Paul Coghlan

And then in automotive, you asked about automotive and seasonality relative to us. Although automotive has been growing a lot for us at Linear, relative to the overall market, we still have a relatively -- we still have a small footprint. And as Lothar mentioned in response to earlier questions, a lot of our growth is new opportunities with more electronics in cars and is less tied into the absolute number of units sold in any given geographic area per year. So I don't think we here in the company really try to correlate our automotive business with the overall automotive seasonality. If it happens that way, it happens. If it doesn't, it doesn't. But it's not -- our growth isn't solely driven by units sold.

Operator

We'll go next to Will Stein with SunTrust.

William Stein - SunTrust Robinson Humphrey, Inc., Research Division

You answered this nicely in the computing end market a minute ago. But can you talk about any idiosyncratic things that would either support or challenge growth in the smaller markets like consumer and Mil-Aero?

Paul Coghlan

Consumer is pretty small for us. That's 3% of our business. I don't think there's anything idiosyncratic we'd have to say there. Mil-Aero is -- that's business that comes in spurts and always has. It depends when a program gets approved and when the government approves buying down or paying down or placing a PO on the program. So that tends to cycle in and out a little bit for us. But if you look over our last 7, 8 quarters, it's been either 6% or 7% per quarter. So I think that's a pretty consistent business that should stay pretty consistent for us.

William Stein - SunTrust Robinson Humphrey, Inc., Research Division

Great. And then one follow-up on a capital structure comment you had about paying back the convert. I guess I'm a little bit surprised given the predictability of your profitability and cash flows that you wouldn't want to maintain some debt, in particular, maybe given where rates are now, kind of more a view to kind of permanent fixed rate debt that would probably help out equity holders. Any view on that, or do you intend to run with no debt going forward?

Paul Coghlan

Well, I think the way you phrased your question was you said, you're surprised we didn't want more debt because of the predictability of our cash flow. We kind of look at the predictability of the cash flow as meaning we don't need more debt. So we've historically only used debt to make a significant footprint in buying back shares and did that in 2007 when we bought back 27% of the shares. As we said earlier, we do want to be more aggressive once we've paid down the debt, keeping the share count down. But I don't think at the moment we do not have plans to incur another large amount of debt to buy back another large portion of the shares in one fell swoop.

Operator

We'll go next to Shawn Webster with Macquarie.

Shawn R. Webster - Macquarie Research

Couple questions on the operating margins. As we go into the June quarter, I think you said that you expect the percent to be roughly flat. So can you help us understand the mix between maybe the OpEx growth you're expecting and on the gross margin side, should we expect a similar kind of increase in the gross margin percent given the revenue growth will be similar?

Paul Coghlan

Yes. Well, when you're talking revenue growth of 1% to 4%, we don't think there'll be dramatic changes in any of the percent ratios of cost of sales, R&D and SG&A. But as Lothar mentioned, the more our sales go up, even if they go up slowly, the more they go up, the more utilization we have. And there is some benefit each quarter as we increase, we would expect in the gross margin line. And then the expense lines, if you're growing 1% to 4%, those will probably remain pretty close to where they are. So that's why we thought there wouldn't be a very significant change next period.

Shawn R. Webster - Macquarie Research

I'm sorry, the expenses would grow with the revenues? Or the expenses will stay stable with March quarter?

Paul Coghlan

No. I think they'd grow with the revenue. We already told you, we won't have shutdowns for some of the personnel. So that would add a little bit to the expense. And then there are other areas where we think we can have some savings. So I think they'd probably grow a bit.

Shawn R. Webster - Macquarie Research

Okay, great. And then on the inventories, the thing I'm struggling with a little bit is when I look at the data from the supply chain, whether it's OEMs or distributors, it looks like inventories are at or above normal, when I look at their books. And a lot of companies are talking about the component inventories, they believe to be at extremely low levels. Can you help me understand what the difference is and how do you -- like for your international distributors, for example, what gives you confidence that inventories are lean in that part of the supply chain?

Paul Coghlan

Well, inventory is 3 components. You've got raw materials, WIP and finished goods. So if you're seeing inventory in the supply chain overall, you're saying the up, yet people are saying the chip level is low. Maybe -- and I don't have this data in front of me, but maybe their raw material levels are low or their initial inventory inputs are low, and maybe once they've put them through their factory process and added their value too, their finished goods inventory are higher. I don't know, but we do know that from a chip level, it seems like based on how orders are placed on us, based on this expediting we've talked to you about, based on the fact that there's not many push-outs, but there's sure more of these expedites, that the sense to us is inventory is pretty low. And then when it comes to our international areas, we kind of do the classic and look at turns. And it looks like, at least from our standpoint, from a turn standpoint, we also think they're pretty low.

Shawn R. Webster - Macquarie Research

Okay. And then maybe a final one on the inventory side. Do you have an inventory policy in terms of days? You're at about 100 days in your March quarter, which I think is a record. And I'm just curious as to what your policy is going forward.

Lothar Maier

We don't have a specific policy as it relates to days. But as I've mentioned earlier, really the goal is to hold that inventory flat at the current level.

Shawn R. Webster - Macquarie Research

On a dollars basis?

Lothar Maier

On a dollar basis, yes.

Operator

We'll go next to Christopher Danely with JPMorgan.

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

So if we look at your various end markets, I mean, it seems like your overall business is back to or close to normal seasonality between auto and industrial. Would you expect higher growth from either of those this quarter and the rest of the year?

Paul Coghlan

Well, it's hard enough predicting how the overall business is going to grow for a quarter. Now you're asking me to predict like a piece within it. I think overall we've been telling you for several quarters, if not years, that automotive is an area we continue to expect to grow. Whether it grows more in the June quarter or not, I don't know yet. But I don't know any reason why it wouldn't. But that we think will at some point be over 20% of our business.

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

Okay, that's helpful. And then can you remind us...

Paul Coghlan

But I can't tell you whether that's going to be the next quarter or how many quarters thereafter. Please go right ahead, I'm sorry.

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

And then can you just remind us what normal seasonality is for the September quarter in terms of sequential growth?

Paul Coghlan

Well, to the extent there is normal seasonality anymore, I mean, given the last 5 or 8 years. If you were to take a typical year for us, the March quarter would probably have the most sequential growth. June would be somewhat close to the March quarter, maybe not quite as strong, but somewhat close. The September quarter would drop off a little. And the December quarter would be the third out of 4 quarters in sequential growth. But I'd caution you to kind of measure us to that historical metric now. I mean, times are just a little different now, and they have been for the last several years. So all you need is some good macroeconomic news and all of this could change dramatically. And if you got some really lousy macroeconomic news, it could change also. So I think we're kind of more in a macro impacting environment at the moment.

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

Got it. And then my last question is, I guess, just more of a philosophical question on the payout ratio. So I hear you on the wanting to keep around a bunch of cash to pay off the debt next year. I think your net cash right now is $500 million or a little above. And you guys generate well over $100 million a quarter. So you'll probably be around $1 billion in net cash by the time the debt comes due. We look at your high-quality peers, such as a Maxim or a Texas Instruments or an ADI, and they've all increased their payout ratio that's pretty substantially above yours. Even some of the PLD companies like Xilinx are paying a bigger dividend and buying back stock, and those stocks have done okay. So I'm just wondering, why you guys don't feel the need, given your industry-leading margins, to at least have some sort of like middle of the pack or high end of the pack in terms of payout ratio or dividend or at least start buying back stock every quarter in order to keep the share count flattish to down because the share cost has been moving up every year since you did the big ASR 7 or 8 years ago?

Paul Coghlan

Well, I think there's some validity in your comment relative to the share buyback. But again, we wanted to have enough cash to pay down the debt. Now when you look at our absolute cash number, which you've done to do your analysis, you need to bear in mind some of that cash is offshore. And to the extent it's offshore, it can't be used for dividends or can't be used to pay back debt, unless you bring it back and pay a tax consequence. And then relative to share buyback, I think we mentioned earlier in the call that once we're through the debt period, we think we'd be -- tend to be more aggressive in buying back shares. And we also in this last quarter bought back more shares than we had in several previous quarters. I think we're on track from the share side to doing the very question you're asking us. And then relative to dividend, our yield is 3%. When I look at these competitors you rattled off, I think their yield is roughly about the same as ours or maybe even a little less in some cases.

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

Yes, I mean, I think TI, ADI, Microchip, Cypress, Intel, they're all above you guys. So anyway, thanks for the clarity.

Paul Coghlan

In the yield, Chris?

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

Yes.

Robert H. Swanson

Yes, but not much, I will point though.

Paul Coghlan

Yes, but not by much, all right.

Operator

We'll go next to David Wong with Wells Fargo.

David M. Wong - Wells Fargo Securities, LLC, Research Division

Can you tell us a little bit more about your automotive business? What chips do you sell into automobiles? What's your addressable content in standard cars and in electrical cars in dollar terms?

Lothar Maier

I think we sell kind of the portfolio into the automotive market. And maybe with the exception of there's not a lot of RF-type products that are sold into it. But we sell power products, we sell mixed signal products, we sell signal conditioning products, we sell a pretty good portfolio mix into the automotive market. And as far as how the content varies from a conventional vehicle to a hybrid or electric vehicle, I would say the dollar content is substantially higher on a hybrid and electric vehicle than it is on a conventional vehicle. But again, there's far fewer cars sold into the alternative fuel market. So even though the dollar content may be -- the sales content of our sales in the automotive are still mostly dominated by conventional vehicles.

Operator

We'll go next to Steve Smigie with Raymond James.

Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division

I was hoping you guys could give some color on your latest thoughts on the handset market. I mean, if I look at that, it looks like a pretty substantial market. I know you guys have sort of moved away from consumer-type products, but seems like a large market, a small form factor, requires a lot of performance and some difficult challenges to get performance at a small space. And then you seem one of the better companies at solving difficult challenges there. Would you ever consider going after that market aggressively again?

Lothar Maier

The hard thing we're finding in that market is how to make money. And so I think we probably casually keep an eye on it to see if there's something that makes sense for us. But historically, it's not been a long-term play for us that whenever we design into the handset market becomes commoditized pretty quickly. And so from our perspective, it's not a good use of our R&D talent to spend valuable R&D energy in a market and develop a product that may have a 6-month life. So it's -- our handset sales are less than 1%, and I don't see that dramatically changing.

Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division

Okay, great. And just the other question was, obviously, you did a really good job this quarter, came in at the high end of the range. You guys tend to be pretty cautious management. So as we look at the guidance this quarter, is it reasonable to think that it doesn't take much for you to hit the high end of your range again this quarter for the June quarter?

Paul Coghlan

We like to give you guidance and just stick with what we gave you, rather than then tell you whether it'll be more towards the high or more towards the bottom. We put a lot of effort into the guidance. We think that's the right range we'll be in. I don't know if we want to narrow it any more than that.

Operator

We'll go next to Craig Ellis with B. Riley.

Craig A. Ellis - B. Riley Caris, Research Division

Paul, you mentioned a couple of items, bookings weakness in Japan in the completed quarter. Is that just normal seasonality? Or is that really more a function of what we're seeing with currency exchange rates?

Paul Coghlan

It's probably neither of those. It's probably more just Japan's been struggling with their overall -- their currency was high, as you know, and they've had deflation and their -- just their economy is in a struggling mode right now. And they've got this new government trying to address the issues. So right now...

Robert H. Swanson

And issues with China.

Paul Coghlan

Yes, and also they've had some issues with China, where they've kind of lost -- I would hesitate to say they ever had favored status. But they've had some issues over islands and other things that have caused the Chinese to want to order less through Japan. But maybe to get away from those data points, in the June quarter, we are expecting Japan to improve. So what we're hearing is that things should pick up.

Craig A. Ellis - B. Riley Caris, Research Division

Okay. So what you saw is transitory, all right. And then following-up on John's question on inventory. Days were flattish, but if I look back at longer-term trends, I think inventory days on hand were in a 60 to 80 range much of last decade. What accounts for the increase, where we are now? Is it change in your product mix? Is there something happening with the way you might hub for customers? Why do we see a more meaningful increase versus those longer-term trends?

Lothar Maier

I think one of the things that influences that is the really cyclical part of the business we've seen in the last several business cycles that we've been through. And if you go back to 2009, 2010, the recovery after the banking crisis, our sales grew by over -- nearly 100% in a 6-quarter period. And one of the ways we were able to do that is with the inventory that we had on hand. And so I think we'd like to see the inventory probably stay at this level. But I don't think we feel uncomfortable with this level of inventory. And I think it's with the cycles the market has gone through in the last 5 years, having a little extra inventory is probably -- keeps us well positioned if the overall market turns around quickly, and we can respond to customer needs. Last cycle, I believe we gained some market share because we had the capacity and the inventory. And hopefully, that repeats again.

Craig A. Ellis - B. Riley Caris, Research Division

But certainly your inventory...

Paul Coghlan

Also if you look back over the 10-year period, we've moved out of some markets where there's a high concentration of customers, and probably in those days, a high concentration of certain products being sold. So if you look at the cell phone industry, when we were selling 13%, 14% of our business into that, we didn't have as broad a product footprint as we do in industrial or automotive. And if you look at computer, it's probably the same. So you have a lot of things going on. You have one, maybe end markets that require more products. Two, you have the average selling price that's gone up a bit. So that means the intellectual content of the products has gone up, which means the cost of the products has gone up a bit, too. So I think there's issues, Lothar said, there's the mix by end market, there's the complexity of the product. All of that adds some cost.

Craig A. Ellis - B. Riley Caris, Research Division

Okay, that's helpful. And then lastly on capital expenditures, I'm sorry if you mentioned it and I missed it, Paul. But what's the number that we're looking for, for the year? And any look at what we might be seeing as we look at next fiscal year?

Paul Coghlan

This year, we think we'll be low. We'll be $15 million to $20 million. And we think next year we'll be similarly probably low. Again, Lothar mentioned earlier that -- to an earlier question that we had spent a fair bit of money a few years ago to increase our capacity. And with our capacity at easily over $400 million and our sales at, last quarter $315 million, we don't really need to really spend a lot of money on more test equipment, et cetera, more factory equipment going forward.

Operator

[Operator Instructions] We'll go next to John Pitzer with Crédit Suisse.

John W. Pitzer - Crédit Suisse AG, Research Division

Guys, typically at this point in the cycle, we've gone through several months, if not quarters, of semis under-shipping end demand. And typically, the recovery is not necessarily as demand dependent. This one sounds a little bit different. So I'm kind of curious, from your guys' vantage point, do you think we've been under-shipping end demand or do you think we're shipping kind of at appropriate levels here?

Paul Coghlan

Well, I mean, that's a bit the $64,000 question. I mean I think the data that you say would support we're shipping to end demand concurrent with inventories being tight. So that's kind of how we look at it. We're not saying we want inventories to necessarily expand a lot more. But I think that's pretty fair to say is that it's probably in balance, but at a tight level of inventory. If demand picks up a bit, you probably need a bigger pickup in inventory that satisfy that demand.

John W. Pitzer - Crédit Suisse AG, Research Division

And Paul, maybe to follow on with that and bring in some comments that Lothar just made about inventories and how you guys, because of your short lead times, have been able to pick up share coming off the bottom of a cycle. It just seems like with TI's addition of capacity, that's kind of their strategy as well. So I'm kind of just wondering whether or not the industry is just running at a different level of inventory. And one of the mechanisms that drives sort of the orders coming back to customers is when lead times start stretching out. And as everyone's kind of bent to keep lead times short so they can gain market share when things start to pick up, does that just dramatically change kind of the angle at which things recover? Any thoughts around that?

Paul Coghlan

I think if you look at all the up cycles before they took place, a question similar to that was probably being asked. So I don't know if capacity -- I don't believe capacity has expanded much in the overall marketplace. TI has done some things with the 300-millimeter fab, but that's for -- that would have a bigger impact on commodity high-volume type products than it would on the products we sell. So and then our other competitors, ADI, Maxim, other guys. I don't know if they've greatly increased their factory capability. So I think this is a question that always get asked right about now in a cycle. And everybody always says it will be different. And they say, well maybe not this time, next time it will be different.

Operator

We'll go next to JoAnne Feeney with High Peak Analytics.

JoAnne Feeney - Longbow Research LLC

Yes, I was hoping we could go back to the server and storage question. Intel remarked last night that while it was down sequentially for them, it still continues to grow very nicely year-over-year and that they also saw a small but noticeable pickup in enterprise spending on server and storage. I'm wondering what you guys are seeing now in cloud, high performance or enterprise spending. Are you seeing any kind of strength there?

Lothar Maier

Yes, I'm not sure I would necessarily classify it as strength. But it's certainly an area that we see as an opportunity presently and going forward as these data centers continue to grow. There are certain demands they have for performance and efficiency that -- and for storage that play well with the products we have. We've had some success in servers and storage. And as the movement continues more to big data centers, I think that's going to benefit us. And as those data centers become bigger and bigger consumers of energy, I think that's going to help us as well with some of the products we have that improve efficiency.

JoAnne Feeney - Longbow Research LLC

Would you at all be able to characterize how bookings have trended in those areas?

Lothar Maier

I don't know. I don't think we track the -- we track computer as an overall market, we don't break it down by segment.

Operator

We have no further questions at this time.

Paul Coghlan

Okay, well, thank you very much for your attention and your good questions. We wish you all a good day, and thank you again for your attention. Bye-bye.

Operator

That does conclude today's conference. Thank you for your participation.

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