Executives
Paul Coghlan – Chief Financial Officer, Vice President Finance & Secretary
Robert H. Swanson, Jr. – Executive Chairman of the Board
Lothar Maier – Chief Executive Officer & Director
Analysts
James Covello – Goldman Sachs
Tore Svanberg – Thomas Weisel Partners
John Pitzer – Credit Suisse
Christopher Danely – JP Morgan
Uche Orji – UBS
Ross Seymore – Deutsche Bank Securities
Steven Smigie – Raymond James
Blayne Curtis – Jefferies & Co.
Terence Whalen – Citi
David Wu – GC Research LTD
Craig Berger – FDR Capital Markets & Co.
Auguste Richard – Piper Jaffray
Paul McWilliams – Indie Research
Linear Technology Corporation (LLTC) F2Q10 Earnings Call January 13, 2009 11:30 AM ET
Operator
Welcome to the Linear Technology Corporation fiscal 2010 second 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
Welcome to the Linear Technology conference call. I’ll give you a brief overview of our recently completed second quarter of fiscal 2010 and then address the current business climate. We will then open up the conference call for questions to be directed at Bob Swanson, our Executive Chairman, Lothar Maier, our CEO or myself. I trust you have all seen copies of our press release which was published last night.
First however, I’d like to remind you that except for historical information, the matters 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, 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 10K for the quarter ended September 27, 2009 particularly, management discussion and analysis of financial condition and results of operations. Secondly, SEC Regulation FD regarding selective disclosure influences our interaction with investors. We have 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 are free to respond to these questions.
As you can tell from our press release this was an excellent quarter for us. Sales increased 9% sequentially from the previous quarter growing in each major area: US; Europe; Japan; and, the rest of Asia therefore beating the top end of our guidance of 2% to 5% growth. Business strengthened as the quarter progressed as bookings improved each month from the previous month. This strength was particularly evident in the industrial communications and computer end markets.
We ended the quarter with the strongest positive book-to-build ratio we have had in many quarters. This improvement in sales positively impacted profitability as operating margin improved by 16%. Operating income is now 45% of sales, up from 42% last quarter. Pre-tax income grew 19% and net income grew 25% after being positively impacted by a decrease in the tax rate from 28% last quarter to 24.5% this quarter.
The company is continuing to control its variable costs where appropriate during this recession. However, as business has improved we have unwound some of the restrictions that we had on labor costs. Specifically, there were fewer shutdowns in the factories, reductions in base pay were partially eliminated and profit sharing was increased. We continue to appreciate the sacrifices are employees have made during this global recession.
In summary, the effect of the items I just listed on the published quarterly results was that revenue of $256.4 million for the second quarter of fiscal 2010 increased 9% compared to the previous’ quarters revenue of $236.1 million and increased 3% from the $249.2 million reported in the second quarter of fiscal year 2009.
Diluted earnings per share of $0.33 improved $0.06 from the earnings per share of the previous quarter. Earnings per share decreased $0.05 per share from the second quarter of fiscal year 2009 which had been beneficially impacted by a gain on the early retirement of debt of $14.6 million and a lower tax rate of 20.7% compared to the 24.5% this quarter.
Net income of $75.5 million increased $14.9 million from the first quarter of this fiscal year and decreased $10.7 million or 12% from the second quarter of last fiscal year. Earnings per share would be $0.41 on a pro forma basis without the impact of two significant non-cash items: stock option accounting; and more recently the amortization of debt discount which is the theoretical difference between the company’s convertible debt actual interest and the interest it would potentially have had to pay if it had used straight bank debt.
During the December quarter the company’s cash and short term investments balance increased by $33 million to $942.5 million. The company announced that it would increase its quarterly dividend from $0.22 to $0.23 per share. The company has raised its dividend every year since it began paying a dividend. This marks the 18th consecutive year the company has increased its dividend. The company’s commitment to increase its dividend despite various economic cycles underscores its belief in the strength of its business model and its strong financial position. This cash dividend will be paid on February 24th to stockholders of record on February 12th.
Looking ahead to the March quarter, we expect continued improvements in sales and profitability. Our factories continue to execute well thereby enabling us to maintain low lead times which allows our customers to place orders on us close to their demand requirements. Strong second quarter bookings and a related positive book-to-bill ratio that was higher than we have experienced in the past several quarters, leads us to be optimistic as we enter our third quarter.
As a result, we are forecasting revenue growth for our third fiscal quarter in the range of 7% to 10% over our second fiscal quarter. Profitability for the company continues to be industry leading and as we grow sales we anticipate continuing improvement in operating margins as a percent of net sales.
From a balance sheet perspective, cash and short term investments increased $33 million. Receivables grew by $10.9 million in concert with the increase in sales and continue to be respectable 44 days of sales, similar to last quarter and down from 47 days a year ago. Inventory increased this quarter by $2.9 million to accommodate our increasing sales. Our return on assets was 20%, up from 17% last quarter. Our current ratio is 8.9 to 1 up from 7.7 to 1 last quarter and up from 7.3 to 1 in the prior year’s quarter.
Our ending on hand inventory at distribution was down from last quarter. Our lead times remain short in the four week range and we were able to respond quickly to the increases in demand we are experiencing. We are aware that some of our competitors lead times are extending but during this downturn we have maintained all of our manufacturing capacity and do not anticipate any increase in our lead times.
Now, I would like to address the quarter’s results on a line-by-line basis starting with bookings. For the second quarter in a row, bookings improved significantly this quarter over the prior quarter. Cancellations, similar to last quarter were relatively minor. Geographically, bookings increased in each major area, USA both OEM and distribution and in Europe, Japan and Asia. Bookings increased significantly in the industrial, communications and computer end markets while decreasing in the consumer and to a lesser extent auto end markets.
At this time every quarter we give you a breakdown of our bookings percentages by end markets to give you insight in to those markets that drive our business. Industrial and communications continue to be our largest areas. Industrial was 36% of our bookings, up from 33% last quarter. Our industrial business is very broad based and showed strength in every geographical area: USA; Japan; Europe; and Asia.
The communications area grew from 24% to 26% of our business. Most of the growth was in the infrastructure and networking area with the lion’s share of the growth being in the infrastructure component. Within this component we had growth in a broad base of customers involved in bay station build out globally.
Cell phones at 2% of our business was similar to last quarter but up in absolute dollars. Computer at 14% grew from 12% with particular strength in Notebooks while servers, storage and printing also had growth. Automotive decreased to 11% from last quarter’s all time high of 13% as most government stimulus programs or cash for clunkers has ended.
Japan and Europe continue to be our strongest geographic areas. The expansion of existing Linear parts in to new car models and also new Linear parts for new programs especially in the hybrid and electronic vehicle area continue to help us. Automotive is an area that we have been focusing on given the increasing electronic content in automobiles. We have introduced a part for battery monitoring in hybrid and electric vehicles that are achieving good market acceptance. In addition we continue to distinguish Linear as a high quality supplier and important international automotive manufacturers.
Consumer was the area that decreased the most going from 10% last quarter to 6% this quarter. Seasonally, Q2 is low for the consumer end market due to high concentration on products booked in the previous two quarters in anticipation of holiday season sales. This trend is similar to what occurred last year.
Finally, the military, space and harsh environment products at 7% was down from 8% last quarter while increasing in absolute dollars. In summary, we have been transitioning over the last several years in to more traditional analog businesses and less in to consumer related end markets. Whereas 20% of our business was in cell phone and high end consumer related markets in 2005 and 16% in fiscal 2008, this percentage was 14% in fiscal 2009 and 10% for the first half of fiscal 2010. Note that 54% of our overall bookings were created internationally, similar to last quarter.
Moving from bookings to sales, net sales increased 9% from the prior quarter and 3% from the similar quarter in the prior year. Sales grew in each major geographic area, USA, OEM and distribution, Europe, Japan and the rest of Asia Pacific. The percentage distribution of sales among the various geographically regions was unchanged from the prior quarter with USA being 29% of sales, Europe 16%, Japan 15% and Asia Pacific 40% of sales.
Gross margin, gross margin at 76% of sales increased 1.2 percentage points from last quarter’s 74.8%. This increase was due to better factory efficiencies due to absorbing fixed costs over higher sales base and due to an improving ASP from $1.49 to $1.59. These increases were partially offset by higher profit share.
R&D, R&D at $46.7 million increased $1.3 million from the $45.3 million reported last quarter but decreased as a percent of sales to 18.2% from 19.2% due to the higher sales volume. The largest increases in R&D were in profit sharing and labor costs where reductions in base pay were partially eliminated this quarter. These increases were partially offset by a decrease in mass costs and other R&D related costs.
SG&A, selling general and administrative expense increased by $800,000 but decreased as a percent of sales to 12.7% from 13.4% last quarter. Increases in labor costs for profit sharing, base pay and sales commissions were partially offset by lower legal costs. As a result of all of the above, operating income increased by $16 million therefore operating income as a percent of sales increased from 42.2% last quarter to 45.1% this quarter. This is strong profitability in this recessionary period and clearly puts us ahead of our peers in this financial performance measurement.
Interest expense at $11.6 million was down slightly $275,000 from last quarter due to the elimination of interest expense relative to the retired portion of convertible debt. Due to the adaptation of the new accounting regulations last quarter the company incurred non-cash interest expense called amortization of debt discount of $7.3 million for the second quarter in a row. This is unchanged as I said quarter-to-quarter and is disclosed on a separate line item on the income statement.
Interest income of $3.4 million decreased by $498,000 due primarily to a lower effective interest rate of 1.43% this quarter compared to 1.71% last quarter. Since the government has continued responding to the economic crisis by maintaining lower interest rates, net interest income will probably be reduced by a similar amount next quarter.
The company’s pre-tax profits as a percent of sales improved from 35.7% for last quarter to 39% this quarter. Our tax rate was 24.5% this quarter versus 28% last quarter as we had a discreet tax item this quarter related to one of our overseas tax holidays. The major tax savings items that will support our 28% effective tax rate prior to discreet items are the benefits from our tax holidays overseas, our tax exempt interest, our domestic manufacturing tax benefits and the R&D credit.
The resulting net income of $75.5 million is an increase of $14.8 million from the previous quarter as increased sales were only partially offset by modestly higher operating expenses. A lower tax rate also contributed to the higher net income. The resulting return on sales was 29.5% versus 25.7% for last quarter.
The average shares outstanding used in the calculation of earnings per share increased by 514,000 shares primarily resulting from restricted stock grants and stock option exercises. The resulting earnings per share was $0.33, an increase of $0.06 from the earnings per share of $0.27 reported in the prior quarter and down $0.05 from the $0.38 reported in the second quarter last year which had been impacted by a gain on the early retirement of convertible senior notes and by a lower tax rate. On a pro forma basis, without the impact of both stock based compensation and non-cash interest expense diluted earnings per share would have been $0.41 per share an increase of $0.07 from the prior quarter.
Moving to the balance sheet, cash and short term investments increased by $33 million. $86 million was provided by operations, $50 million was paid in cash dividends and $4.1 million was used to purchase fixed assets. For the 95th consecutive quarter, the company had positive cash flow from operations. Our cash and short term investment balance is now $942.5 million and represents 62% of total assets.
Accounts receivable of $124.2 million increased by $10.9 million from last quarter as sales increased by $20.2 million in this quarter. Our days sales in accounts receivable were 44 days, similar to last quarter. Inventory at $49.3 million increased $2.9 million from last quarter to coincide with our expected increases in sales. As we told you last quarter, most of our inventory is concentrated at the dye bank stage in WIP. From here it can relatively quickly be packaged and tested to meet individual customer requests as we did this quarter to meet increasing customer demands.
Our inventory turns improved to 4.9 times from 4.7 times last quarter. 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 $6.6 million from the September quarter, primarily due to pre-paid deferred taxes arising on transactions between our US corporation and our wholly owned foreign factories.
Property, plant and equipment decreased by $5.7 million. We had additions of $4,169,000 and deprecation of $9,902,000. Most of the additions were for test and assembly equipment in our overseas factories needed to meet improving sales demand. For fiscal 2010, we expect capital additions to increase to the $30 to $40 million range from the $10 to $15 million range we had previously forecasted again, in order to meet our improving sales demand. Depreciation for 2010 should be in the $40 to $42 million range. Other non-current assets totaling $71.7 million decreased modestly by $1.2 million.
Moving to the liability side of the balance sheet, accounts payable increased by $4.2 million largely due to calendar yearend timing. Accrued income taxes, payroll and other accrued liabilities decreased significantly by $20.8 million. The largest items here are our profit sharing accrual, income taxes payable and accrued interest payable on our convertible debt.
Our interest payable accrual decreased as we had as semiannual interest payout in November. The profit sharing accrual increased as we had our quarterly charge and no payout since payouts are made in the first and third fiscal quarters. The largest change was a decrease in our income tax accrual as we had two quarterly federal tax payments this quarter and had no required quarterly tax payment last quarter.
Deferred income on shipments to distribution was up $1.2 million this quarter as our shipments to distribution were larger than what distribution shipped out to their end customers. Our accounting on shipments to US 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 at distribution to properly position the inventory without any unneeded build up.
Convertible senior notes were increased by $7.3 million to reflect the non-cash amortization of debt discount that was charged to the income statement this quarter. Deferred tax and other long term liabilities increased by $5.1 million due to several tax related items, the largest of which relates to the deferred taxes set up on our convertible debt.
Changes in the stockholder equity accounts were primarily the result of the usual quarterly transactions for net income, dividends paid and employee stock activity. The company announced that it will increase its quarterly dividend to $0.23 from $0.22 per share. The company began paying a dividend in 1992 and has increased it every year since and currently now pays approximately a 3% yield.
Looking forward, I would like to close out our introductory comments by revisiting our guidance. Our guidance is based on inputs from our worldwide sales force and inputs from our production control personnel who monitoring bookings, cancellations, push outs, pull ins and customer lead time requests. In addition to the inputs, we talk to distribution personnel and we analyze individual customer feedback.
Forecasting is now a little less complicated than previous quarters when it was unclear what stage of the recession we were in. Clearly, demand for semiconductors has picked up and the September and December quarters have been generally strong across the board. There are some concerns that this strength could have been more inventory replenishment than true end demand. Economic factors that would support this position are that credit is still challenging, especially for small to medium sized companies, unemployment continues to be high and this tends to dampen consumer enthusiasm, and some companies have had capacity problems and have stretched out their lead times thereby causing early ordering.
However, arguments in support of continuing growing demand are end demand is stronger than thought somewhat aided by government stimulus programs and various end markets are showing strength driven by real market opportunities. For example, in communications the demand for infrastructure build out is pressing. For example, in the United States and China. This demand is driven by both more subscribers and more content access required in computers, cell phones and some consumer products.
Automotive has its own market demand driven by both the increased electrical content and gas driven cars and by the advent of new generation hybrid and all electrical vehicles. In the recently released December automotive figures it was clear that unit sales were highest in models with new electronic features.
The industrial end market has its own opportunities. The general pick up in industrial activity in Europe, the USA and Japan coupled with already growing demand in China, is augmented by new opportunities for energy efficiencies in server farms and all factories in general.
From a Linear specific point of view, while growing shipments by 9%, we continued to lower distribution inventories. We had a positive book-to-build ratio for the quarter, our lead times have remained short at four weeks therefore giving us a competitive advantage and new products in the automotive, micro module and infrastructure areas have been gaining traction. Finally, business has continued strong through early January.
Historically, this March quarter is a strong quarter for us given our industrial exposure and lack of high consumer contact in our sales. Combining all of these inputs, both macro and linear specific leads us to our guidance for the March quarter of revenues being in the range of up 7% to up 10%. We believe we will continue to have strong profitability and operating margins as a percentage of sales.
In this current economic environment it is beginning to appear that we might recover quicker from the global recession than originally thought. We have remained highly profitable and cash flow positive. 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 the communications, industrial, automotive and other end markets and continue to invest in our manufacturing capabilities thereby maintaining low lead times and consumer confidence unlike many of our competitors.
In technology, the key is to be innovative and well positioned when growth resumes. Similar to the dot com era, we’re seeing a pickup in design activity. Customers, often with fewer engineers as a result of layoffs are striving to get next generation and new innovative products to market. In these circumstances, quality and timeliness of design support are often more highly regarded than more price breaks and this plays to our strength.
Finally, we are very well product and end market positioned to execute our strategy. We are strong in the areas we want to be: industrial; communications infrastructure and networking; and automotive and we are opportunistic in other areas such as computer. 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 our technology and support is valued as evidenced by our higher operating margins.
I would now like to open up the conference call for questions to be addressed by either Bob, Lothar or myself.
Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from James Covello – Goldman Sachs.
James Covello – Goldman Sachs
I guess two questions, the first would be relative to the 7% to 10% sequential guidance for the March quarter, do you believe that represents customers ordering to rebuild some of their own inventory or do you believe that represents true end demand on the part of the customers?
Lothar Maier
I was traveling around in December and really that’s one of the things that I tried to get a handle on and really my sense is that from what we are seeing that there isn’t a lot of inventory build out that’s occurring in the field right now. What we’re seeing is more reflective of end demand. We see that in our distribution channels, inventory is not piling up there and we see it from our customers. Our lead times are relatively short, our backlog hasn’t really blossomed and so I think customers are in a mode where they are just ordering and buying what they presently need.
James Covello – Goldman Sachs
Do you think customers will get to a point where they are interested in building some inventory or do you think that because your lead times are shorter and we’ve kind of gone through a period of lower inventory here and you were able to respond that they just plan on keeping permanently lower inventory of Linear products?
Lothar Maier
I think the Linear loyal customers who have worked with us a long time really have no motivation to build a lot of inventory because they know we’re a dependable supplier. If this momentum that we’re seeing right now continues to go forward, certainly there’s always the tendency for customers and distributors to want to put on some inventory. But, what we’re seeing right now really is not a packing in of inventory.
James Covello – Goldman Sachs
If I could just ask one last one and I’ll go away. Paul, relative to the cash flow generation, you certainly increased the dividend again this quarter, any thought to being more aggressive on the buy backs too given the continued cash flow generation and the balance sheet now?
Paul Coghlan
At the moment we’d be more focused on paying down our convertible debt. We have the first tranche of convertible debt which had been $700 million, we bought back roughly $300 million of it so we have $400 million left to pay and that would be due in November of 2010, just 10 months from now. So, I think what we will do is just concentrate our cash flow generation on paying that off.
Operator
Your next question comes from Tore Svanberg – Thomas Weisel Partners.
Tore Svanberg – Thomas Weisel Partners
I think we’ve had three quarters in a row now where sales growth has been above seasonal. Just based on what you see today, when do you think the sequential growth phase will start returning to more normal rates?
Paul Coghlan
Well, as we said in our opening comments we feel we are well product positioned and end market positioned. I don’t know what you mean by more normal growth rates but we think we’re in a situation where Linear should continue to outgrow the market. Now, whether it outgrows at these same percentages, 14% last quarter, 9% this quarter and guidance 7% to 10%, that’s probably lofty for a long term but right now we think we’re well positioned. We think the future looks bright.
Tore Svanberg – Thomas Weisel Partners
You mentioned you’re going to start to ramp up your cap ex again, can you just add a little more color there? The additions that you’re going to do how much does that support as far as revenue going forward?
Lothar Maier
The cap ex is really mostly directed towards production equipment in our wafer manufacturing, our assembly and test operations. We’ve in the past said that from a bricks and mortar standpoint the company is well positioned. We’ve got the infrastructure in place from a manufacturing standpoint to support sales nearly double of where they are right now so for us to kind of keep up with demand we’re only needing to add some capital equipment and hire some people and we can respond to that pretty quickly.
Initially there’s no surprise right now because some of our competitors are experiencing significant lead time extensions and there’s a shortage of capacity out there, particularly in the assembly area and so one of the things we’re going to be doing is continuing to invest in additional capacity in our assembly operations to make sure that we can keep up with the demand that we’re seeing.
Tore Svanberg – Thomas Weisel Partners
Lastly, could you maybe tell us what the current factory utilization rates are?
Lothar Maier
I would say probably from a factory standpoint we’re probably 80% utilized. Again, it’s difficult for us to say because from a bricks and mortar we’re very much underutilized and we’ve got a pipeline of capital equipment that is going to keep capacity always ahead of demand and that’s less of an issue for Linear and we’ve talked about this in the past, is the company has this thing called dye bank and for us we can very, very quickly respond to upsides without having to be very dependent on our semiconductor manufacturing facilities and basically provide the upside through the use of our dye bank and certainly that’s what we’ve been doing for the last couple of quarters.
Operator
Your next question comes from John Pitzer – Credit Suisse.
John Pitzer – Credit Suisse
Paul a couple of questions, when you look at the incremental revenue in December, you generated about $20 million more on top line and about $18 million of that fell to gross profit which is about a 90% pass through rate. Is that the kind of incremental margins we should expect over the next couple of quarters? Help me understand the gives and the takes there?
Paul Coghlan
Well, what we had last quarter was we had additional sales that you correctly pointed to over which we could absorb more of our fixed costs. We also had fewer factory shutdowns as I alluded to earlier so therefore we had more production that went through our factories. So going forward, the quarter that we’re in now presently we expect not to have any factory shutdowns. We also expect as demand increases we’ll get some more efficiencies from the factory. Whether that is 90% or well over 80% I can’t tell you at the moment.
John Pitzer – Credit Suisse
Paul, it looks like you guys got a nice jump in ASPs sequentially in the quarter. I guess I’m trying to understand how much of that is apples-to-apples like increases versus mix or are we starting to see also the impact potentially of some new product categories that are helping the overall bump in the ASP?
Lothar Maier
Well we’ve talked for a long time now and Paul mentioned it in his monologue that we’re moving away from certain markets and we tend to be very opportunistic in those markets. Cell phones now represents only 2% of our business, high end consumer was down to 6% and so I think what you are seeing is just the unfolding of a strategy that we’ve been talking about for a number of years and we’re more concentrated now in the industrial, automotive, military and communications markets and those markets quite frankly, have just better ASPs. Those markets have better appreciation of the value that our products bring and with that we get better ASPs.
Paul Coghlan
And also John, some of the new products we’ve talked to you about such as the micro module carry a higher ASP.
John Pitzer – Credit Suisse
Then I guess my last question for both Paul and Lothar, I guess if we look back to the ’01 downturn and look at how the business reacted off of that bottom, it took you guys about 20 quarters to get back to sort of the peak quarterly revenue run rate and eventually you kind of got to 10% higher than that peak level and I’m kind of curious when you compare and contrast this environment with that environment both on time back to sort of prior peak and what the growth opportunity is off of that peak, how do you guys think about that?
Paul Coghlan
Well, certainly I think we’re closer now to what our peak was than the time period where you alluded to in 2001. Right now we had sales of $256, if you look at our guidance of 7% to 10% and you pick a number in there, our peak was $310 million. So, if we can continue some of this momentum I think we’ll get much quicker to what our peak quarterly revenues were coming out of this global recession than we did coming out of the dot com bust.
I think some of the reasons for that are one, we feel as we said in our closing comments, from a product standpoint and an end market standpoint we feel we’re much better positioned. We feel that we’re really more unique from our other analog competitors at this stage also coming out of both of them. Now, we’re very focused on industrial communications as Lothar said and automotive and less as he said, on consumer and cell phones.
I think those periods when we first came out of them we grew sales pretty rapidly. We expect as we’ve just shown you having grown sales 14%, 9% and guiding 7% to 10% that we will grow sales quickly this time coming out of the recession but I think we’ll get to our peak revenues quicker than we did last time.
Lothar Maier
Maybe if I can add one thing, if you go back to the dot com, that drop was really the implosion of the communications networking market. That didn’t happen this time, this time our business was accelerating going in to the downturn and as the downturn hit bottom it turned around. That same business is what’s going to carry us back out of the downturn as well so there really isn’t a change in strategy or a change in market that’s taken place, it’s just an extension of what we were doing prior to the downturn.
John Pitzer – Credit Suisse
Lothar, to the second half of my question, as we start to think about your ability to grow above and beyond the prior peak quarter, do you feel better about sort of the new sand that you have coming out of this downturn versus the ’01 downturn or how should we think about that?
Lothar Maier
Well certainly from the customer base and the breath of end markets that we’re end, we’re well positioned and for going in to and coming out of this downturn, we don’t have to do a product or business reset we were well positioned going in and we’re probably better positioned coming out of this thing because there’s just not a lot of momentum in the consumer type of business right now and the markets that we’re in look like if you believe the forecasts, some of the fastest growing pieces of the market are going to be the automotive, the industrial and the communications markets and that’s where we’re most concentrated.
Operator
Your next question comes from Christopher Danely – JP Morgan.
Christopher Danely – JP Morgan
Just a follow up on your last comment about end markets, now that we’re I guess three or four quarters in to the recovery, can you just give us your relative expectation on end market growth for the rest of this year? Do you think it’s going to be strongest from the auto industrial column or how about the PC, can you give us your sense of growth in end markets for the rest of the year?
Paul Coghlan
Well, we certainly think automotive will be a good market. Now remember, we had a low presence in automotive going in to this recession and that we had very, very good product balancing at that time since automotives were moving more towards electronic demand. So we’re well positioned coming from a low base so we think automotive will be an end market that grows pretty well. It went back this quarter two percentage points but from an all time high of 13% and we’ve got some new good products, we’ve got some entrenchment in existing products and our quality and reliability benefit us greatly in this market.
Industrial, we think there’s things that can drive that market as well. I talked to you about energy efficiency being something that’s very critical in the industrial markets and we think they have their normal recovery and then I think that might be added a bit by that. So, I think we think those two markets will grow pretty well. The communication infrastructure you already know the cell phone issues, all you have to do is watch the football game and see the competing ads about each supplier telling his network is better than the others and we both know both networks need improvement so we think that can improve. I think in our opinion Linear specifically those would be the markets that we think will continue to grow in ’10.
Christopher Danely – JP Morgan
Then on the margin side you mentioned you expect your operating margin to go up next quarter, would leverage be equally applied to the gross margin and the op ex or one more than the other?
Paul Coghlan
Well, that’s kind of hard to tell this early in the quarter, you have to see how the expenses play out. Each quarter has its own personality particularly in the expense category, SG&A where things like legal you may have more or less activity and we think we might have a little more this quarter. Last quarter we had 79% of our increase in sales return to the operating income line, that’s very, very robust.
We’ve always done well there whether we continue to do that well, I don’t know but we’ll certainly do very, very well from your perspective. But, it’s hard to tell this stage how it’s going to balance between gross margin and operating income.
Christopher Danely – JP Morgan
Could we expect gross margins to go up again and operating expenses to go down as a percent of revenue again?
Paul Coghlan
That’s what I’m expecting at the moment, yes.
Christopher Danely – JP Morgan
Then last question, I think an earlier caller asked whether you thought about inventory replenishment versus end demand, do you think this sales increase is true end demand. So, if end demand is continuing to recover slowly this year should we be thinking about sort of mid single to high single digit sequential growth for you guys each quarter this year?
Paul Coghlan
Well I mean, we told you our lead times are four weeks so projecting out further than the quarter we’re in we don’t have a lot of data at this stage that would support that. We have data of designing activity, we have data of how we’re doing generally at customers but we’d rather project each quarter as it comes up and then leave you with the overall feeling that I hope we’ve done that we’re very well positioned, we’re differentiated from the other analog guys and that we should grow well. But, telling you a number now for the June quarter or the following fiscal year we don’t feel comfortable doing that.
Operator
Your next question comes from Uche Orji – UBS.
Uche Orji – UBS
Let me just start by asking you on the op ex side, you’re not going to have any more factory shutdowns but is there any more unwinding of costs that were suppressed during the recessionary period that could still yet be unwound as we go in to what is looking more like recovery now?
Paul Coghlan
Well, as we said, we have not unwound all of the corrections if that’s the right word, or belt tightening is probably a better word, that we used during the recession but we did tell you we unwound quite a bit of them in this last quarter and even while unwinding those we still improved our operating margin from 42% to 45%. So that we told you over many quarters is that as we unwind these we don’t think it will be something that will be an issue to you as you review our results as we report them to you. We don’t think there will be a quarter where we’ll say, “Sales grew but we didn’t have improvements in operating margin because we unwound things.”
I think we’ve done a good job in this cycle and past cycles of being able to do that concurrent with the improvement in sales so that we continue to improve operating margins and it’s not a visible issue to you, the unwinding of these expenses.
Uche Orji – UBS
Can I just ask you what will the impacts of your business model as you talk about the emphasizing areas like the cell phone and some of these [inaudible] areas of the business that were slightly bigger say two or three years ago but are no longer as big now? Because, if I look back to 2005 this business did about revenue of [$56 million] with upwards margins in the low 50s. As the strategy starts to push more and more towards industrial should we expect the business model to look more like this was back in 2005?
Paul Coghlan
Well, did you add stock option and accounting in then as well or are we talking apples-to-apples from an expense standpoint?
Uche Orji – UBS
I think that is more without stock option expenses.
Paul Coghlan
So without that, I think we expect our profitability to get back to where it was when we had our peak sales.
Uche Orji – UBS
Just one last question, in the computer area you talked about strength picking up in computing and you mentioned notebooks, can you kind of give me an idea of what the [inaudible] for your business is in computing between notebooks and servers?
Paul Coghlan
I don’t have the exact numbers in front of me but roughly of the computing, probably a little more than half is in the notebook type stuff and then if you put desktops and servers and other things you probably get the other half.
Operator
Your next question comes from Ross Seymore – Deutsche Bank Securities.
Ross Seymore – Deutsche Bank Securities
You’ve kind of talked about this in a number of ways but I’ll ask it a little differently. You don’t have the exposure to cell phones anymore, are there other areas that you think are kind of going to minimize in your exposure like are we going to see consumers stay in that 6% to 10% of kind of bookings/sales range or should we think that could go down and then kind of on the computing side the same sort of thing?
Paul Coghlan
Well, what we’ve told you Ross over the years, or in recent years as we’ve addressed our strategy is that we’re very focused on the industrial, communications, infrastructure, networking, automotive side for the business and then we’re opportunistic in things like consumer, cell phone, computer. We have really good technology, those are areas that sometime are very, very interested in cutting edge technology and often times they are interested in just commodity technology at a low price so that as these opportunities pop up we can move up or down in these areas.
So, it’s a little difficult for us to give you a number that you can put in a model and say two years from now, “Hey, why were you different from this?” Or, a year from now why were you different from this?
Ross Seymore – Deutsche Bank Securities
Is it fair to say that versus two or three years ago there are fewer things that you’re kind of secularly moving away from that could act as headwinds?
Paul Coghlan
That’s true, that’s definitely true. As I said earlier, 2005 we had 20% of our business was in cell phone and high end consumer now, it’s 10% so we’ve kind of done that transition.
Ross Seymore – Deutsche Bank Securities
And there’s no reason to think computing is going to kind of follow that trend and that now it’s kind of stabilized I guess is what I’m asking?
Paul Coghlan
Yes, I mean computing can move around a little bit but I don’t see any dramatic change in the short term in it.
Ross Seymore – Deutsche Bank Securities
Then a follow up question on kind of a different topic, can you give us a rough idea of what your turns business was in the quarter and what sort of assumptions on kind of terms conservatism greater or less are you applying to your March quarter outlook versus what you did for September and December?
Paul Coghlan
I always tell you folks you have to look at the math. We have a four week lead time so that turns is just a pure calculation of how many bookings do I need in the quarter so the shorter your lead time the more bookings you need theoretically, and I’m sure you understand that. Given that as a backdrop going in to this quarter we actually have a lower turns requirement by a small amount than we had in the previous quarter.
Operator
Your next question comes from Steven Smigie – Raymond James.
Steven Smigie – Raymond James
I was hoping you could dive in to the auto business a little bit more, it backed off I think a little bit you said as a percentage with the ending of the stimulus. Just to give us some sense of how much your penetration would be though in terms of dollar content increases, if auto sales were say flat for the rest of the year, how much would that business be able to grow just from increasing dollar content? As you mentioned, you’re getting more of the autos shipping with the higher electronic content so just some sense of that?
Lothar Maier
If car sales stayed relatively flat I think what you’re seeing right now for us is even though as a percentage of sales auto was up last quarter and down a little bit this, you’re seeing just the beginning because we’ve been working and focused on the automotive markets now for several years and it does take two to three years from the time you bring out a product and present it to a customer until it gets designed in and in to production. So that effort started a number of years ago and you’re just beginning to see really the sales growth result of that.
So my sense is that even with flat sales that the automotive business is going to continue to grow and maybe a little likely grow faster than the overall sales of the company. The content of electronics in cars just continues to spiral. As Paul mentioned, we’ve got some great products targeted towards emerging hybrid and all electric vehicles which have very good ASPs and have a fairly large bill of materials that goes in to a car. So I think the palate of opportunities for us in the automotive market is really good and what you’re seeing right now is really just the beginning of what we think is a long term growth of our business in the automotive field.
Steven Smigie – Raymond James
The follow up question is just if you could talk a little bit about innovation and your ability to get a sort of sole source position in the auto, it seems to be like the auto is a fairly well known commodity if you will and that if everybody is going after the same direct injection part or what have you, even as good as you are there’s got to be plenty of guys coming after you there. You mentioned for example the battery monitoring, I’ve got to think there are a lot of people coming after that so are you still getting the sole source positions or is it more competitive in other markets?
Lothar Maier
The majority of our business is sole source so for the most part there isn’t pin for pin replacements for the types of products that we make and the automotive markets has some tremendous barriers of entry that greatly limits the competition. Requirements for product performance, product reliability, continuity of delivery, quality and those barriers probably eliminate 80% or 90% of the competition in many, many automotive opportunities. So really the competition isn’t I’d say particularly robust in the automotive market, I think the challenge is continuing to provide customers will compelling new products that they’re willing to design in to their new vehicles. I think that is the bigger challenge for us rather than fending off competition.
Operator
Your next question comes from Blayne Curtis – Jefferies & Co.
Blayne Curtis – Jefferies & Co.
Paul, with the strong top line performance, how should we think about sales commissions and profit sharing coming back in? What are some of the triggers? You’re approaching the high 40s operating margin, back to the previous levels, how should we see that layering in?
Paul Coghlan
Well, I don’t think it will be particularly visible to you. As I said earlier, over all the years what we’ve done is we’ve looked at profit sharing and we’ve increased it when the company has done well and we’ve used it as a protector to investors if you will when the recessions or the dot com [inaudible] and I think we’ve been able to do it and keep it pretty much under the radar of it being a specific big issue any one particular quarter. I wouldn’t worry particularly about it if I were you. I think we’ll do well and there will be a fair bit of profit sharing around here but I don’t think it will be an issue for the investors.
Blayne Curtis – Jefferies & Co.
There’s a couple of questions on end markets, as far as infrastructure strength you’re seeing, what geography is that primarily coming from and then what are you seeing on the wire lined side?
Paul Coghlan
On the infrastructure side, a few quarters ago we talked about how the 3G build out was benefitting our infrastructure business. That’s presently not what’s driving that business right now we’re seeing the infrastructure in other areas, the build out in North America and emerging areas. As far as end customers that we sell to who provide this infrastructure for us, we don’t really care because we’ve got pretty good design in positions with virtually all of the infrastructure guys.
We’re hearing, and the Chinese government doesn’t call me and give me heads up but we’re hearing in the next quarter or so that potentially the next wave of 3G is going to happen in China but that’s still to come.
Blayne Curtis – Jefferies & Co.
Then competing, you’re seeing bookings go up, typically a seasonal business in notebooks, can you talk about some of the trends that you’re seeing currently and kind of what type of seasonality should we think about?
Paul Coghlan
Well, computing is not a big area for us, it’s 14% so I don’t think you’ll see those numbers get lower. Is that what you mean?
Blayne Curtis – Jefferies & Co.
It just seems like you’re seeing some strong order trends so I was just wondering what type of seasonality you might see in notebooks and then if you’re seeing some other areas come off of servers?
Paul Coghlan
Well, as I said in my introduction, the strongest area was notebooks but we also had strength in servers and printing and imaging so we had kind of some strength across the board in that area last quarter.
Operator
Your next question comes from Terence Whalen – Citi.
Terence Whalen – Citi
I think you referred to the monthly order rates as progressing through the quarter with November orders higher than October and December higher than November, is that correct? And also, can you comment prospectively what you would expect the March quarter order build to be like?
Paul Coghlan
You were correct, each month in the last quarter was greater than the previous month. In the March quarter we’ve told you we expect sales to grow 7% to 10% at this stage and we also would expect bookings to grow.
Terence Whalen – Citi
I think the question Paul is on a sequential basis throughout the quarter would you expect a similar Linear build?
Paul Coghlan
Well, you’ve got Chinese New Year coming up, I don’t know to be honest we have to see how it plays out. If you were to ask me this time a quarter ago I would not have told you I would have thought each of the three months would have grown and yet it turned out that each of the three months did because December I would have thought might have been a little lower and that turned out to be a good month. If you ask me just historically, February tends to be less than January and certainly less than March but I have to see how it’s going to play out. I could be telling you the same thing 90 days from now, I just don’t know at this moment.
Terence Whalen – Citi
One other question Paul was on the distribution inventory, now your deferred income from distribution increased signifying that domestic inventories at distributors increased slightly. I think you had said earlier overall distribution inventories decreased. Can you just refine? I think that to understand international at distribution declined more than domestic increased? Can you just comment what the weak levels are and what your expectations are for distribution inventory next quarter?
Paul Coghlan
Well, first of all you are correct, the US did increase slightly and international distribution inventories decreased and international decreased greater than US increased so you are correct. Next quarter again, this will need to play out, we will need to see how it turns out. Lothar in his comments mentioned he had visited several of the distributors when he was going around in some of his international visits and that he thought that their inventories were lean and they may want to increase inventory in concert with what they expect their business to grow.
Terence Whalen – Citi
Then the last one and I’ll turn it over is regarding some of the end market commentary that you’ve made, based on the bookings that you’ve seen what end markets do you expect will grow above that 7% to 10% corporate guidance range? Also, are there other markets that might actually decline in revenue?
Paul Coghlan
Well, I’ll take a first stab at it and then let Lothar if he wishes supplement my comments. First of all, remember the thing that we always tell you is that the advantage of being broad based is you’re not dependent on any one market, you don’t have to call any one market. So the most important thing at Linear is that we’re very broad based among industrial, communications, particularly infrastructure and networking, automotive, military help systems, we’re in computer and cell phone and we’re also in consumer.
So, that balance enables you to let it play out. What becomes strongest is strongest so it’s hard for me to tell you right now which markets I think will grow the most. With that as a back drop, I think industrial in March is normally a strong period seasonally for industrial. Europe has more work days and Europe, relative to our business, is a higher percentage of industrial than it is other end markets. Then, you add distribution that you alluded to, US distribution also has more days and that tends to have more of its content being industrial.
So just sitting here now looking at March I would think we probably have a pretty good industrial quarter in March. How the others play out depends on some of the activity in them. Lothar spent some time talking to you about opportunities we have in automotive and we feel very strongly about those opportunities but we can’t tell you exactly when they are going to occur, which quarter or not. We have a sense but we don’t know for sure. I think overall it’s less important where these are although we prefer these growths be in the ones that are strategic for us than something like cell phone but we have to see how the quarter turns out.
Operator
Your next question comes from David Wu – GC Research LTD.
David Wu – GC Research LTD
I got a couple of quick ones, Lothar when you were overseas in December and you talked to both distributors and customers, if you were to rank and gage how their degree of optimism, zero being very pessimistic and five being euphoric, where exactly do you think they rank at this point?
Lothar Maier
That’s a really interesting question. I don’t think anybody was euphoric, I think there’s really more of a sense of relief that the bottom has hit and things are turning around. Probably visiting customers, the thing that had most customers concerned was availability of product. I can tell you nearly every person I talked to wanted reassurance from us that we would be able to deliver product as we committed because the majority of our competitors and their suppliers are experiencing deliver lead time extensions and missed deliveries.
So for me, that was probably of the takeaway was the most important takeaway. Quite frankly, I felt really positive about that because all of our customers are going through really significant design efforts to get new and compelling new products out to the marketplace and whereas our sales guys can focus on helping design our products in, I get the sense that most of our competitor’s sales and applications guys are trying to address delivery issues so that’s not going to help us necessarily this or next quarter but it’s something that we’re going to benefit from in the nest two, or three and beyond quarters because certainly we’re in a position where a new product is not going to risk its delivery to the market because of availability of product. So I think we’ve got a little bit of an unfair advantage presently relative to getting a design in on a new application and I think we’re going to benefit from that for many quarters in the future.
David Wu – GC Research LTD
Lothar, do you think that your customers rate of order, even for Linear Tech products which admittedly historically are always a fleet time, is there any insurance that they are fudging on these orders because they’ve been caught a couple of times by your competitors. So, I was would it have been some insurance in the kind of orders that you’re getting. I assume ultimately you record of goal meetings that future design will?
Lothar Maier
The way we can tell is as people are hedging their bets, our customers, is backlog. We’re not seeing our customers place upon us significant backlog beyond our normal four week delivery. So we’re not seeing out customers try to order three months and six months out.
David Wu – GC Research LTD
Paul, can you help us on tax rate? There are some discreet items in the quarter we just ended and do we go back to 20% tax rate starting Q39?
Paul Coghlan
Frankly David, it’s difficult for us to anticipate how the discreet items will play out because under accounting regulations, when those become real you record them in that quarter. So, to give you an example, right now congress is looking at extending the R&D credit but as we presently speak in 2010 there is no R&D credit. So if they pass and R&D credit which we think they will, that might be a small discreet item in Q3 for example and if they don’t, then it won’t be a discreet item in Q3 and I’ll have my 28% effective rate.
Then, what you do as a company is you file your tax returns and you’re more conservative on your books on your tax expense. Then as for example in the last period what happened was in one of our foreign entities the statute of limitation expired on an issue where we had conservatively accounted for it but had been more aggressive in our tax return and then that benefit came in. Then, that resulted in a 3.5% reduction in the tax rate.
So sadly, I really can’t tell you how these discreet items will drop in our income statement. My guess is that I’m pretty confident that almost all of the discreet items that we have will be beneficial to the rate if that helps but as they come in I don’t really know when that timing will be.
David Wu – GC Research LTD
Since you’re going to keep buying back these converts I guess these gains in early retirement of convertible notes will continue?
Paul Coghlan
I doubt that because what happened is we were buying the convert when the convert was selling at a big discount and now the convert is not selling at a discount so therefore it’s more probably that I’ll pay off the convert as it matures rather than take advantage of a discount because presently there’s not a discount.
David Wu – GC Research LTD
You mentioned, I’m sorry I just want to repeat it because I didn’t copy it down quickly enough, earlier on you mentioned that you want to pay what millions of dollars by November of this year I think it was?
Paul Coghlan
I had two converts, one for $1 billion which is still $1 billion and that’s not due until 2014. I had another convert which originated or started at $700 million and these gains that you alluded to that I got last year when it was selling at a discount enabled me to pay off $300 million of it roughly so I now have $400 million left to play. That $200 million is callable and puttable in November 2010. So November 2010 I’ll probably pay it off.
Operator
Your next question comes from Craig Berger – FDR Capital Markets & Co.
Craig Berger – FDR Capital Markets & Co.
On the gross and operating margins, I just wanted to know do you guys have any longer term targets? Where should we think about that heading as revenues continue to improve or recover around the world? That’s my first question.
Paul Coghlan
Well, we said that as we get back to what our peak sales levels were presently we don’t see a reason why we couldn’t achieve margins similar to those that we had in those periods.
Craig Berger – FDR Capital Markets & Co.
Then as part of that, on the gross margins I know historically you guys have produced extra and I think written it down. Was there any benefits from selling fully reserved inventory in the quarter that are above and beyond what might be normal?
Paul Coghlan
If I understand your question right you’re saying is some of the improvement in gross margin because I should have attributed to products that have been written off and therefore I had no cost, if there’s any of that it’s pretty negligible in the quarter, it’s very negligible.
Craig Berger – FDR Capital Markets & Co.
Then on your server exposure versus notebook is there a gross margin difference there in terms of product profile for you?
Paul Coghlan
There could be, you have more volume in notebooks than you do in servers but I think you’ve heard from us over all the years, we’re pretty disciplined in that if we have some unique technology to sell you we’ll sell it at margins we think are appropriate. If we don’t have unique technology, it’s any one of four or five guys competing for the business and it’s business we wind up not in. So there’s probably a little better margin on an individual product sale on servers than on notebooks but that’s probably made up for the volume on the items we sell in notebooks.
Craig Berger – FDR Capital Markets & Co.
And on the server side have you guys generally been holding content with this next generation of Intel Nehalem or growing or shrinking content?
Lothar Maier
I guess I don’t know the answer to that.
Paul Coghlan
I don’t either.
Lothar Maier
I would say in terms of just relative sales dollars, it’s holding relatively constant.
Craig Berger – FDR Capital Markets & Co.
Last question, can you just remind us what normal seasonality is for you guys as we move through the calendar year? Which quarters are strong, which quarters are week then anything that might be driving a difference versus those normal patterns this year?
Paul Coghlan
That’s a good question and I don’t mean to be a wise guy here but had you asked that in the year 2000 I would be much more confident telling you because our business had been pretty stable for 20 years up until then. Since then you’ve had dot com busts, you’ve had a lot of sales of hand held products to emerging markets to follow that you’ve then had a recession so what is normal seasonality has really been grayed if there’s such a word, it’s harder to predict.
But, with that as an important backdrop to your question, normally for us March quarter and the June quarter are our strongest and the summer quarter would be our weakest. But yet, there’s usually no quarter when we go backwards, we just have a little stronger growth in the March and the June quarter and a little less strong in the September. But, with our business changing, with the recession going on, I think it’s kind of harder to make those predictions going forward.
Craig Berger – FDR Capital Markets & Co.
I’m actually going to ask one more on the competitive landscape, have you seen any changes in the overall competitive landscape over the past year either from the developed competitors based in the US or from Asian competitors gaining design abilities, just any competitive observations?
Lothar Maier
From a competitive standpoint as we execute our strategy to not focus on the consumer and cell phone markets, we’re seeing actually fewer and fewer competitors. Most of our competitors are going left and we’re going right and so in the automotive and industrial markets and the communications markets, really the suite of competitors is much fewer.
Operator
Your next question comes from Auguste Richard – Piper Jaffray.
Auguste Richard – Piper Jaffray
Paul, I think you mentioned that you had some new products in the infrastructure side, I was wondering if that was the high speed converters or RF that really is sort of driving you from a new product perspective?
Paul Coghlan
It’s both of those and also some micro module opportunities.
Auguste Richard – Piper Jaffray
Is it predominately wireless or wire lined?
Lothar Maier
Wireless.
Auguste Richard – Piper Jaffray
Then historically when the semiconductor industry has gotten delinquent on shipping products to customers one of two things have happened, they’ve cancelled orders to some folks because they can’t get everything they need to build a product and/or they horde products because they can’t get everything that they need. Is either of those happening or are they both happening and then just netting each other out? Any color there would be helpful?
Lothar Maier
I haven’t seen either one of those. As of yet I don’t see hording of product, and again I only have a limited number of data points, what we’re seeing in our distribution channels and what we’re seeing on the backlog that our customers are placing on us. So I think at least our customers are still relatively disciplined in terms of how they’re giving orders and placing backlog so I haven’t seen that and certainly after just coming through a pretty brutal recession I think most of our customers are still stinging from that and they’re not highly motivated to pile on a lot of inventory either.
Operator
Your next question comes from Paul McWilliams – Indie Research.
Paul McWilliams – Indie Research
On the notebook area, if I divided that up I could do it in three sections, one would be the classic Windows notebook, one would be smartbooks with an ARM processor and third would be Apple, which one of those sectors or sectors provided the strength for Q4?
Paul Coghlan
Well first of all we never comment on individual customers so we can’t answer your question to that extent. Then, I don’t have the granularity in front of me that you’re asking about Windows, etc.
Paul McWilliams – Indie Research
Have we seen design activities then in smartbooks with the ARM processor?
Lothar Maier
Those tend to be very low ASP type of products and relatively low performance notebooks. I can’t tell you for sure what we have but my anticipation is we don’t have a lot of business in those.
Operator
That concludes today’s question and answer session. At this time I’ll turn the call back over to Mr. Coghlan for any closing remarks.
Paul Coghlan
Thank you very much for your attention this morning. As we said in our opening comments, this was an excellent quarter for us. We believe we’re well in to our strategy that we’ve talked about which enables us to differentiate ourselves from our competition and to grow well in the marketplace. I wish you all a good day.
Operator
This concludes today’s conference call. We thank you for your participation.
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