Linear Technology: "Business Environment Was Weaker Than We Expected"

Linear Technologies (LLTC) CFO Paul Coghlan noted in the company's earnings call that while consumer bookings grew last quarter, they did not pick up to the extent projected by the company. Later in the call, in response to an analyst's question, he says that this weakness is industry-wide, not a reflection of loss of market share. In his words:

As we had forecast in our last conference call, sales and profits for the just completed September quarter were roughly similar to the previous quarter. However, the overall business environment was weaker than we expected and consequently our bookings decreased slightly. Consumer bookings grew, but not to the extent we expected as customers remain cautious going into the holiday demand period. Revenue for Q1 ended October 1 2006 was $292.1 million, essentially flat with the revenue of $292.9 million for the previous quarter, but was an increase of 14% over the first quarter of last fiscal year’s revenue of $256 million. Net income for Q1 was $112.4 million, or $0.37 diluted EPS, compared with $115.7 million, also $0.37 diluted EPS in the prior quarter. [...]

Looking forward, the December quarter that we are entering is now difficult to forecast. As I said earlier, consumer bookings grew, however not to the extent we expected as customers remain cautious going into the holiday demand period and some customers refer to supply problems from vendors other than other. The macroeconomic trends are reasonable and our positioning in customer programs is good. However, the visibility is low and customers are guarded in their forecasting and inventory management. Consequently, given the usual seasonal slowdown in non-consumer businesses that takes place in December, we currently expect sales and profits in the December quarter to be down roughly 5-7% from the quarter just completed.

Paul Coghlan's response to Adam Parker of Sanford Bernstein's question about the company's performance relative to its peers:

A - Paul Coghlan

First of all, let’s address our peers. Several of our peers, when they gave their guidance going into the summer quarter, guided down, so their guidance was worse than our guidance. We had other competitors who towards the end of the quarter revised our guidance downwards. If you look at the population of competitors that we have, we may be the only one that kind of stuck to his guidance and whose guidance wasn’t negative going into the September quarter. Maybe one other guy did that.

Q - Adam Parker – Sanford Bernstein

So over the six-month timeframe you’re saying look, it’ll be about the same, we just – you know, they pre-released and we didn’t and so at the end of the day it’s the same. Your view is you’re not a share loser?

A - Paul Coghlan

That’s what our belief is, although we have to see what these folks say when they come out with their estimates for the December quarter. The question about lead times, I think overall, there was a time when lead times – we always stay at 4-6 weeks. There are times when other folks are substantially higher than us, and there are times when they come closer to us. When they come closer to us, generally, the overall customer base feels confident that overall it can lower its inventory levels and can be ordering more closely to match floor usage.

I do think there’s been a little hesitancy at the robustness of what this Christmas or holiday season will bear. We don’t think we’ve lost any market share, we think we’ll get off to a good start in 2007, although we have to see how 2006 wraps up. On the other had, to be frank with you, we thought our bookings would have been stronger towards the end of September than they were. That’s what’s led us to guide down.

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