Linear Technology Management Discusses Q2 2014 Results - Earnings Call Transcript

Jan.15.14 | About: Linear Technology (LLTC)

Linear Technology (NASDAQ:LLTC)

Q2 2014 Earnings Call

January 15, 2014 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

Craig Hettenbach - Morgan Stanley, Research Division

JoAnne Feeney

John W. Pitzer - Crédit Suisse AG, Research Division

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

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

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

Ambrish Srivastava - BMO Capital Markets U.S.

Ross Seymore - Deutsche Bank AG, Research Division

Auguste P. Richard - Piper Jaffray Companies, Research Division

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

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

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

Aashish Rao - BofA Merrill Lynch, Research Division

Doug Freedman - RBC Capital Markets, LLC, Research Division

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

Operator

Good day, everyone, and welcome to the Linear Technology Corporation Fiscal 2014 Second Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference to Paul Coghlan. Please go ahead, sir.

Paul Coghlan

Hello, good morning. This is Paul Coghlan. I'll be joined today in the call by Bob Swanson, our Executive Chairman; and Lothar Maier, our CEO. I will give you a brief overview of our recently completed second fiscal quarter, and then address the current business climate. We will then open up the conference call for 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 would like to remind you that except for historical information, the matters we will be describing this morning will be forward-looking statements that are dependent on certain risks and uncertainties, including such factors, among others, as new orders received and shipped during the quarter, the timing introduction of new processes and products, and general conditions in the world economy and financial markets. In addition to these risks, which we described in our press release issued yesterday, we refer you to the risk factors listed in the company's Form 10-Q for the quarter ended September 29, 2013, particularly management discussion and analysis of financial condition and results of operations.

Secondly, SEC Regulation FD regarding selective disclosure influences our interaction with investors. We've opened up this conference call to enable all interested investors to listen in. The press release and this conference call will be our forum to respond to questions regarding our estimated financial performance going forward. Consequently, should you have any questions regarding our estimates of sales and profits or other financial matters for the upcoming quarter, as well as how they might impact our income statement model and our balance sheet, this is the time we're free to respond to those questions.

Our second fiscal quarter met our expectations. This is a seasonally slower quarter for us. However, results were clearly better than a year ago. This quarter, sales were down 1.7% versus down 8.9% last year. Similar to last year, bookings activity was a little better in December than we had expected and January is off to a decent start. We had reasonably good expense control as operating and net income were down 3% each on a 2% reduction in sales. We had a slightly positive book-to-bill ratio and cancellations were once again minor. However, bookings similar to sales were slightly lower than the prior quarter.

We continue to believe that inventories worldwide at customers are relatively lean exiting the quarter. The end market distribution of bookings was similar to the prior quarter. Going into the quarter, we commented that worldwide macroeconomic conditions had worsened, particularly in the United States. Now we're going into the March quarter, we believe macroeconomic conditions have improved again in the United States, where the budget stalemate at the federal government level has been temporarily resolved.

With regard to our financial results, sales decreased by 1.7% from the prior quarter. The gross margin percentage at 75.3% was unchanged. We again had shutdowns in our factories and also shut down New Year's week, the first week of the current quarter. ASP at $1.83 was up from $1.81 last quarter. Operating expenses increased modestly by $670,000. We did have a shutdown in the operating expense area, the R&D and SG&A areas in late December for the December holiday period. However, we did not have a shutdown for the New Year's week in these areas.

Operating income at 45.2% of sales decreased from 45.9% last quarter due to the decrease in sales and was in our forecasted range. Below the line, interest income and expense were largely unchanged. Pretax income at $139.7 million was $5.1 million or 3.5% less than the previous quarter. The company's effective tax rate decreased slightly to 25% from 25.5% last quarter. Finally, net income of $104,751,000 decreased 2.9% from $107,668,000 reported last quarter. Our return on sales was 31.3% versus 31.7% last quarter. Headcount increased modestly by a little less than 1%, primarily in our overseas factories in anticipation of the improving sales.

In summary, the effect of the items I just listed on the published quarterly results was that revenue was $334.6 million for the second quarter of fiscal year 2014 compared to the previous quarter's revenue of $340.4 million and $305.3 million reported in the second quarter of the previous fiscal year. GAAP diluted earnings per share of $0.44 decreased $0.01 from the previous quarter's earnings per share and was $0.06 better than reported in the second quarter of fiscal 2013. Earnings per share would be $0.51 on a pro forma basis, which excludes the impact of stock option accounting and the amortization of debt discount, which is the theoretical difference between the company's convertible debt actual interest and the interest it will 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 $128.1 million to $1,718,000,000. The company spent $6.5 million to purchase 163,000 shares of its common stock in the open market. The company also announced that its Board of Directors approved an increase in its quarterly dividend from $0.26 per share to $0.27 per share. This marks the 22nd consecutive year the company has increased its dividend. At the current stock price, the company's new dividend yield is 2.4%. The company's commitment to increase its dividend despite various economic cycles underscores its belief in the strength of its business model and in its strong financial position. This cash dividend will be paid on February 26 to stockholders of record on February 14.

Looking ahead to the March quarter. We believe that although we are still in a challenging global economic environment, we can see improvement. We also believe that inventories worldwide at customers were tight exiting the end of calendar 2013. Also we had a positive book-to-bill ratio for the December quarter. Historically, the March quarter improves for us as there are fewer holidays in the U.S.A. and Europe, which generally helps our industrial and automotive businesses to get off to a good start. Accordingly, we are estimating that we will grow quarterly revenue sequentially in the 3% to 6% range. Operating profits, we expect to grow in line, slightly better than the sales increase percentage.

Now I would like to address the quarter's results on a line-by-line basis, starting with bookings. Bookings were slightly down for the quarter. We had a positive book-to-bill ratio. Geographically, bookings were up modestly in the U.S.A. and down modestly in international. International bookings were down in Asia Pacific and Europe and up in Japan. By end market, the distribution of business was similar to the prior quarter.

At this time every quarter, we give you a breakdown of our bookings percentages by end market to give you insight into those markets that drive our business. First, industrial continues to be our largest area, once again being 43% of our bookings while being down slightly in absolute dollars from the previous quarter. Within industrial geographically, the U.S.A. and Europe were down and Japan was up. Our industrial business is very broad-based both geographically and by end products.

The communications area at 20% also was similar to last quarter but also down slightly in absolute dollars. There was some improvement in China communications infrastructure customers. Cell phone continues to be a very small part of our business, around less than 1% of our business. Computer remained at 9% of our business although also down slightly in absolute dollars. Within computer, we service opportunities in notebooks, desktops, tablets, servers, storage devices and printing and imaging products. Tablets and notebooks again showed the most decline.

Automotive continues to be a focus area for us and remained at 19% of our business while increasing slightly in absolute dollars. This time last year, automotive was 16% of our business. The expansion of existing Linear parts into new car models and also new parts for 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 up modestly in absolute dollars. Finally, military, space and harsh environment products remained at 6% of our business, down slightly in absolute dollars. The U.S.A. and Europe are the predominant geographic areas for this business. The U.S.A. will probably continue to be impacted by national budget savings expected out of the military area, although commercial satellite and avionics business may help.

In summary, this is a good distribution of business by end markets for us with our largest areas showing the most overall market strength. Whereas 5 years ago, 14% of our business was in cell phones 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 5 years ago, is now 19% of our business, reflecting the increasing electronic content in vehicles, concurrent with high standards for quality and reliability. With regard to where our bookings are actually created, 60% are now created internationally and 40% in the U.S.A. Internationally, we have been helped by the growth in our Japanese and European automotive customers.

Moving from bookings to sales. Sales decreased 2% from the prior quarter while improving 10% from the similar quarter in the prior year. Sales decreased slightly both internationally and in the U.S.A. Within international, sales increased in Japan and Asia-Pacific and were down in Europe. In summary, the U.S.A. remained 28% of sales. Europe at 18% was down from 19% last quarter. Japan at 16% was similar to last quarter. The new Japanese government has instituted strong stimulus, which while weakening the yen, may help exports moving forward. Finally, Asia Pacific at 38% of sales was up from 37% in the prior quarter.

Gross margin. Gross margin at 75.3% was the same as the previous quarter as absorbing fixed costs over a slightly lower sales base was mostly offset by an improved ASP at $1.83 versus last quarter's $1.81. The company continued having shutdowns in its U.S.A. plants in the quarter for the calendar year ended holiday period in December and continued these into the New Year's week in the first week of the March quarter.

R&D. Research and development at $62 million increased $500,000 from $61.5 million reported last quarter, however, increased as a percent of sales from 18.1% last quarter to 18.5% this quarter due to the decrease in sales. Most of the modest increases were in labor costs as increases in stock compensation costs and merit were mostly offset by a holiday week shutdown and reduced profit sharing. Other nonlabor-related R&D expenses were generally similar to the previous period.

SG&A. Selling, general and administrative expense at $38.9 million was similar to the previous quarter's $38.7 million, increasing only $174,000, although increasing as a percent of sales to 11.6% from 11.4% in the prior quarter, again due to lower sales. Labor costs increased similar to R&D, largely due to merit increases and higher stock option accounting costs, generally offset by a holiday week shutdown and reduced profit sharing. Nonlabor-related SG&A costs were generally similar to the prior period.

Operating income. As a result of the above, operating income decreased by $5 million or 3.2%, and as a percentage of sales, decreased to 45.2% from 45.9% last quarter. Spreading fixed costs over a lower sales base largely caused this decline. However, this is still strong profitability and clearly puts us ahead of our peers in this financial performance measurement. Both interest expense at $6.8 million and the amortization of debt discount at $5.4 million were similar to last quarter. Interest income at $971,000 was also similar to last quarter.

As a result of all of the above, the company's pretax profits were $139.7 million, down $5.1 million from last quarter. Pretax profits are now 41.7% of sales versus 42.5% last quarter with the reduction due primarily to the slightly lower sales volume. Our quarterly effective income tax rate of 25% decreased slightly from the 25.5% last quarter due to similar tax deductions on a lower sales base. Finally, relative to the quarterly tax rate, we had no discreet items in this or last quarter. We expect next quarter's tax rate to be 25.25% before any discrete items. The resulting net income of $104.8 million is a decrease of $3.1 million from the previous quarter, primarily due to the decrease in sales. The resulting return on sales was 31.3%, down slightly from 31.7% last quarter.

The average shares outstanding used in the calculation of earnings per share increased by 1,342,000 shares. Stock option exercises and employee-restricted stock grants were only partially offset by stock purchases in the open market in the last 2 quarters. The diluted shares outstanding have been impacted by the rise in our stock price. In particular, our stock price is now over the conversion price of roughly $41 of our convertible bond. This impacted shares outstanding by roughly 300,000 shares. Next quarter, at current stock price levels, the impact of the bond conversion premium on our diluted shares outstanding would be another 1.7 million shares. GAAP earnings per share was $0.44, a decrease of $0.01 from the prior quarter, again due to the decrease in sales. On a pro forma basis, without the impact of stock-based compensation of $17 million and noncash interest expense of $5.5 million, diluted earnings per share would have been $0.51 per share compared with $0.52 last quarter and $0.44 in the similar quarter last year.

Moving to the balance sheet. Cash and short-term investments increased by $128.1 million. $168.7 million was provided by operations and $38.2 million was provided from the exercise of stock options by employees. $62 million was paid in cash dividends, $4 million was used to purchase fixed assets and $12.2 million was used to repurchase both common stock purchased in the open market and restricted stock from employees.

For the 111th consecutive quarter, the company had positive cash flow from operations. Our cash and short-term investment balance is now $1,717.6 million and represents 76% 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 $138.5 million decreased by $43.7 million from last quarter, which is unusually large given the $5.8 million decrease in sales. Last quarter, we had the opposite, an unusually large increase in accounts receivable, which was due to temporary invoice processing delays at one of our large distributors. This problem was rectified in the December quarter. A lesser part of the current decrease in accounts receivable was due to larger-than-normal collections at the end of the calendar year. As a result, our days sales and accounts receivable decreased to 38 days from 49 days last quarter. A more historic day sales range for us is in the low 40s, which we would expect to return to next quarter.

Inventory at $87.8 million increased slightly by $800,000 from last quarter. Linear raw materials inventory decreased $396,000, WIP inventory increased $1,385,000 and finished goods inventory decreased $190,000. Our quarterly average inventory turns is 3.8x versus 3.9x last quarter. Deferred taxes and other current assets of $40.9 million increased by $5.1 million, largely due to an increase in interest receivables as our fiscal year end was 2 days before the calendar quarter end and also due to an increase in normal prepaid.

Property, plant and equipment decreased by $8.2 million. We had modest additions of $4,009,000 and depreciation of $12,242,000. Most of the additions were for manufacturing test and assembly equipment worldwide. For fiscal 2014, we expect additions to be roughly $25 million to $30 million and depreciation roughly $50 million.

Finally, on the asset side of the balance sheet. Our return on assets was 18.8%, down from last quarter's 20.1% as we had a slight reduction in net income and an increase in assets, primarily cash. Net of cash and convertible debt, our return on assets would have been 30.9%.

Moving to the liability side of the balance sheet. Accounts payable increased by $295,000, largely due to timing differences on recurring payable items. Accrued income taxes, payroll and other accrued liabilities decreased by $20.9 million. The largest items here are our profit sharing accrual, income taxes payable and accrued interest payable on our convertible debt. Our interest payable accrual decreased as we had a semiannual interest payout this quarter. The profit sharing accrual increased as we had this quarter's charge to the accrual and no payout since payouts are made in our first and third fiscal quarters.

The largest change was a decrease in our income tax accrual as we had 2 quarterly federal tax payments this quarter. We had no required fiscal 2014 quarterly tax payments last quarter. Next quarter, we will have one quarterly payment as required. Deferred income on shipments to distribution hardly changed as our shipments to U.S. distributors was similar to what they shipped out to their end customers. Worldwide, we continue to believe our inventory levels are lean. We continue closely monitor our inventory at distribution to properly position the inventory relative to potential demand.

Our senior convertible notes increased by $5.5 million. This increase reflects the noncash amortization of debt discount charged to the income statement. These notes are classified as current liabilities since we currently expect to call these notes within the year. Since we reclassed these notes to current liabilities, our current ratio was 1.9:1, similar to last quarter's 1.8:1. Once we repay these notes, this ratio will obviously dramatically increase.

Deferred taxes and other long-term liabilities of $103.6 million increased $10.6 million, largely due to deferred taxes on various timing differences. Changes in the stockholder equity accounts were primarily the result of the usual quarterly transactions for net income, dividends paid and employee stock activity. As stated earlier, the company announced that it was increasing its quarterly dividend to $0.27 per share from $0.26 per share. The company believes that paying a dividend is an important way to return value to its shareholders. The company began paying a dividend in 1992 and has increased it every year since.

Looking forward, although our sales and bookings were down in the December quarter, the decline was significantly less than the prior year. As we enter calendar 2014, the macroeconomic conditions, although not robust, are better than recent quarters. In the U.S.A., growth is tracking to be better than last year. Europe and Japan are also predicted to have a better year. China should still have reasonable growth although not as strong as in past years. Chinese New Year is in this quarter, and that will have a dampening effect in the short term.

From a Linear-specific standpoint, the March quarter is historically a stronger quarter for 2 of our largest end markets, industrial and automotive. Generally, we believe inventories in our various sales channels are lean and we have a slightly positive book-to-bill ratio going into the March quarter. Summarizing these various data points gives us a positive bias in the short-term. And consequently, we're currently forecasting revenues for the March quarter to grow sequentially 3% to 6%.

Looking beyond these near-term conditions, the major market opportunities that drive our business demonstrate continuing growth, particularly in the industrial and automotive end markets. Increased analog innovations in our other end markets will also benefit us. Finally, we are very well product- and end market-positioned to execute our strategy. We are strong in the areas we want to be, industrial, communications infrastructure and networking and automotive, and 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] Our first question will come from Craig Hettenbach of Morgan Stanley.

Craig Hettenbach - Morgan Stanley, Research Division

Paul, on the industrial market, some recent enthusiasm about improving CapEx cycles to this year. Outside of the typical seasonality you see in Q1, can you talk about any change in customer behavior, design activity that would corroborate with that? Or what else you're seeing in industrial would be helpful.

Paul Coghlan

Well, for us, industrial is very, very broad-based, both geographically and we have many, many customers. So it's really hard for us to zero in on 5 or 10 customers and extrapolate something from that since it's so broad-based. So I think the general improvement in macroeconomic conditions that we alluded to should help calendar 2014. But whether these estimates for specific increases in capital expenditures bear fruit, we'll have to see. But we're generally optimistic this year, certainly more optimistic than last year at this stage going into the calendar 2014.

Craig Hettenbach - Morgan Stanley, Research Division

Got it. And then if I can follow up with Lothar on just the automotive market. Could you rank on a near term to intermediate term if you think about the buckets of infotainment, the powertrain and safety kind of the level of design activity you see and kind of your growth expectations in those buckets?

Lothar Maier

Yes. Our automotive business started really sort of in the infotainment part of the vehicle, and then over the last several years the amount of electronics keeps growing. It's really -- the growth part of the automotive business has been really in the noninfotainment part of the vehicle, its safety, fuel efficiency, hybrid and electric cars. And so a bit to our surprise is the fact that the infotainment portion of the business, not only has stayed with us as still a pretty important part of the automotive business. But if you look at it, it probably has tweaked up a little over time as well. So we've got sort of the core which we had 5, 6 years ago that continues to modestly grow. And then you've got all these other components that are really the growth drivers for the automotive market for us completely on 2 fronts.

Operator

Our next question will come from JoAnne Feeney of ABR Investment Strategy.

JoAnne Feeney

I was wondering if you could fill us in a little bit on what you're seeing in terms of the trends in orders from month-to-month and how it looks starting out this year.

Paul Coghlan

Well, as I said in opening comments, December was a little better month for us than we had expected. And then we've been off to a reasonably good start in January. Now Chinese New Year is a little earlier this year, it's in the very beginning of February. So I think the order pattern and strengthening of the order pattern sort of makes sense relative to what we were expecting.

JoAnne Feeney

And is that pretty consistent across your different end markets? Particularly, is that what you're seeing in the communication infrastructure area?

Paul Coghlan

Yes. I think, as I said, our distribution of bookings by end markets was exactly the same as it was the previous quarter. And it's a little -- it's hard to extrapolate from the first couple of weeks of the quarter how it will turn out. But so far, I think that bookings have been well balanced by end market.

JoAnne Feeney

And then in terms of your past utilization and your total shutdown days for this quarter and perhaps how you're looking at the rest of the year, what would you need to see before you started to push that capacity utilization higher?

Lothar Maier

Yes. It obviously depends on the sales. This quarter, I believe, we had one less day of shutdown than we did last quarter. And as the sales continue to improve, I would anticipate that in the next couple of quarters, we'd probably start unwinding some of these shutdown activities that we have.

Operator

Our next question will come from John Pitzer of Crédit Suisse.

John W. Pitzer - Crédit Suisse AG, Research Division

I guess, Paul, a quick question just on how we should think about gross margins from here, maybe a follow-on from Lothar's question around utilization. I guess, even if I adjust for kind of the higher depreciation level today versus prior periods, given that you've had such a good mix shift away from more commoditized markets, I'm still a little bit surprised that gross margins haven't done better. And I know I'm kind of splitting hairs here, given how strong your absolute gross margins are. But if as we think about the product mix utilization, is there any reason why your model shouldn't be able to get back to gross margins in the high 70s instead of the mid-70s?

Paul Coghlan

I think we can get back to gross margins in the high 70s, but it may be a little step functional rather than, excuse the pun, linearly because as Lothar addressed, we have these shutdowns. So when the shutdown period stops, then we'll have like an extra week of factory activity in that quarter. And in that timeframe, we should start to see the gross margin improve, not only because of the lack of shutdown but also because we'll be absorbing relatively constant fixed cost over a higher sales base. So we actually added to capacity when we're at sales of $380-plus million a couple of years ago. And we haven't gotten back to that point yet. So when we get back to that point, I think -- and slightly above that point, I think you'll see our gross margin more approach the numbers you're hoping we'll achieve.

John W. Pitzer - Crédit Suisse AG, Research Division

That's helpful. And then you said in your prepared comment that you expect operating income to grow faster than revenue in the March quarter. Just given some of the variableness in OpEx and the business model, can you help us maybe just quantify a little bit about how much faster? And then going forward in to future quarters, how should we think about OpEx growth relative to revenue growth?

Paul Coghlan

Well, I think I said it would grow in line to slightly better than sales. So I didn't want you to kind of take off to the races on the operating income line. But I did think it would improve a bit. Your question is kind of in concert with your previous question that obviously a big portion of operating income is determined by gross profit, and we talked about that already. But if we grow sales in the mid-single-digits on a quarterly sequential basis, I don't think we'll grow expenses that quickly in R&D or SG&A. So I think to summarize, I think that gross profit can improve from what it was this period, which was 45.2%. But I think that improvement will probably be modest until we stop the shutdowns and we grow more consistently in the mid-single-digits per quarter.

Operator

We'll go next to Romit Shah of Nomura.

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

Paul, you mentioned that customer inventory is pretty tight. I was wondering if you could quantify how much inventory the channel is carrying. And then embedded in your forecast for mid-single-digit growth, are you assuming that your customers build inventory here in the March period?

Paul Coghlan

We don't quantify the inventory in every of the end channels. We know it well in the distribution channel. We don't know it well in the distribution customers' channel. We had some sense of it at the contract manufacturers, maybe less a sense of it at the OEM who doesn't use the contract manufacturer. But overall, just looking at their order patterns and their pull-in versus pushout activity leads us to believe that it's -- that our inventories are lean. And what was the final part of your question?

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

Well, I'm just curious if in the forecast for this quarter if you expect your customers to build inventory. Or maybe looking beyond the current quarter, is inventory restocking a potential catalyst for your sales as we go through the calendar year?

Paul Coghlan

I think if the markets pick up, probably some degree of inventory restocking will happen. And that will be a catalyst. But as we view the March quarter with sales forecast of up 3% to 6%, we don't think that's a fast enough acceleration to cause a significant change in inventory levels at our distributors during a quarter.

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

And then could you just remind us in terms of the June quarter what do you guys sort of see as normal seasonality? Is it similar to March, up mid-single-digits on average?

Paul Coghlan

Well, it's fraught with risk now to guide more than a quarter out in the last couple of years, as you've known. But if you want to look at last year, for example, when we grew, it was roughly similar in the June quarter sequentially as we had the March quarter. But it's kind of early to tell until we see our March quarter evolve.

Operator

We'll go next to Chris Caso of Susquehanna.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

I'm just wondering if you could give a little bit color and perhaps characterize the March quarter guidance. I guess, just doing the math, it looks like it's about normal seasonal for you guys for a March quarter. Is that sort of the tone that you're getting back from your customers? Is this kind of getting back to sort of a more normal environment?

Paul Coghlan

Yes. I think that's a fair characterization. We're guiding up 3% to 6% after having gone down to 2%.

So for us, it feels like a normal March quarter where industrial and automotive businesses tend to pick up, there's less holidays in Europe and the U.S.A. as we've talked about. So I can say you're right, it feels like a normal March quarter.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Okay. And just looking out longer term and as you do your long-term planning, how are you guys looking at sort of the long-term growth of both the available market you serve as well as what you expect for Linear? I realize that's a tough question as you kind of look out, but I guess as the numbers look now, you're kind of running it around sort of 10% year-on-year growth. Do you think that we're still sort of in a depressed level that we should expect those growth rates to increase as we normalize over time, or kind of we're in a long-term environment now.

Paul Coghlan

Well, like any company, we look at our product potential, we look at also the financial performance we think we'll have. And I know here, I don't know about other companies, we're probably more optimistic when we look at our product potential and then we tend to temper it, guys like me tend to temper that enthusiasm a bit when we work its way through the financial numbers. So when we look at innovation in these end markets, we look at innovation in automotive, industrial, the predominance of electronics in these markets as they move from being a mechanical markets, if you will, to electronically-driven markets, we see lots of growth potential. Now internally, we always think of our business as growing in some low double digits, but externally all of that is tempered, to some extent, by macroeconomics. So in an earlier question, if the macroeconomics improved dramatically, well then you'll have some inventory build and you'd have some other factors that could have us grow faster than we are now, because certainly from an innovation standpoint we think we have good opportunities. But to forecast that externally and to talk about that in financial models, we don't have enough data input to really do that other than look at recent history and project from that, which is what we're doing.

Lothar Maier

And I guess the other thing to consider is that we're still just a very, very small percentage of the overall analog market. So there's -- it's a big market and we're 3% or 4% of it, so we've got lots of opportunities in the current market.

Robert H. Swanson

Yes. We'd like the market to grow but we're counting on growing faster than the market, however, strong the overall market is.

Operator

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

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

Clarification on what you said about shutdowns. So if I understand correctly you had 1 week of shutdowns, manufacturing shutdowns already this quarter. Do you have any further scheduled for the current quarter, or is that it for this quarter?

Paul Coghlan

From a shutdown perspective, I believe, we're pretty much through this quarter. We'll have shutdowns in the back-end, which are holiday related because of the Chinese New Year, but really the sort of pre-planned forced shutdowns, we're done this quarter.

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

And do you have an approximate revenue level of which you wouldn't be doing additional shutdowns in future quarters? Or is there any number that we can look that would tell us that you'd stop doing your shutdowns?

Paul Coghlan

I don't think we've got a pre-dialed in number but I would say if we would see the type of growth we're seeing right now progressing for the next several quarters, I would feel comfortable that we'd probably be out of the shutdowns.

Operator

We'll go next to Ambrish Srivastava of BMO.

Ambrish Srivastava - BMO Capital Markets U.S.

Good job guys, it's a tough uneven environment out there. Just on the end markets, you have articulated pretty decent secular drivers in 2 of your largest end markets. For example, battery monitoring and automotive. I wanted to get a little bit more details around the comms. So within that, A, what's the outlook for that comm infrastructure overall for the market? And then specifically for Linear, what are some of the drivers we should look forward to?

Paul Coghlan

For us, the comm market has been relatively constant from a sales perspective. And I would say the stronger part of that comm market for us is the networking. But with that said, something we've been talking about in some of the calls is that the communications infrastructure, even though we've kind of always thought that it was going to pick up, we're actually seeing a little bit of pickup in that area right now. There appears to be some build outs being done in Asia, and so we're seeing that pick up as well a little bit, how long that lasts and how deep it goes, it's a little uncertain. But there's a little bit of rumblings in the comm market right now.

Operator

Ross Seymore of Deutsche Bank has our next question.

Ross Seymore - Deutsche Bank AG, Research Division

A couple of housekeeping ones, Paul, you mentioned about paying down the convert around the month of May, $845 million. Can you just walk us through the logistics on what the company will look like after the fact as far as the amortization of the debt discount disappearing and the share count we should be using after that?

Paul Coghlan

Well, at the end of about -- maybe in 2 steps. At the end of the March quarter, we'll have a month to go before the pay-down of the convert that we anticipate doing on May 1. But if the stock would remain in its current levels, the convert would be handsomely in the money, so to speak, and we would have an additional diluted shares of 1,000,007, an additional 1,000,007 added to the existing share count at the end of April. Then once the convert -- we call it, then what happens -- then we'll have decisions to make whether we want to use cash, which will no longer be needed to pay down the debt to buy back some of the shares that go in -- that has increased the diluted share count, and we'll make that decision at that time and over the next couple of quarters. Secondly, if you look at the income statement, you're correct that both interest expenses that show on the income statement now, the 3% convert actual interest will disappear, not disappear go away, I guess that's disappear, and then the amortization of debt discount also will go away. So the income statement we favorably impacted by roughly $12 million, now, 2/3 of that will take place in the June quarter and then the full benefit of it will be in the September quarter.

Ross Seymore - Deutsche Bank AG, Research Division

So on the share count side, because the interest expense side seems relatively straightforward, on the share count side of things, when we look into the June quarter, all else being equal, the share count is going to go up by 1.7 million shares and then it's your decision on how much of that you want to buy back, is that accurate?

Paul Coghlan

It's accurate that when we exit the March quarter and start the June quarter, the income statement you'll see will probably, unless we buy shares in the interim, will probably have as a result of the convert another 1.7 million shares outstanding. And then once you get into the June quarter after we purchase, after we convert, then as long as the quiet period is open, we may buy back some of those shares and we may buy back some more of them in the September quarter.

Ross Seymore - Deutsche Bank AG, Research Division

Got you. One other quick question, housekeeping one, the 25, in the quarter, percent tax rate you're talking about, does that include R&D tax credit and should we just assume that kind of 25%, 25.25% rate for the rest of this fiscal year and calendar year?

Paul Coghlan

The 25.5% rate you should assume, however, relative the R&D credit, there is little of that, little of the R&D credit and now because Congress has not passed an extension of the R&D credit. Now historically, what Congress has done is they've not only extended the credit late, but they've made it retroactive. As you know, there's a lot of talk in tax reform, et cetera, in Washington. So what they do this year is uncertain. And it's been sort of a little bit of a political football each year, what they've done is they've kind of re-up the R&D credit and then they've canceled it and re-upped it and then canceled it. So the R&D credit kind of moves around. If it were to be reinstated, then our tax rate would be lower than 25.25%. But I don't see it being reinstated this quarter but it may well be and I'd be happy to see that happen.

Ross Seymore - Deutsche Bank AG, Research Division

Any clue on how much lower?

Paul Coghlan

Well, there will be 2 pieces of it. One piece would be the lower -- the impact lowering on the effective tax rate going forward. Another would be a discrete item for the impact that occurred in our previous fiscal year. And I don't -- I think the one you're probably more interested in is the number going forward. My guess, this is just a guess, it might be a point, but that's a guess. I can try off-line to get you a better number.

Operator

We'll go next to Gus Richard of Piper Jaffray.

Auguste P. Richard - Piper Jaffray Companies, Research Division

Regionally, if you break your business up in the 4 big buckets, China, U.S., Japan and Europe, and then you start to think about shifts in industrial and comm infrastructure, demand in OEMs due to currency exchange or maybe low back from the NSA Snowden affair. What areas in industrial, what regions would be best for you for production to be in? And what regions would be best for you to have the comm infrastructure demand come from?

Paul Coghlan

I'll take -- that's a good, complex question. I'll take a first stab at it and then let Lothar amplify my comments. First of all, humorously, I'll say if I can answer that question pretty accurately, I should be in Washington and not here. But taking a stab at it, and also bear in mind that as Lothar earlier said, we're only a small percentage of the overall analog market. And that when you look at our penetration you talked about industrial, for example, our penetration is deeper industrial presently in a place like Europe than it is in a place like China. So you could have some political or macro issues like in China but we're a small piece of that with lots of good growing opportunities, whereas, if you had a bigger issue in Europe, that might be more impactful. For us, really, where the sales are made is not all that relevant. For us, it's just the absolute value of where they are. The Snowden thing I'm not sure how much that would impact us overall because what it might do is, and we've heard some U.S. companies saying that adversely impacted some U.S. customers of ours, but that the business still needs to be placed internationally so some international customer of ours might do better whereas some domestic ones might do poorer and overall, we'd be about the same. Relative to industrial, I don't think any of these political shifts would cause a major concern for us unless if we're in Europe or the U.S. and we've kind have been through bad economic times in those areas and probably have more upside than political downside.

Lothar Maier

Yes. I think if you look from a geography perspective, Europe -- you didn't mention Japan, but Japan is an important industrial market for us. And if you look at our industrial customers, they're really made of the small and medium-sized customers. And Central Europe and Japan, there's many, many of these small and medium-sized customers. So going towards the future, I think there's still many good untouched customers that we have available to us in the European and the Japanese market. I think the other thing that's why we're so bullish about the automotive and industrial market is the fact that even though the overall analog market has been kind of flattish for many years, if you look at the percentage of the overall analog market, that's automotive and industrial, if you go back 10 years, it was only about 22%. In the most recent reported year, it was over 40%. So even if the analog market is a little bit sluggish in its overall growth, the swing towards automotive/industrial has been really strong.

Operator

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

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

Paul, the company has done just a very good job over time identifying new markets and then defining markets that serve those new markets well and your auto mixed shift is a good example. We're now hearing more companies talk about automotive as a targeted end market. Is Linear Tech seeing signs of increased competition in the areas where they compete? And if so, how is the company responding to that, either by looking for new opportunities or do you just see that the competition isn't at the level of quality that you have with your parts?

Lothar Maier

I think our biggest defense against competition is being first. And so we've talked about the automotive market as being a good market long before the topic was popular. And so I think what we have is a 4, 5-year head start from a product standpoint and a customer engagement standpoint. And so that's really our goal and that's kind of how Linear has done business, all its life is being first to market with great products and that's just what we're continuing to do.

Paul Coghlan

Also, Craig, it's not like the automotive market had a step function increase in electronics and is now flattening out, so that it's people could catch up with you conceivably. And the electronic content in cars continues to grow and grow and grow so that the opportunity keeps growing fast. So since we put a lot of effort into that market, probably sooner than our competitors, we're a little better positioned to understand where it's going, what type of electronics it wants and to get back to Lothar's point, to continue to be first to market with these electronics functions that are needed in the continuing expansion of electronics in cars.

Robert H. Swanson

Yes. This is a business where we can defend our business unlike the consumer business where the only way to defend it was to lower prices.

Lothar Maier

The other thing to consider is the fact that once you're designed into an application, in the automotive space, that application you don't necessarily have to defend because a car customer isn't going to change their design and open it up for all the qualifications that they have to go through just to save a few pennies on a part. So once you're designed in, these things have 3, 4, 5-year lives.

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

That's very helpful color, guys. The follow up is a longer-term question. As we look at the industry over the last few decades, we've had periods where we've had protracted growth, the 2003 through '07 period was one such period. The last 3 years however, have been 2 steps forward and 1 step back. Are there any signs that you're seeing out there that would suggest that the improvement in the macro that you see now and that you described could lead to a more elongated period of growth than what we've been seeing over the last few years?

Paul Coghlan

I think we'd be a little hesitant to project that because if you look back, we were probably asked that question 2 years ago and we thought things were looking better and then the macro got worse, where after the year ago, we thought things were starting to look better and the macro got worse. So I think we sort of learned don't project the macro, just stick to what you're good at, innovate good parts, be ready to take advantage of changes in the macro. So I think if you would ask us now, we'd probably give you an answer similar in the past that things are looking better now macro-economically than they did a year ago and hopefully that would be sustainable. But it's just been -- there's been just so many stops and starts that I think it's just more prudent just to see what happens and take advantage of it as it happens.

Operator

We'll go next to Christopher Danely of JPMorgan.

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

Just a follow-up on Craig's question. So let's just say that there's the normal or wishy-washy, whatever you want to call it, environment continues and you guys get a sense that it's going to continue for the foreseeable future. Is there anything changed about your planning or approach, would this be acceptable, unacceptable, would you guys do anything?

Paul Coghlan

Your question was a little -- can you get a little closer to your phone and just...

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

Yes, I hope this is better.

Paul Coghlan

Yes, that's better. I'm sorry I didn't get it, didn't quite...

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

Just a bit of a longer-term question. So let's just say that this current environment extends and we're in this normal or slightly normal or wishy-washy, or whatever you want to call it and you guys get a sense that it's going to continue for the foreseeable future. Would anything change at Linear? Would that be acceptable, would it be unacceptable or would you guys look at doing different things or would nothing change?

Paul Coghlan

Well, frankly from a product standpoint, I don't think a lot would change because in this wishy-washy, whatever you want to call it, environment, there still are good innovative potential areas, automotive, we've been talking about for a while with you now. We talked about electronic content and industrial. So we sort of run the company somewhat agnostic to the overall macroeconomics, but the macroeconomics come to impact us quarterly as we look at expense levels and things like that. But long term, we don't have a long-term plan that says with a good economy, we'll design these parts and a lousy economy, we won't, we'll design other ones. So it's just that's one of the blessings of the business we're in is, there's not enough talent and you can distinguish yourself professionally in the caliber of your products. So you kind of focus long-term all on that and then adjust expenditures and other things, inventory levels, shutdowns, et cetera, to the short-term events that are going on.

Lothar Maier

And you have to keep in mind that it takes us 2 years or longer sometimes to develop a product. And it takes another year to 3 years for our customers to design it in and get that product to market. And so we can't do sort of a stop-start, short-term kind of approach because our product cycles, just to get them into the market, is 3 to 5 years.

Robert H. Swanson

And you have to keep in mind, as I said before that, the overall market is coincide with, it's still $40 billion and we are, what, $1.3 billion. So within that $40 billion, we're always going to find areas where we can grow.

Paul Coghlan

And then finally in answering your question, we've sort of answered it on the negative side, if you will, of what happens if things aren't as good as wishy-washy. And the other side, if things are better we've always been able to adjust capacity quickly here at Linear and we've always been able to adjust headcount quickly. So I think we'd be a quick responder to good opportunities in the short term. However, that wouldn't change our long-term product focus but we would be able to react pretty quickly to that.

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

Yes. And then for my follow-up, so you guys have the best margin in semis, but if we compare you versus some of the larger cap higher-quality peers such as other analog companies, or Intel or the PLDs, or Microchip, or whatever, your pay out ratio and your dividend growth is pretty much at/or near the bottom. So I'm just wondering, does this ever come up in discussions with investors and discussions with the board and discussions amongst yourselves? Is this a concern to you or does it even enter the conversation?

Paul Coghlan

Well, actually, maybe off line or I'll address it here. First of all, when you say we're at the bottom, when I look at the most recent payout ratios for 2013 and I look at my analog peers and Microchip has a payout ratio in 2013 that's very high, well over 100%. The rest of the guys are -- I'm right in the middle of the pack, so, and I look at Maxim's, ADI's and TI's and Intel's payout ratio, I'm mid to the high end of that pack. Again now I wouldn't say payout ratio is the most critical thing to look at relative to a dividend. I said over many years the most critical thing I think is that a dividend is sustainable, that it, you raise it every year. And I think we've done that. So if you look at as a goal we've raised it for 22 years in a row and I don't think any investor would look at our dividend and discount it. I think he would think that there's room within the payout ratio or it's in a space that we wouldn't discount it. Some other guys might get there's discounted because their payout ratio is too high. So at least the numbers I have don't show the payout ratio being all that different than the analog guys you're referring to.

Operator

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

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

I just wanted to follow up on Internet of Things is a big issue at CES, some of that is obviously because CES it's consumer-oriented but certainly, there's a lot of machine-to-machine activity out there. Something you could talk a little bit about how you see that opportunities, is that something that Linear can really participate in and what areas would you plan in that?

Lothar Maier

Yes. We're obviously hopeful that we're going to participate in it. And as you're aware, we did the Dust acquisition exactly 2 years ago right now. And so, I would say there's a lot of kind of buzz around this right now. I hope the buzz turns into really a great business for us. But we're focused now on the consumer part of it but we're focused on more of the industrial side of that market. And so, I feel good that, that's a part of market we're focused in. But it's going to be sort of wait and see as how big and how fast it evolves kind of my first real data point is we've now been really at this for 2 years from a Linear perspective and we now have the entire Linear sales team promoting these wireless products. And we're just beginning to see really the first fruits of that efforts because it takes these customers 1 year or 2 years to take the product, design them in and then sell them to their end customers. So I think we're seeing some early movements now in this area but we're just going to have to wait and see how it evolves over the next several years.

Robert H. Swanson

And if it does happen, we're going to participate across the board [ph] in products, not just the Dust Networks products.

Lothar Maier

Yes, that's a good point. There's a good drag-along effect as well that customers that are interested in the wireless products typically have interest in our broader portfolio as well.

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

Great. Just with regard to the near-term order patterns, you guys have seen some better orders, some other folks have as well. But also as you pointed out, Chinese New Year somewhat early this year. Any chance some of this pick up here is just people ordering ahead of that as we got into months of February and March, maybe it will slow back down again, or do you have visibility sort of beyond just this current orders?

Paul Coghlan

Well, I think that's always a question and that's been asked every year in Chinese New Year. And recently, last year, in particular, Chinese New Year when it was over, order patterns pick right up and just continue as though there was no impact beyond a particular month that we discussed or the quarter you discuss of Chinese New Year. So I think that's a good question. Only time will give the answer to it. Probably people that will be more concerned about that would be people with heavier computer and consumer end market distribution than us. But certainly, it's something we look at and we did mention it.

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

Okay, fair enough. And let me just stick one more in.

Paul Coghlan

I don't know and you don't know, we'll know in a month.

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

Okay, great. Just on the convert, it sounds like that for sure that's going away, any chance you would make a decision to refi that instead of just get rid of it, sell the convert?

Paul Coghlan

Well, at the moment, we're planning to get rid of it by paying it off. We're not planning to refinance it at the moment. I don't think we'll refinance.

Operator

Aashish Rao of Bank of America has our next question.

Aashish Rao - BofA Merrill Lynch, Research Division

Paul, wanted to follow up on Chris's question where you noted your payout ratio was roughly in line with peers. But buybacks have only been running at 15% of free cash flow for a few years now, and on this metric you have been well below your peers. Suppose the convert redemption in May, do you see the allocation towards buybacks increasing? And essentially, do you expect to see the share count begin to trend down after creeping up for 5 years now?

Paul Coghlan

Well, I think that's a good point you make. I would probably add one thing to the fact that when you said we didn't buy back as much as some of our peers, we have or will have paid down $1.7 billion in debt. So we've used the cash to eliminate the debt. So relative...

Robert H. Swanson

Buy back 27%.

Paul Coghlan

So relative to -- going forward, certainly, once we no longer need to allocate cash for paying down debt, we'll have a choice for that cash as to what to do with it. And I would think we'd probably increase our share buyback activity over what it's been during the period while we've been buying back the debt.

Aashish Rao - BofA Merrill Lynch, Research Division

Got it. Lothar, 2013 was a tough year in computing. I think your sales were down probably well over 10%. Do you think you kind of hit a bottom here and you can see some recovery over the course of 2014 from data centers and some kind of bottoming in PC, new form factors, whatever. I mean, if you could walk us through the puts and takes around what is growing and what is still presenting headwinds in computing, I mean, that would be helpful.

Lothar Maier

Yes. For us, computing is -- when there's new innovation that takes place in that market, we tend to be early in that market. We benefited from sort of the early introduction of solid state drives, that market continues to grow and so we participate in it. And so we don't participate much in the PC world, maybe some high-end PCs, we still do some business with. I think for us, it's more around when something new develops in that market, we'll be there and we'll get benefit from it. We're not looking at much in the sort of the direct PC market, servers are interesting for us as we look ahead servers, they want to cram more of them in a smaller area. I think we have some products to support that. Heat and power use of server market is becoming an issue. And so I think as those types of requirements or performance or energy efficiency hit the computer market, I think we'll have opportunities, but I think it is going to kind of hang in there to where it is, where we see it right now.

Operator

We'll go next to Doug Freedman of RBC Capital Markets.

Doug Freedman - RBC Capital Markets, LLC, Research Division

I'm struggling to try to explain some data that some of the industry trackers have come out with. And I was wondering if I could get your opinion of why they showed a significant decline in analog ASPs. It's not showing up in your numbers, but it's probably showing up against the guys you're competing against. So I was wondering if you might be able to offer some insights on why you think it is that DFA data is showing that trend.

Paul Coghlan

Well, off the top of our heads, we're kind of looking at one another, we don't know that we could explain that. Now remember, we sell very little into the commodity side of the analog market. So if you look at the commodity parts, maybe a lot of parts that wind up going into tablets who's prices are dropping overall, the price of the tablets dropping, and the cellphones, to some extent, overall pricing. Maybe it's those markets that are getting...

Robert H. Swanson

What kind of ASPs are you talking about, what kind of levels?

Doug Freedman - RBC Capital Markets, LLC, Research Division

DFA data showed a pretty material decline in overall analog ASPs in the most recent quarter.

Robert H. Swanson

From what to what?

Doug Freedman - RBC Capital Markets, LLC, Research Division

I don't have the data right in front of me but it was about a 15% decline.

Robert H. Swanson

Well, is it like around the $0.50 area?

Doug Freedman - RBC Capital Markets, LLC, Research Division

Well, yes. It's always run well below your reported ASPs.

Robert H. Swanson

$0.50 has been the ASP for 30 years now, which is obviously a different solar system that we compete in. I was just wondering whether the $0.50 has now gone to party?

Doug Freedman - RBC Capital Markets, LLC, Research Division

Yes, it's down in that range now.

Robert H. Swanson

Really? Okay.

Paul Coghlan

And again, Doug, you know that our ASPs have actually, they've taken up over the years and based on what we introduced from last several years and the products that are in development, for us it's really our expectation that our ASPs are going to continue to grow.

Robert H. Swanson

We're just simply designing products that are just worth more than $0.40 and $0.50.

Paul Coghlan

And we've been pretty successful in the modular area. And those ASPs are multiples of our average ASP.

Doug Freedman - RBC Capital Markets, LLC, Research Division

Yes, that's why, I mean, the data is actually a little confounding because of the fact that I see high-performance analog actually moving in the other direction and yet it's having no overall impact on the industry as it's reported. One thing, if I could also ask maybe your opinion of, we're seeing your competitors report gross margins that are rising is the fact that they are seeking higher margins, alleviating some of the price pressure that you may be seeing in the marketplace, what's your thoughts on your competitors pushing for higher margins? And is that visible at all in the way they're conducting business in the market?

Lothar Maier

I'm not sure I've seen the -- it depends who the customer is, I guess, that's the real answer. And in terms of pricing in the marketplace, I don't think there's been a big change. I think people are trying to bring products to the market, not just us, but our competitors as well, that bring more value through to customers. And as the products become more complicated, they bring more value. I think it's good for everybody if the overall margins improve.

Operator

[Operator Instructions] We'll go next to William Stein of SunTrust.

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

I'm hoping you can talk a bit about the relative strength of your business, direct versus the channel in the quarter and your outlook.

Paul Coghlan

You mean our OEM business vis-a-vis distributor business?

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

Yes.

Paul Coghlan

I don't think we think that's going to be -- there's any major difference in the growth potential of both of those for the March quarter. So we're saying we're going to grow 3% to 6%, we think we'll grow in distribution worldwide and we think we'll grow our OEM worldwide.

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

And so the quarter result that you just posted, similar story there that they're growing together, no meaningful separation?

Paul Coghlan

Yes, I'd say there's no meaningful separation.

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

Great. And then the follow-up is regarding your comments about rumblings in the comm market right now earlier in the call. In the last few years, you've seen your end markets skew a bit more towards industrial and auto and the others have, as a percentage of sales, have been flattish or declining again as a percentage of sales. Anything in your outlook for the rest of this year that would suggest that would change? Should we think of comms as may be coming back and reversing that trend this year potentially?

Lothar Maier

I'd like to hope that was the case. I think it's probably premature that we predict it. That business has been on again and off again for as long as I can remember. I think there's some build-out recurring around the world right now and we're participating in some of that. And if there are sustained build-outs of communications infrastructure, we'll take advantage of that. But historically, it's been a little bit, I would say, lumpy.

Operator

[Operator Instructions] And we have no other questions at this time. I'd like to turn it back to our presenters for any additional or closing remarks.

Paul Coghlan

Well, thank you very much for your attention this morning. Thank you for the good quality questions you asked. We wish you all a happy new year. We hope for you and for us it's a prosperous new year. And that 2014, we hope gets off to a good start which we're anticipating and that carries through to the year. Have a nice day.

Operator

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

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