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Linear Technology Corporation (NASDAQ:LLTC)

F3Q 2014 Earnings Conference Call

April 16, 2014 11:30 ET

Executives

Paul Coghlan - Chief Financial Officer

Bob Swanson - Executive Chairman and Founder

Lothar Maier - Chief Executive Officer

Analysts

Craig Hettenbach - Morgan Stanley

Jim Covello - Goldman Sachs

John Pitzer - Credit Suisse

Tory Svanberg - Stifel

William Stein - SunTrust

Ross Seymore - Deutsche Bank

Steve Smigie - Raymond James

Christopher Danely - JPMorgan

JoAnne Feeney - ABR

Craig Ellis - B. Riley

Romit Shah - Nomura

CJ Muse - ISI Group

Aashish Rao - Bank of America

Steven Chen - UBS

Deepon Nag - Macquarie

Operator

Good day and welcome to the Linear Technology Corporation Fiscal 2014 Third Quarter Earnings Call. Today’s call is being recorded. I would now like to turn the conference over to Mr. Paul Coghlan. You may begin.

Paul Coghlan - Chief Financial Officer

Good morning. Welcome to the Linear Technology conference call. I am joined this morning by Bob Swanson, our Executive Chairman and Founder; and Lothar Maier, our CEO. I will give you a brief overview of our recently completed third fiscal quarter and then address the current business climate. We will then open up the conference call to questions to be directed at Bob, Lothar or myself.

I trust you have 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 December 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 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.

The just completed third fiscal quarter met our expectations. After the slight decline we experienced in the December quarter, the bookings momentum that occurred at the end of that quarter continued through the just completed third quarter. As a result, we grew revenues 4% sequentially and 10.6% year-over-year. We continue to have reasonably good expense control as gross margins and operating income as a percent of sales both improved. We had a positive book-to-bill ratio and cancellations were once again minor.

Bookings grew over the previous quarter at a slightly higher pace than sales. We continue to believe that inventories worldwide and customers were relatively lean exiting the quarter. This growth in bookings was seen over all of our end-markets as each one improved from the prior quarter led by automotive, industrial and communications. Going into the quarter, we commented that worldwide macroeconomic conditions had improved. Presently, going into the June quarter, we believe macroeconomic conditions are continuing to improve.

With regard to our financial results, sales increased by 4% from the prior quarter. The gross margin percentage at 75.7% improved from 75.3%. We again had shutdowns in our factories, including Chinese New Year in Singapore and Malaysia. Our average selling price was the same as last quarter at $1.83. Operating expenses increased modestly by $2 million. This was influenced by not having any shutdowns in the operating expense area, R&D and SG&A, whereas we had a shutdown in the previous quarter.

Operating income at 46.2% of sales increased from 45.2% last quarter due primarily to the increase in sales. Below the line interest income and expense were largely unchanged. Pre-tax income at $148.9 million was $9.2 million or 6.6% more than the previous quarter on a 4% sales increase. The company’s effective tax rate decreased to 21% from 25% last quarter due primarily to the release of estimated tax liabilities for fiscal years that are no longer subject to audit.

Finally, net income of $117,607,000 increased 12.3% from $104,751,000 reported last quarter due both to the increase in sales and to the lower tax rate. Our return on sales was 33.8% versus 31.3% last quarter. Headcount increased approximately by 2% 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 $348 million for the third quarter of fiscal year 2014 compared to the previous quarter’s revenue of $334.6 million and $314.5 million reported in the third quarter of the previous fiscal year. GAAP diluted earnings per share of $0.48 increased $0.04 from the previous quarter’s earnings per share, and was also $0.02 better than reported in the third quarter of fiscal 2013, which had a particularly low effective tax rate of 12.75% compared with 21% this quarter. Earnings per share would be $0.55 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 would potentially have had to pay if it had used straight bank debt.

During the third quarter, the company’s cash, cash equivalents and marketable securities increased by $45.1 million to $1.763 billion. The company spent $10.9 million to purchase approximately 242,000 shares of its common stock in the open market. The company also announced that it would pay a quarterly dividend of $0.27 per share. At the current stock price, the company’s dividend yield is 2.4%. The cash dividend will be paid on May 28 to stockholders of record on May 16.

Looking ahead to the June quarter, we are forecasting further improvement. We had a positive book-to-bill ratio for the March quarter. We are encouraged by our current bookings momentum and the breadth of bookings across all major markets. Accordingly, we are currently estimating sequential revenue growth of 2% to 6% for our fiscal fourth quarter. Operating margin, we expect to grow slightly better than the sales increase percentage. The rejection of our convertible notes will favorably impact our profitability going forward as interest expense related to the notes will be reduced. Shares of common stock will increase modestly to reflect the anticipated premium the notes will have earned.

Now, I’d like to address the quarter’s results on a line-by-line basis. Starting with bookings, bookings increased this quarter over the previous quarter and we had a positive book-to-bill ratio. March was the strongest month in the quarter. Geographically, bookings were up modestly in the U.S. and more strongly internationally. International bookings were up strongly in Europe and Asia-Pacific and down in Japan. Bookings were up in absolute dollars in every end-market and the distribution of business was generally 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. Industrial continues to be our largest area, once again being 43% of our bookings, but up in absolute dollars from the previous quarter. Within industrial geographically, the USA and Europe were up and Japan was down. 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 up in absolute dollars. There was continued improvement in our communications infrastructure customers in all geographic areas, but particularly our European customers. Cell phone continues to be a very small part of our business around to less than 1% of our business. Computer remained at 9% of our business, again, also up in absolute dollars. Within computer, we service opportunities in notebooks, desktops, tablets, servers, storage devices and printing and imaging products. Notebooks showed the most improvement.

Automotive continues to be a focused area for us and we had a robust quarter, improving from 19% of our business to 20% of our business. This is the first time automotive has been 20% of our business. In the last 10 years as we have emphasized this market, it is has quadrupled as a percent of our booking. The expansion of 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 declined from 3% to 2% of bookings largely due to rounding, although up modestly in absolute dollars. Finally, the military space and harsh environment products remained at 6% of our business, also up in absolute dollars. The USA and Europe are the predominant geographic areas for this business. The USA 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 continuing to show the most overall strength. Whereas five years ago 14% of our business was in cell phone and high end consumer related markets, now only 2% of our business is in these generally commodity and volatile analog areas. On the other hand, automotive, which was 8% of our business five years ago is now 20% of our business, reflective of 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 USA. Internationally, we have been helped by the growth in our Japanese and European automotive customers.

Moving from bookings to sales, net sales increased 4% from the prior quarter, while improving 11% from the similar quarter in the prior year. Sales increased both internationally and in the USA, although predominantly international. Within international, sales increased in Europe and Asia-Pacific and were flat in Japan. In summary the USA is now 27% of sales, down from 28% last quarter. Europe at 21% grew significantly from 18% last quarter. The March quarter is usually seasonally strong for Europe as it comes off the December holiday rich quarter. Japan at 16% of sales was similar to last quarter. Asia-Pacific at 36% of sales was down from 38% in the prior quarter, largely due to the Asian New Year’s holidays and seasonally less consumer sales in the March quarter.

Gross margin, gross margin at 75.7% of sales improved from 75.3% in the previous quarter, largely due to absorbing fixed costs over higher sales. Average selling price at $1.83 was the same as the previous quarter. The company continued having shutdowns in its USA plants in the quarter. However, no factory shutdowns are planned for the June quarter reflective of the anticipated improvement in our business. We have had shutdowns in our U.S. plants since Q1 2012 which was the last quarter we had revenues of approximately $360 million.

R&D at $62.1 million was similar to last quarter but up – but as a percent of sales declined to 17.9% from 18.5%. Labor increased as there was no shutdown this quarter and there was more profit share. The increased labor costs were offset by lower stock compensation costs due to an increase in fully vested grant. In addition, some of the Dust Network purchase costs are now fully amortized. Finally, we had lower legal and other non-labor related R&D expenses.

Selling, general and administrative expense at $40.7 million increased $1.8 million from the previous quarter’s $38.9 million and increased slightly as a percent of sales to 11.7% from 11.6%. As in R&D, labor increased as there was no shutdown this quarter and there was more profit sharing on the increased operating income. In addition, there were higher communication and other non-labor related SG&A expenses in this quarter. There will be no shutdowns in the June quarter for R&D and SG&A employees.

Operating income, as a result of the above, operating income increased by $9.5 million or 6.3% and as a percent of sales increased to 46.2% from 45.2% last quarter. Spreading fixed costs companywide over a higher sales base caused this improvement. This is strong profitability and clearly puts us ahead of our peers in this financial performance measurement. Both interest expense at $6.8 million and the amortization of debt discount at $5.6 million were similar to last quarter. Interest expense will be greatly reduced next quarter as we will have only one month of interest expense before redeeming our debt. Interest income of $581,000 was down from $791,000 last quarter, as maturing investments will be employed to pay down our debt on May 1.

As a result of all the above, the company’s pre-tax profits were $148.9 million, up $9.2 million from last quarter. Pre-tax profits are now 42.8% of sales versus 41.7% last quarter with the increase due primarily to the higher sales volume. Our quarterly effective income tax rate of 21% decreased from 25% last quarter primarily due to several non-recurring discrete tax items, the largest of which related to the release of estimated tax liabilities for fiscal years that are no longer subject to audit. We expect next quarter’s tax rate to be 25.25% before any discrete items.

The resulting net income of $117.6 million is an increase of $12.9 million for the previous quarter primarily due to the increase in sales and the lower tax rate. The return on sales of 33.8% is up from 31.3% reported in the previous quarter. The average shares outstanding used in the calculation of earnings per share increased by 3,322,000 shares, which is larger than normal increase for us.

Stock option exercises and employee restricted stock grants were only partially offset by stock purchases in the open market. However, the largest increase approximately 2.1 million shares, is due to our average stock price exceeding our expected bond conversion price of roughly $40.68. Next quarter, at current stock price levels, the final impact of the bond conversion premium on our diluted shares outstanding would be approximately another 1 million shares.

GAAP earnings per share was $0.48, an increase of $0.04 from the prior quarter, again due to the increase in sales and lower tax rate. On a pro forma basis, without the impact of stock-based compensation of $15.8 million and non-cash interest expense of $5.6 million, diluted earnings per share would have been $0.55 compared with $0.51 last quarter and $0.54 in the similar quarter last year, which had a particularly low tax rate of 12.75%.

Moving to the balance sheet, cash and short-term investments increased by $45.1 million, $101.4 million was provided by operations and $36.2 million was provided from the exercise of stock options by employees. $65 million was paid in cash dividends, $8.7 million was used to purchase fixed assets, and $18.7 million was used to repurchase both common stock purchased in the open market and restricted stock from employees. For the 112th consecutive quarter, the company had positive cash flow from operations. Our cash and short-term investments balance is now $1.763 billion and represents 75% of total assets. However, this will change next quarter as the company currently plans to use approximately $845 million of its cash to call its outstanding convertible bonds in May.

Accounts receivable of $182 million increased by $43.5 million from last quarter, which is unusually large given the $13.4 million increase in sales. Last quarter, we had the opposite, an unusually large decrease of a similar amount in accounts receivable. The December quarter balance was unusually low as the significant amount was collected prior to calendar year end. The collection at the end of March was more normal and we had strong collections in the first week of April to begin the new quarter.

Also through the Chinese New Year’s holidays in February, we had higher product shipments in the month of March than in the month of December, which had heavy USA and European holidays. As a result, our days sales and accounts receivable increased to 48 days from 38 days last quarter and 49 days in the September quarter. A more historic day sales outstanding range for us is in the low 40s, which we would expect to return to in the next quarter.

Inventory at $87.7 million was similar to last quarter. Linear raw materials inventory increased $25,000, WIP inventory increased $1,054,000, and finished goods inventory decreased $1,199,000. Our quarterly average inventory turns is 3.9 times slightly improved from 3.8 times last quarter. Deferred taxes and other current assets of $41.3 million increased modestly by $425,000.

Property, plant and equipment decreased by $3.5 million. We had additions of $8,739,000 and depreciation $12,227,000. Most of the additions were for manufacturing equipment in fabrication, test and assembly worldwide. We have started to increase our capital expenditures in the last half of this fiscal year as we have seen improvement to our sales outlook. Identified intangibles decreased by $555,000 as in past quarters due to quarterly amortization. Goodwill remained unchanged.

Finally, on the asset side of the balance sheet, our return on assets was 20.3%, up from last quarter’s 18.8% again reflective of our increased net income. Net of cash to pay down our convertible debt, our return on assets would have been 32%.

Moving to the liability side of the balance sheet, accounts payable increased by $4.8 million largely due to timing differences on recurring payable items. Accrued income taxes, payroll and other accrued liabilities decreased by $13.7 million. The largest items here are our profit-sharing accrual, income taxes payable, and accrued interest payable on our convertible debt. Our interest payable accrual increased as we did not have a semiannual interest payout this quarter. However, the profit-sharing accrual decreased as we had our semiannual payout partially offset by this quarter’s charge. Payouts are made in our first and third fiscal quarters.

Finally, our accrued income tax payables did not change much as our tax payments were similar to this quarter’s provision shown on the income statement. Deferred income on shipments to distribution hardly changed as our shipments to U.S. distributors were similar to what they shipped out to their end-customers. Worldwide, we continue to believe our inventory levels are lean. We continue to closely monitor our inventory distribution to properly position the inventory relative to potential demand.

Our senior convertible notes increased by $5.6 million. This increase reflects the non-cash amortization of debt discount charged to the income statement. These notes are classified as current liabilities since we currently expect to call these notes on May 1. Since we have re-classed these notes to current liabilities, our current ratio was 2.0:1 similar to last quarter’s 1.9:1. Once we repay these notes, this ratio will obviously dramatically increase.

Current deferred tax liabilities were similar last quarter. Deferred tax and other long-term liabilities of $104.5 million were also similar to last quarter and are largely due to deferred taxes on various tax 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 will pay a quarterly dividend of $0.27 per share. The company believes that paying a dividend is an important way to return value to its shareholders. The company began paying a dividend in 1992 and has increased it every year since and currently pays approximately a 2.4% yield.

Looking forward, looking forward we see our business continuing to grow. For the last few quarters, we have seen our business grow consistently, approximately 10% year-over-year. And we are currently forecasting to continue with that pace. The global macroeconomic conditions although not robust have generally been improving. The greatest areas of concentration for us automotive and industrial are expected to continue to be the strongest areas.

In calendar 2013, the overall amount analog market grew 2%, whereas within analog automotive, communications and industrial combined grew 6.6%. These areas are expected to continue to lead in analog growth. The June quarter is historically a growth quarter for us and the following current trends within our business are encouraging that this growth can continue. We have had a positive book to bill ratio going into the quarter. We ended the quarter with the last month being our strongest. Bookings momentum has continued strong in April so far to-date. And our sense is that inventories continue to be lean in the customer base judging from pull-in and expedite requests that we are receiving from some customers.

Summarizing these various data points somewhat tempered by an improving but not yet strong macroeconomic environment give us a positive bias in the short-term. And consequently we are currently forecasting revenues for the June quarter to grow sequentially in the 2% to 6% range. Looking at our income statement model below operating income, we should see some changes in the June quarter. We have announced that we will redeem our senior convertible notes on May 1, consequently roughly two-thirds of the $12.4 million reported as interest expense last quarter will not recur in the June quarter. The benefit will be partially offset by a modest increase in share count for approximately 246 million shares from 244 million diluted shares just reported. Also our effective tax rate will probably increase from 21% to roughly 25.25% as I mentioned earlier.

The senior convertible note will be redeemed on March 1 and it has benefited both the company and the bondholders. The company initially reduced its share count by 83 million shares. The current price of our traded common stock is roughly 25% higher than the purchase price of the 83 million shares. For the benefit of the bondholder based on the current stock price the conversion premium will be roughly 15%. In summary, looking beyond these near-term market events, 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.

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 have 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) And we will go first to Craig Hettenbach with Morgan Stanley.

Craig Hettenbach - Morgan Stanley

Yes, thank you. Lothar in the automotive business and you have grown at a solid double digit CAGR in recent years, how sustainable do you view the growth in autos. And then also are you seeing any changes for the competitive landscape in that market?

Lothar Maier

Looking forward, the growth that we have seen is pretty encouraging. And I think that that growth is going to continue really for a number of reasons. And as we have mentioned in the past it’s not necessarily driven by the number of cars that are being built every year, but it’s about the electronics that go into cars. And that as far as we can see has really – has very few bounds on it presently. And I am talking about electronics and conventional cars. I mean there is every enhancement from a safety and a fuel economy standpoint is really going to come through the electronics.

And then added on top of that you have got hybrids and electric vehicles that are starting to emerge. And that’s just going to add on top of that so that cycle is not going to end in a year or two or three. And we know that because we are already working on designs and vehicles three or four model years from now. And we have a pretty good insight that is just continued going to be expansion of electronics in vehicles. So that run is going to happen for a long time. And it’s not just in cars, we are seeing opportunities in other forms of transportation buses being one of them where actually makes a lot of sense to make a bus a hybrid or electric vehicle. And we also see it not just expanding from content in the car, we would also see it from a geographical standpoint that car manufacturers are not just the European and the Japanese car manufacturers, but we are seeing it in other countries as well. So there is a lot of sort of wind in our sales in that market.

Craig Hettenbach - Morgan Stanley

And then just on the competitive landscape given the increased focus or attention this market is getting, are you seeing anything there?

Lothar Maier

Not really. I would say we have been focused on this market for the last 8 to 9 years and so we have got a long head start and really there is only a handful of companies that can be successful in the automotive business. You got to have the right products. You got to have the right quality. You got to have the right support. And so the other thing is that I have talked about this before as there is just not a lot of standards that exist in the automotive market. And so it’s difficult that somebody can come in with the one killer part and take a big bunch of the business. It’s really very fractured. The car companies view the electronics as how they distinguish themselves. And they don’t like to share a lot of that with their other competitors. So I think we are early starters in this market. We have got a lot of great products and a lot of traction. And it’s hard for the competitors in that market to get a toehold.

Craig Hettenbach - Morgan Stanley

Okay, if I can have a follow-up for Paul, as you pay down the convert you will be debt free again with nearly $1 billion in cash, how are you thinking about what the ideal capital structure for Linear looks like over the intermediate to longer-term?

Paul Coghlan

Well, at the moment we don’t intend to incur further debt, so we think the right capital structure for us would be to be debt free and to grow our cash balance to our operating cash generated each quarter. So as you commented we will have a little less than $1 billion when we pay down the convert in a month, but most of that’s offshore and all of that will be offshore at the moment. So we will start to build up our onshore cash. And we have been very supportive of the dividend that we have paid every year and increased every year since 1992. And the amount of cash that we have been putting to paying down the debt that will be free to us to potentially spend more on buying back stock. So that’s how we look at our capital structure.

Craig Hettenbach - Morgan Stanley

Got it.

Lothar Maier

Thank you.

Operator

We will go next to Jim Covello with Goldman Sachs.

Jim Covello - Goldman Sachs

Great guys. Good morning. Thank you so much for taking the question. This is a little bit of a tough one, but the growth is good, I think the market just judging by the stock price projection you are actually a little disappointed the growth isn’t better, any chance that some of the delta between maybe what people are hoping for and maybe hearing from some of your peers versus what you guys have is the fact that maybe some of the peers have lead time stretching out of a bit where your lead times tend to remain a little bit – remain constant and therefore where others maybe seeing some double orders you are not or any other thoughts as to what might be accounting for the delta?

Lothar Maier

It’s sometimes hard for me to comment on other company’s guidance, but I can’t comment on ours and how we think about the guidance that we gave is really we take inputs from the sales, we look at where our products are positioned and we look at how the previous quarter did. And our feeling was that we grew 4% in the March quarter. We had pretty good momentum in the quarter. We have got a really good customer base. And our feeling was that the good momentum that we saw in the March quarter would continue into the June quarter and that’s where we ended up with the guidance that we did give, which was at the center was 4%, which would be the same as the prior quarter. So, we are seeing good momentum and we are just thinking that’s going to continue.

Paul Coghlan

With regard to lead times, we did tell you that we do see a lot of expedites and a lot of pull-ins, so that some people might have their lead times being pressured wouldn’t surprise us, but we don’t feel like there has been a groundswell in picking and building inventory in the end-markets. We think actually they continue to be quite disciplined and running lean inventories.

Jim Covello - Goldman Sachs

That’s helpful. And if I could just ask as my follow-up, if I am not mistaken I think last quarter you had commented that there was a bit of a dip in ASPs and maybe a little bit more than you had expected last quarter, but then this quarter, I noticed ASPs are flat. Can you talk about that a little bit?

Paul Coghlan

Yes. I think what we said last quarter was that given our a) increased automotive content particularly in electric and hybrid vehicles and given the new products that we have been introducing, which have quite a bit of technological content, we see our new products with a higher average selling price than our older products. So, internally, we have a bias to believing that our ASPs will start decline. And last quarter, I think we just commented that even though internally we believe that the number wasn’t the same and it went down slightly, I think from a $1.85 to $1.83 or something. But I think we were just trying to tell you that overall in the near to medium, more the medium-term, you should see our average selling prices increasing. So, I think that was really what we are trying to say last quarter.

Bob Swanson

And keep in mind they are still currently 3.5 times to 4 times the total inventories, ASP and on analog.

Jim Covello - Goldman Sachs

Right, right terrific. Thanks a lot for the help. Good luck.

Paul Coghlan

Thank you.

Operator

We’ll go next to John Pitzer with Credit Suisse.

John Pitzer - Credit Suisse

Yes, good morning guys. Thanks for letting me ask the question. Paul, I guess my first question is gross margin’s trajectory to the June quarter, the last time you guys were kind of approaching $360 million in rev was June of 2011. Depreciation is actually down a little bit from that time period. I am assuming mix is probably more favorable today than it was then and I think you commented no factory shutdowns this June is expected? And if you look sort of at the gross margin profile in June 2011, it was sort of 78%, is that the kind of gross margin kind of jump we could expect? And if not, why wouldn’t margins be at least as good as they were back then?

Paul Coghlan

Okay, that’s a good question. Our margins currently are 75.7%. On a 2% to 6% increase in sales, I don’t think gross margin will go all the way up to 78%. I think over time I think as we get closer to the $380 million, $400 million in sales, I think our margins will likely go up to the 78% range. I think if you compare us to three years ago we probably have some more costs in the factory what we have is certainly labor costs. We have had three years worth of labor raises to people, that would have gone up. Some of these newer parts are more complicated. So, getting them through now, we have a higher ASP, but getting them through the factory requires more work, more diligence and so that we have I think a little bit higher fixed cost base than we had back then, but we certainly think we have more room to grow gross margin than we presently we have at 75.7%. But I would say talking to anyone about maybe having a 75% or 76% gross margin not being enough is I guess only a question we would have to field.

John Pitzer - Credit Suisse

Fair point. And then guys as my follow-up, on an absolute basis your exposure to Japan is not that significant, but you are relatively more exposed to Japan than a lot of your peers, and I am kind of trying to figure out with the increase in sales tax on April 1, how I should think about that influencing your Japan business, especially given that your growth in Japan in the second half of last year I think was the best half-on-half growth that we have seen, except for ‘09 and you seem to have a pretty strong Q1 in Japan as well. As you look into the June quarter, is there an expectation that Japan softens or how do you think about that sales tax relative to your business?

Paul Coghlan

I think for June there is two forces. There is one force that’s the VAT increase is going to be sort of a damper on the consumer in Japan. The other force that is happening is the fact that people, there is a refresh cycle for cars and the sense is in Japan, car refresh cycles are going to continue. And on top of that, there is another trend is that typically the March quarter is the year end – Japanese year end. And so typically, March tends to be from an order standpoint relatively light quarter for us, because the Japanese companies are trying to shed inventory. And so you’ve got the sales tax on the one hand, that’s going to be a damper this quarter, but I think you are going to see an offset to that by the fact that they under-bought last quarter from an inventory perspective and we are going to see some pickup in this quarter. So kind of long answer is I don’t think we are going to see a big change.

John Pitzer - Credit Suisse

Perfect, thanks guys.

Operator

We’ll next to Tory Svanberg with Stifel.

Tory Svanberg - Stifel

Yes, thank you. You talked about bookings continuing to strengthen in the month of April I was just hoping you could talk a little bit about the geography related to that? It seems like North America was okay, but not great than the March quarter. I am just wondering if you are starting to see North America improving a little bit more in the June quarter.

Lothar Maier

Cog, I don’t – I think North America did improve a bit in the March quarter. I think North America hasn’t been as robust for us as the international end-markets largely because our automotive business is more concentrated internationally. So frankly, I haven’t looked very closely at the geographic distribution in the first 2.5 weeks of the April quarter just knowing I do know that bookings momentum has improved, but so I don’t think it’s time to say North America is off to the races. I don’t think it’s time to say that yet, I think North America probably still be given the economy and what’s going on.

Tory Svanberg - Stifel

That’s helpful. And I was recently at a tradeshow, an industry tradeshow and I was pretty impressed with the traction that Dust Networks has in the IoT markets, is Dust starting to have a more material impact on your financials now or is it still relatively small?

Paul Coghlan

It’s still relatively modest part of our business even though we did see a pickup in bookings last quarter. And I think probably the most interesting point for Dust right now is we have owned Dust for a couple of years now. And what we are seeing is really the first design wins and products going into the market of really the results of Linear’s sales effort. When we bought Dust, they had two salespeople and now we have got several hundred. And so it takes about two years from the time we show a product to the point where a customer has it designed in and actually starts ordering any significant volume. So, I think what we are seeing is sort of the beginning of that cycle now.

Tory Svanberg - Stifel

That’s very helpful. Thank you very much.

Operator

We’ll go next to William Stein with SunTrust.

William Stein - SunTrust

Hi, thanks for taking my question. I am hoping you can remind us of your as-tooled capacity today and what you think – how you think that changes in the near-term?

Lothar Maier

In the past, we have had sales up to $385 million. We are probably tooled up to about $400 million a quarter in general. We weren’t at that sales category for – it’s been a few years since we have been there. And so in general I would say, we are roughly there. We probably – to go back to that number, because we have added some new products and new technologies we have to spend some capital to get there, but I think from a thinking standpoint, we are pretty good till about $400 million without any certain significant capital spending.

William Stein - SunTrust

Great. And I am hoping you can also comment on lead time trends both direct and well, also trends generally in the channel versus direct?

Lothar Maier

I would say lead times are fairly steady for us. The only thing I would say that is a little bit odd is the fact that we are getting a huge amount of expedites from customers. We will get an order and then they will call us up two days later and they will say our lines are down and we have to expedite very quickly to cover that. So, our sense is that lead times are probably still pretty steady maybe there is a bias towards the factors as business picks up to the lead times getting a little longer, but I would say there is a huge extension, but what I can say is that my sense is customers are not carrying any inventory, a very, very little inventory and the expedite activity is really strong.

William Stein - SunTrust

Right, thank you.

Operator

We’ll go next to Ross Seymore with Deutsche Bank.

Ross Seymore - Deutsche Bank

Hi, guys. Just a question on the cash balance post the convert redemption, Paul, can you just talk about how much of your cash will be onshore versus offshore and remind us what the generation split is going forward between those different geos?

Paul Coghlan

Yes. If you look we have about $1.763 billion I think in cash. If you subtract $845 million from that, you will get about $900 million roughly. And then if you take out the needs for operating cash, the remaining cash is almost exclusively offshore as we wrap up this bond. Then we will be generating cash as we have continually done as I have proudly mentioned last quarter was our 112th consecutive quarter of positive cash flow. The cash we generate is probably 70:30, 70 onshore, 30 offshore, but every expenditure, we have with the cash primarily the dividend utilizes the onshore cash. So, that will be slowly building up cash balance, I don’t know, but slowly is right word, we will be building up the cash balance onshore from the post debt forward.

Ross Seymore - Deutsche Bank

Yes, that’s very helpful. Thank you. Just one quick clarification on that, the $900 million you have post the redemption, then you said there is an amount that’s the necessary amount to just run the company. Roughly speaking, what is that amount?

Paul Coghlan

It varies quarter-to-quarter, roughly $100 million probably.

Ross Seymore - Deutsche Bank

Great, thank you. And then I guess as my one follow-up on a different topic really quickly, on the gross margin side, can you just walk us through a little bit what the puts and takes are to your COGS from not having shutdowns for the first time in a few years?

Paul Coghlan

Well, we had a shutdown – maybe the easiest way, we had a shutdown, which was probably to my recollection three days. So if you then look at your quarter, you had 65 operating days last quarter, 3 of those 65 we didn’t produce products next quarter. If you back out holidays, I think we will have – I think we have one or two holidays next quarter, but we had a couple of holidays this quarter. So, you have probably three more production days on a base of say 62. So what you will do is you will have more absorption, you will have some more labor expense, you will have no more depreciation, so you will have some pickup, but it’s not astronomical, but it is some reasonably good pickup.

Ross Seymore - Deutsche Bank

Okay, great thank you very much.

Operator

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

Steve Smigie - Raymond James

Great. Thanks a lot guys. I was hoping you could talk a little bit about your module business, I think you pretty meaningfully expanded the portfolio there. And I was hoping you could talk about it in terms of where you are in terms of where the technology has been and where you are going, so for example, you have done modules that are receivers and regulators and so forth. Do you do more of the same just the product family or do you extend into new markets with the modules?

Lothar Maier

We – certainly, the majority of our module business are sort of power type of products, but we are expanding outside of that. So, we have got modules in development in some release that make use of our RF and mixed signal products. So, there is a broadening in terms of not just sort of power products, but in terms of other business units as we have. And it’s been a good market. We probably got 70 plus products already in the marketplace. We have got probably half again that many in development. And it’s been a good growth for Linear Technology. It’s typically significantly outgrows the growth rate of the company. And we used to say it could be a certain amount of millions of dollars of sales and kind of the way we look at it right now, there is just no bound, because what the customers are pushing us for and asking us for is complete solutions and they don’t have the resources to do a lot of the analog heavy lifting and the modules do that and so we get a lot of benefit from that and really a lot of support from the customers.

Steve Smigie - Raymond James

Okay and given that growth, there is anything about them in terms of your mix that makes you say, hey, we don’t wanted to get over a certain percentage is because we don’t have any more variability on revenues or something like that or is it just as many you can sell them?

Lothar Maier

We love the module business because its analog expertise packaged for the customers and who just don’t have it. So for us it allows us to reach a lot of small and medium-sized customers that we wouldn’t normally have the resources to send a field application engineer to the customer. So it gives us a much broader reach without having to use our field people. And vice versa that’s a benefit for the small and medium-sized customers. For the big customers it’s time to market they got a finished product. Many of our big customers can discretely do what we do in a module and they have got the skills to do it, but it takes time, it takes resources. They don’t always get it right the first time and they can’t do it in as small of a footprint as we can with the module. And so we were pleasantly surprised that large customers are adopting these modules partially because of time to market and partially, because it’s a much smaller footprint.

Steve Smigie - Raymond James

Okay, great. Thank you.

Operator

We will go next to Christopher Danely with JPMorgan.

Christopher Danely - JPMorgan

Hey, thanks guys. A question for Paul or Bob whoever wants to take this, if you could kind of take a step back and look at your business as a whole now versus a year ago maybe just compare and contrast you feel a much better or a little better, is everything better or are there some areas where you think should be a little better just give us your thoughts on that?

Paul Coghlan

Yes, I think we feel the business is in a better position now than it was a year ago. We had more macroeconomic concerns a year ago. As I said the macroeconomic environment isn’t robust by any means, but there has been sort of steady improvement in a lot of – in geographic areas. So from that standpoint I think we feel a little better about our business. We feel – Lothar talked about the modules. Someone asked us about Dust which isn’t significant in these numbers, but looking forward certainly the modules continue to grow. We hope the same will happen with Dust. But when we look at our penetration in the automotive market, I mean a few years ago we sort of said we hope to get automotive to be 20% of our business. Here it is three years later and it is 20% and clearly we think it’s going to get higher than that. There is a lot of innovation going on in that market. People value the products, the quality. So our ability to be a continuing strong supplier there looks strong. The industrial market I don’t think it’s picked up as much as we would have bought so far and I think we see in front us opportunities there for that to grow a little faster. It didn’t grow a much in calendar 2013 in the analog world. It certainly grew for us, but we think that scenario that could continue to grow. So frankly when we look at our business now, we look at the distribution of the business. We look at the products we have. We are optimistic that – from a product standpoint we are always optimistic. From a market acceptance standpoint, I think we are a little more so than a year ago. And from a macroeconomic standpoint we are more so than a year ago.

Bob Swanson

So maybe to add to that, it’s hard for me to look at this last year versus this year because our bets now are more like five plus years. But here is a statistic that I think is pretty interesting. So seven years ago when we said we want to abandon the consumer business and focus on auto and industrial, 10 years ago those two markets made up a $24 million – they actually they made up 20% of a $24 billion market, 10 years later the $24 billion has grown to $40 billion and 22% has grown to 43%. So we couldn’t be better positioned if we were clairvoyant.

Christopher Danely - JPMorgan

You actually could join the sell side. One of my – as my follow-up just a quick question on capital structure, so you guys have generated $170 million in cash and it seems like most of the U.S. cash goes to pay off the dividend and after this quarter you will be debt free, I guess if I look at all of your peers they will have at least $900 million in debt if not a little more given low rates and stuff like I just wondered what’s your thought process as to why you guys wouldn’t keep some sort of leverage and increase the payout or the cash returned to shareholders given you have got $1 billion of offshore cash and it will keep going up?

Paul Coghlan

Well, I think essentially you are asking us why don’t we borrow money and then distribute what borrow, is that what you are asking?

Christopher Danely - JPMorgan

Yes, just some way to increase the cash returned to shareholders versus holding it?

Paul Coghlan

Well, I don’t think we are holding anything that’s again I think you are asking us you I don’t – maybe I misunderstood I don’t think you are telling me we are holding the cash we are generating. I think are you saying we could borrow money and then distribute that?

Christopher Danely - JPMorgan

Yes, or maybe use it to access some of the foreign cash, bring it back at a higher tax rate like Texas Instruments does, I mean there is a myriad of possibility I am just wondering why you wouldn’t continue to carry at least some sort of debt given the low rates and the margins that you have…?

Paul Coghlan

Well, I think we have felt that we have never needed debt to run our business. And the only time we did incur debt was as Bob mentioned earlier when we refocused our strategy it was to be frank with you was a tough sell to Wall Street that we were refocusing our strategy because of positive opportunities as opposed to because we were losing opportunities in the telephone and consumer. So we thought a clearer message to Wall Street at the time that our strategy was misunderstood would be for us to buyback a big chunk of the company at what some people thought was the high price at the time and then to execute and then to show that we have made that right choice. We think you have a better appreciation of our strategy and what we are doing and how it differentiates us now. So the need to borrow money to buy shares to make that message clear I don’t think we need. So then, the question is do we think we can generate enough cash from operations so that we continue to grow the dividend and we can buyback stock. And the combination of those two things from the cash we generate from operations will be satisfactory to our shareholder base. And I guess at the moment we think we can do that without adding the burden of additional debt to support giving more dividends and more of a payout to our shareholders.

Christopher Danely - JPMorgan

Okay. That’s great. Thanks a lot.

Operator

We will go next to JoAnne Feeney with ABR.

JoAnne Feeney - ABR

Hi. Thanks. Question on the expedites and the pull-ins that you are seeing, are those concentrated in anyone particular end market or any one geography, can you give us any further details on where that’s coming from or what you think is driving it, besides lean inventories?

Lothar Maier

That’s a good question. We have to think about that for a minute. It’s actually I would say pretty broad I – it isn’t one geography or one end market. I would probably say it’s less so in the automotive market because they have production plans for – that go out for a long period of time and you don’t spontaneously decide to build 20% more cars. So if I would pick one market that’s more sort of steady it’s the automotive. And the other reason, it’s steady, the automotive is that because of the cost of slowing down or shutting down a manufacturing line in the automotive business it’s pretty pricey. So people carry some spare inventory. With the exception of the automotive business, I think the customers are just waiting for an order from their customers and as soon as they get an order they turn to their suppliers and expedite them. And so with the exception of automotive I would say it’s pretty much every market.

JoAnne Feeney - ABR

Okay, that’s really helpful. Thanks. And then on the communication equipment side, we have all heard and expect to see that ramp up over the course of the year, you are one of the first that would actually talk about orders improving and the outlook improving can you give us any details on what you are seeing there, which parts of the comm equipment market you are seeing the most strength from and whether those orders are near-term orders or if they would stretch out through the year maybe what you think the trajectory will be for the rest of the year in that?

Lothar Maier

Sort of the experience that we are seeing in the communication market really the strength or the kind of the activity we are seeing is in the wireless base station market. I don’t know this for a total fact but my sense is that there is a build out that’s occurring in China right now and those contracts for those base stations are being bid out and various companies around the world build or get that business and we see some of it in China. And most recently we have seen some pickup from customers in Europe that are in that business, but it’s probably too early to call that a trend, I think it’s more of the spot business that’s going on right now.

JoAnne Feeney - ABR

Okay. If I could sneak in one extra follow-up on others’ questions about the cash, the cash that you have offshore and that you will be continuing to add to it, it sounds like at the rate of 30% of any new cash flow, what are your plans for that? And then I think maybe what some others have been asking is do you use that as an asset against which to borrow, so you keep your net cash position in good shape, but it’s where you are indirectly able to bring that cash onshore to use it to pay, in some fashion, shareholders? If not, then what do you plan to use that foreign cash for?

Paul Coghlan

Well, first of all, as you know, the U.S. government continues to be looking at its taxing structure. And there has been a lot of talk about we need to reform how we tax companies either lower the rate and get rid of some deductions or just generally Congress each time they talk saying it’s something they need to address. So, some change could take place there, where similar to several years ago for a reduced tax rate you could get access to it relatively quickly and bring it onshore and should that happen, then we would have more flexibility with regard to either share buyback or looking at the dividend.

Your comment that there is ways to borrow against offshore cash, bring it onshore and then distribute it. To my understanding, a lot of those methods are subject to some risk and that the IRS really isn’t a big fan of saying, you can’t bring back offshore cash unless you considered a deemed dividend. However, you can borrow against that we won’t call it a deemed dividend. I mean, I don’t think that’s the IRS’ position on that. So, I am not saying you can’t do it, I’m saying it’s probably fairly complex so – with some degree of risk. So, I think what we are kind of at the moment is a bit of a wait-and-see to see what happens in the taxing structures and looking at it from that standpoint. We don’t think we need the offshore cash for operations. So, at some point if it got too big, if at some point we didn't think we were returning enough to shareholders, then we’d look at it and make the decision whether we should pay the tax, which is relatively healthy at the moment 35% whether that’s a good benefit to the shareholder to pay that tax and give them some portion of the 65%, that’s left, but we don’t see that as a near-term decision at the moment.

JoAnne Feeney - ABR

Okay, thank you.

Paul Coghlan

You’re welcome.

Operator

And we’ll go next to Craig Ellis with B. Riley.

Craig Ellis - B. Riley

Thanks for taking the question. Paul, I wanted to follow up on comment that you had in response to a question. I think you said with hindsight you would have thought industrial would have been a little bit better, was there a particular subcomponent of that end-market that you were referring to, whether it’s medical, factory automation, industrial process control or a particular geography? What is it specifically that you are looking at there?

Paul Coghlan

That’s – actually, I am glad you asked that, because that’s not what I meant to imply. What I wanted to say was that if you look at just 2013 that concluded in December, the calendar year we would have thought if you go back to when we talked about going into the year, we thought automotive would do well and we thought industrial would pickup the lot of infrastructure, a lot of things would take place. If you look at the overall analog market, in 2013 that growth in industrial did not take place. However, if you look at Linear, we did grow in industrial in 2013. So, we did take advantage of some of the opportunities we thought. We thought there would just be generally more opportunities for industrial to have grown more. So, the bad news I guess is it didn’t grow as much in 2013. The good news is maybe those opportunities are now in front of us. And the overall market for industrial, for analog overall will grow in 2014 and we will continue to take more than our fair share of that growth.

Lothar Maier

Yes. And even in 2013 that was 3.5 to 4 times bigger than it was 8 or 9 years ago.

Craig Ellis - B. Riley

And then, you remarked....

Paul Coghlan

Did that clear it up, Craig?

Craig Ellis - B. Riley

Yes, it did. Thank you. You remarked on the April quarter’s booking trends to-date, can you just remind us what would normal monthly trends be for the months of May and June?

Paul Coghlan

Normally, June would be the strongest month. Although towards the end of June, it starts the impact a little bit by European vacations. So, I mean, typically you would expect April-May to be kind of similar I guess and in June a little bit better.

Craig Ellis - B. Riley

Thank you, guys.

Operator

We’ll go next to Romit Shah with Nomura.

Romit Shah - Nomura

Paul, hi, I still don’t get why we are not seeing greater revenue acceleration in the June quarter, your commentary is very positive. March bookings were the strongest in the quarter. You guys said you are getting a ton of expedite requests. As we look at some of the major industrial distributors like Grainger and MSC Industrial, they are talking about accelerating trends as well. So, what’s countering these positive developments here in the June period?

Paul Coghlan

Well, we grew fair percent in the March period. That’s consistent 10% year-over-year. So, the question I think we faced when we came with our guidance is do we – are we seeing for sure that the June quarter is an acceleration of that 10%, 11% year-over-year or do we think are we more confident saying we certainly see it being a consistent repetition of that growth. And I think when we looked at it we looked at all of the forecast. We looked at the increase in March and tried to see if that was sustainable, if we had enough data that told us it was sustainable. We think it is. We just felt that, that going into the quarter guiding similar growth to the past quarter similar 11%, 10% quarter-over-quarter growth was what we felt most comfortable with. Do we think as we have commented on our commentary that there is some upside to that potentially? Could the market grow more robustly? It could. Could some macro then or something happened that could slow that down a bit, potentially probably down as much as the upside potential, but when we step back and looked at our – talk to our sales force, talk to our factory, this expedite that we talked about, it’s good to have to say we are projecting that there will be three months of continuing expedites is something we probably wouldn’t want to go out on a limb. We would rather just see that occur. So, I think when we added all that together, we thought the best guidance was a guidance that you folks would appreciate of consistent, steady good growth continuing. And that’s why we gave the guidance 2% to 6%.

Romit Shah - Nomura

Okay. Now, the September and December periods are typically slower from a seasonal standpoint, the fact though that you are increasing CapEx, does that suggest that you think the second half of the calendar year might be a little bit better than it normally is?

Lothar Maier

You could read something like that into it. I would say the increasing CapE is really for products and technologies that are ramping up that are relatively new. They are really not adding to, I would say the base capacity of our factories. And so in the modules area, it’s a growing business for us. And so as it grows we have got to add capital equipment. It’s not capital equipment that we bought five years ago that sat around underutilized. And so I think the way to look at the capital adds, it’s really more directed towards processes and products and technologies that are relatively new that are ramping. And again, we are talking about relatively modest amounts of capital.

Romit Shah - Nomura

Okay, alright. Thanks a lot.

Operator

We’ll go next to CJ Muse with ISI Group.

CJ Muse - ISI Group

Thank you for taking my question. I think earlier in the call, you talked about incrementally adding to headcount, so I was curious how we should think about the ramp in OpEx as we progress through the year?

Paul Coghlan

Well, I think OpEx will increase. We have the last quarter, the quarter we just finished we increased headcount in all of the areas in the factories, the biggest area, but also some in the OpEx areas. But as I commented in the introductory comments, we grew sales faster than we grew sale less than we grew those expenses. So, if we are growing annually at a 10% or more rate or even a high single-digit some more rate, we probably will have efficiencies and that we won’t increase expenses in the operating line at that faster pace.

CJ Muse - ISI Group

Okay, that’s helpful. Thank you.

Operator

And we will go next to Aashish Rao with Bank of America.

Aashish Rao - Bank of America

Hi, thanks for taking my question. A follow-on to John’s question earlier, are there any Linear specific product cycles that are driving content increases in communication equipment in other 4G and things that are ramping now versus prior gen models, essentially I am trying to see is there – should we think about your sales as just being broadly in line with the telecom network CapEx cycle or is there something that could drive outperformance over the next couple of years?

Lothar Maier

That’s kind of a hard question to answer but I will take stab at it. The communication business for us is roughly 20% of our sales. And I see that percentage staying about the same going forward. It tends to be and as we have mentioned in the past a little bit lumpy type of business, you sometimes see some big releases for telecom infrastructure builds, then you don’t see anything. And so it’s that market uses really a broad profile of Linear technology products, it’s not like we have got one or two parts or handful of parts. We have hundreds of part types that sell into that market. And so I think sort of the ups and downs of that business is really more about what’s happening in the wireless infrastructure market, which is sort of the more volatile part of the business. The other part of the business which for us is actually the biggest part of the business is the wired infrastructure, the networking business. And that’s more like our traditional business. It’s kind of steady business and it also uses a broad portfolio of our products. And there is an appreciation in that market for a lot of the new products and the module type of products that we introduced. So if anything I would say from a product standpoint which we have seen pickup a little bit into sort of this wireless communications market, I would say some of our RF products probably we have seen some pretty good traction of those.

Aashish Rao - Bank of America

Got it. Thanks Lothar. Maybe one more question a similar question on the automotive front and then clearly I mean you noted this during prepared remarks right I mean battery management, fuel efficiency, hybrid electric vehicle. I mean all of these have driven higher content whether through government mandates or consumer preferences, clearly this trend is only going to accelerate over the next decade, so any color you can provide as to where these battery fuel efficiency power kind of products as a percent of your auto sales mix to-day and how you see that changing this on your design win pipe?

Lothar Maier

We kind of look at the automotive businesses has two businesses. We look at one part of business which is sort of the infotainment part of the vehicle and then we look at the other part is kind of everything else. It’s drive train safety and battery management, fuel efficiency. And so the of the way we see the that business growing is our sense is the infotainment portion is going to stay relatively the same as it is now maybe grow slightly, But really the big growth is going to occur in the non-infotainment part of the market. And a large of that is driven by fuel efficiency and safety enhancements and so that’s really where the growth opportunities are.

Aashish Rao - Bank of America

Okay anyhow but the split that we need still?

Lothar Maier

Presently?

Aashish Rao - Bank of America

Yes.

Lothar Maier

I have that the coast of about 50-50.

Aashish Rao - Bank of America

Okay, great, cool. Thank you.

Operator

And we will go next to Steven Chen with UBS.

Steven Chen - UBS

Hi, guys. Thanks for taking my question. I also had a question on the automotive segment in terms of the growth opportunity longer term, just in terms of battery technologies which some of the industry talk about giga factories for batteries lithium ions, etcetera and also potential adoption of fuel cell technology in automotive applications can you talk about or how we should look at your growth opportunity for Linear as more average supply or capacity is added over time and also what the I guess the density of battery management chips would be for different types of battery technologies?

Lothar Maier

The number of chips for battery technology is relatively constant. And I think the leading chemistry analysis lithium-ion phosphate batteries and really our business isn’t tied to how many battery factories get built, it’s how many batteries that go into cars. And so as the cars become more electric and I don’t mean that there is more electric cars, it’s just that it is the amount of kilowatts of power that a car use it be it in electric, hybrid or even a conventional vehicle, that power consumption drives a lot of electronics, even conventional cars are going to have potentially second batteries, because there is so much power that’s needed instantaneously as a gas engine car converse a lot of mechanical functions into electrical, the air conditioning compressor, the power steering pump, the power brake pump, all of those things are going to be electrical. And so that when you step on the gas and you want all of those things to step and run simultaneously that little 12-volt battery that you have in your cars just not big enough. And so there is going to be in the near future a second battery pack that’s in the car, that’s probably a 48-volt battery pack. And that’s to support all that stuff. And once you have got a 48-volt battery pack, you ask yourself well, why can’t I just do regenerative braking? It kind of comes for free. And so there is the sort of need for batteries, that’s occurring in vehicles not just thinking about the hybrid and electric vehicles, but even in conventional cars as well.

Steven Chen - UBS

Perfect.

Lothar Maier

I hope that answered your question.

Steven Chen - UBS

Yes, thanks.

Operator

We’ll go next to Deepon Nag with Macquarie.

Deepon Nag - Macquarie

Thanks a lot for taking the question. I was just wondering what the required turns were in order for your June guidance and how that was relative to your March quarter turns?

Paul Coghlan

We were in the mid-50s in March and were in the low-50s in June.

Deepon Nag - Macquarie

So I guess, given the fact that you are seeing higher expedites, is there a reason that you are not actually seeing that number increase?

Paul Coghlan

I just don’t understand you guys. What I am saying is in the March quarter we needed mid 50% turns and in the June quarter we need low 50% turns.

Deepon Nag - Macquarie

Right. I guess, I am – my question is if you are seeing increased expedites, I would think that would imply that you would probably assume higher turns business in the quarter. So I am just wondering why you wouldn’t kind of lift your guidance and kind of let’s say take its course?

Paul Coghlan

Well, the expedite – then you’d want me to say that the current expedites I project will continue through the whole quarter. That’s kind of tough to project sometimes that you just don’t know how that’s going to play out. So now I am starting to guess the stuff and take the guess and put it in the guidance and that’s hard to do.

Deepon Nag - Macquarie

Sure, fair enough. Alright, thanks for taking the question.

Operator

(Operator Instructions) There are no further questions at this time. I will turn the conference back over to Mr. Coghlan for any closing remarks.

Paul Coghlan - Chief Financial Officer

Hey, thank you very much for your attention to our call today. The questions were very good. Again to reiterate, we had a good March quarter. We are off to a good start in the June quarter and we hope to grow in the 2% to 6% range revenues. And we look forward to eliminating our debt on May 1. So, have a nice day. Bye-bye.

Operator

This does conclude today’s conference. Thank you for your participation.

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