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Analog Devices, Inc. (NASDAQ:ADI)

F1Q07 Earnings Call

February 21, 2007 5:00 pm ET

Executives:

Maria Tagliaferro - Director of Corporate Communications

Jerald G. Fishman - President, Chief Executive Officer, Director

Joseph E. McDonough - Chief Financial Officer, Vice President-Finance

Analysts:

Michael Masdea - Credit Suisse

Sumit Dhanda - Banc of America Securities

Chris Danely - JP Morgan

Louis Gerhardy - Morgan Stanley

Romit Shah - Lehman Brothers

Uche Orji - UBS

David Wu - Global Crown Capital

Kevin Cassidy - Piper Jaffray

Simona Jankowski - Goldman Sachs

Doug Freedman - AmTech Research

Kevin Rottinghaus - Cleveland Research

Ross Seymore - Deutsche Bank

Dan Hong - Citigroup

Tristan Gerra - Robert W. Baird

Mike McConnell - Pacific Crest Securities

Presentation

Operator

Good afternoon. My name is Gerald and I will be your conference facilitator. At this time, I would like to welcome everyone to the Analog Devices Q1 2007 earnings conference call. All lines have been placed on mute to prevent any background noise. After the opening remarks, there will be a question-and-answer period with our analyst participants. Operator Instructions. I would now like to turn the conference over to Ms. Tagliaferro, Director of Corporate Communications. You may begin your conference.

Maria Tagliaferro - Director of Corporate Communications

Good afternoon, everyone. This is Maria Tagliaferro, the Director of Corporate Communications here at Analog Devices. If you don't yet have our first-quarter 2007 release, you can access it by visiting our website, analog.com, and clicking on the headline at the top of the page or going directly to our Investor Relations page from there. This conference call is also being broadcast live on the Internet, and you can access it via the Investor Relations page of our website. A recording of this call will be available today within about two hours of the conference call's completion and will remain available via telephone or Internet playback for approximately one week.

Participating with me today is Jerry Fishman, our President and Chief Executive Officer, and Joe McDonough, Vice President for Finance and Chief Financial Officer. We have scheduled this call for 60 minutes, and we will begin in a minute with Jerry Fishman's opening remarks. But first I would like to make a comment regarding our financial results for the first quarter of fiscal 2007 reported today. In accordance with GAAP, the Q1 results include a onetime technology license fee of $35 million, which is included in our revenues for Q1, an $8 million gain on the investment on the sale of an investment and $8 million of expense related to previously announced acquisitions and restructuring action, $20 million of stock-based compensation expense, an adjustment to the provision for taxes to reflect the tax effect of these items, and a tax savings of $10 million from the reinstatement of the federal R&D tax credit, which was signed into law in December of 2006 and was retroactive to the beginning of the 2006 calendar year.

In order to provide investors with useful information regarding the financial and business trends relating to our financial conditions and results of operations and to help our investors better understand how we manage our business, our comments during today's call will make reference to non-GAAP financial measures, which exclude these items. For example, when we discuss results as a percentage of revenue today, we will exclude the $35 million license fee from our total revenue and report the results as a percentage of product revenue. We have included reconciliations of these non-GAAP items to their most directly comparable GAAP measures in our earnings release issued earlier today, a copy of which is posted to the Investor Relations section of our website at analog.com.

In addition, please note that there were 14 weeks rather in the first quarter of fiscal 2007 compared with the typical 13 weeks in a quarter. This is because ADI follows a fiscal calendar year of 52 weeks per year. That is 52 seven-day weeks or 364 days. Therefore, approximately every seven years or so we have an additional week to adjust for the one big difference between our fiscal year and the 365 day calendar year. So from time to time during today's conference call we will point out the impact of this additional week on historical and projected trends.

Finally, please note that the information that we're about to discuss includes forward-looking statements for purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Such statements include risks and uncertainties. The Company's actual results could differ materially from those discussed herein. Factors that could contribute to such differences include but are not limited to, those items noted and included in the Company's SEC filings, including our most recent quarterly report on Form 10-Q. The forward-looking information that is presented by the Company in this call represents the Company's outlook as of today, and we do not undertake any obligation to update the forward-looking statements made by us. Subsequent events and developments may cause the Company's outlook to change. Therefore, the conference call will include time-sensitive information, which may be accurate only as of the date of this live broadcast, which is February 21, 2007.

With that we are ready for our CEO Jerry Fishman's opening comments.

Jerald G. Fishman - President, Chief Executive Officer, Director

Well, good afternoon, and thanks for taking the time this afternoon to learn a little bit more about our quarter and some of the trends we are seeing in our business. As it has become typical at ADI, we have again provided a great deal of detail about products, markets, geographies and so on in our press release that we issued earlier this afternoon. So, in my opening remarks, I'm going to focus on the key results, which I think will give you good insights into our business in Q1 and also going forward and ask you to refer to the details in our press release for some of the details that I'm not going to talk about.

Our revenues, excluding the $35 million license fees, which by the way is related to our Blackfin DSP technology, totaled $657 million, which was up 2% sequentially and 6% YoverY and was in line with our previous guidance. The revenues from our broad base of industrial customers, which in Q1 comprised 44% of our revenues, grew 3% sequentially and were up 14% YoverY. Areas of particular strength in the industrial market included our automotive products, which are now 9% of our product revenues, and defense products, which are now 6% of our product revenues.

Other industrial product categories were approximately flat sequentially. Consumer revenues comprising 20% of our Q1 product revenues also grew 3% sequentially and were up 35% YoverY. In Q1 our consumer revenue growth was driven by increasing sales of advanced TVs and new game consoles where ADI technology provides news sight, sound and user experiences. In digital camera applications, our unit sales continued to be very strong in Q1, commensurate with our very high market share for analog products in both digital still cameras and digital video cameras. However, we did see a mix shift during the quarter to lower end cameras, which utilize our lower performance analog front-ends. Communications revenues, which are 26% of our product revenues in Q1, grew 7% sequentially, primarily due to strength in base stations and also wireless handsets.

Revenues from computer customers, comprising 10% of our revenues, declined 14% sequentially as a result of a generally weak computer market awaiting Vista and also continuing ADI product transitions as we focus on much higher value power management products and portable equipment. During Q1 our analog product revenues were up 1% sequentially, up 13% YoverY and represented 83% of our product revenues. Converters were down slightly sequentially and up 13% YoverY. Amplifiers were also down slightly sequentially and up 14% YoverY. Converters and amplifiers together comprised 61% of our Q1 product revenues.

Within the category of other analog products, our sales of MEMS products and RF products were particularly strong in Q1. DSP revenues represented approximately 17% of our total product revenues in Q1 and were up 9% sequentially but down 20% YoverY. A significant portion of the YoverY decline in DSP was due to the divestiture of the DSP-based DSL ASIC and network processor product line that we talked about in previous quarters. Our general-purpose DSP revenues, which represented 9% of our product revenues, grew slightly in Q1 and were up 18% YoverY, making the ninth consecutive quarter of YoverY growth for our general-purpose DSP products. DSP wireless chipset revenues grew sequentially after declines in the prior quarter when inventory corrections at our customers negatively impacted our sales.

DSP wireless chipset revenues comprised approximately 7% of our product revenues in Q1. Geographically, revenues were up sequentially in North America, up in Greater China, up in the rest of Asia, approximately flat in Europe and down in Japan. Our non-GAAP gross margins for Q1 were 59% of product revenues, down slightly from last quarter, primarily as a result of higher sales of products for consumer electronics and cellular handset applications, which carry relatively lower gross margins than most of our other businesses. Gross margin was also somewhat constrained by continued low utilization rates in our factories. We completed the shutdown of our Sunnyvale wafer fab as planned, and we benefited from the cost savings.

The total benefit of the shutdown, however, will be realized when we increase the output of our remaining fabs as revenues grow. The overall pricing environment for our products remains stable, and our gross margin model continues to be 60% at ADI.

Non-GAAP operating expenses grew about 3.5% sequentially, primarily as a result of an additional week of expenses during Q1. Our non-GAAP operating profits were $156 million or approximately 24% of our product revenues. Our non-GAAP earnings per share were $0.40, up from $0.37 a year ago and $0.39 last quarter. Our net cash flow from operations totaled $208 million or 30% of our revenues. Net cash flow from operations less $38 million in capital spending during the quarter was $170 million or 25% of our revenues.

During the quarter we repurchased $333 million of our stock, representing approximately 3% of the outstanding shares. In Q1 we also paid out $55 million in dividends or $0.16 per share. We have announced the dividend payable in March will be raised to $0.18 per share. This represents an annual yield of approximately 2.2% at our current stock prices. Since the beginning of FY 2005, we have paid $375 million in dividends and we have used $1.9 billion to repurchase approximately 15% of ADI's outstanding shares.

With the increase in dividends to $0.18 per quarter, we will be returning approximately $60 million per quarter to shareholders through dividends. The share repurchase program today has over $979 million remaining available for the repurchase of shares. These share repurchases are a very good use of our cash because they provide significant earnings leverage as revenues and profits grow. The order rates for our products strengthened during Q1 in both the OEM and the distribution channel and have been particularly strong since the beginning of January. Our in-customer book-to-bill ratio was slightly above unity. This is a very encouraging sign that the inventory correction that the industry experienced last quarter may be abating.

As a result of stronger orders since January, our opening backlog for this quarter is up $29 million or 8% from last quarter. Our backlog increased in both OEM and distribution channels after declining for the past two quarters. Based on improved backlog and the seasonal strength that we normally experience in our Q2, we're planning for our revenues in Q2, which is a 13-week quarter, to be in the range of $640 million to $670 million. We're planning for non-GAAP gross margins to be in the 58.5% to 59% region in Q2. This is based on our Q2 plan for product mix and our plan to maintain current levels of factory utilization.

We're planning for operating expenses to be up slightly in the second quarter due to annual salary increases for our employees, which take effect in Q2 and also as the result of increased R&D spending for new analog products. As a result, we are planning in Q2 for diluted earnings on a GAAP basis to be in the range of $0.31 to $0.36, including $0.04 for stock option expenses, a $0.01 for previously announced restructuring and a $0.01 for previously announced acquisition-related expenses. If we exclude those items, we are planning for non-GAAP diluted EPS to be in a range of $0.37 to $0.42.

For our FY 2007, we have several key priorities. We're making significant investments to grow our analog product revenues at a compounded average rate of 15% per year over the next several years. Our investments are aimed at widening our leading converters and high-performance amplifiers, while simultaneously developing new analog product areas such as power management, radio frequency products, MEMS and low-power converters. These are all analog product areas that offer the prospect of accelerating our analog product revenue growth going forward. We are also very well positioned as a result of several major initiatives in 2006, including the cost structure improvements realized by our decision to close our Sunnyvale wafer fab and transfer virtually all the production from that fab to one of our fabs in Massachusetts; the acquisition of two analog companies, a Danish company specializing in low-power converters and a Korean company specializing in low-power RF technology; and we have recruited a new leadership team to run our power management investments with a particular focus on portable applications.

All told, our analog franchise is doing very well and offers the continuing prospect of above market growth rates and excellent profitability and cash flow for many years in the future. In the short-term, our analog product sales have held up very well relative to competition during the recent industry downturn. Our general-purpose DSP business is also growing fueled by performance breakthroughs enabled by both our Blackfin and our SHARC technology, which have both developed a very strong brand in a multitude of end markets. At the same time, we struggled to generate consistent growth in high-volume application-specific DSPs, and we are continuing to assess our investments in these areas.

We have continued to reduce expenses in our DSP business, and we are continuing to focus our resources on the more promising opportunities where we can consistently earn a high rate of return. As a result, our DSP spending is now down about 20% from our peak spending levels in 2004. The use of cash will continue to be a key priority in Analog Devices. Our plan is to continue growing our operating cash flow while at the same time paying out a significant portion of our earnings as shareholder dividends and buying stock back to lower our overall share count. As I said earlier, certainly fewer outstanding shares provides the opportunity for higher earnings leverage as revenues and profits grow in the future.

Maria Tagliaferro - Director of Corporate Communications

Thank you, Jerry. During today's Q&A period, please limit yourself to one primary question and no more than one follow-on. We will give you an opportunity to ask additional questions if we have time remaining. Operator, we're now ready for questions from our analyst participants.

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Questions-and-Answer Session

Operator

Operator Instructions. Your first question is from Michael Masdea, Credit Suisse.

Q - Michael Masdea - Credit Suisse

You know, certainly there's a lot of fear out there given what we had heard from other analog companies, and you have posted a pretty strong quarter here in guidance. And you mentioned you think the inventory is kind of over with. How much of the strength you are seeing as we go forward here and really even last quarter is coming from what you think is ADI-specific dynamics and how much is industry?

A - Jerry Fishman

Well, I think it is a little bit of each probably. You know, we continue to think about analog as this broad range of customers in every end market. So what happens at ADI historically is that when one particular market picks up very hard, we don't see that, but we also don't see it as much when one particular market goes down very hard. I think what is allowing us to do a little bit better than what you're hearing about see from many people now is I think the great diversity of applications we have. There is just a lot of content for our kind of stuff in these applications.

I mentioned that our consumer business was particularly strong. That is primarily related to our analog business that we talked about in the past, and we have a lot of content in some of the newer TVs. You know, the kind of uptake we have gotten in our MEMS business recently in the consumer space is something that is fairly unique to ADI. But I would say that we have seen a pretty good increase also in just the overall business. In distribution we have seen the auto business, even though it is sort of a crappy business in terms of what is going on with unit volume.

We have seen our sales of automobiles are pretty good, because we have more and more content in automobiles. So I think it is really a combination. There are some things I think there's a general better tone of the business since January, and I think some of it is related to specific initiatives at ADI.

Q - Michael Masdea - Credit Suisse

And in the power management side, I think we were all hoping for maybe it to turn the corner a little earlier. It sounds like you have new leadership in there. What is your timeframe for that really starting to turn the corner and starting to be a growth driver, and what is your confidence level in that right now?

A - Jerry Fishman

Well, I mean we have a new team in place. We have upped the spending levels considerably in power management. As I said before, we have a first class team in place that really understands this business. So a lot of what you will see will be sort of the intersection of what has been going on, which is the decline of the older products and the uptake of the newer products. Certainly we ought to be getting uptake on the newer products by year-end, and I think we will have to see how that balances out with the sort of downticks of some of the older products that are not very profitable and that we're not spending a lot of money to maintain.

So I think the way we are going to think about this business is, how are we doing on the new stuff? I have a lot of confidence that the team we have got in place will deliver what they told us, and that will become an important business for ADI. You know, it is sort of interesting, one of our reasons for our confidence in that business is when you go out and survey all the customers, customers view us as the second most important supplier of power management products, even though today our market share is probably number 14. So our customers want us to be there.

We have redirected a lot of the R&D towards areas that we think we can both build sales and make good profits. So I think we have good expectations for that business, and we're certainly investing in that business like it is going to be successful. So I think when you add all that up, we have a fair amount of confidence this is going to be a good business for us over time. The exact quarter where you will start to see the old stuff not offsetting the new stuff, we will have to just wait and see exactly quarter to quarter how that develops.

Operator

Your next question comes from Sumit Dhanda, Banc of America Securities.

Q - Sumit Dhanda - Banc of America Securities

I had a couple of questions. First, the margins seem to be declining ever so slightly despite some anticipated revenue growth here. Help us understand what is going on, especially given the fact that the restructuring actions you initiated would have at least hinted at some level of margin expansion in 2007 with a revenue recovery?

A - Jerry Fishman

Well, I think when we look at a couple of 1/10 of a point of decline we saw in the gross margins this quarter, the lion's share of that has to do with the fact that we had a much higher proportion this quarter of consumer products. Handsets were a little higher. The MEMS products we sell have somewhat lower gross margins. So I think it was a lot dependent on the mix of business that we have. I think I mentioned in my comments that the average selling prices in the product areas remain pretty stable, so I don't think that is a problem.

It really depends as you can imagine in a wide range of products like ADI sells, it is very dependent on the mix of business we get in any particular quarter, which is somewhat unpredictable. As far as the expense issues there, we have increased the R&D quite a bit in the analog business. We did that very deliberately over the last six months as a result of two acquisitions that we did that are contributing expense but not a lot of sales coverage right now. But obviously we expect those to be important analog businesses for us going forward and also, the general feeling that there is just a tremendous amount of opportunity out there in the analog space.

We have some very compelling technologies to really keep that business moving at a pretty good clip, and with the inherent profitability of that business, we think those investments are good investments for us for the long-term. So, as I mentioned, we continued to pressurize to a great degree the expenses in the DSP part of the business, and I think that is going to continue going forward. So it's basically a combination of the mix shifted towards some of the consumer products, to some degree handset products to a lesser degree, and also the fact that we deliberately decided to make some additional investments in our analog business to keep that growth and cash engine moving at a pretty good clip today and in the future.

A - Joe McDonough

This is Joe McDonough. Let me give you some help on the gross margin question and the shutdown of the fab. We have as scheduled taken that fab in California off line and have realized the cost savings associated with not running the fab. But given the demand scenario at the moment and the level of inventory we have, we have not begun to run that same level of production at our other fabs. So we have not ramped up the other fabs, and therefore, we have avoided the adverse variances that would be associated with continuing to run the old fab. But we have not gotten, as Jerry said, all the benefits of the increased production in our remaining fabs. That will occur as we sell the old inventory, which was produced at higher prices in the old fab and begin to increase the utilization in our existing fabs and start to sell that product to our customers. So that is still out in the future.

Q - Sumit Dhanda - Banc of America Securities

So just as a follow-up then, could you give us an idea of what level of days of inventory would you contemplate increasing your utilization rates, which would fall through to gross margins? And then, in terms of the mix of products that you plan to sell in the April quarter, assuming it gets some kind of a mix benefit given that your handset business or your wireless business generally will likely be seasonally weak in this quarter, so I guess if you could explain that disconnection.

A - Joe McDonough

Yes, the plan that we have for the next quarter has a gross margin range of 58.5 to 59%, as Jerry indicated in his opening comments. That is predicated on the mix that we see and the plan that we have for utilization in the factories. At this point in time, we have sufficient inventories to be able to meet the expected demand in the second quarter. We certainly have sufficient inventories if the demand was to exceed our expectations. And so that is the gross margin plan that we have for the second quarter. Certainly, as we go forward, our gross margin model continues to be 60%. We believe that that is a reasonable business model for Analog Devices. It is achievable as a result of what we have been doing. We believe that is achievable with the mix of business that would have internal manufacturing and external manufacturing.

Q - Sumit Dhanda - Banc of America Securities

And then just one final question. Jerry, you mentioned that you are "taking a hard look at your investments in the DSP business." Would you care to expand on that? I know you indicated that the DSP spending is down 20% since the peak in 2004, but was there more to it than meets the eye as it relates to that comment you made on the phone?

A - Jerry Fishman

I think we're continuously looking at that business to try to figure out how to focus it on areas that we think we can sustain a profitable and fast-growing business, and that is what my comment was, and that is what we're going to do.

Operator

Your next question comes from Chris Danely, JP Morgan.

Q - Chris Danely - JP Morgan

On the increased bookings, can you just talk about what end markets you're seeing strength from?

A - Jerry Fishman

Well, I would say to a first approximation it is really across the board. We have seen a good increase in orders from distributors and on distributors, which tends to go to the breadth of the industrial in all the subcategories of the industrial business. We have also seen a good increase in backlog from many of our large OEM customers. So it's not really isolated to any one particular market as much as we have seen that increase fairly broadly across many of our product areas and many of our market segments.

Q - Chris Danely - JP Morgan

And then can you just talk about opex trends after this quarter? Do you expect them to remain flat on a percentage basis, or will we continue to see investment trending up?

A - Jerry Fishman

Well, we will have to see how the quarter goes. I think we have let the expenses rise up here pretty well because we have done a few acquisitions and we decided to invest in a few new analog areas that were not sources of investment before. But I think right now the operating expenses of the company as a percentage of sales are high, and we're going to pay particular attention to trying to not get that percentage down to where we want them to be in future quarters.

Q - Chris Danely - JP Morgan

One last question for Joe. Joe, when these older lower margin products are sold and are done and you hop onto the higher margin products, how much of a gross margin pop is that going to be, and can you give us a sense of when you think that is going to happen?

A - Joe McDonough

I think the best sense that we can give you because our business is really very heavily dependent on the mix of business between the products that we manufacture externally, the products that go into some of these higher volume end markets that carry lower margins in our overall average for the company and the mix of business that comes from our internal fabs which tend to have very high gross margins given the nature of those products and the analog technology that is involved.

So the first order effect is the mix of the business that we have. The reason that we're able to run a business with a gross margin model of 60% is because of the value that all of our products add to the end equipment that they go into, and therefore, we get paid for that value. So I think the best that we can offer is that we're making decisions in accepting orders and designing products and negotiating the cost of those products that are aimed at running a business that in the aggregate has a 60% model as a result of the mix of those businesses.

Operator

Your next question comes from Louis Gerhardy, Morgan Stanley.

Q - Louis Gerhardy - Morgan Stanley

A couple of questions. First, just on distribution, what percentage of revenue was that in the quarter, and would you expect that to grow at a similar rate as the rest of the business, the direct business, in the April quarter?

A - Jerry Fishman

The distribution revenue was about the same as it was last quarter, a little bit over 50% of the total revenue, and the plan for next quarter is similar.

Q - Louis Gerhardy - Morgan Stanley

Then when we think about the turnaround in your computer business, is it right to think that from a product perspective the key drivers there would be a core power in notebooks and also some of the HD audio codecs, and would the Santa Rosa product cycle from Intel sort of be the right catalyst to think about for those product areas?

A - Jerry Fishman

Well, I think certainly those are the product areas that we have a lot of investment in that we ought to be seeing sort of help the computer segment a lot. They are related to so many different product cycles and so many different computer end products that it is hard to pick any one that will drive that. So I would say certainly those are the product areas, and we will have to see how they rolls out with some of these products.

Q - Louis Gerhardy - Morgan Stanley

Is the inventory that you talked about when you closed down the San Jose fab, is that in the core power area for desktop or notebook or both?

A - Jerry Fishman

You mean inventory that was built in Santa Clara?

Q - Louis Gerhardy - Morgan Stanley

Santa Clara, yes.

A - Jerry Fishman

Santa Clara, California. Well, I think it is a myriad of products that are all the way from op amps to converters to power products. We had a very broad portfolio of products that we built in those fabs in Sunnyvale.

Q - Louis Gerhardy - Morgan Stanley

If I could just ask one on the TD, there is an expanded trial going on now in China, and the role of China mobile really seems to have increase significantly in the last three to four months. Are you seeing any of the infrastructure orders for TD-SCDMA starting up?

A - Jerry Fishman

Well, we have seen infrastructure orders for TD-SCDMA for a couple of quarters. Our base station business has been very strong as I mentioned, and I think part of that is in China. So obviously we are very well positioned there on both the infrastructure and the handset side. So we're hoping all that really gets better.

Operator

Your next question comes from Romit Shah, Lehman Brothers.

Q - Romit Shah - Lehman Brothers

It looks like most of the growth in product sales came from wireless chipsets last quarter. Jerry, is your expectation that that business is going to lead again in the April period?

A - Jerry Fishman

I think in the April period we will get a much broader cross-section of growth than we had in this quarter. I mean that is typical in Q2. I think a lot of the recovery in the handset business was related to the fact that we had one large customer that really decreased their inventory a lot the quarter before. So I would expect that as you look into Q2 you will see a broader base of products that are contributing. I would also say that we saw a very good increase in the consumer business last quarter on some of the products that I mentioned. So I don't think it was specifically all related to handsets.

Q - Romit Shah - Lehman Brothers

So the mix is in your favor, and it does not sound like you're changing utilization so that the lower gross margin guide is attributable to some higher bonus and salary?

A - Joe McDonough

No, the gross margin, we're just 58.5 to 59, is a very narrow range for the gross margin. So we're not trying to imply anything. That just happens to be the plan that we have for next quarter that is a result of the mix of the business and the utilization of the fabs and what we think is appropriate for a gross margin guidance for next quarter. But I would go back to this quarter that just ended and the revenue mix of business. You had mentioned that it looked like it was all handsets. In the comments that we have in the press release and in Jerry's comments, we do comment on the different end markets such as auto and military and base stations and the consumer market where there were increases in our revenues. There were other parts of the business certainly where there are declines in some of the end markets. So the aggregate of it ended up with about a 2% sequential growth in revenues.

A - Jerry Fishman

The dollar growth that we saw just to amplify what Joe is saying was larger in the other analog category than in the DSP chipset business.

Q - Romit Shah - Lehman Brothers

What I was trying to get at with the gross margins is last quarter product gross margins were 59%. You're guiding in the 58.5 to 59. Mix is favorable this quarter, so what is offsetting that?

A - Joe McDonough

Well, it is not necessarily obvious in Q2 that the mix is favorable. It is the mix of business that we are planning that we are guiding to 58.5 to 59. It is a very narrow range.

A - Jerry Fishman

You know, I would also say that there are many products that we sell into the consumer space in particular that are not 60% plus gross margin products. So the consumer business is very strong for us right now, and I think that is at least causing us to be a little bit more cautious on the gross margins for next quarter.

Q - Romit Shah - Lehman Brothers

Okay. And then the longer-term target of 60% that you highlighted, is that a GAAP number or non-GAAP?

A - Joe McDonough

Well, initially it is a non-GAAP number, but the way we think about it is that we should run the business on a GAAP basis with a 60% gross margin. So I think the right answer is it is a GAAP 60% on a longer-term basis. But I would go back to all of these margins and what we're focused on is the earnings per share growth in the decisions that we make in terms of how we run the business. One element of the earnings per share is to run a very high value-added business, which adds high gross margins, which 60% gross margin certainly is.

But in making decisions about particular parts of the business, some of the volume applications that are available, we make those decisions based on the effect that they have on the earnings per share. And so there are businesses where there are high volumes, the gross margin might be less than our Company average, but the incremental earnings that we get from accepting that business is significant. So that is the way that we think of the decision-making around business opportunities.

Q - Romit Shah - Lehman Brothers

No, that is helpful. If I could just ask one last question. Jerry, you discussed in the last call that customer inventories were too high and a general feeling of uncertainty among many of your customers. Has that changed in a noticeable way?

A - Jerry Fishman

Well, it's certainly seems like a change since January. In November and December there's still seems to be a lot of caution. I still think there's some caution out there, but we saw a noticeable change in customers' order patterns, which are resultant from their outlook starting in early January that has continued. So we view that has a good sign given the breadth of the order pattern change that we have seen. There is still always a certainty out there it's a crazy market out there, but at least since early January all the trends look very good.

Operator

Your next question comes from Uche Orji, UBS New York.

Q - Uche Orji - UBS

Just two questions. First, is it possible for you us to give us an idea of the overall utilization rate level, and if I think about everything you have said, at what point should we expect these utilization rates to start to pick up?

A - Joe McDonough

Well, utilization rate is probably somewhere in the 75% range. We have different utilizations at different factories, so we don't really think of it that way. I think the best way to think about it is we took the fabs off-line, and we did not run the equipment of those wafers in another fab last quarter. So that is the equivalent of a lower utilization, although because we took the fab off-line, we eliminated the cost of running that fab, and therefore, we avoided the variances that we would have had if we still had that factory and were running less wafers.

So that is about the best I can do in terms of helping with sort of how this works through the P&L. As we look forward certainly with the levels of utilization that we have here, we have had a lot of upside capacity for internal volumes. There's only a very small incremental amount of capital spending that would be required to significantly increase our internal capacities. So we believe that we're very well positioned with respect to internal fab capacity and the cost of production as a result of the actions that we have taken over the last year.

A - Jerry Fishman

As Joe said in the past, we have built a fair amount of inventory of those products in the fab. I don't know exactly how many different product types we run out there, but it's probably hundreds, and they are all fairly unique products. So some of them are one-year-old; some of them are 20-years-old. So we built a bunch of that inventory to ensure that we don't have a gap in being able to supply these products to some long-term very good customers as we ramp these products in our other fabs.

So that is a large part of what has been responsible for the inventory days going up over the last year. Now we are going to run those products when we run out of those fabs. That is going to start increasing utilization no matter what happens because people are going to buy some of those products over the next couple of quarters. So, in other words, it turned out to be very gratuitous that we made that judgment last year. As Joe said, it prevented some more margins downside, and I think it provides a lot of margin upside as we really fully load these fabs in the future.

Q - Uche Orji - UBS

One more question. Can I just go back to the wireless and also the DSP part? There has been some positive buzz around Blackfin, as well as TigerSHARC. And that sometimes there are parts of the DSP business kind of struggling. Now you have cut back your spending 20% from the peak. What is the end game? I mean are you going to milk this business, or what area specifically will you be looking to reinvest at all, and I just need to get a bit more color to what eventually will be the outcome of your strategy within the DSP?

A - Jerry Fishman

Certainly in the general-purpose part of the market, that has been a good business for us. The margins are high. They are very close to our corporate average. We have good traction, and we have good products, and the customers really like the product, and that business has been doing okay. You know the take-up on Blackfin, as I mentioned in the past, has been a little slower than we had predicted, but I think the breadth of customers is very good. So we really, really struggled with some of the verticals.

We sort of plugged on the broadband products last year because we could not see any way that the investment levels and returns we would get would converge on anything that was interesting to us. I think in the rest of the DSP business we continue to look very carefully at how do you develop a business in some of the higher volume markets that really adds value, and we would look at that very carefully, and we are continuing to work on that very carefully. So we will have to see how that goes over the next couple of quarters.

Q - Uche Orji - UBS

And then just finally on the infrastructure side, I mean I know you made a comment about TD-SCDMA being part of the strength. Can you give us some color as to the rest of the world, Europe, US, and if you look further down the line, given the longer lead time for this business, do you think this is going to be a sustained improvement going forward on the infrastructure side?

A - Jerry Fishman

On the wireless infrastructure side?

Q - Uche Orji - UBS

Yes, wireless infrastructure side.

A - Jerry Fishman

Well, you know there's still a lot of call volume, and there is all these new features people are trying to put on phones to – you know, all those suck up base station capacity. It tends to be a little bit lumpy business on the baseline because there are periods where people add capacity and people take a rest for a while. There has been some confusion in that market since there has been a lot of consolidation of some of the vendors in that market. So there has been a lot of sort of confusion of whose products are they going to use, company A or company B.

But I continue to believe for analog, we are if you look on the analog side of the base station or the infrastructure side, we have a very high share of the analog content. In a typical base station, we might sell 50 or 60 different analog products. We might sell 25 different converters alone. The RF products that we have been developing are very well suited to the base station business. So I think for ADI a large part of what is going to happen at base stations is again the breadth of different products and the increasing functionality that we're trying to put in base stations compared to where we were, say, a year or two ago. I mean that is why probably our base station business is a little bit countertrend right now to what many people have said about that business in the last quarter or so.

Operator

Your next question comes from David Wu, Global Crown Capital.

Q - David Wu - Global Crown Capital

I was wondering just observing that this in the last couple of cycles I remember going through with ADI, this is by far the gentlest of all those cycles. What has changed this cycle versus the last one, in particular other than the cell phone market was not quite as hot and, therefore, the drop-off was not quite as dramatic this time around?

A - Jerry Fishman

Well, I mean it is always hard to tell. I think this time we have a better mix of products. We have some of the new products that are not so much based on what the inventory is of customers because there are steep product ramps during this cycle that really differentiated us a little bit from other people during the cycle. This cycle we also kept much better control of the inventories we had out there. So I think after 35 years you have to learn something. So I think it's a lot to do with the breadth of the products and how during the cycle we try to manage the business. I think it is those two things added up.

Q - David Wu - Global Crown Capital

Okay, and Jerry, you have been looking at the DSP business for quite a while now. Is there a timeframe when you say we have to make some decision on what we stay in and how long we're going to keep on investing in populating Blackfin out there?

A - Jerry Fishman

Could we get a couple of questions about the analog side, David? The DSP part it has got a lot of pressures on it obviously from the outside, and I understand those pressures. It is not that we're ignoring that part. We have made some decisions on that. We constantly review the mix of products for what the best thing to do with that business is. We think that business in aggregate is a valuable business, and as we make any other decisions, we will communicate with them. And that is the best I can say credibly.

Q - David Wu - Global Crown Capital

All right. Jerry, on the power management side of the business, when do you think the portable part - I guess that is still primarily computer oriented?

A - Jerry Fishman

Well, it is computer and many other products that are portable products as well. It is not just computers.

Q - David Wu - Global Crown Capital

Okay. But when is your new business going to exceed the decline of your old business?

A - Jerry Fishman

Well, it all depends on how aggressive we get on getting rid of the old business. The part of the buildup of the products I think we have a pretty good sense of the schedules on those. But we look at the old business constantly to say, is it worth the handle of keeping that business or not? And so a lot of that is decisions that we make on a quarterly basis of where we want our aim and what kind of margins we want to accept. Certainly we have already made the decision on where we want to put the R&D.

So now the decisions that we make each quarter on that have more to do with what kind of business do we want to accept and do we want to get some revenue coverage in that business or except worse margins, or do we want to just start getting out of the businesses that are not providing adequate margins? So we don't have the answer to that that I can comment on. Those are the considerations that we go through each quarter to look at it.

Q - David Wu - Global Crown Capital

Jerry, at the present level, which is the Q1 level that we can see, how would you say, is it two-thirds new business one-third old, or is that the right ratio to look at?

A - Jerry Fishman

It is probably a reasonable way to look at it; I just don't have those statistics handy.

Operator

Tore Svanberg, Piper Jaffray.

Q - Kevin Cassidy - Piper Jaffray

This is Kevin Cassidy for Tore Svanberg. When we are talking about the cycles and you said last quarter ASPs were flat or did not vary much with the new contracts for 2007, was there very much ASP pressure?

A - Jerry Fishman

Well, again there is always ASP pressure. We try to provide more personality to keep our ASP up. But I would say the ASPs and basically the broad base of our customers there is no definable trends that are any different than previous years. ASPs for any individual product always go down year-to-year; that is true in every business. Some more than others, but overall the ASP trends have been pretty good for us.

Q - Kevin Cassidy - Piper Jaffray

So do you see this year as less than average?

A - Jerry Fishman

Well, you know the average selling price for analog that goes all the way probably from products that sell for $0.50 to products that sell for $25 is not very representative of anything because it is much more dependent on the mix than any particular product ASP. So we don't look at the average as being representative of anything. We look at each of the products. We see the normal pressures that we see in any market for ASP on products that have been out there awhile go down, but we also have the opportunity on older products to keep very stable ASPs. So it's really a mix of a lot of different things that are going on simultaneously. But I don't see anything remarkable here that is any different than it has been in the past. That is all I can tell you.

A - Joe McDonough

And we're talking about that at the product level because we don't really use an ASP for a company wide ASP as a meaningful measurement. So we have to look at it product by product and what's going on at the ASPs at that level, and that is the point that Jerry is commenting on. As we mentioned, we do see mix shifts in terms of the mix of the type of products that are sold, and those mix shift affect the margins that we have and the complexion of the business in any particular quarter.

Q - Kevin Cassidy - Piper Jaffray

One other question about Vista. You had mentioned that there was a delay in the computing sector for the anticipation of Vista launch. Since Vista has been out, would you say is demand better than expected or about as expected?

A - Jerry Fishman

Our forecast for this quarter on those kind of products seems to be better than it was in the last quarter, but our guys have been predicting that for quite a while, so we will have to wait and see how the quarter develops. But certainly there is a sense out there that there is more activity than there was a quarter ago and for good reason.

A - Joe McDonough

But computer is not a big part of our business.

A - Jerry Fishman

Yes, it is only 10% of our sales. It does not meaningfully move the needle for us.

A - Joe McDonough

We're not the right company to ask about the computer business.

Operator

Your next question comes from Simona Jankowski, Goldman Sachs.

Q - Simona Jankowski - Goldman Sachs

Jerry, when you talked about your backlog being up 8%, how should we think about the extra week in the quarter factoring into that?

A - Jerry Fishman

Well, we're looking at the backlog at a point in time, which was the point in time when the last quarter ended, and another point in time, which was at the end of this quarter that just recently ended. So those are just two points in time that should not be affected by the number of weeks. It is just the backlog at that moment. And having more backlog is better than having less backlog.

A - Joe McDonough

Sometimes.

Q - Simona Jankowski - Goldman Sachs

Sure. And that is the 13-week backlog for the next 13 weeks?

A - Jerry Fishman

I'm sorry, yes. The calculation of that backlog is we're always looking at the backlog where the customers have requested delivery during the next 13 weeks. We ignore any backlog where the customers have requested delivery beyond 13 weeks, and therefore, we are always having a consistent measure of the meaning of that backlog. We obviously have backlog that goes out beyond 13 weeks; we just don't report on it.

Q - Simona Jankowski - Goldman Sachs

Then the second question on your handset business, how close is that business now to the level you had back in Q3 before it fell off, and when would you expect it to come back to that level?

A - Jerry Fishman

We've got a decent ticket here. I'm not sure…

A - Joe McDonough

Well, my recollection is that the business between the third and fourth quarter we probably put that information out. It was down something like $30 million, and it came… $20 million? It came back $10 million last quarter.

Operator

Your next question comes from Doug Freedman, AmTech Research.

Q - Doug Freedman - AmTech Research

If I could dig into the backlog with lead times at relatively unchanged, have you seen the backlog extend, and is that where the added backlog is coming, or is it coming on a shipment demand?

A - Joe McDonough

Well, first of all, I don't think we should overplay this backlog because for Analog Devices backlog has never been really the focus of our business. And our lead times are different for different products. They vary all over the lot. We make some products basically build to order with those high volumes and relatively low margins. We have a lot of products in the broadest part of our portfolio where the product lifecycles are extraordinary for the semiconductor industry. We keep large inventories of those products.

We would like to be readily available either off our shelf or off the distributor shelf, and if we are not, then we would like to be able to be within a few weeks of delivery by holding die banks of those inventories, which is a form of inventory. So I think the best answer would be there has not been any meaningful change in lead times during the past quarter. Both our OEM direct customers and our distributors who are servicing their own end customers have both increased the level of backlog that we have now from those customers and that broad base. That is about the only information that there is in that number beyond I don't think there's much.

Q - Doug Freedman - AmTech Research

So am I correct in thinking that you've got a little bit of added visibility, and then if I could, one question on the analog side. Jerry, you said that you were investing more in analog, and is that investment in people or is that in new product development and actual numbers of new products, and I apologize for the background noise?

A - Joe McDonough

The first question I can take and maybe Jerry will take the second one. Certainly with increasing level of backlog, coupled with the fact that January was a better month than November and December, so we saw a trend during the quarter that was strengthening, as the quarter went on, you know that gives us some level of confidence that there's a different tone to the business environment than there had been, and it is a broad-based type of business. I don't think we should overplay it though. It is not as if the world has just turned from cold to red hot. It has just sort of change in the tone, and we believe that that is certainly helpful.

A - Jerry Fishman

I think that is a fair explanation of the way we are thinking about it. In terms of the second part of your question, on the analog side, the reasoning we raised the investment levels a little bit more than we had thought is really a couple of different reasons. One, as I mentioned earlier, we made two acquisitions, which added a fair amount of headcount and also a fair amount of technology to areas that we think will be good growers of analog revenues in the future. So that just adds to headcount. It does not give you much revenue privilege in the short-term.

The other place that we decided to up the investment levels are in our MEMS business. You know, MEMS is a technology that we have been in for the better part of 10 or 15 years that in the past has been mostly limited to accelerometers and gyroscopes that go into cars, which has been a good business for us. But I think what we have seen over the last year is a fairly radical market development to include MEMS devices in a myriad of different end equipment all the way from computers to handsets to the best consumer products that are out there. We talk a little bit about like the Wii controllers that are with Nintendo.

I meant for anyone who has really played that, you see how that really does change the user experience. So, as we have looked at the MEMS opportunity, we have increased our level of confidence that this can be an important grower for analog, and it's not technology that is easily replicated by competition. So this is a business that the customer is a wide range of new customers and new markets have showed tremendous enthusiasm for. We are well ahead of most competitors on being able to do it. For other competitors to get into this, it will take them 10 years. So that is an area where we have raised the investment levels over the last six months above where we thought we were going to be, and we think that is a prudent thing to do.

You know, a lot of that investment is in new people and new technology to do that. Also we've invested a lot of that business in cost reduction to be able to serve many of these new consumer applications at margins that we would all be proud of. We have talked enough times about the power stuff. That is mostly new people that are developing new products. I mean that is where the investment is in the analog business. Our bet that we are making is that this is a great business to invest in. And if we make the right investments, we will get a great return as we always have in the end in our business.

Maria Tagliaferro

We are coming up on an hour here for the call, but we still have several analysts waiting to ask questions. So we're going to go ahead and take those questions and run the call a little longer.

Operator

Your next question comes from Kevin Rottinghaus, Cleveland Research.

Q - Kevin Rottinghaus - Cleveland Research

Just maybe a bit of an odd question, but are shipments growing in line with bookings? Are you seeing any differentiation in bookings? Maybe they are further out inside the quarter in March? Is there any differentiation I guess in shipments versus bookings patterns thus far through?

A - Joe McDonough

No, I don't think so. Nothing we have observed like that.

Q - Kevin Rottinghaus - Cleveland Research

Okay. Could you talk about what normally happens around the time of Chinese New Year? Is there any change in booking patterns either ahead or…?

A - Joe McDonough

We have that debate internally everyday here. I don't think we have any good answer for you on that. We will let you know on the next conference call what we saw during the quarter. But right now we just don't know. I think overall we tend to think there's a certain amount of demand out there for the end equipment, and that demand gets satisfied over time whether it gets lumpy in this week or that week, you know who knows?

Q - Kevin Rottinghaus - Cleveland Research

I don't know if I missed this, but plans for your own inventory this quarter, how you think those will trend with inventory going down this quarter?

A - Joe McDonough

Probably the inventory in dollars we're trying to hold it pretty flat.

Q - Kevin Rottinghaus - Cleveland Research

And that is with flat utilization levels as well?

A - Joe McDonough

Yes, more or less.

Q - Kevin Rottinghaus - Cleveland Research

The handset inventory for your major customers, you mentioned a pretty decent pickup in orders there. How comfortable are you with where inventories are for those customers now?

A - Jerry Fishman

Well, I mean we can only tell you what they tell us. At least our customers are saying the sell-through of the products is good. We're not expecting anything tremendous from the handset business this quarter, but I don't think we're expecting it to go down either. So I think it is steady as she goes is the way I would describe the inputs we're getting from our handset customers.

Operator

Your next question comes from Ross Seymore, Deutsche Bank.

Q - Ross Seymore - Deutsche Bank

Just a question on the revenue split. It was very helpful that you broke it out by product in the press release. There was a pretty big divergence with DFPs growing only by about 7% sequentially and the analog being up about 1%. What are you guys expecting in your roughly flat guidance between those two segments?

A - Joe McDonough

The guidance that we have is for the 13-week quarter that compares to the 14-week quarter. So one way of looking at it would be that it is not flat guidance. It is actually up on a per week basis. When we look at it, we're expecting both of those, both the analog and the DSP, to be up.

A - Jerry Fishman

On a comparable basis.

A - Joe McDonough

On a comparable basis. However, there was a guidance range that we have given out in terms of the revenue range. And so that will be dependent on the mix, which, of course, we don't do know.

A - Jerry Fishman

Yes, but I think the direct answer to your question is that at least in our plan within that guidance range, we're expecting growth from both the analog and the DSP side of the business.

A - Joe McDonough

Certainly growth when you do it on a normalized 13-week…

A - Jerry Fishman

Particularly on the fact that it was 14 weeks last quarter and 13 weeks this quarter. And that would be very typical. We typically see the analog business or the baseline business growing in Q2 because there is four days. You don't have some of the holiday periods, and I expect there's nothing to say that there is any reason to believe that that won't happen this quarter.

Q - Ross Seymore - Deutsche Bank

I guess that kind of leads to my second question, and I think a couple of other people have tried to ask this same thing, but I'm still a bit confused. If we think about seasonality turning a little bit away from consumer applications as we move into early parts of this year, the distribution side of the business tends to do well. Your general-purpose and analog parts tend to sell better. I'm still a little confused why the gross margin would actually drop if mix by that math should be better?

A - Jerry Fishman

By the way, we don't know that the gross margin is going to drop. We gave you a range there. I think a lot of it has to do with the fact that even though seasonally the consumer business might tend to in aggregate level off in this quarter, we have a lot of momentum in some consumer products that don't respond to that seasonality.

So our sense is that we are going to get revenue growth in the consumer market this quarter, and some of those products do as I say carry less than corporate average gross margins. So I think it is our way of when we look at the mix, as Joe said, and we go through all the math, we're going to see some growth there, and that does create us to think carefully about what the gross margin guidance should be for next quarter. But the range of that is flat to down a hair. We're not talking about any significant gross margin erosion.

A - Joe McDonough

When we're talking about utilization being relatively flat, that is relatively flat. The plans we have are a result of the actual operations that we plan for each factory.

A - Jerry Fishman

And we look at that consistently. So that is really what is going on here. We cannot necessarily predict the gross margins that closely given that we cannot predict the mix that closely. So we're just trying to give you a sense that there is a mix of business that is in our plan. That mix of business adds up to that range. We will see how the actual turns out.

Q - Ross Seymore - Deutsche Bank

Then I guess then the one follow-up on the 13/14-week part that you alluded to on the revenue question, when we think about opex and opex going up, given that you're losing a week of business on the opex side and having an extra week was why opex went up in part in the last quarter. Is it just that incremental spending you are talking about in power management and raises that are large enough to offset the loss of that extra week?

A - Jerry Fishman

Well, it is not just in power management and raises. We have upped the level of investment in many of the analog categories beyond power management. So it does represent the fact that we are putting a little more spending into the analog business than we originally anticipated we're going to. And I think given the opportunities that ADI has in that business and the momentum we have in some of these new spaces, I think it's a very prudent thing to do.

A - Joe McDonough

It also is not just dividing by 14 in order to get the cost per week, because if you look at the operating expenses for Q1, they were up 3% from the fourth quarter. If you just did the normalized, you would expect them to be up 7.5% if there was no change. So there's some element of this holiday season that does not carry the normal expense with it because people are not coming to work. And so we have that impact of it coming back in the second quarter coupled with the raises, coupled with some incremental spending in the analog business as Jerry said. That all adds up to approximately flat QoverQ.

Operator

Craig Ellis, Citigroup.

Q - Daniel Hong - Citigroup

This is Dan Hong for Craig Ellis. Can you guys give us an update on the California facilities that shutdown savings, and is this the last quarter that we should see those and going forward we should not?

A - Joe McDonough

The California factory, the fab, was shut down at the beginning of the quarter, of Q1. So we have already realized the cost savings of not running that fab.

Q - Daniel Hong - Citigroup

Okay. So the full-year savings of $35 million, when you gave us the guidance?

A - Joe McDonough

It is above $40 million is the savings.

A - Jerry Fishman

But Joe should add that we have not yet seen all the benefits that we get as we load our other fabs. Until we load those fabs, that inventory question flushes through the systems, which Joe said earlier. So, in the numbers, in the operating statements, we have not yet seen the entire benefit of those fab cost reductions as they relate to better utilization in our existing fabs. Is that fair?

A - Joe McDonough

Yes. The gross margin improvement comes as the utilization goes up in the remaining fabs.

Operator

Your next question is from Tristan Gerra, Robert W. Baird.

Q - Tristan Gerra - Robert W. Baird

How much production did you outsource this quarter?

A - Joe McDonough

I think it was about 40%.

Q - Tristan Gerra - Robert W. Baird

And could you remind us what it was in the previous quarter?

A - Joe McDonough

Probably slightly less than that.

Q - Tristan Gerra - Robert W. Baird

Just going back to specifically your converter and amplifier business, so if we account for the extra week, it was down probably around 6-7% or actually even slightly more than that QoverQ. It looks as if there was an inventory correction going on at the same time. Is there anything else that you could give us in terms of market share trends or anything that would justify such a decline relative to your other businesses going out through the quarter?

A - Joe McDonough

Would you mind repeating that? Somehow you cut out there in the middle and we lost the reference to the 6 or 7%.

Q - Tristan Gerra - Robert W. Baird

So looking at the converter and amplifier business which when we adjust for the extra week was probably down at least 7% sequentially.

A - Joe McDonough

Oh, I see.

Q - Tristan Gerra - Robert W. Baird

I guess the question, is this entirely attributable to an inventory correction, or is there anything else that you could add onto why the business was down so much relative to the other lines of businesses in the quarter?

A - Joe McDonough

What I would caution is that this extra week, it is not obvious and we have spent a lot of time trying to analyze this. We do this every seven years go through this same dialogue and some of us have been around enough to go through it a number of times and what we conclude is that it is not a mathematical equation. There is not just 7.5% that somehow you can add or subtract on the sales line.

Because there is just simply some demand out there that is being satisfied with the end customers. There's the holiday season that is normally in there, which is the weaker part of that quarter. So it is very hard to quantify it, but I think it is fair to say that if you look at our competitors and you look in our industry, this has been a down time sequentially in terms of revenues. Certainly there's an element of that that happened at Analog Devices as well.

A - Jerry Fishman

No, I think the other part is, it is clear in that quarter we just have less sales dates. The distribution business is a sales day business. The analog business, particularly in the amplifier and converter business, has a wide range of customers that we sell a lot of those products through distribution. So even beyond the inventory correction, typically we would see the 13-week sales, if it was a 13-week quarter, go down sequentially in that quarter quite independent of any inventory effects going on.

This was compounded by the inventory changes that went on with our customers. I think the fairest way to compare it is if you look at our analog business in aggregate and you look at what we're saying about it the last quarter or the quarter before and if we meet our projections for this quarter, I think if you lined up our analog business against virtually all of our analog competitors, you would see very favorable trends for Analog Devices. So all that sort of says to me that there is no indication of any loss of share in those products, and the statistics that we have all looked at for quite a while substantiate that.

So I would say that overall our analog business performed extremely well last quarter. I think we have gotten through this cycle in our analog business very well and better than most of our competitors at least so far. And I think that business is a great business to be in. So I think, as Joe said, it is important not to get too consumed by trying to statistically figure out what is going on here. These are great products with high market share, and we're doing better than most of our competitors in the analog business over the last six months.

Operator

Your next question is from Mike McConnell, Pacific Crest Securities.

Q - Mike McConnell - Pacific Crest Securities

Already been asked. Thank you.

Operator

Your next question is a follow up from Uche Orji, UBS New York.

Q - Uche Orji - UBS

Thanks very much. It has been answered.

Operator

Your final question is a follow up from Sumit Dhanda, Banc of America Securities.

Q - Sumit Dhanda - Banc of America Securities

The question has been asked and answered, too. Thank you.

Maria Tagliaferro

All right. Well, thank you, everyone. That concludes our call today, and we will look forward to speaking with you again later when Analog Devices announces the results for our second quarter of fiscal year 2007. Thank you.

Operator

This concludes today's Analog Devices conference call. You may now disconnect.

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Source: Analog Devices F1Q07 (Qtr End 01/31/07) Earnings Call Transcript
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