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Executives

Paul Coghlan - Chief Financial Officer, Principal Accounting Officer, Vice President of Finance and Secretary

Robert Swanson - Co-Founder and Executive Chairman

Lothar Maier - Chief Executive Officer and Director

Analysts

Shawn Webster - Macquarie Research

Romit Shah - Lehman Brothers

Craig Berger - FBR Capital Markets & Co.

Terence Whalen - Citigroup Inc

Uche Orji - UBS Investment Bank

Christopher Danely - JP Morgan Chase & Co

Ross Seymore - Deutsche Bank AG

Evan Wang - Stifel, Nicolaus & Co., Inc.

Sumit Dhanda - Citadel Securities, LLC

JoAnne Feeney - Longbow Research LLC

Craig Ellis - Caris & Company

Christopher Caso - Susquehanna Financial Group, LLLP

Romit Shah - Nomura Securities Co. Ltd.

Mark Delaney - Goldman Sachs Group Inc.

Ambrish Srivastava - BMO Capital Markets U.S.

Jonathan Smigie - Raymond James & Associates, Inc.

John Pitzer - Crédit Suisse AG

Linear Technology (LLTC) Q4 2011 Earnings Call July 27, 2011 11:30 AM ET

Operator

Good day, everyone, and welcome to the Linear Technology Corporation Fiscal 2011 Fourth Quarter Earnings Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Mr. Paul Coghlan, Chief Financial Officer. Please go ahead.

Paul Coghlan

Hello. Good morning. I'm going to be joined this morning by Lothar Maier, our CEO; and Bob Swanson, our Executive Chairman.

Welcome to the Linear Technology conference call. I will give you a brief overview of our recently completed fourth quarter and 2011 fiscal year 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've all seen copies of our press release, which was published last night. First, however, I'd like to remind you that except for historical information, the matters we will be describing this morning will be forward-looking statements that are dependent on certain risks and uncertainties including such factors, among others, as new orders received and shipped during the quarter, the timely introduction of new processes and products and general conditions in the world economy and financial markets.

In addition to these risks, which we described in our press release issued yesterday, we refer you to the risk factors listed in the company’s 10-Q for the quarter ended April 3, 2011, particularly, management's discussion and analysis of financial condition and results of operations.

Secondly, SEC Regulation FD regarding selective disclosure influences our interaction with investors. We've opened up this conference call to enable all interested investors to listen in. The press release and this conference call will be our forum to respond to questions regarding our estimated financial performance going forward.

Consequently, should you have any questions regarding our estimates of sales, profits or other financial matters for the upcoming quarter, as well as how they might impact our income statement model and our balance sheet, this is the time we're free to respond to these questions.

As you can tell from our press release, we reported revenue results for the quarter at the midpoint of our guidance. This was a quarter that started strong in April, but did not continue that momentum as the quarter progressed. Customers that had increased their inventories and safety stocks due to supply chain uncertainties related to the Japan earthquake and tsunami have begun to now reduce inventories as Japanese supply is becoming less of an issue. This impacted our bookings, which although increasing from the prior quarter, still resulted in a negative book-to-bill ratio for us.

Although sales in the June quarter increased by 1.5%, net income increased substantially more, by $16.7 million or 11.8%, due primarily to lower income taxes. Cost of goods sold was flat, benefiting from an improved mix and operating expenses increased 1.9% in line with the increase in sales. Interest income benefited both this quarter and last quarter from gains on the settlements of lawsuits, $2.5 million in this quarter and $1.7 million last quarter.

There was a large positive impact from our tax position, which at 9.5% was significantly lower than the 17% reported in the prior quarter. Both the June and March quarters’ tax provisions include quarterly tax benefits from settlements with the IRS, related to its audit of our prior fiscal years.

Operating income as a percent of sales was a very strong 50.9% versus 50.7% last quarter, improving due to the modest increase in sales. Headcount increased 3%, largely due to increased direct labor at our overseas manufacturing plant, where we now do almost all of our module assembly. This assembly had previously mostly been done at an outside subcontract.

In summary, the effect of the items I just listed on the published quarterly results was that revenue was $358.6 million for the fourth quarter of fiscal year 2011 compared to the previous quarter's revenue of $353.2 million and compared to $366.2 million reported in the fourth quarter of fiscal year 2010.

GAAP diluted earnings per share of $0.68 increased $0.07 or 11% from the previous quarter's EPS, while increasing $0.14 or 26% from the $0.54 per share reported in the fourth quarter of fiscal 2010. GAAP net income was $158.2 million compared with $141.6 million last quarter and $124.5 million reported in the fourth quarter of last year.

Earnings per share would be $0.76 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 have potentially had to pay if it had used straight bank debt.

During the June quarter, the company's cash and short-term investments balance increased by $112 million to $922.5 million. The company announced it would again pay a quarterly dividend of $0.24 per share. This current dividend will be paid on August 31 to stockholders of record on August 19.

The June quarter is also the end of our fiscal year. Fiscal 2011 is a milestone year, since it marks our 30th anniversary as a company. The company has been very profitable and cash flow positive from operations throughout this period and 2011 was no exception.

In 2011, we had record revenues, record net profits and record earnings per share. Revenues of $1,484,000,000 grew 27% or $314 million over the prior year. Net income of $580.8 million grew 61% or $219.4 million dollars and earnings per share of $2.50 grew 58%.

Our cash and cash equivalents and short-term investments decreased $35.5 million, after retiring $395.8 million of convertible debt, repurchasing 38.2 million of common stock and paying $217.2 million in dividends. Overall, 2011 was a great year.

Looking ahead to the September quarter, we believe we will get off to a temporary slow start. Japan has been recovering from the tragic earthquake, faster than initially expected. Customers that had built up their inventories are now dialing them back. This inventory correction and the general economic sluggishness relating to U.S. and European debt issues appear to have left customers cautious and delaying orders and shipments until the current economic picture becomes clearer.

On a positive note, in-demand expectations at our customers appear generally unchanged, and automotive production is expected to pick up in the fall. We continue to be optimistic about our long-term growth prospects, as our business is healthy, and we are encouraged by the high level of interest in our products that indicate they are well targeted to meet the needs of our customers and their demand for innovative high-performance analog solutions.

Although forecasting is difficult in the current environment, we agree with recent industry analysis that suggests that demand should accelerate as we proceed toward the end of the calendar year. However, in the short term, we are cautious and anticipate a difficult quarter ahead as we react to declining orders that have not improved meaningfully in the first month of our new fiscal year. As a result, we are currently forecasting our revenues to decline sequentially, 6% to 8%, in our first fiscal quarter of 2012.

Now, I would like to address the quarter's results on a line-by-line basis. Starting with bookings. Bookings increased this quarter over last quarter, but not as much as we had expected. The quarter started off strongly with the first 2 months exceeding prior quarters’ 2-month levels. However, June bookings didn't match expectations. While bookings in total grew for the quarter, we exited the quarter with a negative book-to-bill ratio. Our cancellations are still very minor, similar to last quarter.

Bookings growth was generally fairly balanced among geographies and end markets. Geographically, bookings increased in each major area, the USA and international. Within international, bookings were up modestly in Japan and Asia and down modestly in Europe. By end markets, bookings were up into absolute dollars in every area, but automotive. And bookings as a percent of total sales by end market were mostly unchanged. Computer was up one percentage point and automotive was down one percentage point.

At this time every quarter, we give you a breakdown of our bookings percentages by end markets to give you insight into those markets that drive our business.

Industrial and communications continue to be our largest areas. Industrial once again was 43% of our bookings, similar to last quarter but up in absolute dollars. Our industrial business is very broad-based both geographically and by end products.

The communications area remained flat at 23% of our business, while also increasing in absolute dollars. Within the infrastructure area, we continue to be well positioned in customers involved in the global base station build out.

Cell phone remained at roughly 1% of our business. Computer increased from 10% last quarter to 11% this quarter. Within computer, we service opportunities in notebooks, desktops, in tablets, servers, storage devices and printing and imaging end products.

Automotive decreased from 13% to 12% of our business. As forecasted last quarter, supply issues from northern Japan negatively impacted automotive production and consequently, our bookings. Geographically, Europe, USA and Asia were flat, whereas Asia was down. We expect these supply issues to be resolved -- excuse me, whereas Japan was down. We expect these supply issues to be resolved and this sector to grow in the second half of 2011, particularly in Japan. The expansion of existing Linear parts into new car models and also new parts for new programs especially in the hybrid and electric vehicle area will help us.

Automotive is an area that we have been focusing on, given the increasing electronic content in automobiles. 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.

Moving to the consumer area. Consumer at 4% of bookings was unchanged. Finally, the military space and harsh environment products at 7% of our business were also unchanged. The U.S. and Europe are the predominant geographic areas for this harsh environment business.

On an annual fiscal year basis, industrial was 40% of our business; communications was 23%, comprising telecom infrastructure and networking of 22% and cell phone of 1%; computer was 13%; automotive was 12%; high-end consumer 4% and finally, the military satellite, harsh environment, 7%.

In summary, we've largely completed our transition over the last several years into more traditional, analog businesses and less into purely consumer-related end markets. Whereas, 20% of our business was in cell phone and high-end consumer-related markets in 2005 and 16% in 2008, this percentage was 14% in 2009 and 9% in fiscal 2010. And this year, these areas accounted for only 5% of our business.

Note that we have a good balance of where our bookings are actually created, with 42% of them created in the USA and 58% internationally, which changed slightly from 41% and 59%, respectively, last quarter.

Moving from bookings to sales. Net sales increased 1.5% from the prior quarter, while decreasing 2% from the similar quarter in the prior year. USA was relatively flat, whereas international grew modestly.

In summary, the USA at 28% of sales was unchanged. Europe at 22% of sales was up one point. Japan at 15% was unchanged. Asia Pacific at 35% of sales was down a percentage point. For the fiscal year, the USA was 27% of sales, Europe was 20%, Japan was 15% and the rest of Asia was 38%.

Gross margin. Gross margin at 78% of sales, improved from 77.6% in the previous quarter. ASP improved from $1.80 to $1.87, largely due to minor changes in mix. This was partially offset by an increase in inventory reserves and by additional raw material costs, primarily gold.

R&D at $56 million increased $587,000 from the $55.4 million reported last quarter, while consequently decreasing slightly as a percent of sales to 15.6% from 15.7%, largely due to absorbing similar costs over a larger sales base. Labor-related costs in R&D were similar to last quarter, whereas other R&D costs, primarily mass costs increased slightly.

SG&A. Selling, general and administrative expense at $41 million increased $1.3 million, while increasing also as a percent of sales to 11.4% from 11.2%. Labor-related costs increased slightly, and we had modestly higher legal costs.

Operating income. As a result of the above, operating income increased by $3.6 million or by 2% as a percent of sales, which increased modestly therefore to 50.9% from 50.7% reported last quarter. This is strong profitability and clearly puts us ahead of our peers in this financial performance measurement.

Both interest expense at $7 million and the amortization of debt discount at $4.8 million were similar to last quarter. Interest income of $4 million increased by $744,000. The effect of increased cash under management on interest income, was offset by a decrease in average interest rates on all invested funds.

All of the increase in interest income therefore, was due to the resolution of an outstanding lawsuit. This benefited the company by $2.5 million. Last quarter, the company had a similar gain from a lawsuit of $1.7 million. The net of these 2, of $800,000, accounts for most of the $744,000 increase in interest income.

As a result of the above, the company's pretax profits were $174.8 million, up $4.3 million from last quarter. Pretax profits are now 48.8% of sales versus 48.3% last quarter.

For the fourth quarter, our quarterly effective income tax rate is 9.5% versus 17% in Q3, which itself, was down from 24% in Q2. The reduced tax rates in both Q3 and Q4 include quarterly tax benefits from final settlements with the IRS relating to its audit of several prior fiscal years.

Absent discrete tax items, our annual effective tax rate for fiscal year 2012 is estimated to be 26%. At this time, we do not expect to report any significant discrete tax items in the next few quarters. So our tax rate will approximate 26%, rather than the 9.5% just reported.

The resulting net income of $158.2 million is an increase of $16.7 million from the previous quarter, largely due to the lower tax rate and partially due to increased revenue. The resulting return on sales was 44.1%, an improvement from 40.1% reported last quarter.

The average shares outstanding used in the calculation of earnings per share increased by 321,000 shares, primarily resulting from restricted stock grants and stock-option exercises. During the quarter, the company spent $24.2 million to purchase back roughly 700,000 shares of its common stock.

GAAP earnings per share were $0.68, which was an increase of $0.07 from the $0.61 reported in the prior quarter and was up $0.14 or 26% from the $0.54 reported in the fourth quarter last year.

On a pro-forma basis without the impact of stock-based compensation of $16.2 million and noncash interest expense of $4.8 million, diluted earnings per share would have been $0.76 compared with $0.69 last quarter and $0.66 in the fourth quarter of the prior year.

Moving to the balance sheet. Cash and short-term investment increased by $112 million. $196.6 million was provided by operations, $55.8 million was paid in cash dividends, $20.1 million was used to purchase fixed assets and $24.2 million was used to repurchase common stock. For the 101st consecutive quarter, the company had positive cash flow from operations. Our cash and short-term investment balance is now $922.5 million and represents 57% of total assets.

Accounts receivables of $169.6 million increased by $7.2 million from last quarter due to the increase in shipments. Our day sales and accounts receivable were 43 days, up from 42 days last quarter.

Inventory, at $72.2 million, increased $1.8 million from last quarter. We have been working at increasing our capacity as evidenced by our increase in capital spending this year and have reduced our lead times.

Commensurate with this, we have been increasing our inventory levels. This quarter, the largest increase was once again in work and process inventory at the die bank stage. This gives us the greatest flexibility to respond to customer requests within our published lead times.

Both last year, during the snap back from the recession and now during the tightening of supply chain due to Japanese production issues, we have seen low lead times and adequate inventory give us a competitive advantage. Our finished goods inventory decreased during the quarter. In summary, our quarterly average inventory turns is 4.4 turns, down from last quarter's 4.7 turns.

Deferred taxes and other current assets decreased by $2.5 million, largely due to a decrease in non-trade receivables. Property, plant and equipment increased by $8.3 million. We had additions of $20,125,000 and depreciation of $11,843,000. Most of the additions were for equipment across all our factories for wafer fabrication, test and assembly, which had been needed to increase capacity and improve lead times.

For fiscal 2011, which we just completed, we had additions of $120.4 million and depreciation of $44.5 million. $120 million of additions was a big year for us, as we were growing rapidly in the beginning of the year and needed to increase our capacity. Most of the additions were for equipment across all our factories: Wafer fabrication, test and assembly.

For the upcoming fiscal 2012, we expect additions of roughly $25 million and depreciation of roughly $45 million. Other noncurrent assets totaling $51.9 million decreased by $8.8 million, primarily due to a reduction in long-term deferred tax assets.

Finally, on the asset side of the balance sheet, our return on assets was 40.4%, an improvement from 38.3% last quarter. This improvement was largely due to the quarter's lower tax rate of 9.5% versus an ongoing rate of 26%. Our current ratio was 6.9:1.

Moving to the liability side of the balance sheet. Accounts payable decreased by $8.1 million, largely due to lower purchases on capital additions. Accrued income taxes, payroll and other accrued liabilities increased by $26.3 million. The largest items here are our profit-sharing accrual, income taxes payable and accrued income -- and accrued interest payable on our convertible debt.

Our interest-payable accrual decreased, as we had a semiannual interest payout this quarter. Our profit-sharing accrual on the other hand increased, as we add this quarter's charge to the accrual. We pay profit sharing to our employees semiannually, in the fiscal first and third quarters. There was also a small increase in our income tax accrual this quarter, as the quarterly tax charge plus the change in deferrals was largely offset by tax payments made.

Deferred income on shipments to distribution increased $9 million, as our shipments to our U.S. distributors were greater than what they had shipped out to their end customers. Last quarter, at this time, we told you that our inventory in this channel was light compared to historic levels and that we planned to ship more into this channel in the June quarter.

Our accounting on shipments to U.S. distribution is conservative. We do not record a sale nor income in our results of operations until the distributor ships the product out to its end customer. We continue to closely control our inventory and distribution to properly position the inventory, relative to potential demand.

Our senior notes convertible increased by $4.7 million. This increase reflects the noncash amortization of debt discount charged to the income statement. Deferred tax and other long-term liabilities decreased by $25.2 million due to several tax-related items, the largest of which relates to our settlement with the IRS that caused the reduction in our current quarter's effective rate to 9.5%.

Changes in the stockholder equity accounts were primarily the result of the usual quarterly transactions for net income, for dividends paid and employee stock activity and also the repurchase of stock in the June quarter.

The company announced it will again pay a quarterly dividend of $0.24 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 3% yield.

Looking forward, I would like to close out our introductory comments by revisiting our guidance. The June quarter started out strong but ended lower than we had originally expected. Sales increased but bookings did not improve in the month of June. As is our history, we did maintain strong profitability and strong cash flow performance.

Looking forward, several factors are influencing our guidance. On the cautious side, although bookings improved, we still had a negative book-to-bill ratio, and so far in July, bookings have not improved from June. Customers that increase their inventories and safety stocks, due to concerns that Japanese supply sources may be disrupted for an extended period have reversed course and are in the process of reverting to more historic inventory levels. Given our low lead times, we quickly feel the impact of customers deciding to lower their inventory and safety stock levels.

Finally, on the cautious side, businesses are facing some global macroeconomic concerns. The U.S. is still struggling in its recovery, and businesses seem cautious, awaiting resolution of the debt ceiling issue. Europe is wrestling with debt issues of its own in Greece, Italy, Ireland and Portugal. Growth in China, although still strong, is slowing a little.

On the optimistic side of our business outlook, on the whole, our customer base is telling us that their in-demand is reasonably steady and not the cause for any inventory adjustments. Most of our Japanese and Asian distributors are forecasting their POS sales to improve in the September quarter, whereas Europe is seeing its normal summer slowness.

Japan is forecasting a comeback, particularly in their automotive sector. Germany, which is by far our largest driver in Europe continues to project bookings growth. China continues to do well for us and is projecting bookings growth in the September quarter.

Summarizing these various data points, we will believe we will have a slow start to the quarter and finish more strongly. We expect our bookings to grow but be somewhat back-end loaded. However, in the short term, we are cautious and anticipate a difficult quarter ahead, as we react to declining orders that have not improved meaningfully in the first month of the new fiscal year.

As a result, we are currently forecasting our revenues to decline sequentially 6% to 8% in our first fiscal quarter of 2012. Our profitability will naturally be somewhat affected by reduced revenues, but we still expect operating income as a percent of sales to be strong, probably in the high-40% range. We don't expect any further legal settlements and our effective tax rate, we forecast to be 26%.

Generally, the market opportunities that drive our business continue to demonstrate continuing growth, namely the build out of the broadband infrastructure, higher electronics content in gas-driven and hybrid vehicles and energy efficiency and other technological trends in industrial applications.

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 other analog competitors. We dominate in different end markets. We are a more reliable supplier with consistently lower lead times. And our technology and support is valued as evidenced by our higher operating margins.

I would now like to open up the conference call to questions to be addressed to either Bob, Lothar or myself.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from the site of Tore Svanberg with Stifel, Nicolas.

Evan Wang - Stifel, Nicolaus & Co., Inc.

This is Evan Wang, calling in for Tore Svanberg. Very quickly, I was wondering if you could tell us what the turns requirement is to reach the midpoint of your guidance this quarter. I understand it was in the low-50s for the last quarter, correct?

Paul Coghlan

Correct. It's in the high 50s for this quarter.

Evan Wang - Stifel, Nicolaus & Co., Inc.

Okay. And I was wondering if you could also talk a little bit about what do you see as revenue drivers in the September quarter. What you see might be -- might show some strengths as well as what might show some weakness?

Lothar Maier

Let me. I could take one cut at it. One of the things, I think, that we're going to see -- we're hoping to see towards the latter part of the quarter is the automotive business coming back. And so we think that with the events in Japan -- we saw a slowdown last quarter in automotive, we think that's going to be really a tailwind for us this quarter, and we'll pick up again. But, yes, we have no guarantees of that. And communications I think is another market that we're still feeling pretty optimistic about the need for communications infrastructure, I think, hasn’t changed last quarter to this quarter. So we think that's going to be a market that will continue to be strong and hopefully, pick up as we get into the second half of -- the latter part of this quarter. Clearly, we saw in the last quarter, the communications impacted by the Japan issues. A number of our communication customers had difficulty getting product out of Japan, which contributed to some of the decline in bookings from them.

Operator

We'll take our next question from the site of John Pitzer with Crédit Suisse.

John Pitzer - Crédit Suisse AG

Paul, I just want to go back to your comment on the guidance of 6% to 8%. Are you assuming that in that guide that linearity picks up throughout the quarter, as you talked about kind of in your prepared comments? I guess, the other question I have is to the extent that you're blaming this more on inventory than anything going on in demand, I'm just kind of curious when I go back and look at prior quarters, it's hard for me to see that you guys were actually over shipping. And so I'm just trying to get a better understanding of why you're confident that this is more of an inventory issue than an end-demand issue?

Paul Coghlan

Well, first of all, what we do is we talk to our customers. And one of the things we picked up from our customers that our sales force has emphasized to us is that most of the customers are telling them that their sense of their general demand is that things have not weakened. And that they're looking forward to improvements in the second half of the year. With regard to the Japan issue, I think that this was the result of actually a positive outcome. In other words, a lot of people viewed that the Japan supply cycle would take a long time to rectify itself. And frankly, it's rectified itself, not 100% yet, but it's done far better, I think, than people would have anticipated. So that what happened is that people that built up some inventories in late-March and throughout April, now are starting to, I think, reduce those inventories as evidenced by their lower bookings.

John Pitzer - Crédit Suisse AG

And then Paul, on the down 6% to 8% guidance, is that -- I assume, improved linearity throughout the quarter off of the month of June, or how do we think about that?

Paul Coghlan

Yes. At the moment, we're expecting that business would pick up in August and particularly in September. But again, that's in line with the forecast we have that had been built up from a customer basis, looked at inventory, add customers, looked at what we're hearing about automotive production that Lothar referred to earlier, looked at some of the order patterns in the communications area and what we think they'll need. So it does include some buildup. I wouldn't say it's an enormous buildup in the last 2 months. But certainly, we would hope that business would improve a little from the June, July timeframe.

Operator

We'll take our next question from the site of Craig Berger with FBR Capital Markets.

Craig Berger - FBR Capital Markets & Co.

Beyond the next quarter, how do we think about operating expense spending, say over the next year? Is it more tied to revenues? And I guess, as part of that, what does your design win picture suggest for growth over the next year?

Lothar Maier

In terms of operating expenses, as the business is declining a little bit, we're, obviously, going to be much more conservative when it comes to spending on expenses that hit our operating expense line. So we're going to be a little bit cautious there, and we're always actually pretty cautious there anyway. But in terms of design wins first, and what impact it has in the next year, our business, it takes a little bit longer than a year. We have a steady stream of products. I think the products that we're bringing into the field right now -- and we're hearing it from both our customers and our sales people, are really very, very good products. They're well targeted to our end markets, they allow us to differentiate ourselves from our competitors. So the products that we're bringing into the field right now are, I would say, probably, some of the best products we've ever made. And so we're optimistic in terms of what they're going to perform in the marketplace. But typically, it takes a year or 2 before those products gain some significant traction. But in some of the things that Paul talked about, our battery monitoring products, our high-speed ADCs that we're introducing, some of the RF products, they're really on the mark. And what we're hearing from customers, they're the right products at the right time for the markets we're focused on.

Craig Berger - FBR Capital Markets & Co.

Great. And just as a follow-up, you guys did say business should improve a bit towards the end of the year. Can you just remind us what's normal seasonality for you guys in December? And is that improvement that you expect mostly in the automotive sector? Or any other color you can provide there.

Paul Coghlan

Normally, the summer quarter's normally flattish for us and the December quarter historically is up a few percentage points sequentially. And then March and June are stronger quarters for us. Although Craig, I'd caution you, what's normal in the last 10 years has been hard to define. We’ve had so many different -- dot-com bust, recessions, earthquakes, tsunamis, so it's kind of hard to consider normal to be a popular midpoint anymore. Relative to the other part of your -- what was the other part of your question?

Craig Berger - FBR Capital Markets & Co.

What part of your business do you expect most of the improvement towards the end of the year? And is that just all of the auto piece of the business coming back?

Paul Coghlan

Well, I think, the auto piece is more clearly identifiable because we look at and we read about what production increase rates are going to take place in Japan. We know that in Germany, there's 6-month wait for cars. So when we look at cars, or automotive products, we can kind of feel and see and match with what's being said in the press. But that should pick up in the new model year, et cetera, in the last quarter of the calendar year. With regard to the industrial business, for example, Lothar mentioned a lot of good design wins we have. Energy efficiency is important. There's a lot of things going on in that area. But it's harder since it's so broad-based to look at 2 or 3 customers and say they'll carry everything. So there, I think, it's kind of confidence in our products, a little confidence in what the customers in that area are telling us. Communications infrastructure, Lothar referred to, he said they had some inventory issues, specifically, relative to Japan that appear to be being resolved. So that would tend to let us think that there'd be some pick up in production in that area. So that covers the 3 biggest areas. Computer is -- if the lead times are shorter, product changes are shorter, that, you're just going to have to see how that plays out.

Operator

We'll move next to the site of Jim Covello with Goldman Sachs.

Mark Delaney - Goldman Sachs Group Inc.

This is Mark Delaney calling in for Jim. I was hoping, first, if you could maybe help to reconcile your guidance of down 6% to 8% with -- I guess, many of your peers have reported and guided for a third quarter that's a little bit better than what you're seeing. Does that maybe have to do with your lead times? Or if there's other factors you think that are impacting the difference?

Paul Coghlan

Well, I mean, we know our business best. We don't frankly know their business as well from a financial-projection standpoint. What their lead times are, which end markets are -- they feel will improve or not improve. I can tell you that typically, when the markets change like this, we're often the first one to say that something is -- that we see troubles. We're the first to see them, and in many cases, the first to grow strongly when they pick up. So if that historical trend would continue, it's probably not unusual that we're the first ones to talk about some change in direction. But again, I think, it very much depends – it’s supplier-specific, and we really only want to talk about what we see not what others see.

Mark Delaney - Goldman Sachs Group Inc.

Okay. That's helpful. Could you just remind us what your lead times are now?

Paul Coghlan

Four to 6 weeks.

Mark Delaney - Goldman Sachs Group Inc.

Okay. And then as a second question, I'm wondering if you guys could provide any color on how you expect ASPs to trend maybe this quarter or over the next fiscal year.

Paul Coghlan

Last fiscal year, our ASP was $1.71, the one that just finished. We think that's going to increase. We think it will be in the $1.80 range, in the range of $1.80, somewhere in there. So that's what we think the fiscal 2012 will end up.

Operator

We'll take our next question from the site of Steve Smigie with Raymond James & Associates.

Jonathan Smigie - Raymond James & Associates, Inc.

I was hoping you could talk a little bit about -- I think, you indicated that operating profit would be in the high-40s. Does that suggest gross margin would remain relatively healthy? I guess, with the forecast of the down revenue I would think there might be some utilization. So I'm just trying to understand how you get to that high 40, given the lower revenue number. Or would it really more roll through in terms of December for hitting the gross margin utilization issues.

Paul Coghlan

Well, our gross margin's always been quite strong as you know. We finished the quarter we just were in with gross margin of 78%. I think with the reduction in sales, what we were trying to imply is that there'd be a little attrition in the gross margin, a little attrition with the operating expenses, namely being R&D or totally being R&D and SG&A as a percent of sales. But overall, when you add these together and we thought we presently have operating margin of roughly 51%. And as we see the quarter now, if we do, in fact, wind up at 6% to 8% rather than better or worse, that we'd have operating margin in the high 40s.

Jonathan Smigie - Raymond James & Associates, Inc.

Okay. And then with regard to the -- I guess, the inventory adjustments, I think you've got auto somewhere around 12%, 13% of the business, is that the main area of weakness? You talked about both auto and general sluggishness, so is most of it related to the auto issues or is a decent amount of your caution related to the sluggishness? I mean, so is it sort of 50/50 or any sense of relative impact.

Lothar Maier

Yes, I think Paul answered that earlier where we can clearly identify the automotive as an area specifically where we can assign the slowness due to issues with Japan. But really if you look at the slowdown in June and so far in July of bookings, it seems to be more across the board. It's not concentrated in any end market, and it's really not concentrated in any geography that we shift to. It's just kind of a sluggishness that we're seeing. And we only mentioned the automobile portion of it because that's something that's clearly identifiable. But I would say, it's more kind of just across the board.

Operator

And we'll take our next question from the site of Ross Seymore with Deutsche Bank.

Ross Seymore - Deutsche Bank AG

As far as the Japan inventory correction side of things, you already talked about the demand side of the equation picking up later this year. Is that the same thing as saying you think the excess inventory burn will be done with in this quarter or is that something that could last a little bit longer?

Paul Coghlan

Well, I think there's -- you have to divide Japan into 2 pieces, its impact. There's the impact of Japan within Japan and that was strongly felt in the automotive industry, and you would know that from major Japanese auto suppliers that can't ship into the United States current model year products. And then there's the impact Japan itself had as a key supplier of certain raw materials and other materials, a lot of which go into the automotive industry but go into other industries as well throughout the world, throughout all geographies. So the automotive piece, we're hearing that Japan is now going back -- is back to full production. We're hearing that Japan is going to try to reclaim lost market share by having a lot of available products on the market in the fall in the United States for example. Relative to how everybody else outside of automotive and outside of Japan reacted to the fact that the Japanese supply issues seem now to be, if not completely resolved, at least there's a confidence that they will be resolved. I think that that's the other side of Japan that impacted our performance in June and July so far. And we think that should sort itself out in the short-term, not drag on into the medium or long-term.

Ross Seymore - Deutsche Bank AG

I guess, as my follow-on, it’s unrelated to that, but in your June quarter guidance, you actually said there'd be some impact from a tablet socket loss. Did that impact end up being the size that you expected and is it now fully behind the company?

Paul Coghlan

Yes.

Ross Seymore - Deutsche Bank AG

Okay. Then one real quick housekeeping: backlog? You usually give it at the end of your fiscal year?

Paul Coghlan

Yes. Let me look that up for you. It's roughly $130 million.

Operator

We'll take our next question from the site of Romit Shah with Nomura.

Romit Shah - Lehman Brothers

Lothar, a question for you. Just curious if you're hearing in the marketplace that some of your competitors that may have seen a direct hit from Japan are still supply constrained.

Paul Coghlan

Well, to start out with, I don't really talk a lot with my direct competitors.

Romit Shah - Lehman Brothers

I wasn't asking if you spoke to your direct competitors, but in speaking with customers and distributors in the marketplace, do you get the sense that -- what you guys are seeing with production fully back online, being the case across the board or are some of your competitors still constrained to meet customer demand?

Lothar Maier

No, I think in general, probably a good guide for that would be lead times. And it seems like lead times for us, if you go back several quarters, our lead time’s extended a little bit, but we're still a lot less than our competitors. And if you look at lead times in general, I think they've come down and ours are certainly back to the normal 4 to 6 weeks. So my sense is probably since lead times are down that most of these constraints are probably behind, certainly behind us and probably the same would be true from our competitors, if you look at it from that standpoint. And from customers, for the most part, what we're hearing, it's also not an issue. There probably are still a few areas where we're not quite sure. I mentioned earlier in the communications infrastructure area where there are still some availability issues for components, not linear type of components, but they were having problems getting some components that were part of a kit and we were part of that kit. So we weren't getting the orders because they couldn't get some piece parts. So -- but for the most part, I think most of that I think has settled through and will probably mostly resolve itself this quarter.

Romit Shah - Lehman Brothers

Yes, I guess, the reason I'm asking a question is to maybe just understand your outlook and why it's worse than some of the other companies that have reported thus far and it seemed like a reasonable explanation but I wasn't sure.

Lothar Maier

Yes, it's a little bit tough for me to comment on other companies. As Paul said, we're oftentimes ahead in terms of the fact that we do have very, very short lead times and our customers have relatively high confidence in our deliveries. And so if they're going to make some inventory changes, they’re usually pretty confident of doing it with us and we would tend to see it earlier but I don't have a crystal ball.

Romit Shah - Nomura Securities Co. Ltd.

Okay. And the other question I had is just given the fact that the current environment is changing, have you guys made adjustments or do you plan to make adjustments to your capacity expansion plans for the second half?

Lothar Maier

Yes, clearly, we expanded capacity during the big run-up. And so by the capital expenditure forecast that Paul said, clearly, we're forecasting significantly lower capital spending going forward because quite frankly, we've got the installed infrastructure. And from an equipment and largely from a people standpoint to do well over $400 million a quarter in sales. And so we've got plans in place for this quarter to scale back output from all of our factories to basically have output mass sales, which is really we're going to have to do some shutdowns of the factories selectively around the world.

Operator

We'll go next to the site of Chris Caso with Susquehanna Financial Group.

Christopher Caso - Susquehanna Financial Group, LLLP

I'm just wondering if you could help us to gauge perhaps the conservatism that you took in terms of your guidance, and I know you guys aren't typically conservative and at first glance, the guide down 6% to 8% looks like a cautious number. But I think some folks are probably having trouble reconciling that with the possibility -- the requirement the business would have to be up later on in the quarter. Maybe you can kind of calibrate us on that and talk about how you approach that?

Paul Coghlan

Sure. We actually try to give reasonably accurate guidance every quarter and generally we come in the range of what we guided. So we put a lot of effort into the guidance. We talk with our sales folks around the world. They talk to their customers, and there's a formal process to feed up a forecast and then that forecast gets analyzed and vetted to some extent by senior sales management and then by senior management within the company. And then concurrent with that, we talk to our production people and they give us an insight into the sense of are there pull ins, push outs, what's the volume they’re seeing, does it match what the sales folks are saying. And then we also look at programs we're in, how the bookings of those have gone, what the customer’s telling us his in-demand is on those programs and we analyze that. And then we know we have shorter lead times, and we take a look at that and then we look at what we expect in the quarter. So for this quarter specifically, we told you we did reasonably well the first 2 months of last quarter, and then it started to slow down in the May timeframe, and then slowed down somewhat in June and it's continued into July. And then we try to match that with what inventories were at customers, where we saw their inventories maybe increase in the past and see them more balanced out now. And then we talk specifically about certain programs and whether the customers got those programs, we're still meeting their expectations. And that has lead us to believe and our sales force has forecasted that the bookings should pick up for us as the quarter progresses. Now whether we'll pick up enough that we could make up the 6% to 8% we guided. The reason we gave you that guidance was we think it probably won't make up enough but that there'll be good momentum in that area going out of the quarter.

Christopher Caso - Susquehanna Financial Group, LLLP

And maybe just following on to that, first, a different way of looking at it, when you've seen potential business picking up at the end of the quarter, some of that sounds like it's due to automotive and it sounds like there's some specific things going on there. But how would you characterize your customers’ build plans versus normal seasonality? In other words, will this pickup in August and September, is that predicated on sort of normal seasonal behavior in your computing and consumer end markets? Or are they taking a more cautious view and even with that more cautious view, you could still see a pickup?

Paul Coghlan

Well, I think the 2 markets you mentioned, consumer and computer, between them they only represent 15% of my bookings. So most of the guidance we've given you, if not all of the guidance we've given you, is really focused more on the other 3 or 4 sectors of our end markets, which would be industrial, automotive and communications infrastructure. Now, we obviously have some computer insights but most of the guidance I think is relative to the other areas.

Christopher Caso - Susquehanna Financial Group, LLLP

Right. So I mean, that's an area, and I guess, within those areas, you're assuming it’s just sort of the normal seasonal patterns such as Europe exits from the summer, you'll see a pickup in bookings there?

Paul Coghlan

Well, you make it -- the way you phrase it like we're sitting back here and with our fingers crossed asking for normal seasonality. We've actually as I said, canvassed customers, talked to customers, talked a lot with the sales force about why they're confident, they think this will pick up, pushed back at them and this is the conclusion of all of that. So in the past, maybe to help you a little bit and I can understand why you as a representative of the population be struggling with this, maybe if you look in the past, when Linear has said its sales would go down a fairly sizable number, in the past, we haven't said we thought it was as temporary maybe as we're saying this time. So in the past, when we did all this vetting, it looked like things weren't so good and getting worse. Our sense here is, and we may be wrong, but our sense here is things aren't so good but probably will get better. So I think if you look at the track record of Linear, we put a fair bit of thought into this. Now after giving you this great explanation of how hard we work at it, I hope it doesn't turn out to be inaccurate, so I look like a bozo but we have put some effort into this.

Operator

We'll go next to the site of Ambrish Srivastava with BMO Capital Markets.

Ambrish Srivastava - BMO Capital Markets U.S.

But I just wanted to drill in into a little bit into the distributors. Last quarter, guys, you had said that the U.S. disties [ph] you were undershipping and U.S. is -- correct me if I'm wrong -- it's about 15%. And so what is going on in the non-U.S. disties [ph]? Is there a chance that you guys are overshipping there? And is that where the downward revision is coming from or is it more on the OEM side? And I don't think you guys reveal it, but I'm not sure if you'll change it. What is the percentage of distributors in your business?

Paul Coghlan

Well, first of all, U.S. distribution is probably a little more than 15% of our business while I think on the fly. But the U.S. overall is about 30% of our business. Yes, you're probably right. It's probably 18% without picking an issue with you over small numbers. And in the U.S. distribution, we told you last quarter and we've been telling you for several quarters that our inventory of all distributors both U.S. and worldwide has been very, very lean. So to maybe put that in kind of a how do you run a business context, if you go back a few quarters, we were struggling getting capacity up as was other -- not getting capacity up, we were struggling matching capacity with demand. So that from our standpoint, each piece of inventory we built for several quarters really had a name on it. So that we wanted to control as much of that inventory as possible here at the company and make the proper allocations to keep everybody line up and to come out of this resurgence with a good reputation of being a great supplier. And that meant we had to kind of tax our distributors, if you will, so when they said they needed inventory, if they couldn’t specifically identify who it was going to, we told them, “Well, look, we'll try to respond as quickly as we can to you and make sure your customers don't go lying down. But we're going to keep as much of the inventory as we can here at the company.” That's really not an efficient way to run the business. A more efficient way to run the business at adequate capacity, adequate inventory here at Linear so that our distributors have adequate inventory and they can respond quickly and be a very good supplier in their geographic areas into their marketplace. So we said on last quarter in the conference call, we were pretty specific about that, that we had to add inventories to these distributors. So we did add to the U.S. We did add some to International as well. But overall, our inventory turns are still within our historic or less than or more lean than our historic averages.

Ambrish Srivastava - BMO Capital Markets U.S.

I'm sorry, what was the explanation on the total distributors versus in the overall business and are the cuts coming from distributors primarily or from the OEMs as well?

Paul Coghlan

You mean our forecast? I don't understand. You mean is our forecast -- meaning we're not going to ship the distributors but continue to ship at the same rate as everyone else?

Ambrish Srivastava - BMO Capital Markets U.S.

No, my question is, when the cuts are happening and you alluded to the fact that it's primarily because of excess inventory and not end demand going down. So my question is, is that primarily coming from OEMs that they're saying that they have too much inventory or is it through the channel that you're seeing that?

Paul Coghlan

Yes, I understand. That's a good question, and I apologize for not grasping it initially. Remember now, some of our distributors, particularly let's say, in a country like Japan, we do all of our business through a distributor for logistic purposes, through several distributors. So that in a country like that, it's really OEM demand being fed to us through the distributor. But throughout the world, the sense is balance. It's this feedback from OEMs and our position on distributors. So I think it's equally reduction in all of the areas.

Operator

We'll take our next question from the site of Christopher Danely with JPMorgan.

Christopher Danely - JP Morgan Chase & Co

Probably just a few clarifications. So when you talk to your customers, and then you guys are assuming that business is going to pick up a little bit, do you get the sense that your customers are expecting their business to pick up a little bit, sort of, seasonal-ish for the rest of the year or are they concerned that things are going to get worse? Are they counting on everything to be stable? Any sort of feedback there?

Paul Coghlan

Well, I think if you'll allow me the liberty, I'd like to divide that question into 2 pieces. I think first of all, we've guided down and then the first question I think we had of our sales force is, are our customers seeing their demand go down. And we were told pretty emphatically, no, they're not seeing that. So that now the second piece of the question, what you're asking is, well, are they seeing that demand going up. When we listen to industry analysts and we listen to customers saying what they think will happen, now I'm not sure they’ve put their wallet behind this yet to buy their inventory, but what they think will happen if they think things will pick up in the second half of the year and that's what analysts -- the industry and analysts are saying. I mean, so I guess to divide your question, if you’ll bear with me, in 2 parts, they don't think it's gotten any softer, so I think they're going to order inventory to that level once they get to the right inventory. And then whether they order more or to the second half of the demand, I think a little bit of a wait and see mode on that, but what they're telling us and their gut feel, I think, is that, that will pick up a bit.

Christopher Danely - JP Morgan Chase & Co

Sure. And that leads to my second question. So I mean, do you think that this is just a one-quarter problem, and then we're back to normal seasonality in the December quarter?

Paul Coghlan

Well, we hate to forecast quarters ahead, but since we have said to you this quarter and that is our current belief at this time, and that's what we feel’s going to happen. You're right, but we don't normally forecast ahead. But I guess, this is a little different quarter.

Christopher Danely - JP Morgan Chase & Co

Sure. And then a little clarification on OpEx. It sounds like your OpEx is going down a little bit in terms of dollars. Assuming we bounce back to some sort of normalish seasonal growth next quarter, would you guys look to hold OpEx, flatten dollars or would it go back up but less than sales?

Paul Coghlan

Well, it would go back up. Remember, one of the reasons we're so – if I can use the word good at managing our operation expenses relative our sales is that we have a high portion of our costs are variable because we have such high profit sharing and employee payments like that. So that I think we hope business picks up, and I think what would happen with some of our operating expenses would have a variable would then pick up in line with business but that concurrent with that, the operating margins would improve back to levels that you're more used to seeing from us.

Christopher Danely - JP Morgan Chase & Co

Great. And then last question on sort of the tablet loss over the last few quarters. If we take that out, would you guys have grown mostly seasonally over the last 3 or 4 quarters? Can you give us a sense of what the percentage impact was of that one tablet program going away in your sales the last few quarters?

Paul Coghlan

No, that customer is a really good customer we value quite a bit and really doesn't like us talking about any kind of volumes associated with them. So we'd prefer not to get into that.

Operator

We'll go now to the site of JoAnne Feeney with Longbow Research.

JoAnne Feeney - Longbow Research LLC

If we could get more into the communication side, I'd love to hear your views on how the communication, in particular the base station build out is progressing relative to your expectations and if possible by regions.

Lothar Maier

Maybe I can take a little cut at that. The base station business has some lumpiness. It depends on if China has got a big release or there's a big build up but in general, it's a good market for us, and it is a market that we continue to invest sales resources and design resources to service. So we think that certainly, communications market would grow as our sales grow and really has a chance of even growing faster than sales because probably in the last few years, we've been very active in designing products in the mixed-signal area and in the high-frequency area that are really well targeted towards the communications infrastructure market. So I think in general, that market has got lots of legs into it. The continued demand for bandwidth is not going to go away, people want more voice, data, video through wireless channels so. I think that market has got lots of growth and I think even more importantly beyond the growth, there's a lot of innovation that's going on in that market as well and that market is receptive to our products.

JoAnne Feeney - Longbow Research LLC

But then, if you could, perhaps in the next couple of quarters, have you seen any slowdown in the decisions to build up this infrastructure in say Europe versus Asia versus the U.S.?

Lothar Maier

Like I said earlier, this stuff is sometimes a little bit lumpy quarter-over-quarter. There might be some ups and downs, but if you look at it on a year-over-year basis, I think there is nothing but growth in that market.

JoAnne Feeney - Longbow Research LLC

Okay. And then on the industrial side. There's been some concern that there’s been a lot of investments in industrial machinery that's been really good for the analogue companies. The question is, when do we see that perhaps slowing down? Are your customers suggesting sort of an end to the current expansion cycle coming in the next couple of quarters or do you see this as more long-lived phase of investment there?

Lothar Maier

Well, I think when you look at that side, the industrial side, we look at it and kind of divide it into 2 ways. One way is did they spend more money on capacity, which was existing products they had, et cetera. Did they, with some stimulus money maybe or maybe not or with the economies picking up, did they start to spend more money? And then the second side of that equation is, is there anything on the innovation side that would drive growth in the industrial area? And I think, we've been -- I think continue to be in a pretty strong spot in that there's probably things going on, on both sides of that. Certainly, the innovation side, we see because people are really driving to become more energy-efficient. So that from people that make all kinds of equipment, medical equipment, manufacturing equipment, consuming less electricity has moved up from something that's nice to have to something that's essential to have. So that's continuing to grow and that is going to continue to grow for quite a while. The capacity side, we still think there are things going on there, people talk about an area like China and they say well, but China’s slowing down. But it's slowing down to a rate that's still many multiples of the rate that U.S. and Europe is going to grow. So I think on the industrial side, you probably need to divide it into those 2 pieces when you look at it. From our standpoint, we think that's going to continue to help us grow.

Operator

We'll take our next question from the site of Uche Orji with UBS.

Uche Orji - UBS Investment Bank

Paul, maybe I'm not quite sure I understand, if you can help me a little bit to quantify what was the -- when you talk about inventory being raised, how much incremental you say in weeks did we see the Italian inventory get raised? And just for me to understand your confidence in it being worked down quickly. So how high did it get? Where is it now just in weeks basis, please?

Lothar Maier

We don't have that. I mean, we don't look at it by weeks, and we look at it by turns and haven't really divulged that -- don't think -- for several reasons. One, each customer, like each client asks their supplier, has different inventory goals, different ways of running their lead times, different ways of managing their inventory so it's effective in their end markets. So that what we talked to you is kind of relatively. What we said relatively is that if you go back a year and a half, to just after 2009, once the business picked up, our inventory in the channels that we internally look at from a turns rather than a weeks perspective, that got really unreasonably high for us. But we'd had to live with it, because we were expanding our capacity. And what we've told you now is that that's still not quite back to what we think would be normal, but it's gotten from extraordinarily high down more towards the normal range.

Uche Orji - UBS Investment Bank

Okay, that's helpful. Just to make sure I understand something on the higher legal costs. Any chance you can let us know what -- I know you say it doesn’t reoccur, just so that we understand what happened last quarter in the legal front?

Lothar Maier

Legal front. Well, in interest income -- and let me make sure I'm understanding your question correctly. We settled a lawsuit. And the quarter before, we settled a different lawsuit. And these both settlements were in our favor. The quarter before, the benefit was $1.7 million to interest income and the current quarter, it was $2.5 million to interest income. And next quarter, we don't expect to have any legal settlements.

Uche Orji - UBS Investment Bank

I see. And just let me step away to automotive. I mean, in the opening remark, you talked about new parts and new sockets in automotive. Is there any way for me to understand what you think your average contents in a car is and what the value of what is new sockets will be and when – it may be hard to really pin it down in terms of real numbers, but I just want to get a sense of in what product areas within the auto area are you seeing yourself gain additional costs if I'm phrasing correctly from your opening remarks.

Lothar Maier

Maybe I can take a cut at that. Yes, really when we look at automotive and we think about content, it's divided in 2 categories. One is your normal internal combustion type of vehicle; and then the hybrids and all-electrics. And so in the conventional vehicles, the electronic content is continuing to grow but the content we have would be in the range of maybe several dollars. In a electric or hybrid vehicle, the content, electronic content is -- and the opportunity for electronic content is much higher and it could be tens of dollars and maybe even more in some cases. So it's really in 2 camps, they're both growing but one has a bigger opportunity. These BMS products that Paul spoke about for hybrid and electric vehicles, there are multiples of these products in every vehicle and depending on if it's a hybrid electric that those multiples could be 5x or 10x.

Uche Orji - UBS Investment Bank

Okay and just finally, I don't know if you gave the data on utilization rates for your factories at the moment where they're running as you reflect your new guidance now and what was the average transition rates last quarter and where it is now?

Lothar Maier

Well, currently, the utilization -- our factories are -- we have excess capacity currently, as I mentioned earlier, because we're tooled up to produce both from a capital equipment standpoint and from a labor standpoint of over $400 million in sales. And so with the present guidance, we're probably about 80% utilization. What we're going to do this quarter is to adjust down the capacity of all of our factories to match sales, and the way we're going to do that is that we will selectively close the factories at one-week intervals throughout the quarter. And so what we're going to do is even though the factories are "underutilized," we're going to basically adjust their capacity to match sales.

Uche Orji - UBS Investment Bank

Will that have any impact on margins, either gross or operating margins as you do that? And any way we can quantify the impact of that?

Paul Coghlan

That's included in the forecast I gave you earlier.

Operator

We'll go next to the site of Terence Whalen with Citi Investment.

Terence Whalen - Citigroup Inc

I'll try to ask a question a little bit different way. Essentially, the midpoint of your guidance implies a $25 million reduction in revenue sequentially. What amount of that $25 million is due to international distributors? Do you recognize revenue fell in reducing inventory?

Paul Coghlan

I don't have an answer to that question, because we don't look at it like that. What we've done is we've looked at all of our areas, we've looked at what their opportunities are, added them all up and come to a range of 6% to 8%. So there's differences potentially geographically. There's differences between U.S. and international distribution, and we add them all up, there's several inputs from several areas and this is what we get.

Terence Whalen - Citigroup Inc

Okay. Then the next question is in terms of your guidance giving a range of 6% to 8%, that's actually a narrower sequential range than you've given in the past 4 quarters despite being at a sort of a negative inflection here. I was wondering what the thinking was in terms of the level of precision with that guidance range given it seems like a lot of dynamics up in the air right now with regard to inventory and order rates.

Lothar Maier

I mean, you're right, but you're talking 1% or 2% percentage points here. So each quarter, Terence, we look at it, we look at where we think the appropriate guidance would be, we look at the issues in the quarter and there's no exact science to this. We don't say if we give a range of 6% to 8% and that's includes 3 points, last quarter, we gave a range that had a 4 percentage points in it, that we feel we’re 25% more confident this quarter with our range than we were last quarter. We just don't do it to that mathematical precision. We look at the numbers. We look at where we think we're going to come out. We look at our backlog. We look at a lot of things and give our best shot at it. It's not as precise as you think it is. I'm glad you've asked in case everyone thinks we've got this dialed down to that kind of precision. We need -- every quarter, we need events to take place to make our forecast.

Terence Whalen - Citigroup Inc

Okay. And then as my follow-up, I think you had mentioned, Paul, that backlog was at $120 million.

Paul Coghlan

No, I said it was roughly $130 million.

Terence Whalen - Citigroup Inc

Okay, $130 million. Okay, so if I look at a $130 million backlog and your midpoint, that implies turns well above high-50s, can you just help me with the math there?

Paul Coghlan

Yes, what I do is I -- when we come up with the turns, we take out things from the sales side that are less dependent upon bookings. For example, royalties, royalty payments, certain small ends of the market where the numbers are more precise and there's a higher confidence level. So we try to boil that down to say what do we need from our OEMs and from our distributors, international distributors and what turns do we need there relative to their backlog and what we have planned to ship to them going into the quarter.

Terence Whalen - Citigroup Inc

Okay. And I'll just take one last shot. You had mentioned book-to-bill was above one in the fiscal first quarter and then you said it's been below one in the prior 3 quarters. In terms of trying to calculate between the $250 million backlog at the end of last fiscal year and the $130 million at the end of this fiscal year, can you give us an indication of in the prior 3 quarters has book-to-bill increased or has it been similar? Did it actually decline June to March? If you can just help us with the contouring quarter-to-quarter so that we can back calculate to the fiscal year end points on backlog.

Paul Coghlan

Our book-to-bill was pretty similar this quarter to last quarter.

Operator

We'll go next to the site of Craig Ellis with Caris & Company.

Craig Ellis - Caris & Company

Paul, just inside of communications, can you talk about the relative size of the networking business versus the base station business? And are you seeing similar trends there from not so much a near-term order standpoint but from a growth standpoint? And if they are divergent, where do you see the better relative growth between the 2?

Paul Coghlan

Craig, we used to break that out, the difference between infrastructure and networking, and actually we used to report it to you differently. And then what we found was that we gather most of our bookings data by customer. And several customers kind of converged in those 2 marketplaces. So if you think of a big guy like a Huawei for example, they're strong in networking and they're strong in base stations. Cisco’s in a little of both. So it became more difficult for us the way we internally generate the data, so I don't really have this broken down anymore by what's infrastructure and what's networking.

Craig Ellis - Caris & Company

Okay, fair enough. Switching gears to a regional as you’ve pointed out that Germany is your biggest country in Europe and that's understandable and I think we've seen relatively favorable trends there. But can you provide any color on what you might be seeing from an order standpoint when you contrast say, Germany and Northern Europe versus what you might be seeing from Southern Europe?

Paul Coghlan

Well, to be honest with you, Northern Europe -- this includes Germany and Northern Europe is so -- swamps Southern Europe for us. We have dramatically more business in the Nordic countries, in Germany than we do in say, Spain, Portugal or Italy. And we have very little in Greece if that helps you. So really, it's almost all of our business sits in Northern -- that doesn't mean Italy’s not growing, it's not a important part of our business. But Northern and Central Europe are really the big pieces for us. Did that answer your question or did I somehow avoid it?

Craig Ellis - Caris & Company

No, that helps. I'm just interested in the degree to which Southern Europe could be a drag on you for all European business. I didn't anticipate that Greece was a big country for you. But Italy has a bigger economy so I was interested in that and the potential impact of Spain to the overall European business.

Paul Coghlan

Well, I didn't mean to be flippant with you on Greece. I apologize for that. But I'm sure you felt like you knew that -- but Italy is growing for us, but it's a small piece of our business, and Spain and Portugal are even smaller than that.

Operator

We'll move next to the site of Shawn Webster with Macquarie.

Shawn Webster - Macquarie Research

I was wondering -- I believe you said computing bookings seem to improve significantly relative to your other end markets. Was there any particular application area that's doing well for you there?

Lothar Maier

There's some ups and downs depending on what our customers do in that area. But things like -- we've got some portable computing devices are in there that did reasonably well. Solid state drives seem to be doing well right now and we're in some high-end notebooks. But I would say probably, the thing that picked it up was the portable computing devices and the solid state drives.

Shawn Webster - Macquarie Research

Portable computing meaning tablets or is there other categories in there?

Lothar Maier

Tablet-type products, yes.

Shawn Webster - Macquarie Research

And then for your inventories going into fiscal Q1, do you expect them to be flat, up or down?

Lothar Maier

Right now, our goal is to have inventory flat.

Shawn Webster - Macquarie Research

And then in terms of the turns environment, what would you characterize as being normal turns for you guys historically?

Paul Coghlan

Inventory turns?

Shawn Webster - Macquarie Research

No, I'm sorry, the turns required to meet guidance.

Paul Coghlan

We've had turns in the high-60s and made guidance. And it jumps around depending on the strength of the markets. So as markets now -- as business getting a little tighter, we've moved from a year ago, our turns were in the high 40s, they’re now in the high 50s and we've been in the 60s for many, many quarters. So really, turns is sort of the inverse of your lead times. So if you have lead times of 4% to 6%, that's 5 weeks on average in a 13-week quarter being able to turn 65% mathematically, you ought to be able to do that. [indiscernible] see how we can get it backed out. If our lead times stretch out so that our lead times are 8 weeks or 9 weeks, then your turns business drops down to in the 40s. So it's really -- it's kind of the inverse of your lead times.

Shawn Webster - Macquarie Research

Okay. And then maybe one last one if I could squeeze it in. In terms of your breakdown by device type, can you give us an update for fiscal Q4 on power management versus mixed signal and signal conditioning?

Paul Coghlan

Yes, I think power management continues to be about 60% of our business. And the other 2 are roughly 20% each. Maybe mixed signal has been growing a little bit faster, so maybe that's a little more than 20% now.

Operator

And we'll take our final question today from Sumit Dhanda with Citadel Securities.

Sumit Dhanda - Citadel Securities, LLC

Paul, a couple of questions. I know you talked about the fact that the customers sound reasonably constructive as you head into the back half of the September quarter. But the decline in bookings run rates that you saw in June and July, was any of that mirrored in actual resales in distribution or not really?

Paul Coghlan

Yes, I mean, I think as -- if I understand your question, I think -- I don't want to speak for distributors as a whole, but my guess is they would be reporting that their sales for the months of June and July are down from what they expected. Is that your question?

Sumit Dhanda - Citadel Securities, LLC

Yes, correct. Okay. But they're still anticipating a pickup. In other words, your pickup is contingent on them picking up resales through the back half of the September quarter to some extent?

Paul Coghlan

Well, yes. But, I mean, remember, I'm glad you had it to some extent. I mean, I do some sales through distribution as an earlier caller mentioned, probably U.S. distribution is somewhere in the mid to high teens of my overall business. So I'm not totally dependent on them to meet numbers. A lot depends on how the OEMs are doing to be quite frank with you.

Robert Swanson

Can I add one thing to this? I've been listening to the questions and there seems to be some confusion about our forecast for the -- hopefully, getting better at the end of the quarter. And it's not based on some historical percentage, it's based on orders that our customers are promising to give us. Now whether they are given to us or not is one thing. But it's based on a forecast. It's not based on, well, the market should grow 2% or 3% so we'll just plug that in. It's based on real forecasts from customers.

Sumit Dhanda - Citadel Securities, LLC

I understand. Any chance you could share either quantitatively or qualitatively what the book-to-bills look like thus far this quarter?

Paul Coghlan

No, I mean that depends on how you ship in the month which can have vacation issues and all kinds of things around it. So I don't think that'd be a meaningful number.

Operator

And it looks like we have no further questions.

Paul Coghlan

Okay. Well, thank you all very much. Thank you for your attention this morning. I wish you all a good day. And enjoy the rest of the summer. Bye, bye.

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