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Maxim Integrated Products (NASDAQ:MXIM)

Q4 2011 Earnings Call

July 28, 2011 5:00 pm ET

Executives

Bruce Kiddoo - Chief Financial Officer and Senior Vice President

Tunç Doluca - Chief Executive Officer, President and Director

Paresh Maniar - Executive Director of Investor Relations

Analysts

Steve Smigie - Raymond James

Craig Berger - FBR Capital Markets & Co.

Shawn Webster - Macquarie Research

Terence Whalen - Citigroup Inc

Uche Orji - UBS Investment Bank

Christopher Danely - JP Morgan Chase & Co

Ross Seymore - Deutsche Bank AG

Sumit Dhanda - Citadel Securities, LLC

Mark Delaney - Goldman Sachs Group Inc.

Romit Shah - Nomura Securities Co. Ltd.

Ambrish Srivastava - BMO Capital Markets U.S.

Operator

Good day, ladies and gentlemen, and welcome to the Maxim Integrated Products Fourth Quarter 2011 Earnings Release Conference Call. [Operator Instructions] As a reminder, this program is being recorded. I would now like to introduce your host for today's program, Mr. Paresh Maniar. Please go ahead, sir.

Paresh Maniar

Thank you, Jonathan, and welcome, everyone to our Fiscal Fourth Quarter 2011 Earnings Conference Call. With me on the call today are Chief Executive Officer, Tun Doluca; and Chief Financial Officer, Bruce Kiddoo.

There are some administrative items that I'd like to take care of before we cover our results. First, we will be making forward-looking statements on this call. And in light of the Private Securities Litigation Reform Act, I'd like to remind you that statements we make about the future, including our intentions or expectations or predictions of the future, including but not limited to possible statements regarding bookings and turns orders, revenues and earnings, inventory and spending levels, manufacturing efficiency or capacity, projected end market consumption of our products, anticipated tax benefits and any other future financial results are forward-looking statements.

If we use words like anticipate, believe, project, forecast, plan, estimate or variations of these words and similar expressions relating to the future, they are intended to identify forward-looking statements. It's important to note that the company's actual results could differ materially from those projected in the forward-looking statements. During the quarter, Maxim's corporate representatives may reiterate the business outlook during private meetings with investors, investment analysts, the media and others.

Additional information about risks and uncertainties associated with the company's business are contained in the company's SEC filing on Form 10-K for the year ended June 26, 2010. Copies can be obtained from the company or the SEC.

Second, in keeping with the SEC's fair disclosure requirements, we made time available for a question-and-answer period at the end of today's call. This will be your opportunity to ask questions of management concerning the quarterly results and expectations for the next quarter. An operator will provide instructions at that time. We again request that participants limit themselves to one question and one follow-up question during the Q&A session.

I will now pass the call over to Bruce.

Bruce Kiddoo

Thanks, Paresh. I will review our fourth quarter financial results. Revenue for the fourth quarter was $626.5 million, up 3% from the third quarter. Consumer market revenue increased significantly offset by a decline in the other markets. Our revenue mix by major market in Q4 was approximately 36% for consumer, 28% industrial, 19% communications and 17% computing.

Our consumer market grew strongly due to continued momentum in cell phones. Our industrial market was down slightly due to control and automation offset by growth in automotive. The communications market decline in Q4 was due to an inventory correction in fiber optic modules and in base stations. Finally, computing revenue declined due to notebook.

Gross margin excluding special items grew to 63.7%, up from 62.7% in the prior quarter, due primarily to a subcon billing catch up in Q3, which did not repeat in Q4. Special items in Q4 gross margin were intangible asset amortization.

Operating expenses excluding special items were $211 million compared to $204.6 million in Q3. The increase was primarily due to selective hiring, mass and prototype expenses and higher 401(k) matching. Special items in Q4 operating expenses were primarily intangible amortization from acquisitions. Q4 GAAP operating income excluding special items was a $188 million or 30% of revenue.

The Q4 GAAP tax rate, excluding special items was 26% compared to 30% in the prior quarter. The decline is primarily due to a true up in Q3 between our prior fiscal year provision and actual tax return, which did not repeat in Q4. GAAP earnings per share, excluding special items was $0.45, up 13% from $0.40 in Q3 due to increased revenue and gross margin and a lower tax rate.

Turning to the balance sheet and cash flow. During the quarter, cash flow from operations was $246 million or 39% of revenue. The strong cash flow was a result of our strong profitability and international tax structure. Inventory was flat at 95 days, within our target of 90 to 100 days to better serve our customers. Inventory in the channel, excluding catalog distributors, was 67 days, up slightly from the prior quarter. Net capital expenditures totaled $59 million in Q4 as we invested in new fab technology and new facilities. For the full year, fiscal 2011 capital expenditures were 6.4% of revenue within our 5% to 7% target. Free cash flow was $201 million or 32% of revenue. Share repurchases totaled $59 million in Q4 as we bought back 2.3 million shares. And in Q4, we paid $62 million in dividends to our shareholders. As a result, total cash, cash equivalents and short term investments increased by $94 million in the fourth quarter to $1 billion.

Moving on to guidance. Our beginning Q1 backlog was $460 million, which is still above historical levels as a percent of projected revenue. Based on this strong beginning backlog and expected turns, we forecast Q1 revenue of $625 million to $655 million or up 2% at the midpoint from Q4. Q1 gross margin, excluding special items is estimated at 61% to 64% within our target range. Product mix, utilization and inventory reserves are some of the variables that will influence Q1 gross margin.

Special items in Q1 gross margin are estimated at the $10 million, primarily for amortization of intangible assets including SensorDynamics. Q1 operating expenses, excluding special items are expected to be up about 4% sequentially. The increase is due primarily to our annual salary and equity adjustments and to the SensorDynamics acquisition.

Our long-term business model is to continue to manage OpEx to grow slower than revenue. However, very selectively, we will make strategic investments which are dilutive in the short term. Special items in Q1 operating expenses are estimated at $0.5 million, primarily for amortization of intangible assets, including SensorDynamics, offset by expected onetime benefits. Our Q1 tax rate, excluding special items, is estimated to range from 25% to 27%.

For Q1 GAAP earnings per share, excluding special items, we expect to range between $0.41 to $0.45. Net capital expenditures in Q1 are expected to be flat with Q4. Overall for FY '12, we continue to target 5% to 7% of revenue.

Finally, our Board of Directors authorized a 5% increase to our cash dividend to $0.22 per share, approximately a 3.9% yield at yesterday's closing stock price. I will now hand the call over to Tun to discuss our business.

Tunç Doluca

Thank you, Bruce. Thank you all for joining our call, and good afternoon. Fiscal 2011 was a great year for Maxim. Let me begin by recapping our achievements last year. Financial results first. One, we grew year-over-year revenue by 24%, achieving all-time record sales. Two, Q4 revenue was 25% above 2008 pre-financial crisis revenue level. Three, gross margins remained in the top half of our 61% to 64% target. Four, we returned $480 million of cash to shareholders, representing 19.4% of fiscal year revenue. Approximately half as stock buybacks and other half as dividends. And five, our tax rate was reduced, inventory managed to return to our 90- to 100-day target and capital expenditures were within our 5% to 7% target.

Next, let me discuss product development and design win achievements last year. One, our integration strategy continued to deliver solid results. Our highly integrated product revenue accounted for 33% of June quarter revenue, a record. Two, we completed 3 strategic acquisitions, strengthening our market position. These included Phyworks for the optical communications market and SensorDynamics for the MEMS-based sensor market. More on this later. Three, we strengthened our product marketing efforts and successfully demonstrated our solutions at multiple trade shows. And four, we grew global distribution channel sales 43% year-over-year, now representing over 30% of total revenue.

Finally, manufacturing operations were strengthened last year. One, we added flexible wafer fab capacity in 200-millimeter and 300-millimeter to produce our advanced process technologies. And two, we improved our supply chain and reduced our delivery lead times to 7 weeks exiting the fiscal year.

Let me next turn to our just completed quarter and start with lead times and bookings. The average lead times that we're capable to deliver product to our customers shrunk by 3 weeks during the June quarter to just above 8 weeks. As part of our initiative to serve our customers better, we set a new target of 6 weeks for this metric versus our previous target of 8 to 9 weeks. Despite this substantial improvement in our product delivery capability, average customer order lead times remained the same for the June quarter as it was in the March quarter. We believe that this was most likely out of customer concern of possible supply chain disruptions due to the Japan earthquake in March. We are now getting the sense that customers are finally putting those fears behind them. Over the past few weeks, we are experiencing a reduction in customer order lead times, bringing this more in line with the lead times that we are capable of delivering to. Since customer order lead times held steady during the June quarter, there was no impact on our bookings from lead time changes. Consequently, our book-to-bill ratio improved sequentially, to about 1.

I will next provide some color on our major markets. First, I will discuss consumer. Cell phone bookings were extremely strong sequentially, as more of our design wins turned into orders. We also benefited from high dollar content handset customers, gaining share in smartphones. Due to these strong bookings, we expect cell phones to be the primary contributor to revenue growth that we are projecting for the September quarter.

New cell phone design wins include a device that delivers power to both the power amplifier and to the camera flash in a leading smartphone. Additionally, our battery security products won new sockets at 2 Tier 1 smartphone customers. Earlier design wins for fuel gauge products are experiencing rising demand as our customers are increasing their share of the smartphone market. And regarding capacitive touch, we will begin production shipments into a tablet manufacturer in the second half of calendar 2011. This is in addition to our first smartphone win I mentioned last time.

Second, let me discuss industrial. We're entering a seasonally weak period in this market and we project flat to slightly down revenue in the September quarter. However, we are excited about several significant design wins that will drive future growth. In automotive, we won the development project for a battery monitoring chipset in a significant Japanese car model. Our solution was selected for implementation into both the electric vehicle and hybrid platforms. As is normal, revenue is a couple of years away.

In automotive infotainment, we introduced 21 new products over the past 6 months. Most have received positive customer reception. These include highly integrated power management ICs, which serve purpose for instrumentation clusters and for infotainment applications. Additionally, our touchscreen controller technology is being evaluated by 2 automobile module makers for infotainment displays.

In smart meters, we have won the core metrology socket at multiple manufacturers for the China State Grid. We're taking market share from discrete solutions as customers move to a highly accurate SoC or system-on-a-chip solutions. Maxim's SoCs are the first to be approved by the state grid for deployment in China's high-volume, single-phase metering market. In smart grid deployment, Maxim-invented G3-PLC is seeing broad acceptance as the powerline communication standard. G3-PLC has been successfully trialed in the field in Asia, the Americas and Europe. After the devastating earthquake in Japan, the utilities have struggled with power outages. The Japanese government has championed using the smart grid to manage the gap between supply and demand and is considering our G3-PLC technology for its high reliability.

We introduced our first IO-Link products last quarter. IO-Link is a field bus used in factory automation mainly for sensors. They allow the operators to quickly retool the factory by reprogramming sensor parameters from a central location. The link also enables remote diagnostics capability. We've been sampling the product for 4 months and have design wins at 3 major sensors suppliers that jointly represent more than 30% of the market.

Third, communications. We project revenue to be up slightly. In Q4, we won our first design wins for Maxim's InTune automatically compensated digital power technology. In addition to being the easiest to implement, Maxim's solution requires a third of the external capacitors needed by competing digital power solutions and half the external capacitors required by analog solutions. Our product will be used in switching equipment by a major networking customer and by a top-tier base station manufacturer. This is a clear example of how Maxim is delivering innovation.

In optical transceiver applications, we introduced a dual loop control product whose patent pending real-time calibration methodology adjusts for temperature changes and for laser diode aging. This enables our customers to increase their module yield. Also in the fiber optic space, we introduced a direct couple laser driver product. This product reduces module board area by eliminating passive interconnect components while also cutting per [ph] channel power by 40%. And our 10-gigabit per second linear equalizer device enables next generation backplanes with superior signal and recovery in noisy environments. It has scored a design win at a key Chinese customer in a communications infrastructure application.

Fourth, in the computing market, we expect a sequential decline, primarily due to the Notebook and Computer Peripherals segments.

In closing, I'd like to reiterate our excitement in adding sensors to our arsenal via our acquisition of SensorDynamics. Sensors collect real world physical signals such as motion, touch, light, pressure, flow and temperature. One specialty of SensorDynamics is inertial and motion sensing; for instance, to control stability in a car, or to sense the orientation of a smartphone to display information right side up, or to sense one's rotation while playing electronic games.

So why invest in the MEMS-based sensor market? Well, first of all, this is a multibillion dollar market, $7.7 billion in 2011 per IHS iSuppli. Second, it is a high-growth market; 14% in annual growth rate projection, twice that of our traditional analog markets. And third, sensors are a natural extension of what we're already good at: Interfacing to the real world.

Why did we choose to acquire SensorDynamics? First, the acquisition provides immediate time-to-market advantage, delivered by 800 man years of research and development. Second, we acquire a strong IP portfolio. And third, we acquire immediate customer credibility due to multiple design wins.

SensorDynamics brings to us years of innovation in the emerging fields of sensors, MEMS and wireless connectivity. Short term, we get access to $900 million of the available MEMS-based sensor market for multi-access rotational inertial sensors or gyros. Long term, we have a strong base to pursue selective products in the larger $7.7 billion market. Developing this technology on our own would have required an enormous amount of time and significant investment. With SensorDynamics, we take a big leap forward. Together, we can enable a whole new generation of intelligent machines. SensorDynamics currently serves the automotive market and has an excellent reputation with its customers. We plan to extend SensorDynamics products to mobile and high-end consumer markets.

I will now turn the call back to Paresh.

Paresh Maniar

That's the end of our prepared comments. We would now welcome your questions. Please limit yourself to 1 question and 1 follow-up. Jonathan, please begin polling for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Romit Shah from the Nomura Security.

Romit Shah - Nomura Securities Co. Ltd.

First, just on the guidance. Based on my math, you're assuming a little less than $20 million in incremental turns in the September quarter in order to get to the midpoint. Does the booking activity you've seen thus far in July give you the confidence to guide to higher turns? Or would you characterize September as being more of a back-end loaded quarter?

Bruce Kiddoo

We started off with about $460 million of beginning backlog. And so that's about 72% of the midpoint of our guidance. That's down a little bit from where we started. Q4, we were about at 74%. So we're now at a similar position to where we were last quarter going into the quarter. Historically, we used to run at about 65%, and we think with EMI that could trend down to 60%. So I think we're still comfortable where we're at from a turns requirement going into the quarter. I think one thing that's important to note and Tun's talked about it in his opening comments was I think we've done a very good job on the supply chain management side. We have our inventory where we want it at about 95 days. I think we have our buffer stock kind of where we want it. And I think we're able to respond much better as those turns bookings come in and the ability to deliver and ship and really serve our customers better. So I think...

Tunç Doluca

So Romit, let me add one more thing to that. So as we've described in the past, we make these determinations by really talking to customers and looking at inventory levels in the channel. And the polling we've done of our major customers indicate that their inventories are under control so we don't see anything abnormal there. We also see that the inventories in our distribution appears to be under control. So we don't see anything there. So we feel that at this point, the underlying demand for our products remains pretty stable. So that's the reason that even though we saw some lead time adjustments at the beginning of this quarter, we think that we should be able to hit our targets for the September quarter.

Romit Shah - Nomura Securities Co. Ltd.

The reason I just asked the question was I'm sure a lot of people will be wondering what's the difference between you and Linear and it sounds like part of it's your Cell Phone business and the other part just being that you're not seeing that same adjustment from Japan coming back online. The follow-up question I have for you, Tun, was just on capacitive touch. You mentioned a tablet win. Is that the same -- would that be the same customer that you have on the cell phone side?

Tunç Doluca

Yes. First of all, Romit, on the first part, your assumption or your guess is correct. I mean, I think what maybe is differentiating us from some of the other peers that you've heard from is that we are seeing a lot of strength in our consumer or cell phone market. So that's probably a good reason why we're giving different guidance. On the touch screen controllers, no, the win that I mentioned is with a different customer than what I mentioned. What I talked about back for the March quarter was a smartphone win. This is really a tablet win, but they're different customers, not the same one.

Romit Shah - Nomura Securities Co. Ltd.

The reason I asked is it just would seem that relative to your expectations at Mobile World Congress or at the beginning of the year that you're getting more traction with capacitive touch. And yes, at this point, Tun, would you be able to give us some sense as to what the revenue run rate could look like for this product line, looking out into next year? Or is it still too early to tell?

Tunç Doluca

I'd say it's still too early to tell, Romit. I mean, we have a great technology. We've shown it to many customers now since the Mobile World Congress. The acceptance is great. We're seeing applications not only in handsets but I mentioned also even some automotive applications as well. Talking about revenue, it's too early for that. When I was asked this question at our Analyst Day, I said 2012 is really -- calendar 2012 is really when we'd start seeing revenue. I think we're still on that track. And the interest in the product is really huge. We're actually, frankly, we're swamped by the amount of the application support request that we're seeing. But it does -- this is a product that really gets integrated into the system so it takes customers a longer time to design them in and to ramp into revenue. It's a lot different than winning a power supply socket, for example.

Operator

Our next question comes from the line of Uche Orji from UBS.

Uche Orji - UBS Investment Bank

Let me just reapproach Notebook and Computing business. Where listening to you on Intersil yesterday, it was obvious that you're losing market share in the Notebook business. Can you just tell us what the strategy is around this business now? I know there was a time when you kind of walked away from some business. But from here now, going into the new platforms from Intel, where are you and what is the strategy going forward?

Tunç Doluca

You're remembering it correctly. I think it was almost 2 years ago, is my guess, when we said that the market is getting more crowded. Differentiation is becoming more and more difficult especially for the power supply products. So we really put our investments, most of our investments, elsewhere. We still have some revenue in this market where we have a differentiated product. But other than that, it's really not a big focus of the company anymore. So when there are sockets that look interesting where others cannot do the performance that we're going to have, and we do still make products because it is a -- power management is a strength of the company still. But most of our energy is going into other markets today so that's why I didn't talk about it too much in my prepared comments. And that basic strategy continues.

Bruce Kiddoo

Uche, just to put some numbers to it, right, it's now -- our Notebook business unit is now about 6% of revenue. And even of that, the core power management side is maybe a third of that. There's still some other components around battery management, et cetera. This is just the continuation of the strategy. And as Tun mentioned, we've been working on for probably 2 to 3 years now.

Tunç Doluca

And again, I mean, it's not like we're out of it. We just look for those opportunities where we can make a differentiated product. And when we find those, we continue and design those products and get design wins.

Uche Orji - UBS Investment Bank

Just on the vehicle part, I mean, how much of that is [indiscernible] in that mix, just to make sure? I know it's not a big part of the business. I just know whether if legacy products are running out or whether it's new products. And also, if you can touch on base stations. You mentioned fiber optic and base stations, as kind of areas that are weak in the Communications business. If you can give us any color on what region or what programs and whether they will come back any time soon.

Tunç Doluca

Getting back to the products that we are selling into VCORE applications, I mean, these are in applications that are kind of in their steady state and in new programs. So they're not like they're end-of-life type programs. So those revenues, we actually expect to continue to do for another year or maybe even longer. On your questions about communications, we saw weakness last quarter because there were some design wins that our end customer was hoping to get in India and they really prepared for that, prepared their inventory, bought our products, but I think in the end, it didn't materialize. So they have to correct for that, had to correct for that last quarter. And you also probably have already heard in some of the modules, fiber optic modules, there was some over-inventory situation and that pretty much has corrected itself last quarter. So other than that, I think we're returning back to normal levels in the communications market. So when I say normal, it's expected to be slightly up from the previous quarter.

Operator

Our next question comes from the line of Ambrish Srivastava of BMO Capital Markets.

Ambrish Srivastava - BMO Capital Markets U.S.

Bruce, question on the OpEx and looking at SensorDynamics, the $0.03 or $0.04 dilution from fiscal '02, is that primarily coming because for the remainder of the year, OpEx is going to run a little bit higher?

Bruce Kiddoo

Yes. I think -- as we said for fiscal year '12, SensorDynamics would be about $0.03 to $0.04 dilutive. And I think we also indicated it had not very much revenue right at this point in time. So the majority of that dilution is just from OpEx. And so given our share count, you can figure that out.

Ambrish Srivastava - BMO Capital Markets U.S.

And then a follow up for Tun, on the Comm segment, some of the OEMs, some of the customers have actually given weaker guidance for the following quarter. So just trying to understand, it seems none of chip guys have talked about weakness for the coming quarter, and even you're guiding slightly higher. So just help me understand if there is a disconnect that I don't get or is there some design wins that you have that is offsetting some of the weakness that your customers might be seeing?

Tunç Doluca

I believe it's partially because last quarter, we did have some reductions in our direction, our revenue, because of the inventory I mentioned in the 2 fields. And basically, from our viewpoint, it looks like that's going away. So just by looking at a semiconductor company sales, it's hard to predict what the end customers sales are going to be and vice versa because there's always inventory in there and there is always market share shifts. It depends on which customer we have versus somebody else. So from our viewpoint and what our customers are telling us it looks like comms for us is going to be up very slightly.

Ambrish Srivastava - BMO Capital Markets U.S.

Both wireline and wireless will be up, Tun?

Tunç Doluca

No, actually, it's both of them. So one of the customers I mentioned was, obviously, in the base station market, and the other one is for infrastructures. It's both of them.

Operator

Our next question comes from the line of Jim Covello from Goldman Sachs.

Mark Delaney - Goldman Sachs Group Inc.

This is Mark Delaney calling in for Jim. I was hoping you could dig a little bit more into your comments on your customers adjusting their lead times in response to your better ability to serve them quickly. How far along do you think you are in that process of the customers making those adjustments?

Tunç Doluca

So as I said, we did bring our lead times, our capable lead times, let me call it, pretty well in the last 2 quarters. They really began to make these adjustments, I'd say at the beginning of this quarter. And they're getting into the range of about 7 weeks or so now, and that gets pretty close to what we're capable of delivering. So I think that basic adjustments, adjustment has been made probably. We're most of the way there. And it's good to see that they made this adjustment because it gives us better visibility. However, one thing that's changed that I should let you know about is that we feel like some of the customers did tell us that they're also reducing lead times because they want to make sure that they can consume these products. And they don't want to put liability on their books for orders that are too far out. And one could see that as basically an adjustment to their liability, but one could also see it as some uncertainty in their mind because of the economic conditions. It's very hard for us to be able to exactly interpret that, but you could interpret it both ways.

Mark Delaney - Goldman Sachs Group Inc.

Maybe just following up a little bit more on the orders. If you take what the orders were for July and then assume typical seasonality for the second 2 months of the quarter, how would your orders be tracking sequentially, quarter-on-quarter.

Tunç Doluca

Bruce is going to take that.

Bruce Kiddoo

So I'll take that. Obviously, as the lead times come down and we're talking about pretty substantial reductions of 2 to 3 weeks in lead times, obviously, that's going to have an impact on the bookings. And so from that point of view when we're looking at the bookings quarter-over-quarter, I think with those lead times coming down significantly, you will see an impact to bookings. That said, as Tun has indicated, when we look at inventory levels out there, when we talk with our customers, we don't think that, that impact on bookings is a significant statement around demand. Now there is uncertainty out there, as Tun said, and since it's always hard to interpret 100%, but we can absolutely see the lead times coming down and you can kind of estimate what the impact on bookings is of those lead time declines.

Tunç Doluca

Basically, what is happening is that we enjoyed long lead times and coming into quarters with a strong backlog and that's shifting back to the way it was. And the end result, when that lead time adjustment is made, is that the bookings numbers for this quarter will probably be less than last quarter.

Operator

Our next question comes from the line of Shawn Webster from Macquarie.

Shawn Webster - Macquarie Research

Just on the tax rate going forward, Bruce, can you give us an update there for the rest of the year?

Bruce Kiddoo

Sure. We should assume sort of in the 25% to 27% range. It's never perfectly linear because there's always some onetime items that kind of hit each quarter. We came in at 26% in the June quarter better than our expectations. But for fiscal year '12, again, it should be in the 25% to 27% range. And then as we've talked about before once we get into fiscal year '13, we should be in our long-term range at 25% or maybe even a little bit better when we get there.

Shawn Webster - Macquarie Research

And on the consumer growth in handsets, can you give us an update on what it is as a percentage of revenue for June? And do you have new designs ramping such that you could continue to see growth, you think, in other quarters or I guess that remains to be seen at this point?

Bruce Kiddoo

So I'll comment on the first half and defer to Tun on the second. So we have been running at about kind of a 20% range. I think with the strength that we had last quarter and coming up this quarter, it's probably going to move to the mid-20s as a percent of total revenue.

Tunç Doluca

And longer, if you look in the longer term, we still have multiple design wins at different customers that haven't quite ramped into production yet. And those are expected to ramp into production towards the end of this calendar year and the beginning part of next year. So many of those are with new customers that we hadn't had before with high dollar content. So I think that our strength and growth in handsets, especially in smartphones, is expected. We expect it to continue.

Shawn Webster - Macquarie Research

And maybe just want to clarify on the lead times, was the lead time decline, was it broad based across many of your end markets or was it isolated to

1 or 2 of your end markets as the main driver for the lead time decline?

Bruce Kiddoo

It's actually pretty broad based. We've seen it both our consumer customers taking down to kind of the guaranteed lead time programs, certainly, even below the 6-week target that Tun talks about overall. And then, we've seen some of our industrial customers as well. And even some of our distributors lowering their lead times. So it's been across kind of both sides of our business.

Operator

Our next question comes from the line of Terence Whalen from Citi.

Terence Whalen - Citigroup Inc

This one, given that we're at the end of fiscal year here and looking out towards fiscal '12, I was wondering to the best of your ability now, how confident are you that you could grow fiscal '12 revenue within your 10% to 12% targeted revenue growth range? And what would be your expectations around relative market strength, obviously, consumer probably leading the way?

Bruce Kiddoo

So certainly, in an environment where there's a lot of uncertainty right now, we usually don't go out more than 1 quarter guidance and will probably not change our policy and go out for a full fiscal year. So the macro-environment obviously is not something that we can control. Putting that aside, certainly Tun just talked about our Cell Phone business, which clearly is doing very well. If you went through the other markets that he talked about, this was probably one of the strongest quarters from new opportunities, design wins in multiple markets, both communications and industrial and the consumer market. So I think in general, we're still very bullish on our business opportunities going forward. And I think our business model is certainly to grow faster than the industry. I think we're still confident in that business model. We've certainly demonstrated that in prior quarters growing 25% since the kind of the in -- this cycle. But what that overall percentage would be, it is dependent on the overall economy.

Tunç Doluca

I think -- let me just a little bit more color to that. So we see momentum in handsets, for sure. You can see it from our revenue growth as well as percentage of our revenue coming from handsets. We have a lot of design wins, which I think should definitely have that continue into next year. We also have momentum on the industrial side, which is mostly represented by distribution sales. I gave some numbers on that, added 2,200 new customers globally in the last 2 years. Our design registration program is in full gear now, and we're beginning to see significant revenues from that. We also grew distribution sales at a rate faster than our revenues last year. So although those things do have some momentum and they should carry us into next year, exactly how much that growth is going to be, as Bruce said, it's very hard to predict for us, especially because there is influence from what's going on globally and uncertainty in that area.

Terence Whalen - Citigroup Inc

If I could ask a follow-up on the remaining portion of your Consumer business, the 10% or so, I believe television and you've indicated is around 7% or so. Can you just give us an update on where you are in transitioning to newer TV products away from some of the older legacy power management products? Is that going to be a headwind into the second half of the calendar year or would positive seasonality dominate that?

Tunç Doluca

Well, we've -- so the LCD TV market, which you're correct, is the next largest in consumer. We really are in a transition mode. Most of our future growth is going to come from differentiated products, of which the most noted one is going to be connected TV applications or Skype videoconferencing application, for example. And those revenues, I mean, those products have begun to show up to consumers at various stores now as add-on products. I don't know if you've seen them. And we've used them a few times here. So I see that they work really well in our conference rooms. But the major revenue is not there yet because the major revenue's going to come when we have the wins ramp up that are in actually the TV bezel, built right into the TV. And we expect that to be next year, in 2012. So we're really expecting a good, smooth transition from our management in downloadable [ph] products, which we still continue to sell to growth opportunities and more highly integrated complete system solutions, which we see in our videoconferencing products.

Operator

Our next question comes from the line of Craig Berger from FBR.

Craig Berger - FBR Capital Markets & Co.

I guess on operating expenses, it's gapping up here in the first fiscal quarter. How should we think about that as we move through the year, especially in light of the macro weakness?

Bruce Kiddoo

As you know, Craig, we do our salary and equity adjustments in September. So we have one month impact of that hitting this quarter, and then we have a full month impact of that in the second quarter. So that's always an impact going into the second quarter. That said, certainly given the current macro-environment where we have tightened down on spending, one of the things that was an increase for spending in the fourth quarter was selective hiring. You can assume we've taken steps to start being even more selective. If not, significantly reduce any hiring until we get better clarity around the economy. And then the final thing is if the environment does turn worse, I think as we've demonstrated in the past, we'll be disciplined in our spending and take action as appropriate.

Craig Berger - FBR Capital Markets & Co.

And then a follow-up question on smartphones, it's kind of been asked; I'll try it a different way. Maybe what's your estimate of your smartphone market share and power management? And of your business, how much is on your sort of integrated solutions versus how much is on your discrete solutions? And based on design wins, where do you think your market share can go?

Tunç Doluca

So in terms of the makeup of what we're selling, I don't have the exact numbers in front of me, but from looking at the design wins that we have, I would estimate that most of the revenue now is coming from more integrated solutions. And these integration levels are different depending on the end market that we're selling into. So that's an important driver, and that's good for us because it really increases the revenue we get or ASP we get for each product. In terms of our share of market, it's still relatively small because, as I noted before, our wins are mostly in -- we're in 1 or 2 customers so far, where revenues are. We've won other customers as well. But I would say that we're still in our infancy in terms of being able to tap into this market. The exact market share number actually, I don't have in front of me so I won't be able to give you that, but we'll do a better analysis of that and provide you with some more numbers than our estimates of where we're at the next conference call.

Craig Berger - FBR Capital Markets & Co.

When might we see some of these new customers begin to ramp?

Tunç Doluca

Well, they all are phased [ph] and some of them begin to ramp at the end of this calendar year and some of them actually begin in the early part of 2012.

Bruce Kiddoo

And Craig, just to clarify a little bit. In many customers, we may have some building block products so we may have $0.25, $0.50 worth of content in there. And then as we get the power management win, as we get the integrated like a power SoC or other integrated solution, that dollar content can ramp from $0.50 to $3 or even sometimes a little bit more than that. And so in many customers, we've started that engagement, we have the small building block products and then we have the design wins for the higher integrated, higher dollar content solutions.

Craig Berger - FBR Capital Markets & Co.

Can I squeeze one more in on stock buybacks? You've done about $200 million, $250 million a year the past few years. Is that the right magnitude we should be thinking about for the next year?

Bruce Kiddoo

Sure. I think that's probably in the ballpark. Certainly, we have a matrix so we're buying more now that the stock price is a little bit lower when it was up closer to $27, $28. So that's partially dependent on the stock price. But certainly, we have the very strong cash flow that we will be continuing to buy our stock back.

Operator

Our next question comes from the line of Christopher Danely from JPMorgan.

Christopher Danely - JP Morgan Chase & Co

I wonder if you can give us a little feedback on what you're seeing as a general distributor behavior out there as far as what they want in their inventory. Is it going up, going down, flat? And what their feedback is to you?

Tunç Doluca

Well, the general policy we're seeing from our major distributors is that they have definitely shortened their lead time horizon to us. And they've gone somewhat more conservative in their forecast and orders they are putting on us. And I think they are working on adjusting their inventories as well. So from our viewpoint of the distributors that we interact with, I would say that they've become more cautious more recently than they were in the last quarter.

Bruce Kiddoo

And just -- we have about, at the end of Q4, there was about 67 days of inventory out there excluding the catalog guys. We usually target sort of the low to mid 60s. And so, it's just, maybe it's 2 to 3 days above where they were might want to be. So I think there is some management going on. It's nothing dramatic. But there is, as I think Tun used the right word, and they're just being a little cautious in managing their inventory levels right now.

Christopher Danely - JP Morgan Chase & Co

For my follow-up, so on the lead times, since they came down fairly recently and it sounds like they might come back to normal relatively quickly, I guess what gives you confidence that the backlog might not erode a little bit more as lead times go back to normal and especially considering they really just came down in the last 3 or 4 weeks?

Tunç Doluca

I mean, the lead times did come down as we said, but we do look at other indicators like the amount of cancellations, and so on and those don't look like there is anything abnormal. So if we had seen cancellations begin to go up, then you're right. You run the risk of losing the backlog you have. But we didn't see any indication of that, that occurred concurrently here.

Bruce Kiddoo

And I think, a couple of things. We also -- we do go out and we've had a pretty good process over the last 2 years now, almost 2.5 years, where we look at the inventory levels at our key OEMs and ODMs. We're not seeing any abnormal inventory levels there. So from that point of view, we're not concerned that there's going to be an inventory correction now that lead times are coming in.

Tunç Doluca

I want to be absolutely honest with you, though. If there's -- something changes in the next 2 months, it will change. But we're just telling you what we're seeing so far in this quarter.

Operator

Our next question comes from the line of Ross Seymore Deutsche Bank.

Ross Seymore - Deutsche Bank AG

First question on the gross margin. Apples to apples, was there any changes from the March quarter to the June quarter other than mix impacting the gross margin to drive it up by a point?

Bruce Kiddoo

So the other big one is, if you recall, Ross, in the March quarter, we had that kind of subcon billing issue that we had to -- sort of we took a charge for to kind of settle that one or not settle, but at least get it covered from a P&L point of view. And then in the June quarter, we did not have that charge. If you look at Q1 and Q2 of the year, we were over 63%. We dropped down in Q3 as a result of that subcon billing issue. That didn't repeat in Q4, and so we were right back over the 63%.

Ross Seymore - Deutsche Bank AG

And that was about 1 point?

Bruce Kiddoo

It wasn't quite 1 point, but it was more than half of the decline in the March quarter.

Ross Seymore - Deutsche Bank AG

And then I guess as my follow-up question, as I think about the Handset business given how important that is for you, if I look back the last few years, the December quarter tends to be kind of flat to down for you. Is that normal seasonality for that Consumer segment especially with the business in handsets or are the last couple of years just simply not a good indicator?

Bruce Kiddoo

I think I would argue that last year might not be a good indicator. That said, I think most people all know that our largest customer within cell phones generally rebalances their inventory at the end of the calendar year. And in prior years, that has been a headwind. Last year, actually wasn't much of one because they were still looking for some supply. So it kind of depends on the macro-environment and that's the biggest uncertainty that we don't have visibility too.

Operator

Our next question comes from the line of David Wong from Wells Fargo.

[Technical Difficulty]

Our next question comes from Sumit Dhanda from Citadel Securities.

Sumit Dhanda - Citadel Securities, LLC

Turn to question on the lead times again. I guess last quarter, I somehow recollect you indicating that there was a difference in quoted and customer lead times. You were quoting 8 weeks and customers ordering to 12. But I thought you indicated that this quarter, the lead times came down to 8, down 3 weeks. I was sort of confused. And then maybe just associated with that, is there some quantitative description you can give us of exactly the level of bookings decline associated with the recent reduction in lead times? And then I have a follow-up.

Tunç Doluca

So last quarter, our customers were giving us lead times that were I'd say in the 11, 12 week area. However when they placed those orders, we were capable of delivering those in about 3 weeks shorter time than they were ordering from us. So there was this roughly 3-week gap between what they said they wanted and how soon we could actually deliver. We can actually deliver earlier to them by about 3 weeks or so. So this quarter -- at the beginning of this quarter, they pretty much took that out and began ordering from us closer to what we were capable of doing. So that's an immediate almost 3-week reduction in the lead times they were giving us, on average, I'd say in July. So that obviously has an impact on the bookings that you get for those 3 weeks. But having said that, we really prefer not to provide exact bookings, quarter-to-date bookings numbers. So I'd rather not get into quantifying it at all. But you can estimate the impact of a 3-week reduction in lead time. That occurred over the entire quarter. You can estimate what that would be.

Sumit Dhanda - Citadel Securities, LLC

I guess this is my follow-up then. That would imply a reasonably strong reduction in bookings. I place that against your backlog which is down ever so slightly and the turns expectation that's higher sequentially. And then, of course, all of this concern on the macro, whether real or perceived, why choose to be this, I guess, "aggressive" with the guidance.

Bruce Kiddoo

So I think 2 points to make. First, at our midpoint, we're at about -- beginning backlog's about 72%. We said historically that number was about 65%, and we think it's probably going to trend down to around 60% given kind of the shifts in VMI. And we've talked in prior quarters how some major customers of ours have shifted to VMI. So I think we do expect and we kind of forecast out, over time that, that beginning backlog will come down as we get shorter lead times. I think in answer to your second question, I think we have a pretty good track record of trying to forecast and actually getting it pretty well right as far as what we think is actually going to happen, what is the end demand, what do our customers want. And we follow the exact same approach this quarter. So we didn't do anything different. We tried to give investors the best estimate of what our revenue's going to be. I think one point that I made earlier, which I think is worth repeating, is again sort of the improvements in our supply chain management process where we're able probably to shift a higher percentage of those turns bookings as they come in and really able to serve our customers better. That's been a very large initiative for us. And last year and fiscal year '11, I think we made significant progress, and we're starting to see some of the benefits of that.

Tunç Doluca

Let me answer that. Our basic philosophy in giving guidance is -- and we do this internally also with our business units. What we're internally interested in is the most likely outcome. And what we communicate to you is the most likely outcome. Now is there a possibility of it being lower or higher? Of course, there is. But we try to be very open and tell our analysts what the most likely revenue we expect is for the quarter.

Operator

Our next question comes from the line of Steve Smigie from Raymond James.

Steve Smigie - Raymond James

I just need to talk a little bit more about just the MEMS in general. You guys have obviously brought in that business there, but you also have the touchscreen devices. And it seems like if you look out there, gesture recognition is becoming a more important or a potentially important way to interface with devices. How did you make a decision that you wanted to go into the MEMS business versus all these other technologies to interface? [indiscernible] Do you think that there'll be multiple ways to do this? Is there any risk to that acquisition because of something like gesture recognition? As you went through your diligence, I was curious what your thought process on that.

Tunç Doluca

First of all, when we -- the idea of getting into sensors has been going on for, I'd say, 3 years, maybe even more at Maxim. We believe that we can really add a lot of value in the sensor field. First of all, it's an adjacent market. Today we make the products, typically, that will interface with a lot of sensors by really turning the signals into -- from analog sensor signals to digital, to help them get processed. So it really is a very interesting field for us because we think we can make a contribution. Except to make the contribution, you really need access to the sensor element itself. And in most of the sensor products that we actually do make, we do make the sensor elements. For example, you mentioned ambient light sensing or light intensity and so on. So in those products, we can make the sensors. They're usually made out of silicon, and it's part of the wafer processing. However, a big portion of the sensor market is through MEMS-based sensors, and that's where we had pretty much no access to. So we'd already decided that we wanted to get into this field because it was very large, as I mentioned. It was adjacent to our field. And third, it was really growing at a faster rate than our traditional analog markets. So it all made sense, except one thing that we were missing which was the technology itself. So we looked into various ways of acquiring that technology. We looked at, can we build it, design ourselves, develop it in-house. And we decided that, that would take exceptionally long. Many of these companies have been at it for a decade and some of them even longer. So for us, what made sense to get into the sensor market, we really needed to acquire this technology from the outside. And we had an attempt where we couldn't actually -- we tried to acquire a company, it was not successful about 2.5 years ago. But this time, I think we found a good match, and a MEMS technology that was superior, especially in the gyros area which is the more demanding part of sensors. And that really now gives us access to not only motion sensors and inertial sensors, but further down the road, that MEMS technology can probably be applied to other areas of sensors like pressure sensing and so on. So it really is a very important move for the company, and it really opens up a huge market for us and it enables us to provide complete sectors solutions. I mean you, in your question, you asked it actually. There are opportunities that we see where we can really architect the sensor, a system that's full of sensors like the handset and architect it in a way that is most optimal for the end customer to build their systems. And now, we have all the technology within the company to be able to make these products. So we have sensor technology for motion sensing. We have sensor technology for touch. We have sensor technology for light. We are developing sensor technology for gesture. So we really will have the whole portfolio in our arsenal to be able to make 3 differentiated products. In a way that was very similar to how we make integrated power SoCs for handsets for example, and be able to really eliminate a lot of our competition because they don't have the broad portfolio in the Sensor business.

Sumit Dhanda - Citadel Securities, LLC

Basically, it sounds like you've done a great job with Teridian and picking up the metrology piece on the meter reading. And it sounds like you got the standard in place on the PLC side. Have you been able to pull through any of the RF portion on the comms block of that application?

Tunç Doluca

You summarized it pretty well. I mean, we have a good product lineup for the metrology section and the communications or at least powerline communication section. On the RF side, we really have not completely developed the technology for that. Although that obviously is a piece that would be very helpful for us, especially in doing the meter to the home connection, for example, and so on. So it is an area that we're looking at investigating and developing some basic technology. But most of our current thrust is in our powerline communications and doing the management themselves.

Operator

I'd like to hand the program back to you for any concluding remarks.

Paresh Maniar

Thank you, Jonathan. This concludes Maxim's conference call. We'd like to thank you for your participation and for your interest in Maxim.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

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