Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Here’s the entire text of the Q&A from Linear Technology’s (ticker: LLTC) Q3 2005 conference call. The prepared remarks are in a separate article. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we’ll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.

[Operator]: Craig Hettenbach with Wachovia Securities.

[Q – Craig]: Thanks. Great quarter, guys. Within the area of handheld palm management, can you just discuss if you would have looked back a year ago on some of the designs you guys were getting, really how that market is playing out and how it's proliferated over the last year into new applications. Just a little more detail on handheld power.

[A – Lou DiNardo]: This is Lou DiNardo. I think if you look back a year to your question we were engaged with one major handset manufacturer with one IC in the battery charging space. Today as Rich mentioned in his comments we are engaged with four of the top five manufacturers in the world. Battery charging, by safety circuit and now we have authentication IC, moving forward with higher level of integration and differentiated technology based on process as well as I think it's both that we have gone wider and deeper and for us being that it's a relatively new business dramatic quarter-over-quarter-over-quarter growth, it is really a nice experience.

[Q - Craig]: Great. And can you also discuss the design of those products over the last year or two, the progression you made in process technology, a little more detail there?

[A - Lou DiNardo]: I think one of the things that allows us to differentiate ourselves from what you might consider the prime competitors in this space is that we have a very skilled design team. They operate with the process that we developed ourselves, which is 0.6-micron process. We are migrating to 0.25-micron process. To be able to deliver the kinds of features and functionality that we do in the battery charging as well as the higher levels of integration for charging the LDL circuits and synchronous spot regulators that we have in the low quiescent current arena really speaks to being able to use fine line CMOS processes with adjunct analog capabilities to differentiate ourselves both in performance as well as price.

[Q – Craig]: Great. And then if we switch gears to industrial end market, it looks like it's in line with normal season trends. As we go into next year, if you can just talk about some of the design momentum you have there. It's a little longer design in time. But just how things are going with industrial.

[A – Mohan Maheswaran]: This is Mohan Maheswaran. Let me talk about a couple of the areas in industrial. One specific area is the video area; we have very strong design momentum in the video KVM space. As you know, we have released a number of new products this year in that segment including cross point switches, delay lines, video muxes and we are seeing a lot of traction with those new products in the KVM space. In addition, the areas of interface products we have recently announced the RS 45-- KVM IC -- 15KB product and that's getting great traction also. We have a number of other areas in the video space, the number of product areas of DCPs, real time cloaks and in general most of these product areas are getting a lot of traction.

[A - Rich Beyer ]: I would like to We expand a little bit on that. We introduced a pretty good range of high performance general purpose products in the beginning of '04 and throughout '04 and we began to get design wins on those products in late '04 and early '05. As you know, those are not product from design win to production is a 30 day or 60 day cycle which could be the case of a cell phone or optical driver or desktop core regulator. Those products we tracked very carefully how many design wins we got and when they went into production and we are seeing the ramp of those design wins that we won a year ago or nine months ago.

[Q – Craig]: Excellent. Thanks for the color.

[Operator]: Doug Friedman with American Tech Research.

[Q – Doug]: Hi guys, great quarter. If you could, could you comment if the book-to-bill in the third quarter was above the second quarter?

[A - Rich Beyer]: We said in the second quarter that the book-to-bill was very, very strong. And all we will say again is the book-to-bill in the third quarter was very, very strong.

[Q – Dough]: Right. Can you help out a little bit for me on the expected seasonality as we move out of sort of this strong build period for the high end consumer towards the end of December and into the March quarter. Are you expecting to see, should we be thinking that revenues could go backwards? Or is your new product momentum going to carry through into Q1?

[A - Rich Beyer]: We think that while we have got quite strong momentum, there is no question that with more than 50% of our business in the consumer space and in the computing space that we at least are modeling that we will see some reduction in Q1 to Q4 levels. It's conceivable obviously that the strength of new design wins in some of the platforms could see a better performance than where we are currently anticipating. Our expectation is against the backdrop of a strong Q4; Q1 is likely to be down modestly.

[Q – Dough]: And then building on that I know that you have some cost reduction efforts that are expected to go in and drive gross margins expand gross margins throughout '06. How should we think about that occurring? Should we model a decline in revenues?

[A - Rich Beyer]: I think that we'll be able to see a modest improvements in gross margin in Q1 even if revenues come down modestly. We have talked about the major drivers of gross margin expansion in 2006, being product mix. Some of these industrial products that we talked about as well as improvements that we made in our applications specific products bringing them to finer geometry and so forth. We also talked about the waver partnerships and the consolidation we were doing in back end assembly and test as well as depreciation. Those things will kick in we think we will see modest improvement in gross margins in Q1 and we hope that we can achieve steady improvements in gross margin throughout the course of the year.

[Q – Dough]: Great to hear that those are on track. Could you comment on the moment of bookings that you have seen throughout the last quarter and then as we enter the first month of the December quarter.

[A - Rich Beyer]: The momentum has been very strong. We began to see real strength in bookings already back in Q2. We told you we had very solid book-to-bill in Q2 and that continued very steadily through July, August and September. Nothing's changed since we closed the quarter.

[Q – Dough]: Terrific. Thank you again and fabulous quarter.

[Operator]: Thank you, sir. Ladies and gentlemen, in order to allow time to answer as many questions as possible, we do ask that you to limit yourself with one question with one follow-up question.

Ross Seymour with Deutsche Banc.

[Q – Ross Seymour]: Hi guys congrats on a strong quarter generally speaking of the 13% growth, can you just talk about how that broke down between seasonal uptake which is relatively normal versus the new product traction that you are obviously seeing.

[A - Rich Beyer]: I will touch with this with Lou DiNardo. I will touch on those products that fall under the power management part of the puzzle. Certainly there is a seasonal uptick that we experienced in the computing business. Frankly, I think our notebook acceleration is better than what we would see or what we anticipate given that we have continued to gain share in the existing platforms that are in production today. Our handheld business again on a relative typical technicality I think we have over performed and achieved and that's by going wider and deeper into a handheld. And when we say handheld, we should qualify that we use that as had a broad definition for MP3 players, handheld devices such as cellular phones and PDAs as well as blue tooth headsets and a wide variety of portable digital electronics. This is not a seasonal up tick. This is a significant expansion in the account base a broadening and deepening of our product portfolio.

[Q – Ross Seymour]: Great, and maybe a follow-up for Dave. You did a good job holding the Op Ex flat in absolute dollars this quarter. How should we think about when that needs to go up maybe by some sort of revenue target when we expect to see the Op Ex in absolute dollars start to increase a little bit?

[A - Dave]: In the fourth quarter I indicated that it’s going to be relatively flat with the second quarter. I would anticipate it not going up very significantly. What we are trying to do is drive to the model of 17% to 18% R&D and 14% to 15% SG&A. And so we are modeling to keep operating expenses in check so that we can get to that level.

[Q – Ross Seymour]: Great. One quick last one. MP3 players, the wins you have there with the video drivers, is that just for MP3 players that show video or does a collar screen actually need that chip in it as well?

[A - Dave]: Yeah. The video amplifiers we have were designed so that the video can be displayed on a large screen. So it's really for driving over a video cable. These amplifiers have very small footprint and very low power and run directly off the batteries and they basically sit inside these MP3 player that can be in cell phones and games and driving video quality out to a display.

[Q – Ross Seymour]: Thank you.

[Operator]:
Craig Ellis with City Group

[Q – Craig Ellis]: Thank you, and congratulations on the quarter. First for Lou and Mohan Maheswaran, it looks like both of you are doing well and gaining market share in your respective businesses. Are we at a point where you have reached a plateau and growth is going to be good going forward but probably on more seasonal levels? Or do you have good visibility into design ends that will continue to produce the market share that will give you above seasonal average growth?

[A - Lou ]: I think the point of view have I from running power management business is our goal is overachieve. And we provide guide on a quarter-by-quarter basis which is I think pretty much the way our industry runs. I won't reach out beyond what Rich has done here for the company on a quarterly basis. But we have reconstituted power management business, computing is an important part of our business that we will continue to be an important part of our business. Our notebook expansion is really rather dramatic. Our handheld expansion is dramatic. Our participation in the industrial space for power management. Mohan touched on the video arena and some other industrial applications, power management into the industrial space and into the communications environment are some extent a new landscape. So as we move forward beyond broadening and deepening our handsets or cellular business, the broadening and deepening of our overall power management place I think really holds for high prospects.

[A - Mohan]: Yes. Let me add to that. I think in all the segments that we are in, we have been in today, not only is there opportunity to bring more analog single processing content into those segments but all of them are also driving new market applications. As they take a display as an example of that, we have seen most of the TFT-LCD paneling being built more monitors and notebooks and moving to LCD TVs as the demand for LCD TVs moves up there is a drive for better control of some of the gamma curves and picsel control to drive better resolution of those TVs and that drives more demand for programmable buffers, high quality control of the decom amps and ECP control, analog front ends. So I think it's really at a point where we are seeing a demand in the segments continue to increase but the momentum of new products of those markets driving more content for us.

[Q - Craig Ellis]: Okay , great. Now I will take another crack at a longer-term question either for Dave or Rich. The company's got a gross margin targeted 50% to 60% you are truly clearly making very good progress. Can you give us some of your views on what the factors are that could take you to that 58% either on a nearer term basis or for more of a longer term basis, what the risks are I guess said differently. You clearly have three or four drivers that you laid out earlier which would seem to get you there next year. What might be the risks that would preclude you from doing that?

[A - Rich Beyer]: Yeah I think the single biggest risk is that the overall industry really slows down. We don't see any evidence of that. It's not happening to us as you have seen from the results. But to a certain extent the ability to continue to expand the gross margin does have to do with continued effective utilization of our internal production resources as well as advantages that we get from volume, from our suppliers outside. But I’d rather answer it by a positive. We have very, very specific steps that we have launched and we have articulated about changing the product mix, about improving the gross margins of every single one of our 41 product families and every one of the product managers works fastidiously to do that quarter on quarter. We are forging these partnerships with our foundry partners that are going to yield better WAFER prices in 2006. We were forging ahead with consolidation of our test suppliers, which is getting us lower assembly end test prices for our products. And finally our fab light strategy will allow us to reduce the depreciation next year. All of these factors are in motion and some of them were contributors to what we consider to be a pretty strong improvement in gross margin in this quarter, a quarter in which the consumer in computing businesses in fact grew at a very, very hefty clip. So that's why I indicated I think, we can continue to expand gross margins in Q1 and hopefully steadily throughout next year. If the market craters, then we have to rethink how fast we get to the target. But we are relatively confident that's not going to happen.

[Q - Craig Ellis]: Thanks, Rich.

[Operator]: Thank you, sir. Again, ladies and gentlemen, as a reminder we request that you limit yourself to one question and one follow-up order to allow much time as possible to answer everyone's question.

Tore Savonburg with Piper Jaffray

[Q – Tore Savonburg]: Good afternoon. Two questions. First of all, I'm not sure you are willing to disclose this, but how many new products have you introduced year to date and where were you at the same time a year ago?

[A - Rich Beyer]: I don't want to comment on the specific number, but we are ahead of a bit ahead of the rate we were at last year. The quality of the new products introduced are extremely powerful. We have the things that Lou and me have talked about have talked about the tremendous success we are seeing in all manner and form of handheld devices. The success we are seeing in all kinds of display products. The notebook product that Lou's organization brought out earlier in the year are really hitting on all cylinders. Our optical products continue to cause us to be the absolute major player in the DVD market and that promises to continue. Our general-purpose products are really getting traction as a matter of fact our general-purpose products were up very nicely in absolute terms from Q2 to Q3. So, the quality of the products that we are introducing is just really stellar.

[Q - Tore Savonburg]: Very well and can you just give us a general update on manufacturing how much is now in turnovers is external and current utilization rates and perhaps can you maybe just list your foundry suppliers again so we are updated on that.

[A - Rich Beyer]: Okay, internal versus external this quarter we were about 50% internal, 50% external. And utilization this quarter was about 80%.

[A - Rich Beyer]: External partners that we have, IBM, AMI and Philips in North America and we have TSMC and UNC charter outside of the United States, then we have other smaller boutique foundries awesomely and test. It's Carson and U.N. some and amp core and chip pack are the major ones and some smaller ones that are isolated products here and there.

[Q - Tore Savonburg]: And one final question, how much of your revenue went to the distribution channel this quarter?

[A - Rich Beyer]: About 28% went through

[Q - Tore Savonburg]: Excellent. Thank you very much.

[Operator]:
Cody Acree with Legg Mason

[Q – Cody]: Thanks, guys. Just let me add my congratulations. Speaking on that question of distribution, maybe more broadly across the entire channel you made a comment in your prepared remarks about the health of the overall demand. Maybe you can talk about what visibility you believe you have to that level of health, how do we keep from seeing some pockets of phantom inventory as we push toward the holidays that crop up in some of these markets?

[A - Rich Beyer]: Cody, we have got very good insight into all of our distributors. North America, Europe, Japan, and all parts of Southeast Asia. They give us their inventory ending inventory reports every month. We can get them actually more frequently than that. But as senior management team, we look at them at the end of every single month and look at their shipments out at the end of every month. So, we have very good insight into what's going on in the distributors. Now, if a end customer were to horde product, we don't necessarily get inside into that. Some of our major OEMs we have tight relationships with and we do have insight into what their inventories are. From a distribution standpoint, we have very, very good insights and that's why we made the comment that we did. That they have made the comment that he did that knowing that these inventories remain lean and healthy for the demand that we were seeing at the moment.

[Q – Cody]: Great, thanks. And then maybe just some anecdotal granularity. You have so many different end markets, so many different moving parts now, so many parts that seem to be doing very well. Could you give some stratification or some ranking in the areas where you believe you have been most successful with market share gains, both maybe just on an absolute share gains but also in your strategy of growing your dollar content persistently. Doing it in a lot of places you can get down to the ones where you think you are doing the best with?

[A –Lou DiNardo ]: This is Lou DiNardo. I think your prelude to the question probably touches on maybe one of the real facets of our strategy that has allows us to perform at the level we do. So many end markets that we play to that the diversity is what alloys a company in a high performance analog business to maintain consistency in both profitability as well as revenue performance. That being said, it's difficult for us to not point to the high end consumer space, whether it's products that come out of analog signal processing group or products that come out of the power inning arena, the high end consumer whether it's handhelds whether it will optical storage, the high end consumer businesses in general are just phenomenal growth stories for us. The ability to deliver leading edge products on fine line CMOS processes that are differentiated both by process as well as a fantastic group of design engineers. It's just a story that we have to keep circling back to.

[Operator]:
Michael Bert with WR _____

[Q - ]: Congratulations on a great quarter. Two follow-ups and one to kind of go directly to, what we were talking about in high end consume there are. When we were thinking about the growth we saw, you give us a sense of weighing it between the handheld and display and if you saw one stronger than the other and the display, specifically anything granular about it either buffers or anything just across the board?

[A - Rich Beyer]: Rather not get into that level of granularity. Suffice it to say, both the handheld business as well as the display business just grew very, very strongly for us in the quarter. And the display business, but we see obviously more constant to initial larger display. So it become an very high end LCD TV, we could be talking about as much as five to six to seven dollars of content whether we talk about a monitor or display that's going into a notebook or the content may be in the two to three dollar range. But we are just seeing ECPs in these displays. We are seeing the DC to DC converters in the displays. Some of the more traditional buffer amplifiers but many displays we are seeing the higher power programmable buffer amplifiers being designed in. It is just a pretty broad based success story that we had with virtually all the major LCD panel manufacturers in the world.

[Q - ]: Okay, terrific. Thanks. And then the second follow-up and you gave a list of a lot of the positive specific items about gross margin improvements. Clearly it's not just mix in terms of product lines or divisions because you are shifting away from what we may traditionally think as a communications. If we were to think about potential mix improvements within say consuming or consumer and computing, will we see something there where we see a mix toward better profitability parts as well?

[A - Rich Beyer]: Yes. Yes. Part of our efforts underway is in the business to find a higher level of integration. To find ways of delivering similar functionality on lower geometry and we had a certain amount of success in that area, we are seeing growth in display and the some of the products that the go into the handheld space. We are absolutely focused, we want all of the end market segments to, the products in the four end market segments to find ways of enhancing gross markets in the product families and we have substantive efforts to do that.

[Q - ]: Thank you.

[Operator]: Thank you, sir. As a reminder we request that you limit yourself to one question and one follow-up in order to allow as much time as possible to answer everyone's question.

[Operator]:
Steve with Raymond James

[Q – Steve]: Thank you. I was wondering if you could comment a little bit on whether some of the success you are seeing is more related you think or relative to just releasing more products than competitors or better sales force now. What will be the factors that you think are driving faster growth without competition?

[A – Mohan Maheswaran]: I think there is a lot of new products that are coming out with but I think it's back to Rich's point. The products are targeted are specific applications base. We spend a lot of time looking at we bring more value to those markets and some cases we can change the direction of that customer in those markets and application space. So I think that's largely it. But it is continuous push on new products and more new product and then execution both in the development of the process is also in the sales channel. Constituted a large discipline in the company that allows us to really get focused on that execution at the back ends

[Q - Steve]: Great that sort of is the follow-up on that, with the products you have out there, is it the new products are you going head to head with competition in winning designs? Or is it a lot of the fact that as you mentioned you are changing the direction of the company because you innovated so much that you are such compelling solution that they have to switch over?

[A - Rich Beyer]: I wish we never saw competition out there and our life would be easier. But, I would say that, Steven, in most cases we are seeing formidable competition. We are finding that we understood the application just a little better or our sales people and FAEs did a little bit better job and so forth. I would like to take your question and say we in fact had a superb group of engineers who developed and launched the products as well as a superb group of sales people and FAEs who have found a way to balance selling applications specific products that go into high volumes as well as general purpose products that can enter low volumes and it's just an incredibly strong team of people so that this success is going head to head in virtually all areas where we brought out new products there are incumbents in there that are serving the markets in the past and they are fine companies so we just are not winning everything, but we were winning a little mover than our fair share.

[Q – Steve]: Thank you very much.

[Operator]:
Michael Massiah with Credit Suisse First Boston.

[Q - Michael]: Thanks a lot. On the profitability side, either gross or operating, however you want to look at it. You have a lot going on structurally or product-wise some point of which you go sort of add some products, you put out the 6862 but some level where it gets tougher to really drive the incremental profitability and a lot less you do structurally or with product mix?

[A - Rich Beyer]: Michael, We think that the 58 to 62 is a very reasonable range for us to get to. It's not easy at all. But we believe that it's clearly within our purview to do it and we think we can do it again if the market is decent market next year in the 2006 time frame to get into at least the low end of that range. The operating margins we think we can get are Op Ex in line as a result of the growth that we are doing. We will need to continue to add people to continue to drive it. But we don't think target modal that we have given at least the low end of the target model is something that we require is super human. Getting above 60% and moving beyond that, we aren't prepared to say that's going to be an easy thing to do. Nor that the business model will in fact afford us to go higher than that. But we will say that's not a possibility. At the moment we think it's imminently doable to get up into the range of the success model that we articulated.

[Q – Michael]: That's helpful. And then on the kind of landscape out there in analog. Obviously you are the more successful but there are a lot of companies expanding in our markets right now. You guys are one of the few that successfully pull off acquisitions in the past. As you go from being a long time ago was a niche player to being a more broad and bigger analog player, is acquisition still big acquisition big material? Is acquisition a thought process for you guys and what's your view on the overall industry's use of acquisition?

[A - Rich Beyer]: We are one of the unique companies. And we prove than we can do acquisitions. Our company started acquisitions in the wireless land space and built up business there and then we did Ormantech, and then Zicor, we did _____ and we have been very successful at them. Most companies are very concerned about it. The clash of cultures, the ability to integrate different design teams and processes and so forth. We proven, it can be done. It doesn't necessarily it's the right thing for others. Will we keep it as part of our overall strategic arsenal, yes, we will. We don't have anything right now that we think is, imperative that we do. We think about these things all the time. But the moment we think with more than 40 product families we have the great portfolio products and we aren't lacking of anything that causes us to feel like we won't continue to feel successful. But we will keep the option of acquiring product families, design teams, product lines that could augment what we are doing as something that we consider in the future. We don't see any dramatic changes in terms of our competition of feeling differently about their willingness to do acquisitions.

[Q – Michael]: I agree with that. Thanks so much.

[Operator]:
Joe Osha with Merrill Lynch

[Q - Joe Osha]; Hi, folks let me with my voice of praise here. First in terms of the notebook core regulator business, it seems like that must be an area where you are seeing some particularly strong progress. Is that true? And if so, are you seeing any kind of particularly aggressive pricing there? Is it pretty much just tracking like you expect?

[A – Lou DiNardo]: Thank you for the praise. The core regulator business and notebook space is definitely one of the stars that we see in the line today. It's basically a proprietary technology that we have implemented for next generation platforms. We have great successes in North America as rich said with the OEM community the ODM community in Asia and we are gaining traction and having our first design wins for next generation platforms in Japan. But I think we need not overlook the peripheral regulators as well as the lithium Ian battery charging notebook application as well. It's an environment where success breeds success. When you have the world's best core regulator that I believe we do have with the next generation platform, the sales force efficiency and leverage in account start to have a multiplying effect. So the ability to sweep up the peripherals and the ability the battery charger, really all plays well together.

[Q – Joe Osha]: Okay. That's great. Thank you. And then just a housekeeping question, I saw you guys accelerated vesting of options which is probably a good idea. Could you maybe give us some insight into what that acts best quarterly run rate will look like for FAS 123, financing.

[A - Rich Beyer]: For next year?

[Q – Joe Osha]: Yeah.

[A - Rich Beyer]: We are thinking next year it will be approximately in the range of $0.05 to $0.06.

[Q – Joe Osha]: Per year or per quarter?

[A - Rich Beyer]: Per quarter.

[Q – Joe Osha]: Okay Thanks very much.

[Operator]:
Raymond Charles with Lehman Brothers

[Q - Raymond Charles]: Thanks. You guys have a long of strong momentum in notebook. Hearing more and more from some of the incumbents in the space that they are reducing their exposure in this segment because that the margins are less compelling and I was wondering if you could touch on who you are running up against in the notebook space and longer term do the margins in this business stack up in line with your long-term goal for the company? Thank you.

[A - Rich Beyer]: I think relative to our competition I won't talk about specific competitor or any specific competitors, I would say they may be exiting the space and that may not be at their choice. Certainly it's still a very competitive landscape. I think there is a great deal of differentiation yet to be had add in the notebook platform. Unlike the history thus gone desktop, I think that's changing as well with differentiation where it's still attainable. The notebook platform you have a moving target. The notebook platform is not defined by any one particular vendor, mother boards. So the notebook platform moves as the display size and capability moves as the hard drive capacity and peripheral components move. So with that say lack of stability in what the platform looks like, the power rails and power requirements are dynamic and changing. That affords one the opportunity to differentiate and continue to earn gross margins that are commensurate with that differentiation. So competition if it's bailing that's good. If they are getting pushed out, that's better.

[Q - Raymond Charles]: Okay. And just on the gross margin for that business, fairly consistent with the company's overall margins?

[A - Rich Beyer]: We don't comment on any particular product line and gross margin. But I think Rich characterized it well, anything we target for the company at this juncture is seeking to obtain our model as an overall company. We don't break it down by any particular product line.

[Q - Raymond Charles]: Okay. thank you.

[Operator]:
Rick Schaefer with CIBC World Markets

[Q – Rick Schaefer]: Hi, guys. I have a couple questions. First is, in TV you had a lot of success on the LCD TV side. Can you give us any idea, some kind of guidance on this big is LC TV for you guys a business in terms of for percent of sales, just some kind of an idea. And maybe comment on the exposure you have with maybe the top five or six OEMs out there, not naming names or anything, but are you overweight any particular guys. And then part of that question also is, if you have a really nearly complete products suite now in LCD TV, especially now with the ambient light sensor and everything. The one the piece I think is missing or that I think is missing is the CCL back light inverter. Is that something that you guys are going to do in-house? If you did it in-house is it something you can license that technology. Is this something you wouldn't need license. You can either acquire the technology or develop it yourself?

[A - Rich Beyer]: Okay, Ricky, you got in 17 questions in one question. Not bad. Let's answer the ones we want.

[Q – Ricky Schaefer]: Okay.

[A - Rich Beyer]: The display part of the business look, it's part of the overall high performance consumers. The high performance consumer this quarter was 28%. So handhelds, optical storage and handheld devices make that up. Suffice it to say it's not more of a display business isn't more than 10% and it's predicated on buffers and VCD to converter and PCP and real time clocks and a lot of front ends. We are positioned with, I'm not sure the top five OEMs are but we are positioned with them, whoever they are. Because, we are with all the major guys in Japan, in Taiwan and in Korea in a major way. We don't believe there is much risk in that business because it shifts so diversified. It doesn't mean we were at every platform that Samsung makes and it doesn't make that every one of our products is in an LG Phillips platform and so forth. So it's less than 10% of our business overall. But it's across a broad line of suppliers and in every one of the systems there is a different break down. And then what are some of the other areas that we are not involved in, look, our strategy is to try to add more and more content. We don't want to preannounce product areas that we are going into or not going into. So I don't want to comment specifically on anything mentioned. Suffice it to say, if we think there is value that our customers need and we think we can deliver that value and differentiate ourselves but we will seriously take a look at it. So I think who more activities such as we talked about this, the low dropout regulators offer more contents for handhelds and ambient sensor offer more content for displays we will keep moving down the strategy. Broadening of the product portfolio and deepening the content in target markets are two of the overall arching strategies that we were pursuing.

[Q - Ricky Schaefer ]: And just a quick desktop question, you talked about being half the market for core regulators now, you talk about the percent of sales, the desktop represent for you guy or give us an idea a ballpark and comment I guess how does Intel's move to do core affect you guys at all? Just curious. Thanks a lot.

[A - Rich Beyer]: This is Lou again. We aren't going to comment on what percent of our sales is in the desktop arena. I have watched this story unfold now for five quarters with the company. And the questions become fewer and fewer as we become more diversified as a power management play and high performance analog company in general. So I think at this juncture to comment on the specifics of the participation desktop has in our business is really not appropriate. But computing in general is still very large business for us and strong business for us. Whether it be desktops where again I think there are levels of differentiation as one can attain a desktop performance moves to Mobile core as desktop moves to levels of performance that outstrip what we have done in previous generations, server architecture are becoming denser and more complex and notebook architecture is very dynamic. Computing business is a good business for us and it's here to stay.

[Q - Ricky Schaefer]: Okay, thanks.

[Operator]:
William Louis of J.P. Morgan

[Q – William Louis]: Thank you, could you talk about what your lead times are like if you have seen that stretch out at all and what your terms requirement is for the fourth quarter compared to the third quarter?

[A – Dave Zinsner ]: Sure, This is Dave lead times are still in the 4 to 6 range though there are pockets of product families where there are a little higher than that and the turns for a bit less than 40%.

[Q – William Louis]: Okay, can you give color potentially where you might see pockets of a little bit beyond the average?

[A – Dave Zinsner ]: I don't think we want to get into more detail than that.

[Q – William Louis]: Okay and then for Q4, what would you say given the new mix of your business would be normal seasonality compared to your guidance? And do you have a view on where the, if there is performance compared to the normal seasonality. Will it be in both seasonality and computing and are there any thoughts there?

[A -Rich ]: Let me try that. Our expectation if we just apply normal rules of thumb associated with seasonality is that in Q4 the communications industry would be relatively modest growth if any. And that they would start to accelerate again if Q1 and Q2. We will see lower or no growth in Q3 and Q4 we absolutely expect the computing business and the high end consumer business to show continued signs of growth in Q4. Having said all that, I could say the same think, I would say the same thing and I will say the same thing in Q3 that we expected that industrial and communications to be flattish and the other two to grow and all four of them grew. So we were still planning on seeing that seasonal flat to down in communication and in industrial and the strong up in consumer in computing but we proved to be conservative on that score in the most recent quarters. But it is the way we are planning the quarter.

[Q - William Louis]: Thank you.

[Operator]:
Louis Hardy with Morgan Stanley.

[Q – Louis Hardy ]: Thank you. Nice job with the quarter. Just for Q4, with regards to your bookings dollars, would you expect booking dollars to grow sequentially?

[A – Dave Zinsner]: We aren't sure. We are not sure. We started the quarter off very strongly. It's a little tough to say. Buff by the time we get to December, the bookings will clearly be, I mean the backlog should clearly be in hand for the Christmas billed and whether or not we start to see bookings associated with Chinese new year hitting us and so forth is, we aren't sure. We can't say categorically that bookings will be an absolute basis this quarter.

[Q – Louis Hardy ]: Just on your internal factory utilization, can you give us a sense what that might be in Q4 and since I think you mentioned DSL and the comp space will be down a little bit, I'm interested in the product that might offset any decrease production in that area.

[A – Dave Zinsner]: Yes, this is Dave. We were actually expecting utilization to be similar to what they were or what it was in the third quarter.

[A -RichBeyer ]: And what might in fact fill the DSL business is some of the parts that we do for the desktop business, continue to be made in Bombay. Some of the general purpose products that are getting real traction and we have brought up a Zicor process in the middle of this year that is now in production. So we have got things that we think will allow us to continue about that same rate.

[Q – Hardy]: Thank you. And nice job again.

[Operator]: Thank you. Ladies and gentlemen, this does conclude the Q&A session of today's call. I would like to turn this presentation back to Mr. Rich Beyer for further remarks.

[Rich Beyer, CEO, President]

Thank you, I would like to re-iterate this was a really fine quarter and everybody at Intersil can be very proud. This is the, but another step in the process of Intersil becoming a very, very powerful and a very high performing and performance analog company. This broad base streak is very impressive. It's across so many markets and it's across so many product families. It's the fourth quarter in a row that we have let me say three quarters in a row we have outperformed our peer group. This quarter we were amongst the first analog company to announce so I can't make that statement until we see the results of others, but so far the players that have been discussing their performance have not shown 13% sequential growth or 24% year on year growth in their business. We really think that we created a model that is a powerful high growth model and we demonstrated that we continue to expand gross margin and operating margins and we think this is the beginning of let's say the early stages of a journey to be a truly great analog company and we think we are well on our way and will very well positioned for this to continue for the next several years. Thanks very much for your interest. We look forward to seeing investors and colleagues at some of these future financial conferences and we will see you all go in about 90 day. Thanks, operator.

Source: Full Transcript of Intersil’s 3Q05 Conference Call - Q&A (ISIL)
This Transcript
All Transcripts