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Linear Technology (NASDAQ:LLTC)

Q3 2012 Earnings Call

April 18, 2012 11:30 am ET

Executives

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

Lothar Maier - Chief Executive Officer and Director

Robert H. Swanson - Co-Founder and Executive Chairman

Analysts

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

James Covello - Goldman Sachs Group Inc., Research Division

John Pitzer - Crédit Suisse AG, Research Division

Auguste Gus Richard - Piper Jaffray Companies, Research Division

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Ross Seymore - Deutsche Bank AG, Research Division

JoAnne Feeney - Longbow Research LLC

Uche X. Orji - UBS Investment Bank, Research Division

Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division

Christopher B. Danely - JP Morgan Chase & Co, Research Division

Craig A. Ellis - Caris & Company, Inc., Research Division

Shawn R. Webster - Macquarie Research

Amit Chanda - Wells Fargo Securities, LLC, Research Division

Joe Moore

Christopher J. Muse - Barclays Capital, Research Division

Operator

Good day, everyone, and welcome to the Linear Technology Corp. Fiscal 2012 Third Quarter Earnings Conference Call. Today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Paul Coghlan. Please go ahead, sir.

Paul Coghlan

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

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

In addition to these risks, which we described in our press release issued yesterday, we refer you to the risk factors listed in the company's Form 10-Q for the quarter ended January 1, 2012, particularly management discussion and analysis of financial condition and the results of operations.

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

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

As you can tell from our press release, we returned to growth for the quarter and believe our business will continue to improve in the upcoming June quarter. Going into the quarter, we forecasted that our business was at an inflection point, and we believe the business would improve going forward. The quarter unfolded as we expected, and we reported revenue results for the quarter at the midpoint of our guidance.

We saw a growth across almost all of our end markets. Our bookings grew over last quarter, cancellations were minor and we had a positive book-to-bill ratio for the quarter. Sales increased by 6%. Gross margin improved from 74.9% to 75.1%. We had similar shutdowns in our factories compared with last quarter, therefore not impacting gross margin positively or negatively.

ASP, average selling price, at $1.81 versus $1.83 last quarter was relatively constant. A slight improvement in gross margin percentage was due to absorbing certain fixed costs over a larger sales base.

Operating expenses increased $7.3 million, of which roughly $5 million was due to operating expenses of Dust Networks, which we acquired at the end of last quarter, and also due to additional labor costs in the R&D and SG&A areas in Linear's base business. We had a shutdown in these operating expense areas last quarter but not this quarter, thereby increasing the March quarter labor expenses.

Operating income at 44.8% of sales, down from 45.2% last quarter, was in our forecasted range, having been impacted by the increased costs just discussed. Below the line, interest income and expense were unchanged. Finally, income taxes decreased due to a one-time discrete tax benefit. Our quarterly effective tax rate was 23.75% compared with 26.25% last quarter. The resulting net income of $98,499,000, an improvement of $10.6 million over last quarter, is due mostly to the increase in sales.

Our return on sales was 32% versus 30% last quarter. Headcount decreased marginally through the reductions in our overseas manufacturing plants.

In summary, the effects of the items I just listed on the published quarterly results was that revenue was $312.4 million for the quarter, the third quarter of fiscal year 2012, compared to the previous quarter's revenue of $294.3 million and compared to $353.2 million reported in the third quarter of fiscal 2011.

GAAP diluted earnings per share of $0.42 increased $0.04 from the previous quarter's earnings per share and decreased $0.19 from the $0.61 per share reported in the third quarter of fiscal 2011, which had benefited from higher sales and a low quarterly effective tax rate of 17%.

GAAP net income was $98.5 million compared with $87.9 million last quarter and $141.6 million reported in the third quarter of last year. Earnings per share would be $0.49 on a pro forma basis, which excludes the impact of stock option accounting and the amortization of debt discount, which is the theoretical difference between the company's convertible debt, actual interest and the interest it would potentially have had to pay if it had used straight bank debt.

During the December quarter, the company's cash and short-term investments balance increased by $74.3 million to $1,111.8 million. The company announced that it would again pay a quarterly dividend of $0.25 per share, which is the per share rate that the dividend was raised to in the previous quarter. That marks the 20th consecutive year the company had increased its dividend. This cash dividend will be paid on May 30 to stockholders of record on May 18.

Looking ahead to the June quarter, we see continuing growth. Although we are still in a challenging global economic environment, we believe the environment is less volatile in Europe, U.S. is showing modest improvement, and China will continue to grow although somewhat less robustly. We also believe that inventories worldwide at customers were relatively tight exiting the March quarter. Our bookings increased last quarter and our backlog grew.

Consequently, given the improvement in our bookings and the broad distribution of this improvement across all of our major end markets, we are estimating that we will again grow quarterly revenues sequentially in the 4% to 8% range in our fourth fiscal quarter. We are also expecting operating income and operating margin to improve.

Now I would like to address the quarter's results on a line-by-line basis. Starting with bookings. This was a good bookings quarter for us as we saw a growth in each geographical area and in every end market except consumer. We also had a positive book-to-bill ratio for the quarter. At this time every quarter, we give you a breakdown of our bookings percentages by end markets to give you insight into those markets that drive our business.

Industrial and communications continue to be our largest areas. Industrial was 40% of our bookings, up from 39%. Our industrial business is very broad-based, both geographically and by end products. The communications area at 22% was similar to last quarter although up in absolute dollars. The wireless infrastructure area, which had been weak in the previous quarter, improved as the quarter progressed although it is still lower than previous highs. Cellphone remained at roughly 1% of our business.

Automotive continues to be a strong area for us, with bookings at 17%, similar to last quarter but once again up in absolute dollars. This time last year, it was 13% of our business. Bookings grew in each geographical area: Europe, Japan, North America and Asia. The expansion of existing Linear parts into new car models and also new parts for new programs, especially in the hybrid and electric vehicle area, continue to help us. Automotive is an area that we have been focusing on, given the increasing electronic content in automobiles. Our battery monitoring products for hybrid and electric vehicles are achieving expanding market acceptance.

In addition, we continue to distinguish Linear as a high-quality supplier in important international automotive manufacturers. Computer at 12% was similar to last quarter, although also up in absolute dollars. Within computer, we service opportunities in notebooks, desktops, tablets, servers, storage devices and printing and imaging end products.

Consumer, which has been our smallest end market, decreased from 4% to 3% of bookings. Finally, the Military, Space and Harsh Environment products were unchanged at 6%, although up in absolute dollars. U.S.A. and Europe are the predominant geographic areas for this business. Note that we have a good balance of where our bookings are actually created, with 44% of them created in the U.S.A. and 56% internationally, versus 45% and 55%, respectively, last quarter.

Moving from bookings to sales. Net sales increased 6.1% from the prior quarter while decreasing 11.6% from the similar quarter in the prior year. Sales increased in Europe and the U.S.A., somewhat being offset by decreases in Japan and Asia-Pacific. In summary, the U.S.A. at 30% of sales was similar to last quarter although up in absolute dollars. Europe at 21% of sales grew from 17% last quarter. The March quarter is usually seasonally strong for Europe as it comes off the December holiday rich quarter. This was accentuated this March with some improvement in the European-centric macroeconomic environment. Japan at 15% was down from 16% last quarter, and Asia-Pacific at 34% of sales was down 3 percentage points from the prior quarter, largely due to the Asian New Year's holidays and seasonally less consumer sales in the March quarter.

Moving to gross margin. Gross margin at 75.1% of sales improved from 74.9% in the previous quarter, largely due to absorbing fixed costs over a higher sales base. The factories had similar shutdowns this quarter as last quarter. ASP decreased slightly to $1.81 from $1.83 last quarter.

R&D. R&D at $57.6 million increased $5.1 million from the $52.5 million reported last quarter and increased as a percent of sales to 18.4% from 17.8% last quarter. We acquired Dust Networks at the end of last quarter, and most of the labor costs and the acquisition-related amortizable intangible costs of Dust occurred in the R&D area.

In addition, Linear had a one-week shutdown for R&D personnel and SG&A personnel in the December quarter, and no shutdown in this area occurred in the March quarter, thereby increasing March quarter costs. Finally, there were increased mass costs also in the March quarter.

SG&A. Selling, general and administrative expense at $37.2 million, increased by $2.3 million, however, remain constant as a percent of sales at 11.9%. Most of the increase was labor costs due to March not having a shutdown whereas the December quarter did.

Operating income. As a result of the above, operating income increased by $6.9 million, while as a percent of sales decreasing slightly to $44.8 million from $45.2 million last quarter. Unique to this quarter, we did not get the magnitude of operating leverage that we usually do from increased sales. This is attributable to the Dust acquisition ongoing expenses and also due to the reduction in shutdowns discussed above. In the future, we should report a more historic rate of operating leverage. However, this quarter's results still report strong profitability and clearly put us ahead of our peers in this financial performance measurement.

Both interest expense at $6.9 million and the amortization of debt discount at $5 million was similar to last quarter. Interest income of $1.2 million was also similar to last quarter. In last quarter's income statement, we had acquisition-related costs in connection with our purchase of Dust Networks. These costs did not recur this quarter but were replaced with the ongoing operating costs in R&D that were discussed above. As a result of all of the above, the company's pretax profits were $129.2 million, up $10 million from last quarter. Pretax profits are now 41.4% of sales versus 40.5% last quarter, with the increase due primarily to higher sales volume.

For the March quarter, our quarterly tax rate declined to 23.75% from 26.25% in the prior quarter. The difference pertains to a nonrecurring discrete tax benefit. Looking forward, we expect our quarterly tax rate to return to prior levels. For the June quarter, we're expecting a rate of roughly 26.5%. Any changes in U.S. legislation relative to taxes could impact this going forward.

The resulting net income of $98.5 million is an increase of $10.6 million from the previous quarter, due mostly to higher sales volume and partially to a lower tax rate in the quarter. The resulting return on sales was 31.5%, up from 30% last quarter.

The average shares outstanding used in the calculation of earnings per share increased by 1,257,000 shares. This increase was impacted by shares exercised relative to a large grant encompassing many employees that is nearing its 10-year expiration date. Shares are estimated to again increase a similar amount in the June quarter. The company did not purchase any shares on the open market during the March quarter.

GAAP earnings per share was $0.42, which was an increase of $0.04 from the prior quarter. On a pro forma basis, without the impact of stock-based compensation of $15.4 million and non-cash interest expense of $5 million, diluted earnings per share would have been $0.49 per share compared with $0.45 last quarter and $0.69 in the third quarter of last year, which had benefited from higher sales and a 17% quarterly effective tax rate.

Moving to the balance sheet. Cash and short-term investments increased by $74.3 million. $115.7 million was provided by operations, and $26.9 million was provided from the exercise of stock options by employees. $58.5 million was paid in cash dividends, $5.3 million was used to purchase fixed assets and $4.6 million was used to repurchase restricted stock. For the 104th consecutive quarter, the company had positive cash flow from operations. Our cash and short-term investment balance is now $1,111.8 million and represent 62% of total assets.

Accounts receivable of $145.1 million increased by $5.8 million from last quarter due to the increase in shipments. Our day sales and accounts receivable were 42 days, down from 43 days last quarter. Inventory at $79.9 million increased $1.2 million from last quarter, with most of the increase being in work-in-process inventory.

As we have said in the past, we believe investing modestly in die bank inventory will again enable us to better service customers as demand increases. In summary, our quarterly average inventory turns is 3.9x, similar to last quarter. Deferred taxes and other current assets of $67.7 million increased $2.8 million, due to an increase in current deferred taxes and non-trade receivables.

Property, plant and equipment decreased by $6.9 million. We had additions of $5,264,000 and depreciation of $12,206,000. Most of the additions were for test, assembly and wafer fabrication equipment. For fiscal 2012, we expect additions of roughly $40 million and depreciation of roughly $50 million.

Our noncurrent assets decreased by $3.7 million. This related primarily to reducing the Dust acquisition goodwill by Dust-related tax NOLs that are available to reduce future Linear consolidated taxable income.

Finally on the asset side of the balance sheet, our return on assets was 22.3%, up from last quarter's 20.8%, due primarily to the increase in sales. Our current ratio was 9.2:1, up from 8.1:1 last quarter.

Moving to the liability side of the balance sheet. Accounts payable decreased by $878,000, largely due to timing differences on recurring payable items. Accrued income taxes, payroll and other accrued liabilities decreased by $9.6 million. The largest items here are our profit sharing accrual, income taxes payable and accrued interest payable on our convertible debt. Our interest payable accrual increased as we had no semiannual interest payout required this quarter. The profit sharing accrual, however, decreased as we had our semiannual payout partially offset by this quarter's profit sharing charge.

Finally, we increased our income taxes payable accrual for the increased taxable bow profitability in the quarter. Deferred income on shipments to distribution was similar to last quarter since it increased only $302,000 as our shipments to U.S. distributors were similar to what they shipped out to their end customers. Our accounting on shipments to U.S. distribution is conservative. We do not record a sale nor income in our results of operations until the distributor ships the product out to its end customer. We continue to closely control our inventory at distribution to properly position the inventory relative to potential sales demand.

Our senior convertible notes increased by $5 million. This increase reflects the non-cash amortization of debt discount charged to the income statement. Deferred tax and other long-term liabilities of $165.7 million increased $3.3 million, largely due to deferred taxes on the earnings of our foreign manufacturing plant.

Changes in the stockholder equity accounts were primarily the result of the usual quarterly transactions, for net income, for dividends paid and employee stock activity. The company announced that we'll again pay a quarterly dividend of $0.25 per share. The company believes that paying a dividend is an important way to return value to its shareholders. The company began paying a dividend in 1992 and has increased it every year since and currently pays approximately a 3% yield.

Looking forward. This time last quarter, we predicted that we were at an inflection point and expected business to improve. The March quarter results supported our projections. Our business grew and it grew broadly, with each major end market showing improved bookings. Our industrial business grew the most, and this strength covered most geographies and a good cross-section of industrial businesses.

Communications grew. Wireless infrastructure bookings improved at the end of the quarter but are not to levels that it would appear unnecessary to support the added demand from new smartphones and tablets. Automotive was strong across all geographies as we continue winning more designs. Computer improved, primarily in notebooks.

The March quarter showed improvement and we expect further improvement ahead as we are still 20% down from our sales level of 6 quarters ago. The integration of our acquisition of Dust Networks has gone well. We are currently training the Linear sales force on the benefits of the Dust product line. As in most industrial applications, the timing of the cycle from design into production is relatively long for Dust products. However, the initial feedback from the customer base has been strong relative to our expectations. The global macroeconomic environment has been improving but so far at a very measured pace.

In summary, the improvement in our bookings, the broad distribution of this strength across all our major end markets, our positive book-to-bill ratio exiting March and the modest improvements we've seen in the macroeconomic environment give us optimism about continuing growth. We are estimating that we will again grow quarterly revenues sequentially in the 4% to 8% range in our fourth fiscal quarter. We expect operating income and margin to improve as we get more operating income leverage out of our forecasted increased sales. We continue to believe that we are very well product and in-market position to execute our strategy. We are strong in the areas we want to be: Industrial, communications infrastructure and networking and automotive, and believe that we are in an innovation-driven environment. Our strategy is differentiated from our other analog competitors. We dominate in different end markets. We are a more reliable supplier with consistently lower lead times, and our technology end support is valued as evidenced by our higher operating margins.

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

Question-and-Answer Session

Operator

[Operator Instructions] And we'll go first to Tore Svanberg with Stifel Nicolaus.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

A few questions. First of all, Paul, you mentioned that it looks like inventory levels are still a little tight as we exited the quarter. So if we look at that 4% to 8% growth guidance, is that all sort of end demand or is there a little bit of an inventory catch up there as well?

Paul Coghlan

I think customers will continue to be very prudent in their inventory levels, so I think most of it from our standpoint would be end demand.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Very good. And can you also update us on where your utilization stands right now and where you expect that to head in the June quarter?

Paul Coghlan

Well, from a utilization standpoint, it wasn't too many quarters ago that Linear sales were substantially higher than they are presently. And so we're presently tooled up across all of our factories to output over $400 million a quarter and that's really hasn't changed. So we've been doing shutdowns and other things to kind of manage the cost around it, but we're still presently tooled up for over $400 million a quarter.

Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division

Just one last question. Can you just share a little bit more details with us on Dust Networks? I mean, I do know they serve primarily in the industrial end market, but I mean, anything else that you can share with us as far as main customers, when we should expect to see more of a revenue ramp from them and so on?

Lothar Maier

Maybe I can add a couple of comments there is that really, the acquisition of Dust was the fact that their products were very complimentary to Linear products. So their end markets are really focused on the industrial end market, which is our focus as well. And so I think the benefit of the acquisition isn't the fact that necessarily we bought some products and some sales, it's really the complement of the 2. And this has only been true for the last -- since we've only owned them for 90 days. The number of opportunities that we've seen where we see opportunities in our existing customer base for Dust products has been pretty significant. But the caveat to that is remember, this is the industrial market, and it's not going to go to 0 to 60 in one quarter. It's going to take a couple of years to evolve into a meaningful business. In some ways, I look at this as the Dust acquisition a bit like our module business where we knew it was a great product but it took 2, 3 years for it to gain traction, and now, it's a significant part of our business. And I see Dust being a very similar model.

Operator

And we'll go next to Jim Covello with Goldman Sachs.

James Covello - Goldman Sachs Group Inc., Research Division

I guess in relation to the idea that you're tooled up for over $400 million in revenue as you just said, and the revenue is lower than that today, am I then -- can I then safely assume that lead times didn't do much during the quarter, they kind of stayed where they were?

Paul Coghlan

We -- our lead times are always short, pretty much in any market condition. So typically, they're 4 to 6 weeks and it stayed that way for many, many quarters.

James Covello - Goldman Sachs Group Inc., Research Division

Is it fair to say that the difference between the 4 and 6 quarters is mostly utilization rates? In other words, I mean, when you're fully utilized, the lead times tend to be little bit longer and that might be what would cause customers to be a little bit uncomfortable holding the lower level of inventory so that could theoretically kick start the cycle a little bit. Is that fair?

Paul Coghlan

Let me correct you a little bit. The lead times are 4 to 6 weeks, not quarters. And the other thing is that Linear has this thing that we call die bank. So even though we could be running at 100% utilization of our factory, we have significant inventory of electrically-tested good semiconductor components that just need to be packaged and assembled. So even at 100% utilization for many quarters, we could still offer very low lead times in the order of 4 to 6 weeks.

James Covello - Goldman Sachs Group Inc., Research Division

Okay, great. And then if I could just follow up with one other. The linearity of bookings, you talked about on the com side, kind of seeing a little bit of a pickup there toward the end of the quarter. Can we assume that in the other segments, the linearity was a little flatter?

Paul Coghlan

Well, we went into the quarter, we told you with bookings having picked up fairly dramatically from the October, November timeframe. And then we hold all of that ground consisted at that level and picked up a little bit towards the end of the quarter.

James Covello - Goldman Sachs Group Inc., Research Division

In comms or in everything?

Paul Coghlan

Everything. Well, in total, in everything.

Operator

And we'll go next to John Pitzer with Crédit Suisse.

John Pitzer - Crédit Suisse AG, Research Division

Paul and Lothar, in the last year, the industry suffered through the Japan earthquake and then the Thailand floods, and I guess there's, of late, been some increasing concern about the auto supply chain relative to a factory from Avonex that had some disruption issues. I guess from your perspective, do you have any color on the auto side because it has been an area for strength for you guys and a lot of other chip companies? And I guess more importantly, when you look at the 4% to 8% guidance, are you baking in any potential disruptions within the auto supply chain?

Paul Coghlan

We don't presently see any auto -- any disruptions in the auto supply chain that we think will impact our business going forward in the next quarter. So that in our 4% to 8%, we have some strength in automotive. I hope what came across in our introductory comments is we saw our bookings grow across all end markets so that we're not dependent on one end market doing really well in order to deliver the 4% to 8% but rather, we've got a good breadth of opportunities. In the automotive, we're not hearing anything from the companies we're supplying to presently that are telling us they foresee anything that would cause them to have a slowdown.

John Pitzer - Crédit Suisse AG, Research Division

Helpful, Paul. And then, Paul, I guess my second question, historically, you guys have always sort of grown at a premium to the peer group. That was a little bit disrupted around some of the consumer opportunity business you took in '09 and then lost in '10. I guess as you think about kind of your guidance for the June quarter and the recovery here, do you think that this is pretty much indicative of the cycle coming back? Or is there some share again that you guys can talk about? And I guess the top 2 or 3 areas where you think you're going to outgrow the industry over the next several quarters would be helpful.

Paul Coghlan

All right. Well, we don't know how we will do relative to our peers going forward. We haven't heard -- we're the first ones out of the analog companies, we haven't heard their guidance. Certainly, if you look at for the last quarter, the guidance we gave and the guidance we performed up to exceeded the guidance of our peers. Relative to the how we think we'll do compared to the overall industry, we think the overall industry, the area that's expect to have the highest growth is automotive. Industrial is also expected to have good growth, and ironically, the one with the least expected growth is probably consumer although that could be the number of units growing but the price per unit degrading a little bit. So when we look at the areas of the market we focus on primarily industrial, secondarily communications, infrastructure and automotive, we think we'll do well relative to our peers in those areas. We think those areas have a good chance of outperforming the overall market. So based on how we've done in recent years, if you back out the recession, based on how we've done in the last quarter, we would hope to outperform the market and then continue to do it.

Operator

[Operator Instructions] And we'll go next to Gus Richard with Piper Jaffray.

Auguste Gus Richard - Piper Jaffray Companies, Research Division

If you could give a little bit more color, I know industrial is very broad for you. Is there anything within that broad sector that stands out as strength or if you could give a little bit more color on your industrial business, it would be helpful.

Paul Coghlan

Well, Gus, actually, your preamble to the question kind of leads us to the answer, which is it's very broad-based for us. We have opportunities in the medical area, which has been good for us, but we don't think although they've been good, they've got what's carrying us doing well in the industrial area. But it's very, very broad-based. Factory automation, some green technologies, test and measurement tends to be the most volatile within that area going up or down depending on the semiconductor acquisition cycle. Basic infrastructure, embedded things, it's really very, very broad-based. And it's -- I don't think there's any one particular area that would drive it significantly but maybe among the bigger areas there, medical would be one of the bigger areas overall in industrial.

Operator

And we'll go next to Romit Shah with Nomura Securities.

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Paul, just looking out, are you hopeful that you can sustain or accelerate this level of sequential growth? Or should we all be mindful of the fact that from a seasonal perspective, the second half tends to be slower for Linear than the first half?

Paul Coghlan

Well, that's a difficult question to answer. Historically, your point is true that seasonally, the second half is slower than the first half. The recent cycles have been so kind of abrupt and short that in some years, that's not held true. In some years, actually, the second half of the calendar year, we've done quite well. So it's kind of difficult to forecast beyond the quarter we're in to the second half of the year. We have very good opportunities as we see them going into the second half of the year, with good design in activity in the areas we've talked about, we've got good product opportunities. So it's a little early to call but I think given the recent cycles, I don't know as we can say we'll fall into the historical trend. We could be slightly different from that this year.

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Because I think it's been true that in the past, when you've experienced below average growth like you did in September and December of last year, it's been followed by better-than-normal growth. And March and June here have been good growth but I would characterize it as being more seasonal than anything else. Do you disagree with that?

Paul Coghlan

Well, when you say the March growth more seasonal, yes I mean, I think you could be correct although compared to the guidance of other companies, our guidance was stronger in March, some of whom also picked up in March. So my guess is it's a little bit of a combination of seasonal, it's a bit of a combination of coming out of companies reducing their inventories, moving more into a more balanced inventory position and also a bit of us doing well in markets that are probably have the potential to grow a little faster than others. So I think it's probably for this growth.

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

Okay. And then just one question on expenses. Operating margins are improving in June. Should we assume that OpEx in dollars will be flat or do you think they'll just grow at a slower rate than sales?

Paul Coghlan

Offhand, probably grow at a slower rate than sales.

Operator

And we'll go next to Chris Caso with Susquehanna Financial Group.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

I wonder if you could give a little more color on the expectations for gross margins going forward. And I guess typically, you guys, your margins don't move that much but in this case taking in account what you're talking about the factory shutdowns and utilization if you could give us some indication of what we should expect there.

Paul Coghlan

Yes, my sense is that we've got some headroom still for gross margin improvement because we're carrying the capital and a fair amount of the labor for a sales level that's higher than it is presently. And so as we grow into the capital structure that we have, we would truly anticipate that gross margins would continue to improve.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

And with regard to factory shutdowns, are you planning on taking another factory shutdown in the June quarter?

Paul Coghlan

Yes. We continue to see that until we get closer to the $400 million sales level that we're going to have to continue to do some form of shutdowns.

Christopher Caso - Susquehanna Financial Group, LLLP, Research Division

Okay. And just as a follow on, you made some comments with geographies that Europe was looking a little bit better but I guess you're still seeing some weakness out of Asia. Could you expand on some of the comments you made with respect to geographies?

Paul Coghlan

Sure. Europe is normally strong in the March quarter, Chris, because they have -- the December quarter is one that's very holiday rich in Europe. It's the end of the fiscal year, and Europe has a lot of industrial-type companies so they typically, when the new fiscal year starts, have new capital budgets so they might spend a little more, and secondarily, there are more day sales. So that impact Europe to some degree but not to the full degree of the increase we saw. Part of it, I think, is the sovereign debt issue in Europe. It seems to be -- Europeans seem to be coming having a little more optimism that if that won't be solved completely, that it won't be as big a deterrent to their economic growth as they may be previously thought 6 months ago. So I think we've got a little bit of business climate kind of picking up. Germany, in particular, investor's sentiment there, you see, has been picking up the past several quarters, Spain, which looked like -- last quarter, we're talking Greece and Italy. The past couple of weeks, people talk about Spain. Today, Spain looked like they've got some debt yesterday and more easily than they thought. So I think overall, there's a little bit of attitude will pick up in Europe and then there's some seasonal pick up. Relative to the other geographies, Asia, we have the Asian New Year, which you're all well aware of. And also consumer is a bigger part of Asia business in December, given the holiday season in the USA and Europe and the holiday sales into that, so that was pretty typical what we saw there. Japan went down just a little bit, and Japan had been recovering pretty rapidly from their tsunami and their earthquake, and this may be caught up a little bit with that but we expect them to grow, for example, in the quarter we're in. And then the U.S.A., the overall economy is, as I said, it's sort of you get 3 good pieces of good news and one piece of bad news whereas 1 quarter ago or 2 quarters ago, that was the inverse, you get one piece of good news and 3 pieces of bad news. So I think the U.S. is kind of moving along as well. So that's why we had the changes in sales distribution geography that we discussed.

Operator

[Operator Instructions] We'll go next to Ross Seymore with Deutsche Bank.

Ross Seymore - Deutsche Bank AG, Research Division

Paul, you mentioned that you really didn't expect much disti refill to occur in the fiscal fourth quarter. As we look out into the second half, do you think that refill will occur? And kind of going on to a prior question, does that mean that you could be better than traditional seasonal, whatever that really means these days, as we get into the second half of the calendar year?

Paul Coghlan

Well, I think just the refill will occur in relation to disti's POS, so what they sell out to their end customers. So that I think -- and we think that will do well on the June quarter and it was as part of our guidance of going up 4% to 8% in that range. And then towards the rest of the year, we see some good product opportunities but it's a little early to call the rest of the year given our low lead times. We don't see bookings until they occur in the quarter, and although we're quite comfortable that they'll happen. So it's a little -- we typically try not to project too far out.

Ross Seymore - Deutsche Bank AG, Research Division

And I guess as a follow-up question on a different topic, you mentioned the bookings in your wireless infrastructure area picking up towards the end of the March quarter. Give us a little more color there on what you're seeing either geographically or the types of demand you're seeing. And is that something that you think will continue to pick up or is it going to remain choppy for some reason?

Paul Coghlan

Well, I think the best thing we could tell you is the bookings pickup was off a very low base. So we told you the quarter before, and you had heard from other suppliers that, that wireless infrastructure area was particularly weak at the end of 2012. So all of us, I think, our sales and our competitors and other people shipping into that environment were somewhat perplexed in that we felt in our personal lives, it was demand from improvement in the infrastructure but yet there wasn't a lot of cost going into it. Towards the end of the March quarter, we saw some pickup, and I'd say that was fairly broadly based through the suppliers we sell to in Europe, Asia and the U.S. But it just picked up towards the end, and it's not near where our high levels were, and I think our general feeling is there's going to be some more spending in that area. That's going to pick up but it could be choppy and we're not saying it's off to the races either.

Ross Seymore - Deutsche Bank AG, Research Division

Got you. And then just one last housekeeping item. What were your turns in the March quarter and what's your implied turns for your revenue guidance in the June quarter?

Paul Coghlan

I think the March quarter, we predicted about 60%. We obviously achieved that. And then this quarter, we're predicting, we need a little less somewhere in the mid to high 50% range. But that's clearly within our lead times of 4 to 6 weeks. So we're not at this time, concerned that we can achieve that.

Operator

And we'll go next to JoAnne Feeney with Longbow Research.

JoAnne Feeney - Longbow Research LLC

I just wanted to understand your strategy a bit better regarding the capacity utilization and inventory control and that sort of thing. And specifically I guess, you had some shutdowns last quarter, it sounds like you're going to continue in this quarter. Do you plan fewer shutdowns this quarter or to put more people back on the line for this quarter? That is can we get any insight on whether capacity over the course of this quarter will be less utilization will be different from that last quarter? And how do you plan to manage inventories? Do you plan to let them continue to rise perhaps or let demand eat them away a little bit given your capacity utilization plan?

Paul Coghlan

Yes. The shutdowns that we've got planned for this quarter are pretty similar to what we've done in previous quarters, maybe 1 day or 2 less, but in general, pretty much the same. Our goal right now is to really to hold the inventory where it's at. We're not looking to dramatically increase it or dramatically take it the other way. So right now, we're trying to steer the factories to a similar level of output as they had last quarter. And hopefully, the improving sales will start to either keep the inventory level or start to decrease the inventory a little bit.

JoAnne Feeney - Longbow Research LLC

What would cause you to eliminate those shutdowns? In last quarter, you'd talked about the possibility of capacity utilization rising and how that would trigger an improvement in gross margin a couple of quarter cents. Is that something you're now waiting on to see whether end demand improves more than it has thus far?

Lothar Maier

Yes, I mean, since we want to keep inventory roughly flat, one way to do that, in fact, the only way to do that is not make as much product as you possibly could. And so for us right now, we see at the current level of sales growth that's being forecasted for this quarter and what the factories are capable of producing, we still have to have similar levels of shutdowns that we did last quarter to kind of keep the inventory flat. And our anticipation is, as the previous questioner said, that even though we're going to have a similar level of shutdowns, we should see a pickup in our gross margins because sales are indeed improving. And so we're going to have the ability to absorb costs over a larger sales base.

JoAnne Feeney - Longbow Research LLC

Okay. If I could sneak in a little follow-up on the auto side. Can you describe for us perhaps how your dollar content has changed in auto since 1 year ago at this time?

Lothar Maier

I don't know if we track it kind of year-over-year but if you look at the auto sales probably over the last 3 or 4 years, the dollar content in a car goes up for a number of reasons. Going back a few years, most of the electronic content that we had in vehicles was mostly around the infotainment and navigation systems. And what's happened is that, that business has continued to go forward, but complimentary to that business, there's just a lot of new opportunities for analog electronics in both gas-powered cars and hybrid and electric cars. And so what we're seeing is we still have a good business in the sort of infotainment portion, and on top of it, we've just picked up a lot of other electronics. Paul talked about the BMS systems in hybrid and electric cars, that's been a good business but there's been lots of opportunities for safety and lighting and other applications in just gas-powered vehicles. So I think that the content is steadily increasing. It's a little bit hard to say because there will be one model where we have a couple of dollars worth of content, and there will be another model where we may have $50 or $80 or $100 of content. So I think the absolute dollar, it's a little bit hard to pin down, but I think the direction is the electronic content in cars is going up and Linear's contribution to that is also going up.

JoAnne Feeney - Longbow Research LLC

I was trying to get at whether that increase in content that you guys specifically are seeing might overwhelm the usual seasonal decline in the second half of the calendar year.

Paul Coghlan

I guess I could, I just don't know.

Operator

And we'll go next to Uche Orji with UBS.

Uche X. Orji - UBS Investment Bank, Research Division

Can I just follow-up on John's questions on Avonex plant issues. I know at this stage, you're saying you don't see any impact yet, but if I recall correctly, I kind of think that the supply chain for the automotive that pertains to react a little bit more slowly, look at events over the last year with Japan and Thailand. Is this similar kind of situation here where a couple of months down the line, we start to feel the impact of this or is this kind of relatively, in your view, a nonevent? And the reason I ask is, I mean, there are some reports about emergency meetings by the auto industry the last couple of days, address those issues coming this plant at Avonex.

Paul Coghlan

All we can share with you is none of our customers have thrown a caution flag at us or told us anything about that. We are very, very broad-based. We sell a lot in, say, Europe and Japan, probably more so than the U.S.A. So that issue that you talked about has not been brought to our level as a lookout, this is a problem, it may impact our shipments and deliveries.

Uche X. Orji - UBS Investment Bank, Research Division

All right. Can I just go back to what you said, Paul, about wireless infrastructure where demand has improved but not yet to the level that you think will be needed to support the number of smartphones that are coming in. Any sense as to what you think the level of -- on that consumption, if I were to use that word, is related to what you think is the real potential for wireless infrastructure? And also what are your clients telling you as to why there's a bit of a hesitation to -- or pickup in orders for wireless infrastructure?

Paul Coghlan

Let me tackle the second half of the question first, and then maybe if you could just repeat the first half after that. Our customers are trying to make money selling their products. And I think one of the difficulties our customers are seeing is that when you look at the whole food chain of wireless infrastructure all the way through to the products that it supports, they find themselves under a lot of price pressure, they find themselves in a situation where it's difficult for them to want to invest because they feel they're not getting the return on it yet. So I think in some cases, in some geographies, it seems the population's happy enough with a 2G phone instead of a 4G phone. In some other areas, I think maybe they're just waiting for the pressure on the network to get high enough that some of the pricing eases up for them. So I mean, I don't work in management, those places, but that's the sense I get as to why maybe for us, sitting back, it looks like a no-brainer like, "Why aren't you building more of these?" And for them in the thick of the battle, they're saying, "It's easy for you to say that but we're not making enough money yet to do that." Could you repeat the first half of your question?

Uche X. Orji - UBS Investment Bank, Research Division

The first part was just trying to understand the basis for when Paul was saying or talking about the demand not being to the level that will be needed to support the new smartphones coming in. I just wanted to get some context around what is the true level that will be needed relative to what has been at the moment.

Lothar Maier

Our sense is that this has to pop at some point. It can't go on that the companies produce more and more wireless product that continues to consume the existing bandwidth. So at some point, somebody's going to have to invest or people are going to stop using these devices, which I don't think is going to happen. So I think it's just a matter of timing. And at some point, there has to be some further investments. We saw a little bit of it last quarter. We're maybe hearing hints of some more investments in China going to happen. But I think it's not a matter of if this is going to turn around, it's really we're talking about the timing of it.

Uche X. Orji - UBS Investment Bank, Research Division

Sure, sure. Just one last question. Computing was, it seems to be picking up obviously, as we get past some of the drive issues. Let me ask you a couple of questions here. The next phase of computing will be mass reduction of ultrabooks. Now is ultrabooks for you similar content as regular notebooks or is it higher content? And what is your take as to how that market develops from here?

Paul Coghlan

Again, PCs aren't exactly a big part of our business, and the ultrabooks probably, as they move to use of solid-state drives, I could sense that there might be a pickup there. But just because it's an ultrabook rather than a standard notebook, I don't think that makes a significant difference for us.

Operator

And we'll go next to Steve Smigie with Raymond James.

Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division

I was hoping you could talk a little bit about the wireline trends as opposed to wireless? And as part of that, if you could add some context around geography?

Paul Coghlan

By wireline, do you mean networking?

Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division

Yes or just maybe optical build outs as well, 40-gig, 100-gig, long-haul optical or also a pawn-type application that you might be involved in.

Paul Coghlan

I can't say that there's anything that jumps out at me in that area. My sense is those markets are probably going to grow at about the same rate for Linear as the overall growth of the market. We see opportunities in the networking companies. We all know the big names and -- but I see that more of a growth at about the same rate of the company. I'm not aware of anything that's going to be kind of a breakout there.

Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division

Okay. And just one quick one. Your ASP was down maybe at 1%. Is that just mix or is there maybe a little bit of price degradation on the same part basis?

Paul Coghlan

It's all mix.

Operator

And we'll go next to Christopher Danely with JPMorgan.

Christopher B. Danely - JP Morgan Chase & Co, Research Division

If you can just sort of put on your thinking hat and speculate, I mean, clearly with the sales down 20% and the end markets nowhere near that, it's been a big inventory burn. So what do you guys think it's going to take or what will be the timing around inventory replenishment with the channel and the distributors?

Lothar Maier

Well, let me first take a stab with my thinking cap relative to this. I think first that what we have is there's more capacity for some of the semiconductor guys, like we have more -- you've heard of some guys have 300-millimeter fabs, some of them may be closing others. And I think they have more capacity. And I think when you -- your question implies how is this going to be relative to the previous quick inventory demand upturn? My sense is it might be slower and the inventory pickup may be more relative to the actual in-demand usage because I don't think as people start to order, they're going to find lead times stretching out on any of our competitors or ourselves for sure in the near term. So I think maybe what I'm saying is as this cycle picks up and we told you we thought we're in an inflection point and we've seen a lot of good signs and across the broad-base, we don't initially think that it's going to go from pickup to supercharged because people are running out of inventory, whereas that may have happened last time.

Christopher B. Danely - JP Morgan Chase & Co, Research Division

Sure. And so for now, it seems like you guys are adopting a bit of the same stance that you'll keep inventory sort of flat to down and as sales grow so will your utilization rates?

Paul Coghlan

Yes. Well, as Lothar said earlier, both our utilization rates will grow as sales grow, and we also have this large die bank inventory, which served us very well in the last cycle as you may recall. So we're pretty well set to be able to say that the customers kind of bring it on. We can -- we'll service them and service them well like we have in the past.

Operator

And we'll go next to Craig Ellis with Caris & Company.

Craig A. Ellis - Caris & Company, Inc., Research Division

Lothar, following up on the response to JoAnne's question earlier on gross margins, what were you saying that gross margins should improve sequentially in the current fiscal fourth quarter or were your comments towards the fiscal '13 timeframe when you thought gross margins would improve?

Lothar Maier

I think we'll see gross margins improve as sales improve. I think it's going to be kind of lockstep. As the sales go up, then we'll better absorb the fixed cost that we have.

Craig A. Ellis - Caris & Company, Inc., Research Division

Okay. And then, Paul, going back to some of your comments from January, one of the areas that you saw some strength in at that time was within your PC business. There was, I think, due to HDD shortage, some strength in the SSD part of your business or components for SSDs. Have you seen that follow through and how has the order trends been in that business as we've seen a greater supply of HDDs?

Paul Coghlan

Certainly, as we've seen as there's been a greater supply of hard disk drives, that has impacted the demand for solid-state drive. So that in the quarter, the December quarter, solid-state drives was very robust for us and it wasn't very robust for us in the March quarter.

Craig A. Ellis - Caris & Company, Inc., Research Division

And do you have visibility into whether that was for PC-related products or more channel-related SSD demand? And the reason I ask is with what is likely to be an infection in ultrabooks coming in the back half of the year, would you expect that business to rebound again in another quarter or 2?

Paul Coghlan

I don't think we have that visibility.

Craig A. Ellis - Caris & Company, Inc., Research Division

Okay. And then lastly, we've seen gasoline prices rise in the U.S., they've risen elsewhere, and we've seen some signs that consumers are moving down to lower-cost, more fuel-efficient vehicles, in some case, they're hybrid vehicles, in other cases, they're not. As we think about the potential for consumers to downscale automotive purchases and get lower-cost, more fuel-efficient vehicles, is that a benefit to Linear Tech or what are the gives and takes as you look at your automotive business and the rest of that would happen?

Lothar Maier

Yes. You would think that probably that would be a negative. But the reality is, it's probably a positive because one of the ways to get this fuel efficiency is through electronics. And what we're seeing is a lot of the opportune a lot -- some of these opportunities we're seeing is how do you get a gas-powered car to be more efficient? And one of the things that a lot of car manufacturers are doing is looking at stop-start systems, where when a car goes to an intersection and stops, whereas in traffic and stops, the motor completely shuts down. And to do that, that sounds very simple but there's just a cascading amount of electronics that are needed to withstand these stop and start cycles. And when you stop at an intersection or a traffic, things that normally would continue to work in a gas-powered car would stop working in electric-powered car if it was mechanical. So the air-conditioning, the power brakes, the power steering, which used to be mechanical functions all are going to be converted to electrical functions, which again just opens up a lot of electronic opportunities. So as long as the drive to downsize cars is for efficiency purposes, that's pretty good for us.

Craig A. Ellis - Caris & Company, Inc., Research Division

Okay. So that area where you have your content would shift more towards in-engine and maybe away from in-cabin but you would still have big opportunity there in your view?

Lothar Maier

Yes. I think at least for the next several years, I mean, we talked a lot about battery management and lithium-ion batteries and hybrid and electric cars. The bulk of the cars that's sold on the road are still going to be gas or diesel-powered. And I think there's just a lot of opportunities to improve the efficiencies of those vehicles, and it's going to be done through electronics. And I think long term, electric and hybrids are a great opportunity, but I think even more importantly in the next couple of years, there's some great opportunities just in conventional cars.

Operator

And we'll go next to Shawn Webster with Macquarie.

Shawn R. Webster - Macquarie Research

Maybe circling back to lead times a little bit. It seems -- well, you had a couple of quarters where your revenues were declining sequentially but I believe that back in September and December, your lead times were around 2 to 4 weeks in one instance, and then 4 weeks in December, and now they've gone up to a range of 4 to 6 weeks. Is this just getting back up to normal or is there any areas that you expect your lead times to be lengthening or areas getting tight in terms of the customers or end markets you serve as you go into the June quarter?

Paul Coghlan

Our lead times are always short and pretty much under any market conditions. The only time that I could think of in the last 3 years that our lead times extended beyond kind of the 4 to 6 weeks or 2 to 4 weeks is during the most crazy time after the recovery, after the financial crisis, where things, as we were approaching $400 million a year, our quarter sales. But really, for our historical lead times and the lead times we see going forward, I think they're going to stay relatively short in the 4 to 6 weeks range.

Lothar Maier

And I think going back, when we gave you the commentary that lead times could go down to 2 weeks, I think we were responding in context of a question that said, "Look, your sales are going down as are other companies in the industry." Inventories appear to be very -- getting very tight. What is the kind of -- what's the attitude of the customer? And what we were saying is well, customers in getting their inventories tight as they can know, that in some cases, Linear can ship them in 2 weeks. And back then, when everything was really, really tight, we were saying, for example, some customers run it real close to the line and will order within 2 weeks. But our published lead times back then were 4 to 6 weeks. Our published lead times now are 4 to 6 weeks. So they really -- I wouldn't read anything into any kind of expanding lead times relative to Linear. I don't think that's applicable.

Paul Coghlan

Right. The only reasons our lead times went out, as Lothar described, was that we actually didn't have capacity for $400 million, now we do. The only reason that our lead times would go beyond 4 to 6 weeks is that business would quickly expand beyond $400 million, we'd have to retool.

Shawn R. Webster - Macquarie Research

Okay. Maybe if I could ask another one on cash, a couple of ones actually. Can you tell us what the percentage of your cash which is onshore at this point? And can you share with us your thoughts on the priority of share buybacks?

Paul Coghlan

Yes. I think about 35%-ish of my cash is offshore. Relative to buybacks, we were authorized about 1.5 years ago to purchase up to 10 million shares. We still have -- I think we purchased only a few million of that. We look every quarter at share repurchases. The primary goal we have is to service our dividend. They increased the dividend annually like we've done. And then relative to share buybacks, in quarters where sales are going down and the industry is struggling with seeing what's going on, we typically go to the sidelines, and then when things pick up a bit, potentially we could buy some shares but not a dramatic amount like we did in 2007.

Operator

[Operator Instructions] And we'll go next to Amit Chanda with Wells Fargo.

Amit Chanda - Wells Fargo Securities, LLC, Research Division

This is Amit calling in for David Wong. I just had a quick question with respect to Dust Networks. Just curious if the long design cycles for Dust Networks typically how long they last and whether these are similar to the long design cycles you'd typically see in automotive?

Paul Coghlan

I look at Dust more as an industrial type of company, and I would expect the design-in times and the design lifetimes to be very similar to our industrial customers.

Lothar Maier

Also the -- Dust is selling -- by the way, a lot of background noise at your end. Maybe if you could go off the speaker box and listen. But then relative to Dust, Dust is selling a relatively new product which is a wireless network. And we think that will have great longevity but we have to see how it plays out in the industrial environment. Our expectations are that would be long just like our other parts. But it is a relatively new technology being employed in that end market.

Robert H. Swanson

Longer than automotive.

Lothar Maier

Yes, but longer than automotive.

Operator

And we'll go next to Joe Moore with Morgan Stanley.

Joe Moore

I wonder if you could give us a postmortem on the correction that we just went through now that it's over. If you could, as Chris mentioned, your revenue had fallen 20% from the best of the worst quarter. Can you talk about how much of that in retrospect was in demand versus inventory versus sort of the revenue maybe being there was an inventory build in that initial peak number when you started out. Can you just talk about those trade-offs in your mind now?

Paul Coghlan

Well, Joe, we certainly -- we were actually talking yesterday as we're getting ready for the call, and Bob was commenting how business has changed over the years. All of us have been doing this for a long time, and these recent cycles are dramatically shorter, and they had peaks and troughs are quickly more higher and lower than we had experienced in the past. So some of that is a lot of that does have to do with inventory management. You have a lot of companies with very aggressive inventory management systems that work well when the supply is balanced. And then once either that demand picks up or somebody yells fire in the auditorium, whether there's a fire and not and people think demand will pick up, then some of these just-in-time, had the inventory, don't ship it to me before until the day I need it, those kind of break down a little bit as companies want to be sure they can supply their end customers. So it kind of takes off again, and this is more representative of recent cycle than previous cycles. So how much of that run-up was inventory is hard to quantify. We think certainly when we were at $400 million in bookings about 6 quarters ago or 7 quarters ago, probably in hindsight, the rate of our business was somewhat less than that, maybe $360 million, $375 million, something like that. And -- but to give you a precise calculation, we finally figured out how much exactly how much was demand and exactly how much was inventory, we've been unable to do that. And I did say in response to an earlier question, I think especially within the semiconductor guys and ourselves in particular, we did add capacity. So if your question is, is this thing going to repeat, again, I don't know. I didn't call the last one particularly well. So I don't know if you should value my inputs. But I think since there's more capacity, my sense is this will pick up in a more measured pace, just more in concert with in-demand than just radical panic buying of inventory.

Lothar Maier

And if that happens, I think that we'll feel more confident that demand is a big part of it.

Operator

And we'll go next to C.J. Muse with Barclays.

Christopher J. Muse - Barclays Capital, Research Division

I guess first off, I was hoping you could discuss your long-term gross margin outlook. And I guess the construct is relative to revenues, 15% below prior peak and you were doing 7% to 8.5% plus percent gross margin and thinking through the Dust Networks acquisition, your vision for how mix may shift? And it looks like capital investments coming in a little bit lower. How we should think about over the next 4, 6 quarters where gross margin could go to?

Paul Coghlan

We think gross margin can expand from where it is. We think gross margin can get back to similar levels, that gross margin has been in the past if we get our sales or when we get our sales, not if, back up over the $400 million level. Relative to the impact of Dust, I think Dust will have not a dramatic impact in any of our cost areas but certainly not in the gross margin area. In the operating side of the business, we have picked up some of Dust operating expenses and we're happy to do it, it's a great opportunity, we think it's going to be a good business but it comes with some expenses. So that when you -- I know you didn't ask me about operating margin and probably that's the next question, if gross margins going to return to a similarly where it would, we think operating margin can also go up. It might be impacted a minor amount by Dust expenses, but certainly, it could grow from where the 45% it is now up to the past that's been over 50%. And at this time, we don't see any reason if the revenue develops as we hope it will and as we're working to make it developed, we couldn't get back to that level.

Christopher J. Muse - Barclays Capital, Research Division

That's helpful. And as a quick follow-up, could you elaborate on where you're making investments on the back end ATE side?

Paul Coghlan

Right now, we're not making any investments because we've got all of the back end ATE that we need right now. Because as I've mentioned earlier, we're tooled up from a factory and a capital equipment standpoint to a sales level of around $400 million or more dollars. So right now, we're not really much -- doing much investments there.

Christopher J. Muse - Barclays Capital, Research Division

I guess perhaps I misheard you. I thought in your prepared remarks, you talked about spending there. Is that not the case?

Paul Coghlan

It's only minor spending for some R&D applications but in terms of any significant capital expenditures from a production standpoint, we've got all the production capital equipment that we need.

Lothar Maier

In our prepared comments, I said our capital additions for the quarter were roughly $5 million, that's very simple.

Christopher J. Muse - Barclays Capital, Research Division

I thought there was a 0 on that.

Paul Coghlan

No, it's $5 million. So I don't think that's going to drive any ATE companies to move [indiscernible].

Operator

That concludes today's question-and-answer session. Mr. Coghlan, at this time, I will turn the conference back to you for any additional or closing remarks.

Paul Coghlan

Well, thank you very much for your attention today. We told you 1 quarter ago we thought we're in an inflection point. We had a good quarter to support that. We look forward to another good quarter in June and hope you all have a good day. Thanks very much. Bye-bye.

Operator

That does conclude today's conference. We appreciate your participation.

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