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Executives

Paresh Maniar - Executive Director of IR

Bruce E. Kiddoo - VP - Finance

Tunç Doluca - President and CEO

Vijay Ullal - Group President

Analysts

Craig Hettenbach - Goldman Sachs

Craig Ellis - Citi investment research

Tore Svanberg - Thomas Weisel Partners

Ross Seymore - Deutsche Bank

Uche Orji - UBS

Chris Donley - JPMorgan

David Woo - Global Crown Capital

Christopher J. Neil - Division VP

Sumit Danda - Bank of America Securities

Jeff Rosenberg - William Blair & Company

Doug Freedmen - American Technology Research

John Pitzer - Credit Suisse

Sumit Dhanda - Banc of America Securities

Maxim Integrated Products, Inc. (MXIM) Q3 FY08 Earnings Call May 1, 2008 5:00 PM ET

Operator

Thank you for standing-by. Good day and welcome to Maxim Integrated Products Third Quarter 2008 Earnings Release Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I will turn the call over to Mr. Paresh Maniar, Executive Director of Investor Relations for Maxim Integrated Products. Mr. Maniar, please go ahead.

Paresh Maniar - Executive Director of Investor Relations

Thank you operator and welcome everyone to our fiscal third quarter 2008 earnings conference call. With me on the call today are Chief Executive Officer, Tunç Doluca, Group President, Pirooz Parvarandeh, Group President, Vijay Ullal, Division Vice President, Chris Neil and Vice President of Finance, Bruce Kiddoo.

There are some administrative items that I would like to take care of before we cover our results. First, we will be making forward-looking statements on this call and in light of the Private Securities Litigation Reform Act, I would like to remind you that the statements we make about the future, including our intentions or expectations or predictions of the future, including but not limited to possible statements regarding bookings and turns orders, revenues and earnings, inventory and spending levels, manufacturing efficiency or capacity, projected end-market consumption of our products, the estimated time to complete our restatement project and any other future financial results are forward-looking statements. If we use words like anticipate, believe, project, forecast, plan, estimate or variations of these words and similar expressions relating to the future, they are intended to identify forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in the forward-looking statements. Additional information about risks and uncertainties associated with the company's business are contained in the company's SEC filing Form 10-K for the year ended June 25, 2005. Copies can be obtained from the company or the SEC.

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

Before I hand the call over to Bruce, I want to remind you of the contents of our January 31, 2007 press release, which reported that due to stock option accounting matters, Maxim expects to restate its financial statements. Since the company has not yet issued restated financial statements, we are unable to provide detailed GAAP or non-GAAP financials for the quarter ended March 29, 2008. As a result, all numbers contained in our press release and discussed on this call exclude all stock based compensation. These numbers should be treated as estimates only and are subject to change.

I'll now pass the call over to Bruce.

Bruce E. Kiddoo - Vice President - Finance

Thank you Paresh. I will begin by providing a status of the restatement effort which have seen substantial progress since our last update three months ago. We achieved a major milestone by delivering a draft SEC clearance letter and supporting materials to the national offices of our two independent accounting firms for their review and concurrence. This will be followed by a submittal to the SEC for final review. During these final stages of the process, we are dependent on our auditors and the SEC, whose completion timeline is not within our control. This makes it difficult to accurately predict the completion date. We are not able to make additional comments on this topic.

Moving on to the results of our recently completed March quarter, let us start with certain items from the income statement. Revenue for the third quarter was $487.4 million, modestly ahead of the midpoint of our guidance. This was a 2.4% increase from the same quarter last year and a 9.7% decrease form the second quarter of fiscal 2008. As we guided our cell phone, notebook and computing and peripherals businesses were down while our storage business increased.

Consequently, our revenue mix by major end market in Q3, shifted from the prior quarter to 29% computing, 27% consumer, 24% industrial, and 20% communications. This sequential makeshift combined with the manufacturing restructuring announced last quarter had a positive impact on gross margins, which partially offset the expected negative effects of lower utilization and increased inventory reserve requirements.

Consequently Q3 gross margin excluding stock based compensation and non-recurring charges declined by 60 basis points compared to Q2 and is in the middle of our target range. We have now achieved sixth straight quarters of stable gross margins.

Moving to operating expenses. We continue to tightly control our operating expenses. As we predicted the full quarter impact of our storage products acquisition and of the new 401(k) matching program was more than offset by the savings from the business unit restructuring and a decline in SG&A expense. Product development activity increased resulting in higher spending from assets. As a result, operating expenses in Q3 excluding stock based compensation and non-recurring items increased by 1% sequentially.

As announced in our last earnings call, in Q3 we reduced our investments in our RF Wireless and Telecom and began the ramp down of our Dallas wafer fab operations. This resulted in Q3 charges of $9.2 million for severance and $7.6 million for accelerated depreciation. We will report additional charges for accelerated depreciation and severance over the period of the Dallas wafer fab ramp down.

Total non-recurring items during Q3 were 38.5 million, which also included approximately 21.8 million related to our restatement.

Turning to the balance sheet. Total cash, cash equivalent and short-term investment increased by $34 million during Q3 to $1.2 billion. Strong cash flow generated from operations was primarily offset by $60 million for dividends and $46 million in payments for previously acquired property and equipment. Inventory, excluding stock based compensation, increased 4% during the quarter as we built ahead select products.

Average days sales outstanding increased from 47 to 52 days. Capital acquisitions totaled $42 million in Q3, down $24 million from Q2 [ph]. This is consistent with our goal to reduce annual CapEx and is the lowest quarterly amount in two years.

Regarding bookings and backlog, during Q3 Maxim recorded net realizable bookings of $489.3 million, up 2.7% from $476.4 million in Q2. Our beginning current quarter backlog of net realizable revenue for Q4 is $323.4 million. This is a 6.6% increase over the backlog of net realizable revenue of $303.5 million at the beginning of Q3.

Based on beginning backlog and taking into account the uncertain macroeconomic environment, we expect Q4 revenues to be between $490 million and $510 million. For year-over-year modeling purposes, please note that Q4 fiscal 2007 was a 14-week quarter from Maxim.

Our revenue growth in Q4 will be driven by the following market segments: cell phones as that segment rebounds from the seasonally low Q3 and our recent design wins begin to ramp; notebook as a key battery customer recovers from its plant fire and ramps production; computing and peripherals, as demand for our authentication products increases; and storage as this business continues to ramp nicely.

Due to the projected makeshift towards consumer and computing, we expect gross margins in Q4 to be down, slightly although well within our target range. For Q4 operating expenses, we expect our recent surge in new product activity to continue requiring additional spending on assets. We therefore project operating expenses to increase slightly from the Q3 level but at a slower rate than revenue.

In Q4, we again expect strong cash flow offset by dividends, payments for previously acquired capital equipment and goodwill payments for expired options. I will now hand the call over to Tunç to provide additional comments.

Tunç Doluca - President and Chief Executive Officer

Thank you, Bruce. Thank you all for joining our call and good afternoon. April marked the 25th anniversary of Maxim. I thank everyone that contributed to 25 years of engineering success, our founders, employees, customers, Board members and investors past and present. Coincidentally, we made a significant organizational change to further enhance our competitiveness and profit growth prospects. I will discuss this in more detail later on.

Turning to recent developments in our major markets starting with communications, we saw strength in and for our base station products particularly from GSM-EDGE base stations. Most of the growth came from rollouts in emerging countries such as China and India.

Additionally, demand from the networking data communications customers was strong, driven by demand from China and from passive optical network rollouts in North America for its recent design wins in Power Over Ethernet applications.

Next, the industrial market, we saw bookings growth in the broad industrial and automotive market. We anticipate improved revenue in our industrial markets as our Avnet initiative gains traction. We are pleased with the distribution channel transition to Avnet as it is on track.

Third, the computing market, the serial attached SCSI product line revenue has been ramping in server and storage applications. Superior product performance combined with Maxim's creditability as a supplier has proven to be a winning [indiscernible] following our acquisition of this product line in Q2. Also of note in the computing space is the design in success that our power management products are having in this place for both notebook and desktop monitors in Taiwan, Korea and Japan.

Lastly, the consumer market, Maxim's multimedia products that improve in this quality are doing quite well in LCD TVs. In cell phones recent design-ins of analog-based fan, integrated audio and power management products at multiple cell phones customers signal future revenue growth. Success of our integration strategy was evident driven by trip to Europe and Asia in March. Cell phone customers confirm integrated power management audio subsystem design wins that our business units have been reporting, will provide a noticeable contribution to revenue, starting in the second half of calendar 2008.

It's interesting to note that our success in meeting the needs of these handset customers in a timely fashion weigh in heavily in Intel's decision to select Maxim to develop and make signal solution for their next generation mobile internet device product. This milestone agreement was announced late evening, April 1st to coincide with the opening of the Intel Developer's Forum in Shanghai.

In summary, four exciting near term drivers for Maxim are: number one, the transition from parallel SCSI to SAS data in the storage market; two, high end cell phones in both GPRS-EDGE and 3G handsets; three, deployment of base stations, particularly in emerging countries; and four, opportunities for multimedia and power management products, and LCD display targeted at both the consumer and computing markets.

Next, I will switch to the subject of organizational change, but first, a little background information will be useful. Our growth strategy revolves around successfully managing two complementary and equally attractive businesses. Number one, a group of core analog products, and number two, high volume applications specific products array SSPs. The bulk of our core products sell into the industrial and communications major markets. On the other hand, the majority of high volume application specific products sell into consumer and computing.

Success is determined by excellence in product performance in the industrial communications market. Conversely, success in the consumer computing market is determined by agility. These distinctions necessitate two different operating strategies to be emphasized within Maxim in several aspects. Number one in business objectives, higher profitability with reasonable growth for core products versus faster growth with reasonable profitability for ASSPs. Number two, in product development, product performance record versus development agility for ASSPs. And number three, in sales strategy servicing many small and medium sized customers for core versus a few large customers for ASSPs.

Last month, we took the first step to organize our business units along major markets to further improve our business plan execution. This resulted in three divisions: number one the core analog division, number two, the handheld consumer division and thirdly the conversion, computer and secure products division.

The core analog division addresses the industrial communications markets and will focus on one, product performance excellence; two, high profitability and stability and three, leveraging the distribution sales channel more effectively. As a result of focused and increased investment, we expect to achieve the above market growth in core products. The newly created office of the CTO [ph] is part of this division and we expect this to further foster innovation at Maxim.

The handheld consumer division addresses just what the name implies, cell phones, cameras, mobile devices, GPS units, portable media and so on. Customers in the consumer market constantly add features to their products, while reducing size and power consumption. This seeming conflicting need can only be met by integrating multiple functions on a chip. This plays into Maxim's strength in IP diversity, process technology leadership and manufacturing prowess.

This consumer division will focus on number one, agility in productive development and IP reuse; number two, agility in new technology adoption and deployment; and three, strong partnerships with top customers in these markets. We expect this focus to enhance our product development efficiency, not only will we get products to market with less R&D investment but we also expect to capture higher profit dollars by getting to market earlier.

Initiatives completed last year established manufacturing agility by shortened cycle time and flexible capacity. This supply chain excellence complements the business strategy for this division. The conversion computer and secured products division addresses all four major markets and will adopt the niches strategies I mentioned earlier.

The technologies of business units in this division complement each other nicely. Data converters will benefit from integration of embedded controllers to phone systems on a chip. Computers and peripherals are implementing secured features to protect IP from being stolen or misused. Consumers require better security as more personal information is stored and transferred electronically. This security takes the form of both encrypted data and biometrics. It is our intention to manage the balance between the two sides of our business. By doing so we believe we can grow revenue and EPS faster than the industry average, maintain stable gross margins and improve operating margins.

In closing, I would like to reiterate that Maxim has tremendous growth potential. There are several market currents which play to our strength one, business and consumer hunger for mobility, two, data communications growth driven by video with three, necessity for energy efficiency, and four, pervasiveness of microchips for consumer entertainment. All of these market currents require innovative, analog and mixed signal chips. We excel at delivering such world class solutions. Our new organization positions us to effectively profit from this broad range of opportunities. Leaving you with that thought I will turn the call back to Paresh.

Paresh Maniar - Executive Director of Investor Relations

That's the end of our prepared comments. We will now welcome your questions. Please limit yourselves to one question with one follow-up. Operator will you please begin polling for questions?

Question And Answer

Operator

[Operator Instructions]. Our first question comes from Craig Hettenbach from Goldman Sachs.

Craig Hettenbach - Goldman Sachs

Yes thank you just a follow up on the handset analog base pen design wins, can you talk about, as we go through this year is it one customer or will be staggered customers in terms of how that business ramps in the back half of 2008.

Vijay Ullal - Group President

This is Vijay, take that question, so we do have some multiple customers and of course the ramp starts in the second half of this calendar year. We expected to continue to 2009.

Craig Hettenbach - Goldman Sachs

Okay can you talk about dollar content potential within some of these designs in the higher end.

Vijay Ullal - Group President

We would rather not discuss that at this point in time, I think it should give enough of color on the comments we have made about the analog base plan and high integration... audio chips.

Craig Hettenbach - Goldman Sachs

Okay.

Vijay Ullal - Group President

I think that the point we... we have an analyst meeting, we're going to have a lot better coverage of all this market data, so maybe you can be... until that time, it will help.

Operator

Thank you. Our next question comes from Craig Ellis of Citi Investment Research.

Craig Ellis - Citi investment research

Thank you. The first question is on gross margin. Bruce, I wasn't surprised to see it go down in the first quarter, but I thought with industrial and communication infrastructure, seasonal strength in the second quarter would be up, so with the decrease due to some of the consumer businesses, how should we think about the back half of the year, when the waiting there will increase further?

Bruce E. Kiddoo - Vice President - Finance

Yes, I think the way to think about it at this point, Craig, is we're still have our target range. We've been there for six quarters now, and so I think it's fair to say that, it's still going to be within that range, where exactly will depend on the exact mix, and how fast we start seeing benefits from our cost reduction activities including the Dallas fab ramp down.

Craig Ellis - Citi investment research

Okay, thanks. And then, on the follow-up side. Can you just refresh our memory when the business would typically see annual increases for things like cost of living etcetera. Does that happen in the September quarter, or when does that occur?

Tunç Doluca - President and Chief Executive Officer

Yeah, we... this is Tunc again. We do have our focal reviews that occur in the September quarter, and essentially it goes into effect in the month of September.

Craig Ellis - Citi investment research

And what should we be thinking about Tunc, in terms of magnitude for those?

Tunç Doluca - President and Chief Executive Officer

Well that's difficult to answer, but it's typically been in the range of maybe 4% to 5%.

Craig Ellis - Citi investment research

Okay.

Operator

Thank you. Our next question comes from Tore Svanberg of Thomas Weisel Partners.

Tore Svanberg - Thomas Weisel Partners

Yes thank you. First question Tunc, when it comes to the consumer handle group, should we assume that that's going to be primarily an outsourced business just given what you said about manufacturing?

Tunç Doluca - President and Chief Executive Officer

Well it is, no it will be a mix of that business unit, obviously uses some of our more advanced technologies and those technologies will be built in a mix of our own internal fabs as well as our strategic partner fab. So it will be a mix. It's difficult to say what percentage, it depends on all the loading of various fabs but it will be... sourced internal and external.

Tore Svanberg - Thomas Weisel Partners

And thanks and follow-up for Bruce. Do you have the exact cash flow for operations number for the quarter, please.

Bruce E. Kiddoo - Vice President - Finance

Yeah we can, do our restatement, we can publish that number.

Tore Svanberg - Thomas Weisel Partners

Great. Thank you.

Operator

Thank you our next question is from Ross Seymore of Deutsche Bank.

Ross Seymore - Deutsche Bank

Hi guys with your June quarter guidance and revenue, Bruce when you mentioned the areas that look like they are going to be up, sounds like its pretty much consumer and the computing segments. Generally what should we think about in communications and industrial?

Bruce E. Kiddoo - Vice President - Finance

I think generally those business are historically, from a seasonality point of view relatively flat in this quarter.

Ross Seymore - Deutsche Bank

Okay. And then from a historic turns perspective? Is June usually a better turns quarter than the March quarter and is the average even meaningful?

Bruce E. Kiddoo - Vice President - Finance

I don't know exactly what the history on that is, as we went into this fourth quarter, we are in a little bit better shape from a turns point of view than we were in prior quarters.

Tunç Doluca - President and Chief Executive Officer

Meaningwe needed less turn.

Bruce E. Kiddoo - Vice President - Finance

Meaning we needed less turns this quarter.

Ross Seymore - Deutsche Bank

Right. Because the back log went up a bit.

Bruce E. Kiddoo - Vice President - Finance

Yup.

Ross Seymore - Deutsche Bank

Okay. Now there change no change in the lead times to create that backlog expansion at all.

Tunç Doluca - President and Chief Executive Officer

No, the lead times were pretty flat and pretty much are lead time were given to customers, are matching pretty much with their asking us.

Ross Seymore - Deutsche Bank

Great, thank you.

Bruce E. Kiddoo - Vice President - Finance

Okay.

Operator

Thank you. Our next question is from Uche Orji, from UBS New York.

Uche Orji - UBS

First question is for Bruce. Can I... I'm not sure I understood what your numbers were for recurring expense and how much was spent for the restatement. Did you say 38.5 from... for restatement.

Bruce E. Kiddoo - Vice President - Finance

Yeah, so in the quarter we had 38.5 total for non-recurring expenses.

Uche Orji - UBS

Okay.

Bruce E. Kiddoo - Vice President - Finance

21.7 million of that was related to our restatement and $16.8 million was of our restructuring... and of that restructuring amount $9.2 million was related to severance for both our business unit restructuring... the Dallas fab ramp down and then there was $7.6 million associated with accelerated depreciation with the Dallas fab shut down.

Uche Orji - UBS

Okay, that's clear. And I mean, on the restatement remains sort of $21.7. Is the kind of in the run rates. What was it last quarter? Bruce, probably to get a sense of how that will tract you to next quarter. I know you are not going to give us a time as when this will conclude but my sense that that number is probably higher than you had it last quarter. Is there any reason for explanation of the downturn.

Bruce E. Kiddoo - Vice President - Finance

Yes, it is an increase from last quarter. Last quarter we were right at about, just under $15 million and I think... obviously the activity associated with the restatement as we get into the final stages of this process, has resulted in... in higher spending for that. The other thing to remember as well is that this does include spending not only for the restatement but for the, any litigation associated with that as well.

Uche Orji - UBS

I'll see. Okay, that's helpful.

Operator

Thank you. Our next question is from Chris Donley from JPMorgan.

Chris Donley - JPMorgan

Thanks guys. You gave us your sense for demand in the June quarter. Can you just... can you just talk a little more broadly about how you feel demand should trend in the various end markets for the rest of the year?

Tunç Doluca - President and Chief Executive Officer

So, for the rest of the year, this is Tunç. The rest of the year is kind of difficult to say, but if we look into Q1 for example, if you look at our historical data, you would expect to see about a 3%-3.5% type change... beginning ramp ups of the consumers on the computing markets. However there is still uncertainty in the overall macroeconomic situation, but that's kind of historically what it's been, and we expect it to be about in that range.

Chris Donley - JPMorgan

And as my follow up, can you give us a sense of the relative gross margin differential in your four end markets?

Unidentified Company Representative

That's something we don't break out Chris, for competitive reasons obviously.

Chris Donley - JPMorgan

Yes, okay. Thanks.

Operator

Thank you. Our next question is from David Woo of Global Crown Capital.

David Woo - Global Crown Capital

Hey, Bruce. Good afternoon. Bruce, one your nightmare is over with the restatement, are you planning... have any plans on implementing an ERP system, now that you are in so many different businesses including fast moving stuff?

Bruce E. Kiddoo - Vice President - Finance

So, absolutely. We're actually ticked off last September in implementation of FAP and so we are going through that process right now. As you know that's a multi year process across multiple phases. So, we're going be doing that for a while.

David Woo - Global Crown Capital

When so you think it's be done?

Bruce E. Kiddoo - Vice President - Finance

Well, overall done will be enough as I said that's a multi year process.

David Woo - Global Crown Capital

Multi year process, okay.

Bruce E. Kiddoo - Vice President - Finance

Yes.

David Woo - Global Crown Capital

Tunç, can you gives us an idea of possibly... of this three new divisions. I assume each division would have a general manager and roughly what... are they about equal in size from a revenue standpoint?

Tunç Doluca - President and Chief Executive Officer

Yeah, well the three general managers are the ones that are at the conference call today Vijay manages the handheld consumer division. Pirooz is managing the core analog products division and Chris is managing the conversion computer and security divisions. So they are all here and if there you look at their sizes give or take some of them, they are about the same size each in revenue.

Operator

Thank you. Our next question is from Mahesh Sangeneria from RBC capital.

Unidentified Analyst

Hi guys this is K.C. calling for Mahesh. To follow-up on the question on the 3 ARC [ph], I suppose it's a fairly decent size... could you guys have just completed count. When do you think the various pieces that has gone into [indiscernible] come to a stable point where people settle into the jobs and one can look at efficiencies going forward. Is it a one quarter thing or is it multiple quarters?

Tunç Doluca - President and Chief Executive Officer

Its not, I mean this has been in the works for a while now so it's not like we suddenly did it and announce that to the company. So, I think people are settling into their roles and their business objective and that's going to happen quickly. I expect to be within a quarter or so.

Unidentified Analyst

Okay. And one follow-up, can you talk a bit about the security product lines?

Tunç Doluca - President and Chief Executive Officer

Okay, I think may be best is Chris took that question.

Christopher J. Neil - Division Vice President

Alright, this is Chris Niel. So, what we mean by secure products or products that are used for authentication so, this could be for public access or to open a building or could be used to authenticate a piece of hardware like your Pinter cartridge or AC adaptor that prevents people from copying those or stealing IP. They used primarily in... lot of them are used in point of sale terminals as we go through a mortal mode cash with type of society and people want to have secure financial transactions, they wanted their data encrypted. So, it's those types of products, we have ten years or more of working with this products and I think it's a growing market for us.

Unidentified Analyst

Okay.

Operator

Thank you, our next question is from Sumit Danda from Bank of America Securities.

Sumit Danda - Bank of America Securities

Yes hi Bruce. First question for you... an increase in inventory reserves if my memory is correct, the result were down last quarter. Was this meaningful is there... how you establish the trend at this point but this is not going to be any kind of a meaningful off cut to your gross margins going forward.

Bruce E. Kiddoo - Vice President - Finance

Yeah, I don't think this is meaningful to the long term trends as you pointed out the... our reserves were down last quarter and they do vary quarter-to-quarter and with our increase in inventory it is natural for the reserves to increase as well. You know, overall our gross margin was solidly within our target range, despite the decline in revenue. So we're comfortable with this.

Sumit Danda - Bank of America Securities

And the mass cost, which are leading to some kind of increase in OpEx is this one time? Are these specific programs, or... in other words, I don't recall having your call out mass cost to... for OpEx if you could just shut some light on that.

Tunç Doluca - President and Chief Executive Officer

Yeah actually, hi this Tunc. I believe we didn't have called it at once before, I can't remember what quarter may be it was in Q1 last year. But I think in general the mass cost are kind of accelerate new product developments what kind of essentially in the theme of having agility in product development. We are moving in to more expenses process technologies in some cases, so I think in the long-term mass cost may be not in very quickly but in a small way we probably be increasing in the company and we are taking out some products experience very advanced technologies. But we still continue to control cost as much as it's feasible to do so. So in all of our areas, we cut our SG&A spending for example we did the restructuring of the business units and to combine a couple of we used to be more efficient in their operations but in terms of mass spending I think that scenario were it's really harmful for the company to cut on that because that is our future and we need to continue investing in these new products for future revenue.

Sumit Danda - Bank of America Securities

And I guess it's fair to say that the watch mass spending very carefully we make decisions with on advanced equipments and basis and maintaining a right trade of individual product bases or whether it is control the cost of... introduce products.

Operator

Thank you our next question is from Steve Smiggy [ph] of Raymond James.

Unidentified Analyst

Great thank you just a follow up on the authentication, is the work you are doing there is that finger print sensors or that... that sort of... just as mentions encryption.

Unidentified Company Representative

Well right now it's... right now it's encryption but... but the division... data conversion that is ahead of high resolution daily conversion is in this new division that are managing and I think we have explored a little bit of that and I think that there could be potential to include bio matrix with our secured products it's my intention to explore that further.

Unidentified Analyst

Okay and on the handset side you mentioned you with... with several or OEM, can you say if you are in the top four OEM's by... by volume if you are in each of those or to talk a little bit about that at least at a higher level?

Unidentified Company Representative

Well I think at a high level we can talk about it we are in... essentially in three of the top five probably the best way to report it.

Unidentified Analyst

Thank you.

Operator

Thank you our next question is from Jeff Rosenberg of William Blair & Company.

Jeff Rosenberg - William Blair & Company

Hi when you look at the... the new divisions can you give us a little bit more detail about how the old product business units map in to those references I would assume the standard products unit is dominates the core analog but may be little bit more how we should think about the units we used to know and where they follow up in the organization?

Unidentified Company Representative

It's a good question... with the heading in general it sounds like your guess our estimate are about right, so the old --really old standard products group is pretty much in our core analog division. It's probably better to look at it the other way. The... the handheld... consumer handheld division, it's got our portable power management business units, there were two of those. It's got our multimedia business unit, and also has our wireless business unit. So that's... that's the handheld division, Chris's division has SPN... SPNC which is the data conversion business unit. It's got market controllers. It has our automatic information business unit, and... what's the fourth one and the notebook business unit for the computing side --

Unidentified Company Representative

In the storage product?

Jeff Rosenberg - William Blair & Company

In the storage product. So the core analog product has I think maybe probably you should list them out ?

Unidentified Company Representative

Yes, the core analog product has following areas in it. It's got a business unit that's focused on wire lined communications; this is a combination of our power full electronic fiber vigilance unit together with some of the wire... some of the legacy TDM type communication devices, that's one business unit. One more business unit, which was relative to you, and emerging business unit. It has a business unit that's focused on power management for non portal applications, and also other kinds of... and other applications for power lines for industrial broad markets, and the business unit has products for... for automatic test equipments, for base station applications, for high speed serial communications, and there's another business unit... two business units that are more product that are very broad again in nature in terms of markets of the address in but dominated primarily by industrial and commutation markets.

Jeff Rosenberg - William Blair & Company

Thanks that's helpful and then, as we look at mid point of your revenue expectations for the fourth quarter and look the year-over-year growth that you are going to be there down to few percent, will each of these groups be tracking similarly or is there a diversions in terms of what the growth outlook is looking like freeze one.

Unidentified Company Representative

So this is Bruce as we indicated in our prepared comments really is the growth in the Q4 is really in the consumer and the computing side that's where we seen our strongest growth, we also did talk about some strength in the communication side but really its the consumer in computing for the fourth quarter growth.

Jeff Rosenberg - William Blair & Company

Right I guess I was thinking those more sequential kind of and I'm just trying to think about where these groups stand more versus a year ago as you look at him weather in for starting point.

Unidentified Company Representative

We haven't looked at that form a year-over-year perspective at this point in time, we are nearly tracking the growth from a sequential point of view and in the progress these quarter.

Jeff Rosenberg - William Blair & Company

Okay thanks.

Operator

Thank you, our next question is from Doug Freedmen of AMtech Research.

Doug Freedmen - American Technology Research

Thanks for taking my question just want to be clear on the restructuring should we view this as a flattening of the organization or is it just a reclassification of already existing levels of the?

Tunç Doluca - President and Chief Executive Officer

Good this is Tunc, I think that... you should view it has the a grouping of the business units on the product lines more towards end market, so its really not as flattening in the organization, so we took the business units that are more targeted towards specific end markets and cluster them together. So they could be a much more effective in IP reuse and being able to integrate products for example and also being able to leverage technology and making sure that they have a common technology roadmap. We also grouped them so that the cultures of each of these business units or divisions... that supported the way they act in their specific markets. The examples I gave were in the consumer type divisions or business units we really put the groups together that we are focused in agility, so that they will be running fast, whereas some of the other product lines like the core products, they know that their prime objective is to make the best of the products in the market and emphasize performance. So we really did not flatten out the organization. We grouped them and set business objectives and strategies for each one that are more appropriate for their end markets.

Doug Freedmen - American Technology Research

All right, great. Thanks for the classification. If you could, Tunç, you may comment about having met with customers and improved relations with them and you also mentioned that you have been shipping closer to requested lead times there. What do you think is happening as far the need of your customers to... some maximum inventory given the fact that you are shipping more to requested lead times.

Tunç Doluca - President and Chief Executive Officer

Well, it's not something that the they directly commented on. They did not say they were planning on holding less of our inventory but they were really pleased with our results and with our 12 partner accounts. As I said, only 11 of them do ratings and 10 of them had us as preferred suppliers. I was quite pleased to hear that. I don't think they really are going to change that much. Their inventory positions in Maxim, they are going to probably plan the same as before. They just know they can trust us more now and I'm expecting that to result in us being able to get design wins more easily.

Doug Freedmen - American Technology Research

And my last question is in regards to... manufacturing strategy a little bit. We've had a few quarters under our belt, some outsourcing of wafer supply. Have you had a chance to benchmark your cost structure and where do you think you are as far as your cost structure relative to the industry.

Tunç Doluca - President and Chief Executive Officer

Let Vijay answer that one.

Vijay Ullal - Group President

This is Vijay. We gave benchmark consistently and we are very competitive against our outsource manufacturers and in most of the cases we have lower cost and so, we're not clearly going outside for significant reductions in cost, that could going our there for our flexibility in supply.

Doug Freedmen - American Technology Research

All right. Thank you.

Unidentified Company Representative

An addendum of the outsource fabs have much better capability in terms of technology, in terms of their automation and so they give us an opportunity to run much larger die-sizes in those facilities and get better yield. So we tend to run in our large die-sizes in those facilities and a smaller dice in our internal fabs

Operator

Thank you. Our next question is from John Pitzer from Credit Suisse.

John Pitzer - Credit Suisse

Yeah good afternoon guys. Thanks for taking my question. First Bruce, relative to OpEx, last quarter you talk about sort of $50 million of annualized costs saving in R&D between the kick in ... in the quarter. I guess just relative to your comments around mass cost, is that one, is that on track and two, do we view that as an absolute savings or as mass costs begin to ramp up here over time. Is that just a switch on how you spending on OpEx.

Bruce E. Kiddoo - Vice President - Finance

No we, executed against our restructuring as we talked about. We received about two months of benefit of that in the third quarter and we are getting the full quarter benefit and as you indicate, we talked about $14 million on an annualized basis or about $3.5 million a quarter savings. So we absolutely are achieving that savings. As far as mass costs go, we've talked about that as far as the impact to both the third quarter and the fourth quarter. Certainly that something as Vijay said we are being very, on one sense very selective and in the mass that we tape out but at the same time we are pushing very hard from an agility point of view to get the products out the door.

John Pitzer - Credit Suisse

We appreciate that and I guess my follow-up. When I look at the March actual revenue and then June revenue guidance, both are kind of showing below normal seasonal gross sequentially and I know that you had an unusual event around the plant fire to customer in the March quarter. Can you help us understand that of the magnitude of the event on the March revenue and I guess given the below seasonal March. What's driving the below seasonal June guidance as well? Is that mostly macro concerns or is there something else there that we need to know that?

Bruce E. Kiddoo - Vice President - Finance

Yes. So for the March quarter I think we talked about that on a lot. Obviously, there was the seasonality as our business with our consumer computing businesses, the macroeconomic environment, as you said plant fire, the impact of the... our movement away from the low margin, power management notebook business. When we look at the fourth quarter, we are guiding based on our bookings forecast or our bookings growth. We did see kind of, the backlog is actually a little bit higher. We are just being a little bit cautious right now given the economic environment. I mean it hit us hard last quarter and we want to make sure that we're prudent in our guidance for this quarter.

John Pitzer - Credit Suisse

Any dollar amount you are going attribute to the plant fire for March.

Bruce E. Kiddoo - Vice President - Finance

No, we haven't called that. It wasn't a huge number.

John Pitzer - Credit Suisse

Great. Thanks guys. I appreciate it.

Tunç Doluca - President and Chief Executive Officer

Its also important to note that the numbers that I gave out, the 3% to 4%, that's kind of inline with our historical numbers, so I don't think we're really that far off.

Operator

Thank you. [Operator Instructions]. Our next question comes Craig Ellis of Citi Investment Research.

Craig Ellis - Citi investment research

Thanks for taking the follow-up. Bruce, looking beyond options increase, can you just help us understand how you are looking at the cash balance. How much do you need to run the business on an ongoing basis and therefore, what will be left both for it strategic acquisition purposes and then potentially some kind stock buyback activity.

Bruce E. Kiddoo - Vice President - Finance

Craig, as you would expect we having those discussions with our Board right now. So I think it's a little premature to talk about that. Obviously, we think we do have some access cash on the balance sheet. Historically, Maxim has done a combination of a dividend program and a share repurchase program, so I think that's a reasonable assumption going forward. But the exact levels of our kind of optimal cash balance and the split between dividend share repurchase is still some thing we are discussing internally and like you say we'll come forward with our strategy once we complete the restatement and are able to participate in that share repurchase program again,

Tunç Doluca - President and Chief Executive Officer

And so add to that one thing to note is that unlike our history we are more outward looking for acquiring technology or gaining time in terms of acquiring technology. So that is another variable that we put in to this that we did not have before. So where we are discussing all this with the board and we will have a plan that we'll execute on once we're out of the restatement.

Craig Ellis - Citi investment research

On that same subject, any thought on leverage, and are the credit markets even open right now for the purposes of doing the buyback.

Bruce E. Kiddoo - Vice President - Finance

I think that we obviously asked this question a lot all the time. But it's really too early for us to say anything on that subject mainly because the market conditions has changed pretty rapidly as we evolve experience. So I think it's appropriate for us to discuss that with the board when we get closer to time a when we can take some action rather then trying to decide ahead of time.

Craig Ellis - Citi investment research

Thank you guys.

Operator

Thank you. Our next question is from Uche Orji, from UBS New York.

Uche Orji - UBS

Yeah, can I just ask a question, I missed something on the call. Tunç, a little bit on Analyst Day, do you have any tentative timing for this.

Tunç Doluca - President and Chief Executive Officer

No, we've not announced the timing. I only mentioned the Analyst Day because there was a question about some detail and it's... I thought it was best to be able to present that in the presentation as more visible than a phone call.

Uche Orji - UBS

Okay.

Tunç Doluca - President and Chief Executive Officer

But clearly we do you want to have an Analyst Day, but we have not set the date yet.

Uche Orji - UBS

Right, and just on any comments you make. I know that on your inventory you've had... you're ramping some new products, but any insight to give us to channel inventory as well. Might just be helpful in terms of understanding the environment right now. It looks the general demand seems to have held up for the semiconductor companies, but any insight on say inventory that within the channel, will just be helpful. Thanks.

Bruce E. Kiddoo - Vice President - Finance

This is Bruce, from a distribution point of view the inventory at our distributors was down slightly but no significant change.

Uche Orji - UBS

Yes thank you, very much.

Operator

Thank you. Our next question is form John Briden [ph] of Charter Equity Research.

Unidentified Analyst

Hi, thanks for taking my question... question for Vijay in the handheld group I know 3G is the biggest mix but can you give me the percentage of mix 3G over 2G, have you seen any weakness in 3G orders despite the share gains by your top 2 customers in Q1.

Unidentified Company Representative

Your asking for the overall market or our own...?

Unidentified Analyst

Your internal mix weighted 3G over 2 or 2.5G of its 80-20 or less than that and then we have seen some weakness in some of the peer players but strength at your top 2, Q1 customers have you seen any decline in 3G orders or linearity with respect to your 3G customers?

Unidentified Company Representative

Well let me try to answer that the... because I'm fresh form the trip to Korea so, in terms of our share of business in 3G versus 2G, most of our business in the past really have been in CDMA and 2G existence so for us we are just ramping into 3G so we are not a really good indicator of what's going on in the market or it is a good growth potential for us because our share in 3G has been quite low.

Unidentified Analyst

Thanks for taking my question.

Operator

Thank you our next question is from Sumit Dhanda from Banc of America Securities.

Sumit Dhanda - Banc of America Securities

Bruce I have a sort of a high level question, Bruce when got on board you talked about the company delivering operating leverage controlling cost and growing revenue faster you now they look at it over roughly the last 6 or 7 quarters of revenue at the end of the day its flat line and operating expenses up call it between 15% and 20% I mean is there a point where you have to revalue the strategy and as we go through every quarter it seems like there is one off that whether its the plan or the comp increases in the September quarter how do we really get a handle on how we model the revenue or your operating margin model going smoothly?

Unidentified Company Representative

Yeah so this is Bruce obviously in the in our December quarter and the guidance we have given for our June quarter we are going off slower than revenue. Obviously when you have a sequentially down 9.7% that's difficult and we understand that but certainly the discipline in order to control OpEx and you know going forward, as we continue to grow our business not only we are going to strive to grow OpEx slower than revenue but actually try to control that as much as possible on really maximize that gap between the two. So you know I understand from my year-over-year point to you those comparison are not favorable I can just tell you that going forward and since I have been here we are working very hard to manage... expenses and we believe we are on the right track.

Unidentified Analyst

Let me ask you a different question, do you believe that you have managed the operating expenses and hopefully grow into operating costs structure with revenue growth accelerating because of a new product initiative, I call it 2-3 as you come to the conclusion that the revenue growth has not really accelerated to the point where you had anticipated it to go, you are going to come back and maybe take a --

Unidentified Company Representative

We will, we constantly look at our OpEx structure and in that essentially that's why we took some of the action we did last question in terms of cutting some of the spending by resizing some of the business units, so as we do structure a case where our revenues were not doing what we plan them to do again we will take a look at our businesses and see if there some have list of a chances of succeeding and they take a necessary action as we need to.

Unidentified Analyst

Okay thank you very much.

Operator

Thank you, our next question comes from Torry from Thomas Weisel Partners.

Unidentified Analyst

Yeah I just had a follow up on the MID market seems like that market is quite strong right now, could you just elaborate a little bit on your position there you talk about some Intel reference wins but just please elaborate a little bit on your position there.

Unidentified Company Representative

What we said was you can select it one of the vendors to partners with Intel, so its not a design win it could potentially turn into design when going into the future. Just wanted to Clarify that

Unidentified Analyst

Okay perhaps, just elaborate a little bit more on your competitive positioning there, what are some of your keys strength you mention some PMIC integrated audio

Unidentified Company Representative

Clearly one of the reason that we have been selected as one of the vendors that Intel wants to partner with its all the advantages we have, all the technology that we have in terms of power management and audio and this is clearly gives, us an advantage are ready to customize very quickly, this just and deliver the solutions for the partner which is Intel. That has given us a significant advantage and we were very optimistic about being able to be in position. And also Intel, one of the things that did emphasize very ably was time to for samples and they saw our ability to do this in some of the other markets like the handset market and that was bit differentiators and at least in their eyes and select the Maxim as well as all the things that Vijay mentioned.

Unidentified Analyst

Great, thank you.

Operator

Thank you, our next question is from Steve Smiggy [ph] from Raymond James.

Unidentified Analyst

Great, thanks. Let you could talk a little bit about... a little bit more about the agility that you mentioned. Does that mean that in those groups your no more focused on because you're in up] specific products say for handset that now you said you have four months cycle time versus a year to get the product to market. Is that... how should we think about what you mean we're talking about adjoining that

Unidentified Company Representative

Yeah, absolutely. The due product development plan is going to have shrink in those groups significant, its all of been like to be doing very well and so, just a matter, according to those methodology that all are gee [ph] to the other business unit that need to shorten their development time.

Unidentified Company Representative

Yeah, I think the most of our activate relative important aspects, we're going to focus on is making sure that those business unit that has deliver on this integrated solutions are on the common technology platforms so, we put that in place. We all set to make sure that we've made group that's responsible of ITV use so that they're delivering all this high performance cells for other groups and business units to productize quickly. But Vijay is absolutely right, our cycle times has to be much, much shorter to be able to compete effectively. And we already are in a very good at this. It's not something that we're lacking but we can get better and thus, capture more market share.

Unidentified Analyst

And somewhat tight about that. Can you talk about the work you've been doing on say, math matching manufacturing with high volumes ramps. I know, a year ago it would have been a little of an issue where the nature of the orders you are receiving was somewhat different that you would historically receive and so you get much larger orders than anticipated and manufacturing might not have been matched with that. I am curios if you could talk about what steps you are taking there and what that looks like at this point.

Tunç Doluca - President and Chief Executive Officer

I mean, we took steps, if you'll recall last year we had an initiative to better serve our customers and we basically many things but the two most important ones were to reduce our manufacturing cycle times and we reduced it almost by about 40% in a one year span. So, that gives us the ability to react quickly. We also increased our manufacturing flexibility. We put in place... high volume technologies and our say, epison partners. So, that enables us to expand our manufacturing fairly quickly when we need to.

Unidentified Company Representative

And we're doing that... continuing that process to the rest of the supply chain. And when you will see results of that over the next couple of three quarters.

Unidentified Analyst

All right. Thank you.

Unidentified Company Representative

Operator, we have time for one more question, if you have any one in the queue.

Operator

Yes, sir. Our final question comes from David Woo of Global Crown Capital.

David Woo - Global Crown Capital

Thanks for squeezing me in, I'll be quick. Vijay, I couldn't hear you when you say you going to outsource when you used foundries like say epison. Are the big ships going to them or basically the more advanced see more ships going to those guys?

Unidentified Company Representative

We're using a combination of foundries and epison, so in the case of the foundries we are obviously using the most advanced technology in the foundries and in epison we have our own process and we have established our own technology as qualified and is running very well and we are running the largest dice in epison.

David Woo - Global Crown Capital

I see. The other thing I was wondering is since you are in the cell phone business I guess CDMA are going to be used for entry level cell phones by the Koreans and in those markets can you maintain decent margins since when you are competing against Nokia set of world that had census of less than 75 euros or 50 euros, I don't know which one but anyway, at the low end CDMA chips going to those kind of phones. Can you have decent margins?

Bruce E. Kiddoo - Vice President - Finance

We are really not targeted the low end phones, the CDMA. The high end smart phones or the high end phones and maybe the top of the middle tier of phones and going forward we will continue to target the UMPS high end phones and so, that's our strategy and we have... of course as you know that this market is a tough one to be in but we've done very well in maintaining our markets.

Tunç Doluca - President and Chief Executive Officer

David, I think in many of the CDMA low end phones actually] the call comes to QSC chipset, which includes power management in there.

David Woo - Global Crown Capital

I see. Okay. Thank you very much.

Paresh Maniar - Executive Director of Investor Relations

Thank you operator. This concludes Maxim's conference call. We would like to thank you for continued participation and interest in Maxim.

Operator

Ladies and gentlemen thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone, have a great day.

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Source: Maxim Integrated Products, Inc. F3Q08 (Qtr. End 03/31/08) Earnings Call Transcript
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