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Linear Technology Corp. (LLTC - Analyst Report) reported first-quarter 2014 earnings of 47 cents, beating the Zacks Consensus Estimate by couple of cents.

Revenues

Linear reported revenues of $340.4 million, up 1.6% year over year and 4.0% sequentially which was at the higher end of management’s guidance range of 2%–5% sequential increase. The sequential increase was led by improved sales in the automotive and industrial markets.

Book-to-bill ratio was greater than 1 in the quarter.

Margins

Gross margin for the quarter was 75.3%, up 10 basis points (bps) sequentially and 30 bps from the year-ago quarter.

Operating expenses of $100.2 million were down 1.7% from the previous quarter’s $101.9 million. Operating margin of 45.9% expanded 100 bps sequentially but was down 40 bps year over year. As a percentage of sales,bothresearch and development (R&D) expenses as well as selling, general and administrative (SG&A) expenses increased.

The quarter’s GAAP net income was $107.9 million or earnings per share of 45 cents per share compared to $101.9 million or 43 cents in the previous quarter and $105.2 million or 45 cents in the year-ago quarter. Excluding a couple of cents of debt discount amortization but including stock-based compensation expenses, pro forma earnings per share were 47 cents, up from 44 cents in the previous quarter and 45 cents in the September quarter of 2012.

Balance Sheet

Linear exited the first quarter with cash, cash equivalents and marketable securities of approximately $1.59 billion versus $1.52 billion in the prior quarter. Account receivables were $182.2 million, up from $145.3 million in the prior quarter.

Management repurchased 200,000 shares worth $7.9 million and declared a cash dividend of 26 cents, which will be paid on Nov 27, 2013.

Guidance

Management provided limited guidance for the second quarter of fiscal 2014. Revenues are expected to be flat to down 4% sequentially.

Conclusion

Linear’s first-quarter earnings were helped by strong revenues from its automotive and industrial clients. The company’s business is well-diversified among core markets, such as industrial, automotive and communications infrastructure. However, its computing business has been hit by weakness in the PC and notebook markets.

Also, management provided weak revenue guidance for the second quarter due to a typically slow December quarter owing to the holiday period. Also, the budgeting stalemate at the Federal Government level could hurt results, indicating weak revenues in the upcoming quarter.

However, Linear should benefit from its operating leverage and lean channel inventories when demand picks up.

Linear carries a Zacks Rank #3 (Hold). Other stocks that are worth considering include Texas Instruments (TXN - Analyst Report), Microchip Technology Inc. (MCHP - Analyst Report) and Intersil Corp. (ISIL - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).

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