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Linear Technology Corp. (LLTC - Analyst Report) reported second-quarter 2014 earnings of 45 cents, surpassing the Zacks Consensus Estimate by a penny.

Revenues

Linear reported revenues of $334.6 million, up 9.6% year over year, but down 1.7% sequentially and below the Zacks Consensus Estimate of $336.0 million. The sequential decrease was due to weak sales in the industrial market.

Book-to-bill ratio was slightly positive in the quarter.

Margins

Gross margin for the quarter was 75.3%, flat sequentially but up 90 basis points (bps) from the year-ago quarter.

Operating expenses of $100.9 million were up 6.9% from the previous quarter’s $94.4 million. Operating margin of 45.2% was down 70 bps sequentially but up 170 bps year over year. As a percentage of sales, research and development (R&D) expenses as well as selling, general and administrative (SG&A) expenses decreased.

The quarter’s GAAP net income was $104.8 million or earnings of 44 cents per share compared to $107.9 million or 45 cents in the previous quarter and $88.8 million or 38 cents in the year-ago quarter. Excluding expenses related to debt discount amortization but including stock-based compensation expenses, pro-forma earnings per share were 45 cents, down from 47 cents in the previous quarter and 39 cents in the quarter ended Dec 2012.

Balance Sheet

Linear exited the second quarter with cash, cash equivalents and marketable securities of approximately $1.72 billion versus $1.59 billion in the prior quarter. Account receivables were $138.5 million, down from $182.2 million in the prior quarter.

Management repurchased 163,000 shares worth $6.5 million.

Additionally, Linear approved an increase in the company's quarterly dividend from 26 cents per share to 27 cents per share payable on Feb 26, 2014 to stockholders of record on Feb 14, 2014.

Guidance

Management provided limited guidance for the third quarter of fiscal 2014. Management expects improved bookings momentum in automotive and industrial markets in the third quarter, forecasting revenues to increase 3% to 6% sequentially.

Conclusion

Though the top line exceeded our expectations, the bottom line missed the same due to weak revenues from the industrial market. 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.

Management expects improved bookings momentum in automotive and industrial markets in the near term, indicating stronger revenues in the upcoming quarter.

However, uncertainty in its core industrial, communications infrastructure and automotive businesses will remain an overhang.

Linear carries a Zacks Rank #4 (Sell). Other better-performing stocks that are worth considering include Amtech Systems Inc. (ASYS - Snapshot Report), Western Digital Corporation (WDC - Analyst Report) and First Interstate Bancsystem Inc. (FIBK - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).

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