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Linear Technology Corp. (LLTC - Analyst Report) reported fourth-quarter 2014 earnings of 54 cents, beating the Zacks Consensus Estimate by 3 cents. The results were aided by higher volumes and lower interest expense which was partially offset by higher tax rate.

Revenues

Linear reported revenues of $365.4 million, up 11.6% year over year and 5.0% sequentially. Average selling price (ASP) was $1.90, up from $1.83 in the prior quarter. Also, fourth-quarter revenues also came ahead of the Zacks Consensus Estimate of $363.0 million and were at the higher end of the company’s guidance. The increase was due to stronger sales across automotive, industrial and communications markets.

Book-to-bill ratio was positive in the quarter and bookings increased sequentially in all major markets, especially automotive and industrial markets.

By end market, industrial continued to be the largest area, contributing 44% of the total fourth-quarter bookings, up from 43% in the previous quarter. The communications and automotive markets declined 1% each to 19%, while consumer end market contributed 3% of the total fourth-quarter bookings, up from 2% in the prior quarter. Computer, however, accounted for 9%, flat with the last quarter.

Margins

Gross margin for the quarter was 76.0%, up 30 basis points (bps) sequentially and 90 bps from the year-ago quarter.

Operating expenses of $106.2 million were up 7.4% from the year-ago quarter’s $98.9 million. Operating margin of 47.0% was up 80 bps sequentially and 210 bps year over year. As a percentage of sales,research and development (R&D) as well as selling, general and administrative (SG&A) expenses decreased.

The quarter’s GAAP net income was $129.7 million or earnings of 53 cents per share compared with $117.6 million or 48 cents in the previous quarter and $101.9 million or 43 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 54 cents, up from 50 cents in the previous quarter and 44 cents in the year-ago quarter.

Balance Sheet

Linear exited the fourth quarter with cash, cash equivalents and marketable securities of approximately $1.01 billion, down $749.9 million from the prior quarter. The cash balance decreased due to the use of $845.1 million to redeem all of its outstanding 3.00% Convertible Senior Notes. Account receivables were $173.3 million, down from $182.0 million in the prior quarter.

Management repurchased 650,000 shares worth $29.0 million. Additionally, Linear will pay a cash dividend of 27 cents per share on Aug 27, 2014 to stockholders of record on Aug 15

Guidance

Management provided limited guidance for the first quarter of fiscal 2015. The company expects improved bookings momentum in all the end markets in the first quarter and therefore predicts revenues to increase 1% to 3% sequentially or 8% to 11% year over year. The Zacks Consensus Estimate for revenues for the first quarter is pegged at $371.0 million.

Conclusion

The company reported a decent quarter, with both the top line and bottom line exceeding our expectations. 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 all its end markets in the near term, indicating stronger revenues in the upcoming quarter.

Linear carries a Zacks Rank #1 (Strong Buy). Other better-performing stocks that are worth considering include STMicroelectronics NV (STM - Snapshot Report), Intel (INTC - Analyst Report) and NVIDIA Corporation (NVDA - Analyst Report). All these stocks sport a Zacks Rank #1 (Strong Buy).

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