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Is LLTC Well-Positioned to Bear the Macro Headwinds?

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Linear’s revenue hit by macro headwinds

In the previous part of the series, we saw that Linear Technology’s (LLTC) revenue fell 1.5% YoY (year-over-year) in fiscal 2Q16 due to seasonal weakness in the industrial space that was aggravated by the macroeconomic downturn. Let’s see if the company is financially well-positioned to bear these headwinds and still deliver returns to shareholders.

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Cash position

In fiscal 2Q16, the company earned $157 million in cash from operating activities and spent $10.9 million in capital expenditures, $22.6 million in share buybacks, and $73.5 million in dividend payments. As of January 3, 2016, the company’s overall cash reserves stood at $1.3 billion.

Like Intel (INTC) and Qualcomm (QCOM), Linear raised its dividend for the December 2015 quarter from $0.30 to $0.32 per share. This bodes well for dividend investors as the company has maintained its trend of raising dividend every year for the past 24 years.

The company has no debt, putting it in a strong position to weather a seasonal slowdown.

Fiscal 3Q16 performance is difficult to predict

The uncertain macroeconomic climate has affected many technology stocks like Advanced Micro Devices (AMD), making it difficult to forecast the performance of fiscal 3Q16. However, looking at the positive book-to-bill ratios for fiscal 2Q16, the company expects to post revenue in the range of $354 million to $364 million, or a 2%–5% sequential increase. Analysts expect the company to post a revenue of $359 million in fiscal 3Q16.

The book-to-bill ratio determines the confirmed orders that the company has received against the orders that are already delivered. The higher the ratio, the more received orders, and that determines the future sales.

Uncertain macroeconomic environment

The lower revenue guidance indicates the weakness in the consumer market and overall semiconductor industry. The industrial segment remains weak in many regions, and transportation alone can’t drive growth as its weight is almost half of the industrial segment’s weight. However, growth in one segment would support some rise in the company’s revenue as compared to past earnings.

One good point is that the company isn’t exposed much to consumer electronics like computers and mobile that are witnessing a slowdown.

You can gain exposure in most of the large-cap funds across various sectors—including technology—through the SPDR S&P 500 ETF (SPY). It has 0.06% exposure in LLTC, 0.83% in INTC, and 0.41% in QCOM.

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