Wednesday, July 21, 2010

Linear Technology - Rodney Dangerfield In Semiconductor Form

I used to own Linear Technology (Nasdaq: LLTC) and today is sort of a microcosm as to why I eventually sold at a small profit (much smaller than it should have been) - the company just cannot catch a break.

Revenue was up 18% sequentially due in part to strong "iX" demand at Apple (Nasdaq: AAPL), as LLTC provides AAPL with battery charge chips and DC converters for the iPhone and iPad. Gross margins climbed 50bp to 78.4%, operating margins also rose, and operating profits jumped almost 26% sequentially. On top of all that, the company raised its guidance for the back half of the year.

And yet, the stock is still down.

Linear has always been hounded over the "certainty" that their high margins will eventually dissolve under competition. Never mind the fact that they are an innovative leader in the high-performance analog market, have a small army of researchers, and almost always manage to stay ahead of the game. Never mind the fact that Linear has always been smart about balancing the trade-offs of growth and profitability. Nope, apparently less innovative growth-at-any-cost companies are going to beat them.

I mean, honestly, it gets a little depressing. Even Craig Berger, an analyst I respect a lot at FBR, has them at an Underperform ... even while praising them as an exceptionally well-run company.

Okay, I get that Linear's plays in markets that can be low-growth *and* volatile (autos, industrial). But c'mon ... they sell 7,000 products to 15,000+ customers and they were good enough to earn the blessing of St. Steven of Jobs.

Oh well, I should practice what I preach I suppose. I mean, I do not own LLTC anymore and my only semi holding is Microsemi (Nasdaq: MSCC), though I would happily add ON Semi (Nasdaq: ONNN) as well. I can also relate to people who would rather own Analog Devices (NYSE: ADI) or Marvel (Nasdaq: MRVL). But even still ... LLTC feels like a company and a stock that struggles to get its due.

Disclosure - I own shares of Microsemi

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