Chipmaker Linear Technology (NASDAQ:LLTC) will report second-quarter 2007 financial results on Tuesday, Jan. 16.

What analysts say:

  • Buy, sell, or waffle? Half of the 32 analysts covering Linear say "buy;" 15 say "hold," and one says "sell."
  • Revenues. On average, revenues for the second quarter are expected to rise 3.9%, to $275.5 million.
  • Earnings. Profits are expected to nudge up one penny, to $0.34 per share.

What management says:
Linear's linear integrated circuits saw weakening demand and slightly lower bookings last quarter. According to CEO Lothar Maier:

"The December quarter that we are entering is difficult to forecast. Macroeconomic trends are reasonable, and our positioning in customer programs is good. However, visibility is low, and customers are guarded in their forecasting and inventory management."

That suggests a decline in sales and profits in line with typical seasonal slowdowns. Analysts apparently aren't buying into Maier's argument, though they have been scaling back previous estimates.

What management does:
Linear seems to be held back by the uncertainty surrounding the semiconductor industry and Linear's inability to provide clear foresight through the fog. The company has been holding the line on expenses, aided by the 69% of its revenues it receives from international operations, but profits have been pinched slightly because of stock option grants. Otherwise, the company remains one of the most profitable chipmakers.

Margin %

10/05

01/06

04/06

07/06

10/06

Gross

79.4

79.4

79.0

78.9

79.0

Op.

58.0

57.6

56.9

56.6

56.6

Net

40.8

40.3

39.7

39.2

39.1
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Like many technology companies, Linear is the subject of SEC investigations and shareholder lawsuits over its stock option grants. It conducted an internal audit, however, and found no instances of backdating and no financial reports needing restatement. It's also filed all of its reports with the SEC on time. Investors don't seem to need to worry about that distraction.

For the short term, it seems like Linear will continue to trade in the same narrow band it's occupied for the past six months, until it can break out with either improved guidance or new products. It will soon be bringing the latter to market for PCs, MP3 players, and cell phones. Since most of its revenues are derived from Asia, Linear is also protected somewhat from the slowing demand seen in the U.S. However, as a percentage of revenues, domestic sales have climbed to 31% of the company's total.

Trailing EPS of $1.42 gives Linear a P/E of 22, a number that has steadily fallen as the company's earnings have grown over the past year. To this Fool, Linear seems to have good profitable potential down the line.

Competitors:

  • Analog Devices (NYSE:ADI)
  • Maxim Integrated Products (NASDAQ:MXIM)
  • National Semiconductor (NYSE:NSM)
  • Texas Instruments (NYSE:TXN)
  • Fairchild Semiconductor (NYSE:FCS)
  • Intel (NASDAQ:INTC)

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.