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Maxim Integrated Products Inc  (NASDAQ:MXIM)
Q2 2019 Earnings Conference Call
Jan. 29, 2019, 5:00 p.m. ET

Contents:

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Maxim Integrated Second Quarter Fiscal 2019 Conference Call. At this time, all participants are on a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions)

I would now like to introduce your host for today's program, Kathy Ta, Vice President, Investor Relations. Please go ahead, Kathy.

Kathy Ta -- Vice President, Investor Relations

Thank you, Jonathan. Welcome everyone to Maxim Integrated's fiscal second quarter 2019 earnings conference call. Joining me on the call today our Chief Executive Officer, Tunc Doluca; and Chief Financial Officer, Bruce Kiddoo.

As part of our usual process, we have posted a supplemental financial presentation to our external Investor Relations website. The information in this presentation accompanies the financial disclosures in our earnings press release and on this conference call. During today's call we will be making some forward-looking statements. In light of the Private Securities Litigation Reform Act, I'd like to remind you that these statements must be considered in conjunction with the cautionary warnings that appear in our SEC filings.

Investors are cautioned that all forward-looking statements in this call involve risks and uncertainty and that future events may differ materially from the statements made. For additional information, please refer to the Company's Securities and Exchange Commission filings which are posted on our website. Now I'll turn the call over to Tunc.

Tunc Doluca -- President and Chief Executive Officer

All right. Thank you, Kathy. Good afternoon to all our participants and thank you for joining us today. We appreciate your interest in Maxim Integrated. Our December quarter results came in below expectations due to the soft environment. However, we are encouraged to see bookings return to normal levels in recent weeks. We believe our business model enables us to be successful in any environment and we continue to generate strong free cash flow despite current conditions.

Our strong free cash flow and positive net cash balance enable us to increase our share buyback and continue our industry-leading dividend, and we are on track to return 125% of free cash flow to shareholders this fiscal year. We continue to believe that buying our shares is the best use of our cash in the current environment.

Before I turn to my end market commentary, I want to remind investors that our second fiscal quarter last year was a 14-week quarter and was impacted by the transition to sell-in accounting at one distributor. My comments on December quarter year-on-year comparisons adjust down year-ago quarter revenue for both of these items.

Let me know discuss December results and current quarter outlook, starting with automotive. In the December quarter, our automotive business was up 8% from the same quarter last year. We continued to see the strongest demand signals from battery management systems for electric vehicles and driver assistance content. However, in our infotainment and auto body electronics business, we are seeing sub-seasonal performance, driven by slower car sales.

We do see ample content growth opportunities for Maxim in driver assist, or ADAS applications, in power management and point-to-point serial link data communication products. At the Consumer Electronics Show, we held a record number of customer discussions on our battery management, driver assistance and power management solutions. Our latest generation of GMSL-2 automotive serial linked products transport video, audio and data at a 6-gigabit per second transfer rate and can also transport 1 gigabit per second Ethernet.

We expect to introduce additional GMSL-2 products in the coming year and have already won designs at seven different OEMs. Our business in battery management systems for electric vehicles continues to grow in global footprint and scale, and we discussed our latest generation products with customers at CES. Additionally, we announced new families of high voltage automotive power solutions that efficiently control and supervise the hundreds of watts of power required for advanced driver assistant systems. In the March quarter, we expect automotive to be up sequentially and up in the high single-digits from the same quarter last year, supported by continued strong demand for battery management systems, but offset by lower overall car sales.

Let me next turn to the industrial market. In the December quarter, industrial was down 6% from the same quarter last year. Throughout the quarter we experienced slow bookings and resales across most of our product lines sold to the industrial broad market and to factory automation customers. Bruce will provide more detailed commentary on the dynamics of our distribution business right after me.

We continue to believe in the long-term growth trajectory of factory automation in the areas of interface and communications that bring intelligence to the factory edge, digital isolation and isolated power and protection solutions, and ultra efficient and tiny footprint power modules. In the March quarter, we expect industrial to be down sequentially with core industrial flat.

Let me next discuss communications and data center. In the December quarter, comms and data center was down 13% from the same quarter last year. As we expected, we saw a pause in demand for 100G laser driver products for optical modules used in hyper scale intra data center applications, and a decline in demand for communications infrastructure products.

In the March quarter, we anticipate comms and data center revenue to be strongly down sequentially, with continued softness in 100G laser driver shipments, and in broad base of building block products. We continue to believe in the long-term growth opportunities in the data center market.

Finally, let me turn to consumer. In the December quarter, consumer was up 7% from the same quarter last year due to the holiday ramp of our broad-based business in tablets, wearables and peripherals. In the quarter, we introduced a number of new power management products, including mini (inaudible) and highly integrated battery chargers to address a broad set of consumer applications, including smart watches, fitness and health monitors, wireless headsets, body cameras and e-pens. These products extend battery life, provide excellent signal to noise performance for adjacent sensors, in fact in multiple power rails within the tiny design footprints required for wearable mobile devices. In the March quarter, we expect consumer to be strongly down sequentially due to normal post-holiday seasonality of our broad-based consumer business and below historical growth in smartphones.

To reiterate what I have said previously, we have built Maxim to be successful in any environment. One, we continue to grow content and generate new design wins in high quality, diversified and long product lifecycle markets such as automotive and industrial. Two, our flexible manufacturing structure ensures consistent world-class gross margins. Three, we continue to exert tight spending controls. And four, we have low capital intensity in manufacturing. All of this results in strong, predictable free cash flow, all of which we return to shareholders.

With that, I will now turn the call over to Bruce.

Bruce E. Kiddoo -- Senior Vice President and Chief Financial Officer

Thanks, Tunc. Revenue for Q2 was $577 million, down 1% from the same quarter a year ago, normalizing for the 14-week quarter and sell-in accounting revenue transition that occurred last year. While this is clearly a period of soft demand, as Tunc has said, we are built to perform in any environment. Our trailing 12-month free cash flow, excluding one-time payment in Q4 FY '18, grew 8% from the last year. And we are executing on our plan to return 125% of free cash flow to shareholders in the current fiscal year, with our rate of buyback nearly doubling in Q2 from the previous quarter.

Our revenue mix by major markets in Q2 was approximately 28% consumer, 27% industrial, 24% automotive, 18% communications and data center, and 3% computing. Our industrial and automotive businesses comprised over half of our revenue in the quarter.

Turning to the distribution channel, distribution comprised 44% of Maxim's revenue in the December quarter. We ended Q2 with 68 days of inventory in the distribution channel. Channel inventory dollars decreased by 2%, but was offset by lower-than-expected resales. Resales were down 12% from the same quarter a year ago, with weakness noted across most markets and geographies.

We continue to closely manage our supply chain, our inventory in the distribution channel and our distributors performance given the uncertainties in the industry. We remain committed to bring down our days of channel inventory to our target of 60 days or less. However, given the lower demand environment, this may take a few quarters.

Turning to the P&L, Maxim's gross margin excluding special items was 65.9%, down 2.6 percentage points from the prior quarter, with the decrease driven by one-time credits in Q1 and higher inventory reserves in Q2.

Operating expenses, excluding special items, were $188 million, down 3% from the prior quarter and below our guidance, reflecting tight cost controls. Q2 GAAP operating income, excluding special items, was $192 million. Operating margin was 33% of revenue, down from the prior quarter due to lower revenue. Q2 GAAP tax rate, excluding special items, was 13%. GAAP earnings per share, excluding special items, was $0.60, up an estimated 2% from the same quarter a year ago after normalizing for the 14-week quarter and sell-in accounting revenue transition that occurred last year.

Turning to the balance sheet and cash flow, overall, total cash, cash equivalents and short term investments decreased by $603 million in the second quarter to $1.96 billion, due to the repayment of our $500 million bond that came due in November and higher share buyback. Total debt is now $1 billion or approximately one time trailing 12-month EBITDA.

Q2 inventory days ended at 129, up five days from Q1 due to lower revenue. Inventory dollars were up 1% from the prior quarter. Capital expenditures were $13 million in the quarter. Trailing 12-month free cash flow was $919 million or 37% of revenue, which is up 8% over the same quarter last year. Our free cash flow yield is 6% at yesterday's closing stock price. Our free cash flow per share was $3.28. For capital return, share repurchases totaled $208 million in Q2 as we bought back approximately 4 million shares. Dividends totaled $127 million in the quarter or $0.46 per share. Based on yesterday's closing stock price, our dividend yield is 3.3%.

Our beginning Q3 backlog with $372 million. Based on this beginning backlog and expected turns, we forecast Q3 revenue of $520 million to $560 million. This is the result of continued content growth in automotive, offset by softness we are seeing across a broad set of customers and end markets. Q3 gross margin, excluding special items, is forecasted at 64% to 66%, down slightly from Q2. Our flexible manufacturing strategy is working as expected to minimize the gross margin impact of lower revenue. Q3 operating expenses, excluding special items, are expected to be down from Q2 to the low to mid 180s due increase cost control and response to the lower revenue.

Our tax rate for Q3, excluding special items, is expected to be 14%, up a percentage point from the prior quarter. 14% is the best estimate to use for modeling purposes for the balance of fiscal 2019. For Q3 GAAP earnings per share, excluding special items, we expect a range of $0.49 to $0.55. For FY '19, we expect capital expenditures to be just above our targeted range of 1% to 3% of revenue due to lower revenue and required upgrades at our one internal fab.

In summary, while we expect a sequential decline in Q3 revenue given uncertainty in the current environment, we are built to perform in any environment. We believe automotive, industrial and data center are high quality, long term secular growth drivers. Our flexible manufacturing strategy enables us to maintain high profitability and we will continue to tightly control operating and capital expenses. These factors result in high quality earnings and strong cash flow which support our fiscal 2019 plans to return 125% of free cash flow to shareholders. As a result of this increased buyback during this industry slow down, we will exit this period with greater earnings power.

With that, I'll turn the call over to Kathy.

Kathy Ta -- Vice President, Investor Relations

Thanks, Bruce. That concludes our prepared remarks and we will now open the call for questions. We'd like to continue the same Q&A process that we've used previously. We'll take one question from each caller so we can get to as many people in the queue as possible. And as usual, if you have a follow-up question, please enter back into the queue. Jonathan, could we please have our first question?

Questions and Answers:

Operator

Certainly. (Operator Instructions) Our first question comes from the line of Harlan Sur with JPMorgan. Your question, please.

Harlan Sur -- JPMorgan -- Analyst

Good afternoon, and solid job on the quarterly execution in a pretty tough environment. Industrial was down about as expected in December. But unlike your automotive business, you're not seeing the sort of normal seasonal, sort of quarterly uptick in the March quarter. And I guess the question is, is it still the broad base sort of SMB customer base that is driving the declines in margin? And I think you've mentioned core industrial is expected to be flat. How do you guys define core industrial? And as you think about sort of just the very near term trends thus far here in January, wondering if the team is seeing any signs of stabilization in bookings trends in industrial?

Tunc Doluca -- President and Chief Executive Officer

So, on the industrial space, I mean, the weakness that we're seeing, if you recall last quarter, it really start -- started with a broad base of customers. But throughout the quarter it kind of expanded into other customers as well. But let me try to answer, yes, there are a couple of questions in there. So, core industrial for us and majority of it is in control and automation, over half of it, but it encompasses other areas as well.

But what we are seeing is that weaknesses both in small, medium customers, as well as some of our larger customers were that they're seeing a pause from their customers in terms of ordering equipment. But if you recall, our industrial business also has some verticals in it. And some of those verticals especially ATE (ph) we've seen a lot of weaknesses, especially in -- going into Q3 right now. So it's kind of broad based. There's some special verticals that are being especially week and I don't think we should be that surprised by ATE being week with the whole industry seeing a downturn. So that's kind of gives you an idea.

Kathy Ta -- Vice President, Investor Relations

Thank you, Harlan.

Operator

Thank you. Our next question comes from a line of Ross Seymore from Deutsche Bank. Your question, please.

Ross Seymore -- Deutsche Bank -- Analyst

Thanks a lot for letting me ask a question. Tunc, just want to go into your comments on the bookings getting better recently, and in general just talk about linearity throughout the quarter, what got worse in the December quarter and then what's getting better, any geographic or end market color you could provide around how bookings acted in those two quarters would be helpful.

Tunc Doluca -- President and Chief Executive Officer

So what we -- if you recall what we said when we were entering Q2, we'd said that we'd seen orders weekend in the last couple of weeks of September. And in commentary later we said that things had not improved, they've gotten worse. I guess until the beginning of December, after which the bookings actually got worse in terms of orders. What we're seeing now is actually kind of a broad based. It's kind of too early with only three weeks of data to be able to tell you accurately which markets are stronger than others. So I think we're not going to go there in terms of trying to explain that, but essentially what we saw in January is that the order rates really improved from the prior few months that we saw. So that's what -- that's the information that we shared. Bruce, do you want any more color to that?

Bruce E. Kiddoo -- Senior Vice President and Chief Financial Officer

No, I'll just say, Ross, I think when we look at sort of the kind of the broad based business and we usually use kind of distribution as a proxy for that, we really saw the weakness in the December quarter in China, I mean, it was much lower. I mean, it was literally kind of down double-digits quarter-over-quarter when seasonally it's usually up, kind of low double-digits quarter-over-quarter. So that's really where we saw that weakness.

The rest of Asia was also week, right, we saw some weakness in Japan and Taiwan. And then, the Americas and Europe were actually kind of in line with seasonality. I mean, it's not like they were doing great, but they weren't as that. So really we saw our weakness in Asia, to say, on the retail side through distribution which is about 44% of revenue. So it's a pretty good proxy, and not as that in Americas and EMEA.

Ross Seymore -- Deutsche Bank -- Analyst

Thank you.

Bruce E. Kiddoo -- Senior Vice President and Chief Financial Officer

Yes.

Kathy Ta -- Vice President, Investor Relations

Thanks, Ross.

Operator

Thank you. Our next question comes from the line of Ambrish Srivastava from BMO. Your question, please?

Ambrish Srivastava -- BMO Capital Markets -- Analyst

Hi, thank you. I'm a little confused with the comment on the bookings turning to normal levels, just a little bit of clarification. So is that just coming back from a really bad December? And then a related follow on is how is that factoring into your factory loadings? Thank you.

Bruce E. Kiddoo -- Senior Vice President and Chief Financial Officer

Yes. So this is Bruce, so -- in order to -- Tunc said, right, we sort of when -- at the end of September, we saw bookings kind of go from a normal level where we had been booking down substantially, and kind of stayed there in a quarter, as Tunc said, it kind of weekend near the end of the quarter. And what we're seeing now in January is sort of return to normal bookings. So at those level, so that's still early, it's three weeks. So certainly can't draw any conclusions from that, but just as a data point, we wanted to share that with investors. We certainly haven't drawn any conclusions from it yet. We're still obviously managing the business expenses, both operating and capital tightly.

As far as impact to moves, you saw our inventory is still at 128 -- 129 days. And so we're obviously have reduced moves in the factory both in response to the lower revenue and in order to adjust our inventory on our balance sheet to bring that down as well. So clearly that's what --- those moves are down. I think it's still a very strong statement to say that kind of gross margins are holding up at the 65%, even with the lower revenue and with moves at a level to begin to reduce inventory.

Ambrish Srivastava -- BMO Capital Markets -- Analyst

Okay, so you're not changing your -- OK. Thank you.

Kathy Ta -- Vice President, Investor Relations

Go ahead. Sorry.

Ambrish Srivastava -- BMO Capital Markets -- Analyst

No, my question was that as you said, just to keep it clear, is -- it's too early, you're not calling a bottom and you're just saying that this is too early to draw any conclusions, your factory loading are still along the trajectory of what you thought earlier or later in the year, right?

Bruce E. Kiddoo -- Senior Vice President and Chief Financial Officer

Yes, I mean, we're looking...

Ambrish Srivastava -- BMO Capital Markets -- Analyst

Okay.

Bruce E. Kiddoo -- Senior Vice President and Chief Financial Officer

We have inventory on the balance sheet. So -- and I said before, I don't like inventory. So we're working to adjust that.

Ambrish Srivastava -- BMO Capital Markets -- Analyst

Thank you, sir.

Kathy Ta -- Vice President, Investor Relations

Thank you, Ambrish.

Operator

Thank you. Our next question comes from a line of Craig Hettenbach from Morgan Stanley. Your question, please.

Craig Hettenbach -- Morgan Stanley & Co. LLC -- Analyst

Yes, thank you. Tunc, just a question on the automotive market. You mentioned some of the legacy kind of infotainment seen an impact from lower car sales, which has been evident in the marketplace. So just wanted to get your sense in terms of the December quarter when you really start to see that and what type of volatility are you seeing from customers in terms of whether they adjust production for lower sales.

Tunc Doluca -- President and Chief Executive Officer

Well, I wouldn't -- so obviously we did see it in the quarter. I wouldn't really -- it was not volatility, it was just a general reduction in the number of units that were being ordered. It wasn't a -- there wasn't any sudden action that we saw from anybody in particular, frankly, just broadly people were ordering fewer of the parts that they used the order. So -- and when that -- when we asked a question about why, usually the answer was it's just lower cars sales without really giving anything specific. So I don't think that it happened in a way that was a reaction to something from the auto suppliers, it was kind of gradual.

Kathy Ta -- Vice President, Investor Relations

Okay, thanks for that.

Craig Hettenbach -- Morgan Stanley & Co. LLC -- Analyst

Did I answer what you were asking? Or were you asking something else?

No, you did; appreciate that.

Tunc Doluca -- President and Chief Executive Officer

Right, you're welcome.

Kathy Ta -- Vice President, Investor Relations

Thanks, Craig.

Operator

Thank you. Our next question comes from the line of John Pitzer from Credit Suisse. Your question, please.

John Pitzer -- Credit Suisse -- Analyst

Yes. Good afternoon, guys. Thanks for letting me ask a question. Tunc, I'm just kind of curious, when you look at your backlog entering into the March quarter and look at sort of your guidance for March, it implies sort of a turns coverage which is kind of in line with sort of the eight quarter average, plus or minus a little bit. And I'm just kind of curious, you know, as we go through correction periods, can you rely upon turns that consistently and what had been a little bit more conservative to kind of guide to turns coverage, that -- that's kind of below what we've seen over the last eight quarters when business was was pretty good?

Bruce E. Kiddoo -- Senior Vice President and Chief Financial Officer

Yes. Hi, John, this is Bruce. I'll take this. Certainly in the current environment, we did no in any way shape or form lean forward on our turns forecast to get to that number. So, if we look at sort of our turns the booking and that kind of actually at the low end of sort of a kind of our historical range. When we look at our beginning backlog as a percent of net revenue, it's a little bit lower. One thing to always remember about our Q3 is to the extent that there is any type of ramp at our largest customer, they always place those bookings within the quarter. So, they always show up as turns.

So, even with smartphones being down, just on a sequential basis, the third quarter always has a little bit higher turns historically than other quarters. And so, that may be one area that just contributes. But, no, we did not lean forward. You know our philosophy here, being an engineering company is we forecast what we think is the most likely number and balanced on kind of upside and downside.

John Pitzer -- Credit Suisse -- Analyst

Perfect. Thank you.

Kathy Ta -- Vice President, Investor Relations

Thanks, John.

Operator

Thank you. Our next question comes from the line of Tore Svanberg from Stifel. Your question, please.

Tore Egil Svanberg -- Stifel, Nicolaus & Company -- Analyst

Yes, thank you. And I have to ask Bruce this question since he is going to be retiring, since I got a (inaudible) question. So, Bruce, you talked about gross margin sensitivity, with revenue down 10%, impact to gross margin is 1% to 2%. Is that kind of -- was inventory days at 110 or does that math going to change now with inventory days at 129?

Bruce E. Kiddoo -- Senior Vice President and Chief Financial Officer

Yeah, So, first off, I'm not going anywhere soon. So, you're not getting rid of me. So, I'm sorry to let you know that. But, no, I think when we look at the gross margin and we said, yeah, for a 10% decline down 1% to 2%, I think that's appropriate throughout the cycle. Obviously, there's other issues that are going on as far as like we say we are trying to burn off inventory. That make push it up like closer to like 2% impact.

If you look at the -- kind of the guidance that we gave for Q3, right, we're basically down a point, right. We're at 65.9 in Q2. We guided to 65 in Q3 and when you look at revenue, we're sort of down quarter-on-quarter, we are down 6%. So, we are a little bit over, but that's -- probably that point, right, that's sort of in line just because of the inventory burn off as well.

Tore Egil Svanberg -- Stifel, Nicolaus & Company -- Analyst

Sound good. Thank you.

Tunc Doluca -- President and Chief Executive Officer

Now that we're on a more flexible model, keeping the factors low to the secondary effect, which is -- which had a much less impact than it used to 10 years ago.

Tore Egil Svanberg -- Stifel, Nicolaus & Company -- Analyst

It's a good point. Thank you, Tunc.

Kathy Ta -- Vice President, Investor Relations

Thanks, Tore.

Operator

Thank you. Our next question comes from a line of Chris Caso from Raymond James. Your question, please.

Chris Caso -- Raymond James -- Analyst

Yes. Thank you. Just a question following up on some of the earlier questions. And I guess my question is, what sort of linearity have you assumed with the guidance? And I ask that because I realize, you know, this is a particularly tricky quarter with Chinese New Year in the middle. You've seen some improvement in bookings in January, but the last two quarters, I guess we've seen some deceleration at the end of the quarter. So just trying to understand what sort of assumptions you made in putting together the guidance that all into consideration?

Bruce E. Kiddoo -- Senior Vice President and Chief Financial Officer

Yeah, so this is Bruce. Generally speaking, at Maxim linearity within a quarter is not -- we don't -- it's not that important. We're a very broad based business. We shift thousands of parts to thousands of customers throughout the quarter. So we're not back end loaded. So when we do our forecast, we don't -- we look at it for a total quarter. We don't look at it month-by-month.

As far as Chinese New Year, our view of that has always been demand is demand, maybe it gets pulled in a little bit depending, you know, the bookings get pulled in maybe and then you have a slow week, but then it comes back. But over an entire quarter, that really shouldn't change the overall demand environment, the timing of Chinese New Year. So we don't try to forecast that as well when we look at sort of the bookings and turns forecast for the quarter.

Tunc Doluca -- President and Chief Executive Officer

Yeah, I mean, especially Chinese New Year is in the middle of the quarter. So it doesn't have the effect. If it were at the end, it would be a consideration, but it's in the middle so it doesn't.

Bruce E. Kiddoo -- Senior Vice President and Chief Financial Officer

Yeah.

Chris Caso -- Raymond James -- Analyst

Thank you.

Kathy Ta -- Vice President, Investor Relations

Thanks, Chris.

Operator

Thank you. Our next question comes from the line of Toshiya Hari from Goldman Sachs. Your question, please.

Toshiya Hari -- Goldman Sachs -- Analyst

Yeah, thank you so much for taking the question. I was hoping to learn a little bit more about the automotive business, what kind of trends you're seeing in the different applications. You guys talked about strength in BMS data (ph) and I suppose a little bit of weakness in your legacy infotainment business, but what sort of growth rates did you see in the December quarter and what kind of growth rates are embedded in your March quarter guidance? Thank you.

Tunc Doluca -- President and Chief Executive Officer

Yes, so in terms of growth, as I said in my prepared remarks, I mean the growth areas for the December quarter was basically in battery management systems and in AS and the others were either -- infotainment was either flat or slightly down. But those growth rates were very strong. I mean, they're both of them were in the 40% to 60% on a year-over-year basis. So that market continues to do or that sub market of automotive continues to do well for us.

Getting into the March quarter, the battery management systems is still pretty strong, probably in those ranges. The ADAS is still double-digits, probably not as strong as BMS frankly, but it's still in the double-digits. And I think the trend that we do see in those markets are secular and they're going to go on for a long time because more and more cars are being built, essentially powered by batteries and more and more driver assistance going into cars.

So, those two are really good content growth stories for automobiles. And also remember that electric cars also in addition to just having systems required for battery management, they still need all the other stuff, they still need infotainment, they still need driver assist. So, that's a really good trend for us in terms of future growth. That's the color I can give you about in the short-term what they look like, last quarter and this quarter.

Toshiya Hari -- Goldman Sachs -- Analyst

Very helpful, thank you.

Tunc Doluca -- President and Chief Executive Officer

You are welcome.

Kathy Ta -- Vice President, Investor Relations

Thanks, Toshiya.

Operator

Thank you. Our next question comes from the line of Srini Pajjuri from Macquarie Securities. Your question, please.

Srini Pajjuri -- Macquarie Securities -- Analyst

Thank you for taking my question. Tunc, I was hoping you could put the current cycle in a perspective. I mean obviously historically, we've had this inventory-driven cycles typically late in the cycle, we had extending lead times and double bookings and then followed by cancellations and then a couple of quarters of inventory digestion. And then that followed a typical snap back. You know, we never had much of a lead time extending in the cycle. I don't recall many companies talking about double bookings either. So, I'm just curious how do you see the recovery from here on compared to some of the previous cycles that we have seen in the past?

Tunc Doluca -- President and Chief Executive Officer

Yeah, so let me make a few comments. I think that first of all, let me just talk about Maxim for a second. So, for us, we've had multiple years, I think five or six years where we had lead times that were relatively short and even through the up cycle, we were able to -- because of our flexible manufacturing, we're able to keep up with the demand increases and not have shortages.

I don't think that's been the same for the entire industry. There is many market segments that did see lead time extensions, especially in some of the discrete products, memory, all these areas where we had all kinds of lead time extensions. So, I think we have a kind of a distorted view from our space because we didn't have those and it's really hard for us to be able to tell whether there's going to be a snap back or not and how strong it's going to be from where we sit.

By the way the other item you mentioned was double ordering and cancellations. And I think we've said in previous calls in the summer that we didn't have double orders that we could detect. And I think some of you also asked about cancellations and those were all normal for Maxim. And they haven't really changed that much for us right now either. So I think we're not a good company because of our supply chain working pretty well to be able to time when you have a recovery back from an inventory correction or not, but I think that the industry has gone through some of the symptoms that you talked about in your question, about linked -- especially lead time extensions in some markets in some components.

Srini Pajjuri -- Macquarie Securities -- Analyst

Got it. Thank you.

Tunc Doluca -- President and Chief Executive Officer

You are welcome.

Kathy Ta -- Vice President, Investor Relations

Thanks, Srini.

Operator

Thank you. Our next question comes from a line of CJ Muse with Evercore. Your question, please.

CJ Muse -- Evercore -- Analyst

Yes , good afternoon, thank you for taking the question. I guess in this uncertain environment you're still putting up pretty spectacular free cash flow. So curious, how are you thinking about OpEx beyond the March quarter? Are you stepping up the gas on any R&D projects or just treating as normal and how should we think about the trajectory there as long as the uncertainty persists?

Bruce E. Kiddoo -- Senior Vice President and Chief Financial Officer

Yes, I'll take that first CJ and then maybe Tunc can comment as well. So, first off, it is nice to being a CFO with a really experienced management team. As soon as we saw kind of a slow down coming, all the GMs started kind of looking at their spending and being a little bit more careful about that. And so, you know, when we kind of came out as a finance team and kind of gave new lower targets to people, everybody was pretty much there.

To be very clear, we're being prudent to the extent we have invest areas, whether that's in factory automation or automotive or data center or even some of our like broad based consumer businesses that we've been investing in, we will continue to invest in those. That said, when a company is spending -- we were spending around $195 million a quarter on OpEx, there's always areas that you can look at and pull back on. And so we've done exactly that. We came in below $190 million in December quarter and we're going to be in probably the low to mid 180s in March and we have the playbook where we'll watch and we will continue to watch the order flow. We won't get ahead of it, but if we see things improving, then we'll kind of -- we'll adjust and if we see things stay the same or weaken, then we'll adjust as well. So it's very much a real-time process here at Maxim and I think it is just the benefit of having a management team that's experienced and our business is cyclical and I think, fortunately for me as CFO I have -- get to work with people who are good at managing through it.

Tunc Doluca -- President and Chief Executive Officer

Yes, (multiple speakers) a pretty good job.

CJ Muse -- Evercore -- Analyst

Thanks, Bruce.

Bruce E. Kiddoo -- Senior Vice President and Chief Financial Officer

Yeah.

Kathy Ta -- Vice President, Investor Relations

Thanks, CJ.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of William Stein from SunTrust. Your question, please.

William Stein -- SunTrust Robinson Humphrey, Inc. -- Analyst

Great. Thanks for taking my question. Tunc, can you remind us how big that 100 gig optical driver business is? And with the slow down there, is that a matter of customers transitioning to 400 gig or maybe a share loss or is it more just a pause in demand and along with that maybe any expectations for recovery there? Thank you.

Tunc Doluca -- President and Chief Executive Officer

Yes, so first of all, Bruce can look at the numbers, but in terms of what we see in the market, we definitely see it as a pause. We're not seeing it as a loss of sockets in the laser drivers that we're selling. And it was -- if you recall, it was really two things that we cited that caused it, one of them was an issue with one of our customers' products, a technical issue with it. So that caused a supplier reevaluation or change. So that was one of the reasons. But the other thing, I think it's pretty clear now, it's come out in the last few months that the capital spending by the cloud customers has gone down. So that also has an effect. But the biggest reason for the pause was the fact that there was a technical challenge that a customer had to go through, unrelated to our product, by the way.

So that's why we're pretty confident that we have -- we don't have a share loss issue here. Now having said that, it clearly -- the pause is also being caused by the fact that even though they have this technical issue, they were really not crying out for these parts. They must have had enough inventory to carry them through this period of the pause. So that's the way we're seeing it. It's really -- I have not heard that it's because of a transition to faster data rate. If there is, we have those products as well in our pipeline. But that's not what we're seeing for the inside of the data center type applications.

Bruce E. Kiddoo -- Senior Vice President and Chief Financial Officer

And just to size the business for you, right, we've said before that our our data center business was sort of mid single-digit, 5%, 6% of revenue and cloud was about half of that and optical was the primary driver within the cloud. So what -- it's not really a large business for us. It was driving outsized growth for us for a couple of years, I think. And -- which was great, that slowed down and as Tunc said, maybe they sort of needed some time to digest some of this inventory that we were shipping it, you know, kind of 50% year-over-year growth rates, off a small base, but clearly there was strong shipments for an extended time period.

William Stein -- SunTrust Robinson Humphrey, Inc. -- Analyst

Great. Thanks guys.

Bruce E. Kiddoo -- Senior Vice President and Chief Financial Officer

Yeah.

Kathy Ta -- Vice President, Investor Relations

Thanks, Will.

Operator

Thank you. Our next question comes from the line Christopher Rolland from Susquehanna. Your question, please.

David Donnelly -- Susquehanna -- Analyst

Yes, this is David Donnelly on behalf of Chris Rolland. Thanks for taking our question. Just want to dig in a little deeper on the March guide for consumer, if we could, that was strongly down quarter-over-quarter. Is it just new seasonality now that you're diversified into many different customers or is this guidance largely just driven by a weaker handset environment?

Bruce E. Kiddoo -- Senior Vice President and Chief Financial Officer

This is Bruce. And the answer to your question is yes. So it is both new seasonality. As you know, as we've gone to a more broad based consumer business, which has, you know, generally has strong in the September and December quarters, which we saw, good strength in those quarters, in those kind of broad based businesses, tablets, wearables, peripherals, gaming, etc. And then it's, you know, typically down in March. So that is some new seasonality for us in our broad based business. In addition, we are seeing I think, like others, weakness in smartphones such that we're seeing kind of below historical levels for smartphones in the March quarter.

So I think it's a combination of both. I think overall we still feel very good about the broad based consumer business. It grew you know very -- those grew very strongly in this kind of, you know, 20%, 30% range year-over-year in the December quarter and they're just going through their kind of normal seasonal softness in March.

David Donnelly -- Susquehanna -- Analyst

Got it. Thank you.

Kathy Ta -- Vice President, Investor Relations

Thanks, David.

Operator

Thank you. (Operator Instructions) And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to the management for any further remarks.

Kathy Ta -- Vice President, Investor Relations

Okay. Thank you, Jonathan. That does conclude today's conference call. We would like to thank you for your participation and for your interest in Maxim.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Duration: 44 minutes

Call participants:

Kathy Ta -- Vice President, Investor Relations

Tunc Doluca -- President and Chief Executive Officer

Bruce E. Kiddoo -- Senior Vice President and Chief Financial Officer

Harlan Sur -- JPMorgan -- Analyst

Ross Seymore -- Deutsche Bank -- Analyst

Ambrish Srivastava -- BMO Capital Markets -- Analyst

Craig Hettenbach -- Morgan Stanley & Co. LLC -- Analyst

John Pitzer -- Credit Suisse -- Analyst

Tore Egil Svanberg -- Stifel, Nicolaus & Company -- Analyst

Chris Caso -- Raymond James -- Analyst

Toshiya Hari -- Goldman Sachs -- Analyst

Srini Pajjuri -- Macquarie Securities -- Analyst

CJ Muse -- Evercore -- Analyst

William Stein -- SunTrust Robinson Humphrey, Inc. -- Analyst

David Donnelly -- Susquehanna -- Analyst

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