Mr. Market isn't always fair.
The analog chip designer is walking a fine line to be sure. On one hand, Linear prides itself on short lead times between customers placing an order and receiving the shipment; it's a point of pride and one of the core ways in which Linear seeks to differentiate itself from Analog Devices
On the other hand, shortening lead times can also be interpreted as slow demand for the products: Customers adjust to having the necessary chips available at the drop of a hat, so they change their ordering habits to take advantage of this fact. Shorter lead times end up compressing Linear's visibility into future periods, depressing the crucial book-to-bill ratio, among other effects that look undesirable at a glance. But it's all due to a positive business trend when you dig deeper.
So Linear is cutting those lead times and taking a whipping in the market, and all the while sales jumped 65% year-over-year to $389 million in the just-reported first quarter. Earnings per share more than doubled to $0.59. Orders are still coming in faster than shipments are going out, but the book-to-bill ratio is inching down, ever closer to the crucial 1.0 mark due to the ordering patterns discussed above. Remember, what may look like weakness is actually due to prudent management moves and a total lack of hype-happy spin on the numbers.
I think we're looking at Linear coming into its own in a big way, paying down debt and expanding manufacturing capacity to take advantage of a strong business environment. The semiconductor industry is full of conflicting indicators at the moment, but Linear looks unambiguously tempting to me.
Fool contributor Anders Bylund holds no position in any of the companies discussed here. Linear Technology is a Motley Fool Stock Advisor pick. The Fool owns shares of Texas Instruments. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.