Apr 23, 2015
Executives
Kathy Ta – Managing Director, Investor Relations Tunç Doluca – President and Chief Executive Officer Bruce Kiddoo – SVP and Chief Financial Officer
Analysts
Ross Seymore – Deutsche Bank Harlan Sur – J.P. Morgan John Pitzer – Credit Suisse Gabriela Borges – Goldman Sachs & Co.
Craig Hettenbach – Morgan Stanley Philip Lee – Citigroup Tore Svanberg – Stifel Ambrish Srivastava – BMO Stephen Chin – UBS Steve Smigie – Raymond James & Associates, Inc. Chris Caso – Susquehanna
Operator
Good day, ladies and gentlemen, and welcome to the Maxim Integrated third quarter of fiscal 2015 conference call. [Operator Instructions] Later we will conduct a question and answer session, and instructions will be given at that time.
If anyone would require assistance during the program please press star then zero on your touchtone telephone. As a reminder, today’s program is being recorded.
I would now like to introduce your host of today’s program, Kathy Ta, Managing Director, Investor Relations. Please go ahead Kathy.
Kathy Ta
Thank you Jonathan and welcome everyone Maxim Integrated third quarter of fiscal 2015 earnings conference call. With me on the call today are Chief Executive Officer Tunç Doluca Chief Financial Officer, Bruce Kiddoo.
I would like to highlight that 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 taking some forward-looking statements in light of the Private Securities Litigation Reform Act, I would 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 & Exchange Commission filings which are posted on our website or available from the company without charge. Now I’ll turn the call over to Bruce.
Bruce Kiddoo
Thanks, Kathy. I will review Maxim’s third quarter financial results.
Revenue for the third quarter was $577 million, up 2% from the second quarter and slightly below the midpoint of the guidance range we provided last quarter. Quarter on quarter growth was primarily driven by continued strength in our automotive business.
Our consumer business was below expectations due to contract manufacture orders for our wearable product that were softer than planned. We previously announced a number of initiatives to substantially lower Maxim’s cost structure.
I’m pleased to announce that we’re ahead of our plan to realize $10 million in quarterly operating expense savings through targeted operating expense reductions, and as we announced last quarter, we are stopping investment in the consumers MEMS and touch lines of business that will enable us to achieve an additional $3 to $4 million a quarter in savings by the September quarter. We expect to complete the sale of our touch business in the current quarter.
Finally, we have identified incremental cost reductions which will enable us to maintain operating expenses of $200 million per quarter, even after our annual [POCO] [ph] process in September. This is a $20 million reduction from our baseline as of September 2014 quarter.
We are also executing well on our plan to reduce manufacturing costs through the closure of our fab in San Jose. We are working to achieve $10 million in manufacturing cost savings per quarter, exiting calendar 2015.
As a result we expect to achieve our committed 30% operating margin goal at a revenue level that is lower than the mid $600 million revenue per quarter we previously communicated. Our revenue mix by major markets in Q3 was approximately 31% from consumer, 27% industrial, 23% communications and data center, 13% automotive, and 6% computing.
In the March quarter our consumer business was down sequentially due to normal seasonal decline after a relatively strong December quarter. Our largest mobility customer’s revenue as a percentage of total company revenue was flat with the prior quarter.
Our industrial business was flat sequentially, slightly softer than expected driven by weakness in our vertical segments which was offset by a seasonal uptick in our core industrial end market. Our communication and data center business was up sequentially, primarily driven by a modest pickup in demand for Optical products after a soft December quarter and a seasonal increase in our cable business.
Our base station and server businesses were down sequentially. Our automotive business was strongly up sequentially, above normal seasonality, as we continue to gain share across a broad base of customers and products.
And finally our computing business was up sequentially. Turning to the P&L, Maxim’s gross margin, excluding special items, was 59.6%, just below the midpoint of our forecast.
Sequentially, gross margin was impacted by lower utilization in the December and March quarters. Internal fab utilization increased from 60% in Q2, to 63% in Q3.
Special items in Q3 gross margin included intangible asset amortization from acquisitions and accelerated depreciation from the closing of our San Jose fab. Operating expenses, excluding special items, were $200 million, down from $216 million in the prior quarter.
The decrease in operating expenses was driven primarily by savings from our restructuring activities and overall tight spending controls. Special items in Q3 operating expenses included normal acquisition-related charges and restructuring charges related to our cost reduction initiatives.
Q3 GAAP operating income, excluding special items, was $144 million, or 25% of revenue. This increased from 22% in the prior quarter.
The Q3 GAAP tax rate, excluding special items was 17.6%, lower than expected and down from 20.7% in Q2, due to an annual provision to return adjustment. GAAP earnings per share, excluding special items, was $0.40, above the high end of our guided range, primarily driven by lower operating expenses and, to a lesser extent, lower taxes.
Turning to the balance sheet and cash flow, during the quarter, cash flow from operations was $182 million, or 32% of revenue. Inventory days ended at 116, down 8 days from Q2 as we increased shipments of finished goods to key mobility customers while maintaining sufficient industrial and automotive inventory to provide improved delivery performance to those customers.
Inventory dollars were down 3% from last quarter. Capital additions were $9 million in the quarter, net of nominal proceeds from asset sales.
Capital additions are well below our normalized level of $39 million per quarter of depreciation, enabling free cash flow to grow faster than earnings. Trailing 12 months free cash flow ending in Q3 was $650 million, or 27% of revenue.
This represents a 7% increase over a year ago. Share repurchases totaled $37 million in Q3 as we bought back 1.1 million shares.
We also paid $79 million in dividends to our shareholders. The yield on our quarterly dividend of $0.28 per share is approximately 3.2% at yesterday’s closing stock price.
Overall, total cash, cash equivalents, and short-term investments increased by $86 million in the third quarter to $1.47 billion. Moving on to guidance, our beginning Q4 backlog is $387 million.
Based on this beginning backlog and expected turns, we forecast Q4 revenue of $570 million to $610 million, which reflects growth in shipments to key mobility customers in support of ongoing new product ramps, and strong growth in automotive. Based on weaker than seasonal booking trends, we are taking a cautious view in industrial, which we expect to be flat.
Communications and data center is expected to be down, driven by broad-based softness in communications infrastructure demand. Q4 gross margin, excluding special items, is forecasted at 58% to 61%, flat from the prior quarter, as factory utilization remains low.
Special items in Q4 gross margin are estimated at approximately $29 million, primarily for amortization of intangible assets and accelerated depreciation from our restructuring activities. Q4 operating expenses, excluding special items, are expected to be flat from the prior quarter and ahead of our cost-reduction goals.
Special items in Q4 operating expenses are estimated at approximately $4 million for amortization of intangible assets. Our Q4 tax rate, excluding special items, is estimated at 21% to 23%.
For Q4, GAAP earnings per share, excluding special items, we expect a range of $0.35 to $0.41. For fiscal year 2015 gross capital additions are expected to be at the low end of our target range of 3% to 5% of revenue.
Due to the sale of capital assets net capital expenditures are expected to be well below the low end of our target range. We expect to continue to repurchase shares in Q4 consistent with our buyback metrics.
In summary, we are seeing the results of targeted steps to reduce spending, which enable us to improve profitability at any revenue level. We remain committed to our 30% operating margin target which will benefit from expected revenue growth and planned spending reductions.
And finally we remain focused on growing free cash flow and returning cash to shareholders, as demonstrated by our growth, and trailing 12-month free cash flow and industry leading dividend yield. I will now turn the call over to Tunç to further discussion our business.
Tunç Doluca
Thank you, Bruce. And good afternoon to everyone on the call.
We appreciate your interest in Maxim Integrated and thank you for joining us today. Before I discuss the results of this quarter, and some challenges we’re seeing in our near term outlook, I would like to share a few thoughts about Maxim’s longer-term view with you.
While there have been some bumps along the road for us in recent quarters, we’re very pleased to have stabilized our consumer business through our hard work to diversify our revenue across customers, technologies, and platforms. Outside of consumer, our other businesses continue to do well, led by very strong growth in automotive.
We are delivering greater profitability, primarily because we’re exceeding our cost-reduction plans. Our execution on those plans enables us to be well on track to achieve 30% operating margin.
Our improved margin and lower capital expenditures enable strong free cash growth. This allows Maxim to remain a leader in return of cash to shareholders.
And finally, I would like to share with you, that we have recently aligned our business unit and sales organizations for improved maneuverability and better execution. This reorganization brought together all Maxim business units as well as sales and marketing to report to Matt Murphy.
We will achieve four primarily objectives with this change. One, agility.
This structure enables faster decision making in product development and market participation. Two, flexibility.
It will be easier to shift resources and investment between product lines and markets. Three, collaboration.
Fewer organization boundaries will enable more sharing across R&D teams, and four, customer engagement. Business units and sales closer alignment will drive increased design wins with customers and through the distribution channel.
Ultimately these changes will increase R&D productivity, improve customer satisfaction, and fuel revenue growth. Next as customary, I will provide some color on the near-term business.
I will start with the consumer major market. Our March quarter revenue in consumer was down from December.
This was driven by a normal seasonal decline in tablets and eReader shipments, partially offset by the ramp of a flagship Smartphone. The demand expectations of our largest mobility customer appear to be stabilizing.
In the quarter the percentage of our Company revenue from our largest customer was similar to the level of recent quarters. We expect that our consumer segment will be strongly up in the June quarter, with the continued ramp of a flagship phone at our largest mobility customer.
We are encouraged by the market reception of our leading customer’s flagship smartphone, however, we plan for tempered shipments of this product in our June quarter relative to previous generation Smartphone builds. For the new wearable product we expect a similar shipment level in the June quarter as we experienced in the March quarter.
We have several wins in our largest customer’s new flagship phone; we once again innovated in power management but enabling fast-charging capability in addition to our integrated interface power management functionality. Our fast-charge technology enables 30 minutes charge time to 50% battery capacity, highlighted by our customer.
We also continued to provide innovative biosensor chip in this flagship phone, and are developing multiple bio and environmental sensor technologies for future models. These next-generation products will enable new consumer use cases and Smartphones as well as other markets, like medical and industrial.
Finally, our highly efficient audio amplifier has been adopted in this high-volume flagship smart phone. Maxim’s Dynamic Speak Management, or DSM technology, delivers the loudest and richest sound experience, while protecting tiny speakers at all times.
We have broadened sales of our audio solutions into multiple product platforms and multiple customers, including the two largest mobility customers and a large Chinese Smartphone OEM. So, let me next turn to the industrial market.
Our March quarter industrial business was down slightly from the same quarter of last year, and sequentially flat. In the quarter, we experienced modest weakness in our verticals, while our core industrial business came in above seasonality.
Let me now provide some commentary on our distribution business. Globally, end market bookings were down 3% sequentially, and re-sales were up 1% sequentially.
The global end market bookings are significantly below typical seasonal levels. In Europe, we observed the seasonal reduction in inventory held in distribution.
Worldwide, we ended the March quarter with 57 days of inventory in the Vis-D channel, which was up three days from December. This increase was mostly in Asia.
Our largest distribution partner, Avnet, is again our largest account, at 19% of total company sales. Now, looking forward to the June quarter, we are taking a cautious approach in our expectations for the industrial segment, due to the lower bookings we experienced in the prior quarter.
While industrial bookings have picked up in April, we forecast the industrial business in the June quarter to be flat from March, which is sub-seasonal for Maxim and reflects our caution. Let me now turn to automotive.
Our March quarter automotive business was strongly up 31% from the same quarter of last year, and up 13% sequentially. This was much better than typical seasonality and above our previous expectations.
This performance reflects solid content growth in our high-end and mid-range cars, the launch of a new model year of cars, and the broadening customer base. In the June quarter, we expect automotive, again, to be strongly up, driven by our pipeline of design wins ramping into production.
A broad set of entertainment applications remains the largest driver of our growth in this business. We expect that safety and driver assistance, known as ADAS, will be a significant growth vector for Maxim in automotive in future years.
This is a small portion of our revenue today. Next, let me discuss communications and data center.
Our March quarter communications and data center business was sequentially up from a weak December quarter, but down from the same quarter of last year. We continue to see broad-based weakness across our portfolio of products in this segment.
We are experiencing a slowdown in the implementation of optical telecom infrastructure. We expect our comms and data center business to be slightly down in the June quarter, with continued broad based weakness in this sector.
In the computing market, March quarter revenue was up from the same quarter of last year and up sequentially. We expect computing to be strongly down in the June quarter.
As you well know, computing has not been a large percentage of our business for a while now. To summarize our view of the June quarter, we expect strong growth in consumer, due to flagship product ramps.
We also expect automotive to be strongly up, as we deliver on our robust pipeline of design wins for the next model year of cars. We expect industrial to be flat and below seasonality.
We are taking this cautious industrial view due to the lower bookings we saw in the prior quarter. Communications and data center, and computing are expected to be down.
In closing, our revenue has stabilized, with good growth opportunities in the future. We remain financially strong.
Our employees continue to develop innovative, differentiated technology that our customers love, and this will provide a high return on R&D investment. At the same time, we remain committed to disciplined management of the company, enabling us to exceed cost-savings targets and drive even greater profitability for Maxim.
With that, Kathy, I’ll turn the call back to you.
Kathy Ta
Thank, Tunç. That concludes our prepared remarks.
And we now welcome your questions. In the interest of reaching everyone in the queue, please ask just one question with one follow-up.
Jonathan, please begin polling for questions.
Operator
Certainly. [Operator Instructions] Our first come question comes from the line of Ross Seymore from Deutsche Bank.
Your question, please?
Ross Seymore
Thanks for letting me ask a question. And, I guess, Tunç, the first one is on the industrial side.
I realize that the bookings were weaker and that’s why you are guiding it flat. But, can you talk a little bit about what you think the underlying cause of that might be, given that we haven’t heard that the industrial segment was weak from some of your direct semiconductor competitors, albeit with other industrial companies outside of semis actually having some weakness?
Tunç Doluca
Well, it’s probably best to break this down a little bit, because we saw different environments or different results in different regions, so if you look at the -- just the Disdy side, and remember, the industrial business is very fragmented, from a customer’s standpoint. On the distribution side we saw below seasonal end market bookings in Europe.
We believe that might have something to do with the Euro/Dollar exchange rate, changing the behaviors of customers and our distributors. But of course, it’s pretty broad, so it’s not exactly easy to pin that down.
So, we believe there’s something there going on from the exchange-rate point of view. In the U.S., we did see below seasonal re-sales, which also did surprise us.
And finally, in China, there is weak macro there and the PMI has been less than 50. So, that’s really -- there are indications coming from the broad customers in that space, as well.
Now, we do have improved bookings in April from the previous quarter and it’s pacing better than what we forecast. And we really don’t see any fundamental reason why our core industrial should be different from others.
So, we’re getting different signals, but from our viewpoint nothing much has really changed for us. And maybe the difference is because of different lead times that we have with our customers and so on.
But, it’s really pretty difficult to pin down. I want to give one other data point, which is how did we do in the Disdy a channel versus our OEMs.
And, what we saw there was, in the March quarter, I already gave you what we got in Disdy customers, but our industrial direct customers were actually up from December, but they were slightly below seasonal. So, they’re also-- there’s some effect, but it is less muted than it was from the Disdy channel.
So, hopefully, I gave you some background, because this is a pretty broad customer base, it’s not as easy to figure out exactly what went on in -- like we do in other markets.
Ross Seymore
That color was very helpful. Thank you for that.
I guess, as my follow-up, switching gears to your consumer side, I know you are not going to guide two quarters out, but given that you are expecting that segment to be up strongly, and given the history, unfortunately, in the last two years of that growth being disappointing, whether it be in the June or September or even December quarters, can you talk a little bit about how you have adjusted your expectations, especially via your largest customer, as we head into what has been a tumultuous time in the last two years?
Bruce Kiddoo
Sure, Ross, this is Bruce. I’ll take that.
So, when we guided consumer up strongly, when we look at the guide for the F6 and for the wearable, I would say both of those guides were prudent, relative to the opportunity. And so very specifically on the F6, we guided that at a lower ramp than the S5 a year ago.
So, because of the exact effects that last year, things looked good and then September didn’t do as well, so from a -- how we’re managing our inventory, our buffers and even in our guidance, is we’re trying to be prudent in that, and therefore, we have guided that to a lower level. For the wearable, we have actually guided that flat, quarter-over-quarter, based on the orders that we have gotten from our contract manufacturers.
And so, again, I think a -- a prudent forecast in that area as well.
Ross Seymore
Great. Thank you.
Kathy Ta
Thanks, Ross.
Operator
Thank you, our next comes from the line of Harlan Sur from J.P. Morgan.
Harlan Sur
Hi, good afternoon. Thanks for taking my question.
On the consumer segment miss in the March quarter, was all of this related to what it seems like lower than expected production volumes of that particular wearables device? And I’m just trying to figure out if you guys know what was the disconnect in terms of, what you were anticipating at the beginning of the quarter, versus, what you guys actually shipped.
And then as it relates to the strong June quarter outlook, other than, your flagship Smartphone customer ramp, what else is driving the strong growth there?
Bruce Kiddoo
Sure, Harlan, I’ll take this. For Q3 while there’s always some puts and takes.
In general it was just the, kind of the orders that we ended up getting from our contract manufacturers for the wearable or certainly less than we had expected and we even, saw some push-out of backlog that we had going into the quarter. So that’s why that was a surprise to us from that point of view.
When we look at the fourth quarter in addition to the kind of the ramps that I talked about Ross’s question, you do see some pickup. There’s kind of the normal seasonal decline in tablets and eReaders that Tunç talked about for Q3, we see that come back to a more normal level in the in the fourth quarter.
Harlan Sur
I appreciate that. And then, of the 10 million of cost savings that the team hopes to achieve with the closure of the San Jose fab, how long is the team in that process?
I believe the target is to achieve full realization of that by the end of this calendar year but where is the team relative to that right now.
Tunç Doluca
Okay, so from the execution of our plant standpoint, we’re basically a little bit ahead of plan. But obviously the cost savings really isn’t realized until we complete the closure of the fab.
So we definitely know what we need to start into the fab, so satisfy our customers, and that’s very important that we do make sure we have enough supply for them. And many of the products we have already either transferred the mass, or made the mass to produce them in our other locations or one of our foundry partners, so we have made excellent progress, and I would be even easy to say we’re a little bit of ahead of plan.
Bruce Kiddoo
As he said, we’re working towards achieving that full benefit, starting in, kind of exiting, 2015, or, the March quarter of 2016, realizing that -- that 10 million. But there’s always work to be done to execute on that, so as Tunç said we’re doing well, but there’s some more to go.
Harlan Sur
Thank you.
Kathy Ta
Thanks, Harlan.
Operator
Our next question comes from the line of John Pitzer from Credit Suisse.
John Pitzer
Yeah, thanks for letting me ask the questions. Paul asked if I am splitting hairs here.
You guys have given commentary that you are trying to make some conservative assumptions for your June guidance. When I look at the backlog coverage exiting March, it’s slightly below, kind of average, which would imply that the June quarter actually needs more turns than you typically see, I’m just kind of curious, was the pickup in April bookings significant enough that if you would look at that matrix at the end of April month, you would have significantly better backlog coverage?
Or can you help me understand why from a pure backlog coverage perspective that turns need to be a little bit higher than what you need to make a quarter?
Bruce Kiddoo
Yeah, so, when I kind of looking at the fourth quarter, we’re about two-thirds booked right now. Almost exactly that way, and that’s actually kind of in line with where we have been.
If you look at a year ago we were 64% booked. So I think from that point of view, I think we’re in line with where we would normally be, but your point is appropriate because we did have those lower bookings from a backlog point of view, certainly we’re coming in lower than we would from seasonal point of view.
And that’s why we guided below seasonal for the fourth quarter, still up of course but not as strong as it normally would be.
Tunç Doluca
One nuance in there is when you see a ramp in our consumer business, that’s usually shorter lead-time products, so that is heavy, so that also Bruce as compared to last quarter, the same phenomenon was there also. The backlog going into the quarter is about right for the revenue that we guided to.
John Pitzer
That’s helpful. And Tunç you did a nice job qualitatively talking about what is happening across industrial from a geo perspective.
I’m just kind of curious what do you think normal seasonal should be for the June quarter? And as you look at industrial I know it’s typically a catch-all phrase for a lot of applications but are there sort of buckets of things you can talk about whether that be medical, infrastructure management, or something along those lines where you can give us the same kind of qualitative commentary that you give on a Geo basis.
BruceKiddoo
I’ll take the first half and then…
Tunç Doluca
I’ll take the second half.
Bruce Kiddoo
Yeah. Normal seasonality is in the 6 to 8% range, up for our industrial business.
Obviously core industrial is always up nicely and the verticals have a little bit more variability into that, but in general, yes, 6 to 8, versus is the normal seasonality, versus the flat that we are guiding.
Tunç Doluca
Yeah, so on the other side of the picture, on the verticals, what we did see in Q3, the quarter that just ended, we did see growth in medical, and we did see a little bit of growth in utility meters, and in the financial terminals, was down. And in going into Q4, looking at what the demand is for Q4, we expect medical to be up again.
But we do see weakness in utility meters. Mostly because of some weakness in North America.
And in financial terminals as well. And in financial terminals, what is happening is that most of our new product investments have been in mobile terminals, and there’s legacy business that’s the traditional desktop terminal, so that business is kind of in a slow decline.
In the mobile, timing is not happening right away. That’s what we’re seeing here, and that’s causing that revenue to come -not come in as we expected.
So from a vertical market standpoint, that’s -- you know, that’s what has happened in the last quarter than what we expect this quarter.
John Pitzer
Thank you.
Tunç Doluca
You’re welcome.
Kathy Ta
Thanks, John.
Operator
Thank you our next question comes from the line of Jim Covello from Goldman Sachs.
Gabriela Borges
Great. Thank you for taking my question.
This is Gabriela Borges on behalf of Jim. I was hoping you could give us an update in your diverse kitchen assets in consumer and the China hands on market in particular.
Maybe you could talk about the middle range picklery as well then any comment on the underlying demand trends you’re seeing in that market. Thank you.
Tunç Doluca
So the China market actually we’re, what we have there, first of all just from a product standpoint, what we have there on the revenue there, primarily comes from our power technologies. We do have some new wins at least at one major customer of our audio DSM product which I talked about, which is good.
But I think your question is more about what is happening because of the reports that are going on in the China market of weakness of sell through of these phones. We are aware of this inventory correction related to 4G phones in China, but it really is a minor impact for us because our China business is really not that large, and it’s very difficult for us, since we’re not in the vast majority of the phones, it’s difficult for us to gauge and be a bellwether for what the inventory situation or the sell through is in China.
So we’re not going to be much help there in terms of answering that question.
Gabriela Borges
Understood, appreciate the color. And maybe as a follow-up if I could.
Longer term question, on Emily and how you are thinking about the potential for acquisitions and maybe even partnering with a company, a merger equal style scenario? Thanks very much.
Tunç Doluca
Well, you know, Maxim has got a long track record of success as a leading analog, chip company. And right now our focus is on executing on our strategy and delivering our shareholder value.
Our eyes are always open to look at acquisitions as a way of growth as well, but we also want to be very selective, and because of that, even though we keep looking, we have not found something that is very interesting to us. But, our plan is to just go ahead and execute our strategy as a Company.
Gabriela Borges
I appreciate that call. Thanks very much.
Kathy Ta
Thanks, Gabrielle.
Operator
Thank you. Our next question comes from the line of Blayne Curtis from Barclays.
Your question, please?
Q – Unidentified Analyst
Hey, this is Chris on for Blayne. Thanks very much for taking the question.
Just wanted to follow up with your expectations and comments. Not exactly a shock that you guys are looking for that to be down this quarter.
Some of the other major players there have talked about a rebound in the second half of the year. Wanted to see what you were expecting, trend-wise throughout the year.
Tunç Doluca
Well, in the comm market, yeah, you are absolutely correct. We have kind of seen what everybody else has also said before us.
And, I think, almost without exception, everybody is saying that there is weakness in the market. We do have a good portfolio of products that are in various segments of the market.
But that market always seems to be lumpy, and this has been true, at least, throughout my career here as a CEO at Maxim. And it’s very difficult to really project what is going to happen in the second half of the year.
And I think that’s probably what some of our competitors or other companies are saying as well. But it’s very hard for us to be able to give any indication of what will happen in the second half.
Q – Unidentified Analyst
Okay, that’s helpful.
Bruce Kiddoo
Just as a reminder, if you just look at -- say our base station business, right, I mean, that’s still just a small percent of our business, less than 5% of total revs. So, we’re not usually the guy to give you the deep insights on the comm infrastructure market.
Q – Unidentified Analyst
Fair enough. Thanks, much, Bruce.
So, I guess given the big reset you are looking for -- or I guess continued declines in PCs. Can you talk a little about what remaining notebook exposure you have, relative to the rest of the market or versus servers after the continued declines here?
Bruce Kiddoo
Sure, so in our computing market, right, which was 5% of revenue, I think this last quarter it maybe popped up to 6%; at this point we have some very selective accounts and design wins, and in the March quarter we saw actually the ramp of -- of a new product that allowed us to show that kind of strongly up. But now that that ramp is done, it is going to kind of go back down and we have guided it strongly down in the June quarter.
So I think from a computing point of view, we’re very selectively engaged, and we don’t get a good view of the overall market. As far as the overall server business, I think we have talked about, for a number of quarters, that, currently, our server business has been soft, primarily because our largest customers, the - kind of some of the large OEMs, their business hasn’t done as well.
When we look out over time, we actually believe that a good opportunity for us as a company, right, as we move into some of these kind of large cloud providers, and where they are actually designing their own servers, and they are the operators of those data centers, so power management is critical to them, and we think the -- the technology we have as a company serves their needs very, very well. And we talked about some early success there, and the ability to, when we look at calendar 2016 to see growth in our server product line.
Q – Unidentified Analyst
Thanks very much, Bruce.
Kathy Ta
Thanks, Chris.
Operator
Thank you. Our next question comes from the line of Craig Hettenbach from Morgan Stanley.
Craig Hettenbach
Yes, thank you. Question for Tunç.
You know good to see the OpEx coming down and some of the leverage that you will ultimately be able to drive there, but the question is on just kind of longer-term growth and things you can do to kind of reinvigorate the growth overall for the company.
Tunç Doluca
Well, I mean, I think that we’re being very selective in areas that we have reduced our investments, but, I think, the company continues to have robust investment in R&D. We’re still in the 20% and above range.
So, all we really did was we looked at the -- our portfolio of product lines and said where are the ones where we have the highest growth potential and where are the ones that have the higher risk or where the market dynamics are not quite fitting to what Maxim wants to do. So from a growth standpoint, we have a robust investment in R&D, and I firmly believe that we can grow the company at above-market rates, and I think the R&D investments every time I reviewed them, those products that we’re putting development and energy into are very worthwhile.
So we strongly believe that we’re going to keep growing the Company. There’s a little bit of obviously revenue reduction.
We talked about the, being in stages of selling the touch business. There’s some revenue from that that will go with it.
But it’s really not that significant. And we were having trouble growing it, which is why we decided that it would be better opportunity to grow it elsewhere, where it fits better into somebody else’s product portfolio.
So, no, I think we have sufficient investments in R&D in the Company, and that will allow us to grow it. We just have to make sure that we’re investing in areas which have the highest growth potential for us.
Craig Hettenbach
Got it, and then as a follow-up, one area that you have grown above in autos, you talked about it’s predominantly entertainment. As you look at that business over the next year, couple of years, can you talk about how that business might evolve for you in terms of other areas within the car?
Tunç Doluca
Well, in automotive, that’s correct, most of our revenue today and the growth driver today is in entertainment, but we have invested in and we do have revenue in other places as well in cars. We have invested in the safety side of automobiles.
We have got products in that space for driver assistance, for example. And also the drive train, we products that we have introduced and they are beginning to show revenue growth in hybrid and electric vehicles.
We’re in the battery-management business. But really if you look at it just if you take a step back and say what is it that customers are really looking for from us, and why are we uniquely positioned to provide those.
Mainly we’re talking to challenges that our customers face. Number one is as we all know as consumers of automobiles, the amount of electronics keeps growing, but the space to put them in is not, so our ability to put more functionality in a smaller space is highly valued by our customer’s engineers.
And number two, for the quality personnel at car companies, they want to always reduce parts count, because they know that high parts count always equals lower reliability. So integration there is helping us as well.
So with that in mind we put our energy into where we can integrate and be helpful to them. And those area primarily entertainment, driver assistance and safety, and in the hybrid electric vehicle drive finally one other area is access, which is really keyless technology.
So that’s kind of a summary of where we’re going in automotive, and why our -- our products are sought out.
Craig Hettenbach
Thanks for that.
Tunç Doluca
Sure.
Kathy Ta
Thanks, Craig.
Operator
Thank you. Our next question comes from the line of Chris Danely from Citi Group.
Philip Lee
This is Philip Lee on behalf of Chris Danely. Thanks for letting me ask the question.
I just wanted to dive a little bit more into gross margins in the March quarter. Was that down primarily due to lower utilization rates or were there other factors?
Can you talk about how you expect your lower utilization rates to trend in the June quarter and longer term where you expect your gross margins how you can expect your gross margins to reach your long-term target or a range of 61 and 64%?
Bruce Kiddoo
Sure, I’ll take that. So the decline in the March quarter was primarily due to the lower utilization.
We saw between September and December right, utilizations went from 70%to 60%, and those unfavorable variances kind of role out over the December and March quarter. So that’s why we had guided gross margin down in, last quarter at this time.
We did see its like pick up of 63% utilization in the March quarter. So that helps, but it’s not really kind of picking up as robust as we might like, and so from that point of view, we guided gross margin flat for the December quarter.
I mean, excuse me, for the June quarter. When you look at long term and how we’re going to get back up to our range of 61 to 64 or kind of the upper half of that range, which is really where we would like to get to.
Obviously, there are a number of things happening there. First, of course, is that Tunç mentioned the closure of our San Jose fab.
And, kind of exiting 2015, that ten million a quarter, that’s 1.5 points right there. That should help us.
Obviously, to the extent that we’re continuing to grow revenue last quarter, this quarter, that’s going to -- use that improvement in utilization will help as well. And I think the other piece, kind of longer term, we had CapEx of $9 million this quarter.
Versus kind of the normalized depreciation of $39 million, if you strip out the accelerated depreciation. Obviously, that’s going to provide a tailwind for gross margins going forward.
That takes a little bit of time for that to play out. But, that’s going to be another area that, kind of longer term, is going to provide support for our gross margin going forward.
Philip Lee
Okay. Thanks, Bruce for the color.
And as a follow-up, can you talk about the content for device in the Samsung S6? You talked about the bio-sensor, power management, and then the additional content with the audio amplifier.
How is the dollar content on this, versus the prior generation? Higher?
Lower? About the same?
Bruce Kiddoo
It’s about the same.
Tunç Doluca
Short answer, but it’s about the same.
Bruce Kiddoo
I mean, we’re not going to give the tear downs. People will, generally, figure out a decent estimate of it, but --
Philip Lee
Great. Thank you.
Kathy Ta
Thanks, Philip.
Operator
Thank you. Our next question comes from the line of Tore Svanberg from Stifel.
Tore Svanberg
Yes, thank you. First question is on the Audio DSM product.
Can you just elaborate a little bit there? I think you mentioned design wins with two of the largest Smartphone makers, and then one in China.
But does that mean you are in the current generation for both of the large Smartphone makers? Or would that be one now and one in the future?
Tunç Doluca
Well, essentially for one of them, we’re in the -- we already said, for our largest customer, we’re in the current production version. For the other major mobility, we’re basically in their tablets and their other platforms, and for -- in the China customer that I mentioned, that’s basically a Smartphone that I believe is ramping right now.
I think, Bruce, is that right?
Bruce Kiddoo
Yes.
Tunç Doluca
It’s ramping right now. So, the ones that we mentioned, they are all in production, but they are different platforms.
Tore Svanberg
Very good. And, for my follow up question, I was hoping you could talk a little bit more about seasonality.
I think, last year you talked about the first half being stronger, the second half being seasonally weaker. You know, just based on what you are seeing right now, dynamics in the June quarter, how do you feel about that split?
You know, is it is 60/40, 40/60, 50/50? I know you don’t guide more out than one quarter, but just based on where we are right now, how do you feel about the first half versus the second half seasonality?
Bruce Kiddoo
Yeah, I mean, I think just kind of qualitative, Tore, talking about this, right? When we think about some of the swing factors that could influence that question, obviously, how the sell-through is for the products, the two mobility products, right?
The S6 and the wearable, what that sell-through is will obviously have a major impact on the second half of the year. Our largest customer also has a product that usually launches in the summertime as well.
So, what does that ramp look like? And how does that sell-through happen?
Certainly, automotive is normally seasonally down or in the back half of the year. But, the momentum that we have seen in that business, right?
That could be a swing factor there. And then, finally, industrial which is normally down in the back half of the year.
Based at where we’re guiding it today for June, and given that we’re not seeing similar effects that some of our other customers -- or it could be a catch-up effect there as well, which could -- whether that happens in the June quarter or the back half of the year, we don’t know. But that’s another factor that could be at play.
Tore Svanberg
Very helpful thank you.
Bruce Kiddoo
Yep.
Kathy Ta
Thanks, Tore.
Operator
Thank you. Our next question comes from the line of Vivek Arya from Bank of America.
Your question, please?
Unidentified Analyst
Hi. Thanks.
This is Shankar on behalf of Vivek. So I have a question on the consumer business.
As you look out into the fiscal 2016, what do you think is the -- or what are you targeting the consumer exposure is going to be? Is it going to be growing to 34%, 35%, or are other segments like industrial, automotive going to grow faster?
What’s your expectations?
Tunç Doluca
Yes, so on the consumer front, looking at future growth, we’re really we’re planning on growing it at about the growth rate of the company in general. Of course you can imagine that’s not completely under our control.
It depends on how well the end product sells into the customer, but we’re really not counting on, or we’re not driving very heavily to get the super growth rates that we got back in 2012, 2013, those years. So we will grow the business.
But it will grow at a more moderate rate, and that’s our plan, and for that reason, the percentage of revenue coming from mobility shouldn’t really change a whole lot, unless somehow one of our end customers has a very successful product, and obviously that will change these ratios somewhat.
Unidentified Analyst
Perfect. I have a quick follow-up.
So when you look at the gross margin targets you just talked about, 61, and 64, all coming from cost reductions and gross margin and fab closure and so on but when you look at the mix of businesses, does one, can you talk about, like, how each of those businesses drive the gross margins? Is consumer growth faster than automotive for example?
Does it suddenly improve your gross margins or how should we think about that from a segment point?
Bruce Kiddoo
Sure, I think from a qualitative point of view, I think most people know industrial is up, when you look at our peers, that’s a very good gross margin business and…
Tunç Doluca
And we’re no different.
Bruce Kiddoo
And we’re no different from that point of view. When you look at our comm business it is probably around corporate average.
We’ve talked about how our mobility business is generally below corporate average, but is better than most people think, and I think that was proven out when our consumer business was much larger and we were still in our target range from a gross margin point of view. And then finally from an automotive point of view, this is one that has been below corporate average, as we were doing what was required to ensure we met the quality requirements of our customers, from a testing point of view, but it is an area that we’ve talked about, where there’s an opportunity to improve that gross margin, and where we can more design in quality, versus test-in quality, and certainly our plans are to improve the automotive gross margin, and to be clear, it’s not like it is dramatically worse than corporate average, it’s a little bit below, and there is an opportunity for some improvement there.
Unidentified Analyst
Thank you.
Kathy Ta
Thanks Shankar.
Operator
Thank you, our next comes from the line of Ambrish Srivastava from BMO.
Ambrish Srivastava
Hi, thank you. Couple of clarifications, one on the Galaxy S6.
Is it correct or did I hear you correct that you have more functionality, but the dollar content is the same?
Tunç Doluca
Okay. So essentially what we have is the dollar content is about the same, we have just to set the record straight, we have the new audio DSM product we want.
So it’s a new technology for us. And the dollar content is the same, because in the previous generation, there was a second companion power chip that we had, and that was not necessary in this new generation.
So we’ve diversified the technology base that we are selling into the phone, and the total remained about the same from the last one.
Ambrish Srivastava
Got it, because I was thinking you were running faster, but at the same return, it kind of sounds like my job on the sales side. Then on the industrial side I wanted to make sure I got the difference between what you are seeing versus what others might or might not be seeing, is this coming from distributors’ reacting to, and primarily in Europe, reacting to the FX impact they are seeing on their business, or it is finally the lower sales from end customers that is beginning to filter into the distributors and to you?
Tunç Doluca
Well, it’s we believe it has to do in Europe, with the exchange rate kind of changing the behaviors a bit for our distributors and maybe even our customers. And, I do want to provide a little bit more on this, because most of our sales are -- I think many of you know, are in dollars, so it doesn’t really directly affect us when the exchange rate is different.
But, that’s not true for our distributors. Some of them -- some of their sales are in dollars and some of their sales are in Euros, so they are going to react, and obviously they do pass on -- most likely pass on some of this euro-based increase to their customers.
So, when there is dramatic changes in the exchange rate, there is going to be some kind of reaction. But exactly what they do, we can’t go and figure out because there are so many of these customers.
But, we’re attributing it to the exchange rate, basically.
Ambrish Srivastava
Okay. That makes sense.
That makes sense. Thank you for the clarification, too.
Tunç Doluca
You’re welcome.
Kathy Ta
Thanks, Ambrish.
Operator
Thank you. Our next question comes from the line of Stephen Chin from UBS.
Your question, please?
Stephen Chin
Hi. Thanks for taking my questions.
First one, if I could, on communications. I heard the commentary on the infrastructure side, but I was wondering if you would talk a little about some of the other products in communications, specifically any CPE equipment-type products, especially on the passive optical networking, and the cable modem side, if you have any exposure there?
Just given some of your other food chain companies have said positive things on demand on the modem side, I was wondering if you were seeing the same thing as well?
Tunç Doluca
Yeah, on the cable side-- So, we have a, actually, a great lineup of products for cable. Our business is really not on the consumer side.
We’re on the service provider side of the business. So, our products really provide the high bandwidths that all of us keep seeing in cable, and they are going to get even faster in the future, thanks, partially, to products we’re able to provide.
And, essentially in that market, what we have seen in is in Q3, the quarter that just ended, we did see very high growth, which was great, and I guess it confirms what you are hearing from CPE suppliers, and also we see it growing again in Q4. So, I guess that confirms some of what you said in terms of what suppliers into the consumer side are telling you.
So that has been a highlight in the comms market, where we are all seeing this global slowdown that has been a highlight for us, in terms of growth.
Stephen Chin
Great, and as a follow-up on the consumer side, I was wondering if you could talk a little bit more about your exposure in tablets and, also, other wearable devices? On tablets, is that just primarily concentrated on one big North American customer, or do you have some diversification happening there?
And if so, kind of what is the outlook on the overall market for this year? Is it going to be flat or down, potentially?
And on wearables, I think, in the last quarter, you kind of mentioned a potential diversification in wearables, and maybe IoT-type wins there. How is that progress?
Thank you.
Tunç Doluca
So, just taking the tablet side, most of -- everybody knows who the largest supplier is in terms of tablets, and we have some content in there, primarily it’s in audio, and the -- on the other hand, if you look at other tablet sales, we do have products here and there on some of them, but they don’t really amount to a lot of revenue for the company, frankly. And most of these other wins are mostly in the power area, on the tablet side.
We do -- on the wearable front, I think we talked a lot about the wearable that got announced and goes on sale, I guess, tomorrow. In terms of other wearables, high-end fitness products and so on, we actually have a great pipeline of products, both on the power side and on some interesting, embedded microcontroller application side.
So, we have got wins there at multiple fitness companies on consumer. But, our real target that we’re really going after is more medical-type applications and we’re beginning to see some of those as well winning designs.
Now these are not producing a lot of revenue for us today. It’s really future revenue.
And it’s really in the space of power, and in very specialized ultra-low current microcontrollers with analog in them. Those are the types of applications or products that we’re developing.
Stephen Chin
Okay. Thank you.
Tunç Doluca
You’re welcome.
Kathy Ta
Thanks, Stephen.
Operator
Thank you. Our next question comes from the line of Steve from Raymond James.
Steve Smigie
Great, thanks a lot. Just a clarification on the consumer.
I think what you said was you are being more cautious in terms of how you are guiding for that. I’m just curious, is that caution relative to last year’s ramp a result of your past experiences, and you have learned a lesson, or is it in terms of the orders you are getting and news reports you are seeing out there that lead you to that level of caution?
Tunç Doluca
Well, obviously when we went through the painful experiences the last year or two, we did beef up the way we actually do our forecasting. We put out a much more focused weekly effort.
Looking not only what our customers are asking us to deliver but looking at what end-market consumption of some of these handsets are. So a lot more data, which means that we can really, get the better understanding of what is happening in the market, and not just listening to what our customer is telling us.
So that’s one piece of it. We also are making sure that we’re very careful about how the previous generation of products are really ramping down, because that also comes into effect, and last year, for example, we have seen both demand you know, heavy demand both for old-generation parts and the new ones being introduced at the same time.
Which this year we’re being a lot more cautious about. So those are some of the reasons that went into us being cautious on our shipment forecast and revenue forecast for this quarter.
Steve Smigie
That’s very helpful thank you. And then I just want dig into the Voltaria business a little bit, it sounded like you were expecting a server ramp sometime in the future here.
I just wanted to see if that’s related to Voltaria and also if you could give color here on whether ramping Voltaria in the COM sector is taking hold.
Tunç Doluca
Yeah, so, good memory. I mean, when we did announce the acquisition, we said we saw two vectors for us, one was selling more effectively in the conserver market, and the other one getting penetration in the comes.
Where Voltaria was not successful because of their scale basically. So we have made progress on both fronts.
We did see headwind more than we expected on the enterprise server side. I think that’s well known so I won’t talk to that.
However, the technology, we always knew it was very valuable and unique, both from a process from a packaging and an architecture standpoint, and we basically are now being part of Maxim, a bigger company, we have been able to show that to a few of the cloud companies, and they can really see the value that this technology provides, because in the end they are the ones that have to pay for the cost of doing business, the electricity and so on, and those are the things that we can improve. So we do see revenue growth that is going to come and I’m seeing it in the next year or so, from some of these new customers that Voltaire had no exposure to and frankly we didn’t have exposure to on the power side.
Now and that’s not the only area, by the way. For these cloud services, we also are seeing a great level of interest from our high-speed optical products, because they have to move data as well inside of the data center at high speeds and we have some great technology for that that we’re showing.
So that’s working well for us. Finally on the comp side, which is data com side, we have successfully shown the technology to customers.
The doors are open to us unlike they were to Voltaria, and we’re beginning to see some wins on mostly the point of load type of applications or the products that were developed Voltaira. And some newer versions or newer generations of those that were developed by the Voltaria team as part of Maxim.
So we’re beginning to see those. Those design wins are occurring, but they take a longer time to ramp, so we’re not really seeing the revenue coming from those yet.
But they will come in the future.
Steve Smigie
Thanks very much.
Kathy Ta
Thanks Steve. And Jonathan, I think we only have time for one more question.
Operator
Certainly. Our next question comes from the line of Chris Caso of Susquehanna.
Your question, please.
Chris Caso
Thanks forfeiting me in. Just a clarification on some of the comments you made on channel inventory, and I think you said the inventory was up from Asia, but down in Europe.
Maybe you could discuss what was going on there. And just in general to what extent do you think the changes in some of the guidance you provided looking forward.
Bruce Kiddoo
Yeah, certainly as you said Chris, the biggest area of increase for us from the days of inventory point of view, was certainly China, and our best sense there is the overall macro, and PMI less than 50, from that point of view, so we definitely saw the, the re-sales decline, and obviously that drives up the days of inventory as well. Actually from a days of inventory, we saw Europe, come down.
They normally do come down at this point in time. You know, for us really the, kind of the FX issue, you know, we think that has really shown its as Tunç mentioned in the end-market bookings, and, we think that has, potential influenced kind of the booking patterns on Maxim from our European distributors, but, we’re seeing those, kind of that acceleration of bookings so far in April, and we’ll see if that continues through or -not and then we’ll get probably at the end of the quarter probably a better understanding of what the FX truly was.
Chris Caso
Just as a follow on to that. Given that we have been running at such low levels of inventory for so long, you know, I guess regardless of what happens to end demand, and I don’t know any better than anyone else, is there room for inventory coming down further in the event that, you know, we see some slowness in the second half?
And, in general looking at it from a cyclical perspective?
Bruce Kiddoo
So I think it’s the 57 days where we’re at right now, I do think that will come down. I think almost for four years now it has been managed in a very tight range of 50 to 55 days.
And, so I don’t see any kind of structural change that is going to -- that is going to modify that range. I think, you see these situations, and the very mini cycles that occur from an inventory point of view.
But, no, I don’t see any significant change in that 50 to 55 days going forward.
Chris Caso
Got it. Thank you.
Bruce Kiddoo
Yep.
Kathy Ta
Thanks Chris.
Operator
Thank you. Due to time constraints, this does conclude the question and answer session of today’s program.
I would like to hand the program back to management for any further remarks.
Kathy Ta
Thank you, Jonathan. This concludes Maxim Integrated conference call.
We would like to thank you for your participation and for you 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.