Jan 25, 2018
Executives
Kathy Ta - Vice President, Investor Relations Bruce Kiddoo - Chief Financial Officer Tunc Doluca - President and Chief Executive Officer
Analysts
Harlan Sur - JPMorgan Jeriel Ong - Deutsche Bank Tore Svanberg - Stifel Adam Gonzalez - Bank of America Merrill Lynch Tom O'Malley - Barclays Liz Pate - Susquehanna Financial Charlie Kazarian - Credit Suisse Craig Hettenbach - Morgan Stanley Philip Lee - Citi Cody Acree - Drexel Hamilton
Operator
Good day, ladies and gentlemen, and welcome to the Maxim Integrated Second Quarter of Fiscal 2018 Conference Call. At this time, all participants are in a listen-only mode.
Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today's program is being recorded.
I would now like to introduce your host for today's program, Kathy Ta, Vice President, Investor Relations. Please go ahead, Kathy.
Kathy Ta
Thank you, Jonathan. Welcome everyone to Maxim Integrated's fiscal second quarter 2018 earnings conference call.
Joining me on the call today are Chief Executive Officer, Tunc Doluca; and Chief Financial Officer, Bruce Kiddoo. I would like to highlight that we have posted a supplemental financial presentation on 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 uncertainties, 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 Bruce.
Bruce Kiddoo
Thanks Kathy. We continue to successfully execute on our updated business model and grow our top line.
Given our confidence in the long-term prospects for the company’s strategic position and increased access to our international cash provided by tax reform, I’m pleased to announce that we will now return 100% of free cash flow to shareholders. As a result, we are increasing our quarterly dividend by 17% to $0.42 a share and increasing our stock repurchases going forward.
Let me now discuss our second quarter financial results. Revenue for the second quarter was $623 million, up 13% from the same quarter a year ago, which reflects a 14-week quarter and includes $22 million from the transition of our last distributor to sell-in accounting.
Our revenue mix by major markets in Q2 was approximately 29% from industrial, 26% consumer, 20% comm and data center, 21% automotive, and 4% computing. It’s worth highlighting that industrial plus automotive is half of total company revenue, up from 37% over three years ago when we began breaking out our automotive revenue as a separate category.
Let me now turn to the distribution channel. Distribution comprised 47% of Maxim's revenue in the December quarter, excluding the sell-in accounting transition at Avnet, North America.
Resales in Q2 were strongly up 26% from the same quarter last year. We ended Q2 with 57 days of inventory in the distribution channel, down 11 days from Q1.
The decrease in days was driven by strong resales and management of channel inventory. Turning to the P&L, Maxim's gross margin, excluding special items was 67.6%, approximately 70 basis points higher than the prior quarter driven by strong operational execution and benefiting from the transition to sell-in accounting at Avnet, North America.
Special items in Q2 gross margin included intangible asset amortization from acquisitions. Operating expenses, excluding special items were $201 million, up $19 million from the prior quarter, due to an extra week in the quarter, the full quarter impact of our annual comp adjustments in September and higher profit-sharing.
Special items in Q2 operating expenses included acquisition related charges and restructuring charges. Q2 operating income, excluding special items was $220 million.
Operating margin at 35.3% of revenues is approximately flat from the prior quarter, and up 490 basis points from the same quarter a year ago. The improvement in operating margin was driven by revenue growth, our manufacturing transformation and focused R&D investment strategy.
Q2 GAAP tax rate, excluding special items was 14%. Concerning tax reform, the key benefit for Maxim is improved access to international cash, providing greater flexibility for our use of cash.
Our Q2 GAAP tax provision included a $244 million charge, comprised primarily of an estimated $427 million tax on the deemed repatriation of historical international profits, partially offset by adjustments to reserves. The repatriation tax is payable over eight years with the first annual payment estimated at $34 million, due in September 2018.
At this time, we continue to estimate our long-term GAAP tax rate, excluding special items at 14%. We are continuing to review our long-term rate in light of the tax reform and will update as appropriate.
GAAP earnings per share excluding special items was $0.65, up 41% from the same quarter a year ago. Turning to the balance sheet and cash flow, during the quarter cash flow from operations was $230 million or 37% of revenue.
Q2 inventory days ended at 126, up 9 days from Q1. Inventory dollars were up 6% in the prior quarter as we prepare for a strong revenue ramp in Q3.
Gross capital expenditures were $22 million in the quarter, capital expenditures were higher in the quarter for tooling to add capacity at our remaining fab in Oregon and for new testers to support automotive growth. As a result of tax reform, U.S.
capital expenditures after September 27 will be fully and immediately expensed for tax purposes. Trailing 12-month free cash flow was $849 million or 36% of revenue, and up 27% over the same quarter last year.
Our free cash flow yield is 5% at yesterday's closing stock price. For capital return, share repurchases totaled $77 million in Q2, as we bought back approximately 1.5 million shares.
Dividends totaled $101 million in the quarter or $0.36 per share. As stated earlier, we will now return 100% of free cash flow to shareholders with a 17% increase in our dividend to $0.42 per share and an increased rate of stock repurchase.
The dividend yield after this 17% increase in the dividend is approximately 3% at yesterday's closing stock price. Overall, total cash, cash equivalents, and short-term investments increased by $49 million in the second quarter to $2.82 billion.
Moving on to guidance, our beginning Q3 backlog was $446 million. Based on this beginning backlog and expected turns, we forecast Q3 revenue of $620 million to $660 million.
Q3 revenue is expected to be above seasonal and up compared to the same quarter last year, driven by growth across all of our major markets. Q3 gross margin, excluding special items is forecasted at 66% to 68%, reflecting ongoing tailwinds providing a long term upward bias to gross margin.
Special items in Q3 gross margin are estimated at approximately $11 million, primarily for amortization of intangible assets. Q3 operating expenses, excluding special items are expected to be in the low-to-mid 190s, down from Q2 given a regular 13-week quarter and reflecting profit-sharing.
We are continuing to tightly manage costs consistent with our updated business model. Special items in Q3 operating expenses are estimated at approximately $1 million, primarily for amortization of intangible assets.
Our tax rate for Q3, excluding special items is expected to be 14% flat from Q2. For Q3 GAAP earnings per share, excluding special items, we expect a range of $0.66 to $0.72.
In summary, we expect continued growth in Q3 revenue, compared to the same quarter last year. We are growing content in automotive, industrial, consumer, and data center, which is helping to drive growth, and we are executing to the updated financial model disclosed a few months ago resulting in strong earnings and free cash flow growth, a 100% of which we are returning to shareholders.
With that, I’ll turn the call over to Tunc.
Tunc Doluca
Alright, thank you Bruce. Good afternoon to all of our participants and thank you for joining us today.
We appreciate your interest in Maxim Integrated. We are pleased with our performance in the December quarter.
Compared to the same quarter last year, revenue growth was led by double-digit increases in industrial and automotive with continued solid company profitability. Looking forward, we expect strong growth in our March quarter with significant growth in automotive, industrial, and consumer compared to the same quarter last year.
Our profitability and revenue growth is enabling exceptionally strong earnings power and cash flow giving us confidence to increase our return of capital to shareholders. I would like to remind investors that our December quarter revenue included the benefit of the transition to Avnet, North America sell-in accounting.
December was also a 14-week quarter. During my market revenue commentary, I will exclude these factors.
First, I will comment on automotive. As we highlighted at the Consumer Electronics show, our relationship with Nvidia is alive and well.
Maxim's leading-edge power management and serial link solutions continue to be part of Nvidia's next-generation autonomous driving platforms. In addition to our strong Nvidia partnership, we continue to sell automotive power and interface products attached to multiple partner platforms at many automotive customers.
In the December quarter, automotive grew in the double digits from the same quarter last year. In the March quarter, we forecast continuous sequential growth from an above seasonal December quarter, primarily driven by continued strength in our battery management system business.
Long term, we expect low teens growth for automotive business, driven in-part by strong market acceptance of our battery management products for electric vehicles. Maxim has designed wins at 28 different OEMs, which are producing over 70 different car models, some of which are yet to be released.
We won these designs in many different regions of the world. Today Maxim's revenue from EV opportunities is still relatively modest at roughly one-tenth of our total automotive revenue.
However, as the EV car sales increase, your government initiatives and greater affordability for consumers we expect BMS to be a strong growth driver for Maxim. We are in the early days in the electronification of cars, and more cars are coming equipped with driver assist or ADAS features.
ADAS electronic control units are expected to double in five years according to third-party research. Car is increasingly becoming a data center on wheels, with high-end processors, multiple displays, sensors and cameras, all requiring efficient power management and point-to-point high-speed data transmission.
Collision warning and lane departure system's that were once only available in high-end cars will soon be options or standard equipment in mid-range cars and trucks. Maxim has a complete portfolio of GMSL serial link interfaces and power management ICs that connect and provide power to these safety systems.
We have over $100 of potential infotainment and ADAS content opportunity in a premium car today. We expect this to double to $200 of opportunity per premium car within the next five years.
Let me next turn to the industrial market. Our December quarter and industrial business was strongly up from the same quarter last year.
Within industrial, the core segment led our year-over-year growth, driven by factory automation products and by progress we made in our broad market initiatives. In the March quarter, we expect industrial to be strongly up sequentially and up compared to the same quarter last year.
This performance is again expected to be led by factory automation products and through our safety and our strategy to reach small and medium business customers with distribution partners. In the quarter, we introduced new factory automation products that provide robust communication links and interfaces needed for the factory floor.
Our new family of controller area network or CAN interface products provide superior electrostatic discharge protection and are designed to be used in harsh industrial environments that require high voltage fall protection. In addition, we introduced a new family of RS45 interface products that double data transmission speeds.
These products can also drive longer cable lengths that are suitable for motion control systems in a factory setting. These new products augment our existing leading portfolio in I/O and communication and industrial power applications.
Our factory automation family of products are being widely deployed, especially in Europe and Japan. In our broad market business, we entered into two new distribution agreements in Japan.
We expect these new distribution partners to enable us to extend our reach in the region augmenting our online presence and deepening our focus on the industrial end-market. We continue to improve our online support and website store front, and we’re increasing the use of analytics to identify track and maximize the value of opportunities within the broad market.
In the December quarter, our total distribution channel sales was 47% of Maxim revenue, excluding revenue from the transition Avnet, North America to sell-in accounting. Our expanded distribution channel partnerships are bearing fruit by bringing Maxim's products to more small and medium business customers.
Through this strategy SMB customer revenue grew 24%, compared to the same quarter a year ago. In the December quarter, automotive and industrial markets together contributed half of total company revenue.
Let me next discuss communications and data center. In the December quarter, comms and data center was flat from the same quarter last year.
Growth in 100G optical products and 12-volt server power from the data center was offset by broad based softness in communications infrastructure. We expect comms infrastructure to be sequentially up in the March quarter, but down from the same quarter a year ago.
We anticipate continued data center revenue growth in the March quarter, up sequentially and strongly up from the same quarter last year. This strong growth is driven by 100G optical products for high speed rack-to-rack connectivity.
Finally, let me turn to consumer. In the December quarter, our consumer business was down from the same quarter a year ago, due to smart phones, partially offset by growth in our broad-based consumer business in wearables, tablets, peripherals, and gaming products.
In the March quarter, we expect consumer to be strongly up sequentially and from the same quarter last year, driven by above average peak shipments for smart phones. In consumer, we continue to focus on our strategy to broaden our business into a proliferation of smart devices with strong market acceptance of our products and hearables and peripherals.
Maxim's priorities are to grow revenue, to do so profitably, and to improve our financial stability. We’re demonstrating top line growth in automotive, industrial, and data center, and our consumer business is stabilizing.
Our broad market strategy is demonstrating revenue growth and enhanced profitability through our distribution partnership initiatives and improved reach to small and medium business customers. And we are focused on expanding our customer base so that we can sustain growth over the long term.
And finally, we remain committed to maximize shareholder value as evidenced by today's announcement that we will increase our return of capital to shareholders. With that, I’ll now turn the call over to Kathy.
Kathy Ta
Thanks, Tunc. That concludes our prepared remarks and we will now open the call for questions.
[Operator Instructions] Jonathan, could we please have our first question.
Operator
Certainly. [Operator Instructions] Our first question comes from the line of Harlan Sur from JPMorgan.
Your question please.
Harlan Sur
Hi, good afternoon and congratulations on a solid quarter and outlook and good to see the increasing capital return. If I normalized the December quarter to 13-weeks and exclude the sell-in accounting benefits, your March quarter guide implies 10%, 11% sequential revenue growth and 10% year-over-year growth, and the normal step-up for you guys in the March quarter is about 46% sequentially, so can you just help us understand couple of things here, what is driving the sharp acceleration here relative to normal seasonality?
It looks like it’s industrial and consumer, but just at accelerated levels, is it just more companies ramping factory automation products, is it an acceleration of the broad market initiatives; and more importantly, is this revenue run rate sustainable, especially in the seasonally stronger first part of this year?
Bruce Kiddoo
Thanks. So, this is Bruce.
I’ll take the first part of that. Yes, I mean if we look at the our Q3 guidance, it is stronger than normal seasonality, and really there is broad-based growth across all of our major end-markets.
As Tunc said, consumer is up strongly and that’s really just an above average smart phone ramp combined with kind of continued strength in our year-over-year's strength in our wearables, peripherals, home entertainment, and our other broad-based consumer businesses. As you said, industrial is strongly up, contributed by the factory automation and again the overall broad-based business, our verticals, which are a smaller part of our industrial are also showing some good growth in the quarter, and of course auto is seasonally after a very strong December quarter.
So, overall, we are seeing good growth in, I mean even in common data center we’re guiding that up on the strength of the data center side of the business that were actually, I think the infrastructure side has been a little weaker. So, it is truly kind of broad-based growth across all of our end markets.
Tunc Doluca
Yes, Bruce said it all, so I don't have anything to add.
Kathy Ta
Thank you, Harlan.
Harlan Sur
Great, thank you.
Operator
Thank you. Our next question comes from the line of Ross Seymore from Deutsche Bank.
Your question please.
Jeriel Ong
Hi. This is Jeriel Ong, on behalf of Ross.
Thanks for letting us ask a question. Could you just walk us through your thought process of increasing your free cash flow return and why now is the right time to announce that and you compare that to other uses of cash like perhaps increase capital expenditures or doing a deal et cetera?
Bruce Kiddoo
Sure. I think from our point-of-view the biggest benefit of tax reform is access to our global cash, greater flexibility, as I indicated from a P&L point-of-view the - our tax rate at this point appears to be relatively unchanged, obviously we’re still studying that, but for now it looks like it’s still going to be around that 14%, but with tax reform, and greater access to our offshore capital that does kind of remove one of the risk factors that we always looked at when we thought about the 80% return of capital.
And because, you know at the time right about 35%, 40% of our free cash flow was generated offshore. Now that we have access to all of our cash we’ve always been very comfortable with the sustainability of our free cash flow model, and feel very comfortable returning that to shareholders 100%, and so that’s something we wanted to do and we now have the opportunity to do that, and I think it just highlights the strength of our model, which is kind of growing the topline, improving profitability, low CapEx intensity and the ability in a very sustainable way to return that to shareholders.
So that’s why we went from the 80% to 100%. When we think about the dividend, probably two things to think about there.
First off, we normally look at this once a year, usually it’s in the summer time and we usually announce something in July during our Q4 earnings release. Since that time our business has continued to do very well, and we do have continued confidence in our growth and profitability initiatives and so that certainly helped us from the confidence in increasing the dividend.
The other thing we did do though is thinking about that increase from 80% to 100%, and how we allocate that between dividend and buyback. We always want to make sure when we think about our dividend that we don't get too far out in front and there are still some, it’s still early days on tax reforms.
So, we took about a third of that increase and allocated it to the dividend and about two-thirds that gets allocated to the buyback. I think we felt, as a management team, as a board comfortable with that, we will continue to our normal cadence of looking at our capital return in the summer as we have in the past, but I think today with access to our global capital and the continued strength in the business we felt comfortable both going from 80% to 100% and increasing the dividend by $0.06 or 17%.
Kathy Ta
Thank you, Jeriel Ong.
Operator
Thank you. Our next question comes from the line of Tore Svanberg from Stifel.
Your question please.
Tore Svanberg
Yes, thank you. Great quarter.
Question for Bruce, Bruce, a few years ago at your Analyst Day you talked about that $3 in free cash flow per share target looks like you are well within reach of that, so just wondering if there’s anything you can update us on there if there is going to be a new target or was that target part of the, I guess the transformation of the company, and you now feel like you are there and from here on it’s going to be more growth on the top line and some of the end market dynamics that impacts the business.
Bruce Kiddoo
Yes. By our calculation on a trailing 12-month we are at $2.97.
So, you know I very much would have liked to have announced that that was the final goal from a couple of years ago that we achieved that. Obviously, we are well on our way and we will usually surpass that in the next quarter.
The goal we’ve set for ourselves is now $3.50. We set that when we kind of up the profitability targets like gross margin to 67 to 70 and the operating margin to 37 to 40, and then we set the 350 [ph].
We said that would be, again over several years, we didn’t give exact time because that was somewhat dependent on top line growth, but we continue to be very focused on free cash flow. I think achieving the $3 just kind of, from our point of view it is just a marker that we continue to deliver on our commitment.
That’s very important to us at Maxim, and achieving that $3.50 is clearly the next target from a free cash flow for us to achieve.
Tore Svanberg
Great, thank you.
Bruce Kiddoo
Yes, thank you.
Operator
Thank you. Our next question comes from the line of Vivek Arya from Bank of America Merrill Lynch.
Your question please.
Adam Gonzalez
Hi, this is Adam Gonzalez on for Vivek. Thanks for taking my question.
Just really quick, there have been concerns about the semi-cycle potentially peaking. Just wondering what your take on those concerns are?
What indicators do you look at for a peak and what those indicators are telling you right now? Thanks.
Tunc Doluca
So, I’ll take that one, this is Tunc. So, we look at several things, on the demand side, external signals side, we follow macroeconomic indicators and those are basically with the forecast for GDP growth and what’s the manufacturing PMI trends going forward.
So, when we look at those, it looks like the business conditions are good, and pretty much the PMI, manufacturing PMI is above 50% in almost all regions. So that’s a good sign.
And our guidance in Q3 is in line with that assessment. Internally, what we look at is, what kind of lead times are customers giving us when they ask for products and that gives you an indication of whether there are concerns about constraints or are they trying to take too much inventory and we look at that.
We also look at inventory in the channel, which obviously we control to some extent, but our lead times are with a normal range and we’re not experiencing any supply constraints and our lead times have been pretty much stable the entire year. Maybe they went up by little less than a week over that time.
So, those are the things that we look at. How our customers are behaving, ordering patterns, and what are the macroeconomic signals we’re seeing.
Kathy Ta
Thank you, Andy.
Operator
Thank you. Our next question comes from the line of Blayne Curtis from Barclays.
Your question please.
Tom O'Malley
Hi, this is Tom O'Malley on for Blayne Curtis and congratulations on the good results. I kind of want to focus on consumer, you’re obviously guiding some really good performance there into March.
Last time we saw that happen looked like March 2016, can you kind of just frame the ramp there into June, is there steady fall out, or do you continue to expect growth as you did in June 2016?
Bruce Kiddoo
Yes. So, when we think about that, obviously we're just guiding to the March quarter right now, but to the extent that we’re seeing an above average ramp in the March quarter we expect that to be down in the June quarter.
So, just a little bit stronger quarter in Q3 and so therefore we expect that to come down in Q4. We do still, we look at our kind of our broad-based business and that’s doing well, that’s usually a little bit weaker in the first half of the year, and if we looked across the other businesses, industrial is usually kind of seasonally flat.
Automotive, we expect to be up and the comm data center it is tough to predict, but the comm infrastructure market has been weak. So those are sort of the kind of the typical levers that we would look at for the June quarter, but for consumer we do expect it to be down.
Tom O'Malley
Thanks a lot. That's really helpful.
Kathy Ta
Thanks, Tom.
Operator
Thank you. Our next question comes from the line of Chris Rolland from Susquehanna Financial.
Your question please.
Liz Pate
Hi, this is Liz Pate calling in for Chris. I’m just wondering following up on the tax implications of the tax change, does that change your thinking at all on M&A and valuations and semis right now?
Bruce Kiddoo
Short answer is no. I think we’ve always felt we had access to international cash, if needed for an acquisition you’ve seen some of our peers who have done acquisitions buying U.S.
companies and we’re able to access international cash. So, I think from that point of view this doesn't change how we think about M&A.
Kathy Ta
Thanks, Liz.
Operator
Thank you. Our next question comes from the line of John Pitzer from Credit Suisse.
Your question please.
Charlie Kazarian
Hi, this is This is Charlie Kazarian, on behalf of John Pitzer, and thanks for letting me ask the question. I was hoping to get a little more color on direct first distribution trends and I know you mentioned in your prepared remarks that distribution inventory was down quite a bit sequentially, but I'm just looking at the year-on-years for disti versus direct, it looks like distribution is kind of sold significantly outpacing direct on a year-on-year basis, could you just give a little more color on what channel inventory looks like an kind of maybe what’s driving those trends and if you kind of see that gap narrowing over the next couple of quarters?
Thank you.
Bruce Kiddoo
So, I think as investors and analysts are aware right, we were at 68 days in the channel last quarter and excuse me in the September quarter. We weren't happy with that, we committed to bring that down back to the low 60s.
We worked very hard to do that, we actually came down 11 days and came in at 57 days. And that was partially some management on our side, but also very strong resales.
Right, as Tunc indicated in his email, I mean in his script, Q2 resales were up 26% year-over-year. So that obviously helped.
We put a tremendous focus on our distribution business and feel good about that going forward.
Tunc Doluca
I think that your observation is correct. I mean, we’ve - because of the focus that Bruce mentioned about what we really have been able to grow this business at a rate faster than our total business has been growing, but if you look at it, our Q2 disti revenue was up quite a bit, 35% even if you exclude the Avnet sell-in.
In the SMB part of distribution also grew about 24%. So, it’s all the result of focus in the company, we’ve been investing in systems and processes to help sell our products to a broad base of customers.
We’ve got design tools. We’ve got a better website, and I think we have stronger disti partnerships, more distributors selling our products.
So, all of that is really helping our customer reach, and as a result of that we're seeing what you mentioned, stronger growth in our broad-based business, which is really great because it improves our revenue stability, and obviously the profitability of the company. So, it’s all part of the strategy.
Charlie Kazarian
Thank you.
Kathy Ta
Thanks, Charles.
Operator
Thank you. Our next question comes from the line of Craig Hettenbach from Morgan Stanley.
Your question please.
Craig Hettenbach
Great. Thanks so much.
Tunc, just one follow-up on some of your commentary around EVs and BMS and appreciate the color in terms of that OEM traction in number of models. You know that business last year was a little lumpy and it looks like it’s kind of back on track.
So, just how you see the near-term environment, as well as just the pace of some of these programs, how do you envision them ramping over the next 12 to 18 months?
Tunc Doluca
Yes, so, last year was as you said pretty lumpy for this business. I think we have, even though we’ve got design wins as I said in almost all the regions in the world, a lot of the growth is coming from China.
And it’s my belief that the lumpiness of the China business, I’m not sure it’s going to change that much, it will probably get better as we’re in more models now, but I think going forward even though there might be quarterly ups and downs. I think the general direction is a solid growth for this business for the company and that really is driven by the need for cleaner air, the need - all the needs governments want to make sure happen and they have subsidies going on, much of the lumpiness comes from subsidies going in and out in China, and I don't know if that’s going to become something that’s more permanent or not, it’s hard for us to predict that, but as far as we're concerned, the fluctuations that occur quarterly basis really don't matter too much as long as the general direction or the moving average is to the right and higher every quarter.
Craig Hettenbach
Got it. Thank you.
Kathy Ta
Thank you, Craig.
Operator
Thank you. Our next question comes from the line of Chris Danley from Citi.
Your question please.
Philip Lee
Hi, this is Philip Lee on behalf of Chris Danley. Congrats on the solid results and guidance.
I just had a question regarding your OpEx, you guys have it down in March, how do you expect it to turn for the rest of fiscal year?
Bruce Kiddoo
I think once we, you know it will trend down in the March quarter and I would say, it would probably stay flat with that level. There is no salary increase.
There is nothing tangible that would change it significantly up or down. So, I would just continue to model it flat.
I think you will see us continue to be very disciplined and proactive in managing our OpEx as we have for the last several years.
Kathy Ta
Thank you, Philip.
Philip Lee
Very helpful. Thanks, Bruce.
Thanks, Kathy.
Kathy Ta
Sure.
Operator
Thank you. Our next question comes from the line of Cody Acree from Drexel Hamilton.
Your question please.
Cody Acree
If we could go back to the consumer segment for just a minute, so the, may be in a typical strength in the March quarter and then expected decline in June, I guess how would you characterize your expectations for the rest of the year, I know you’ve been diversifying that just given the smart phone leverage how would you characterize that as a driver for the rest of the year?
Bruce Kiddoo
Yes, so, obviously that’s difficult to forecast for the rest of the year. We still believe Samsung is below 10% customer long-term.
We still believe our investments in the broad-based business. We will continue to grow nicely and they’re usually stronger in the second half of the year - of the calendar year, just from a seasonality point of view, but understanding exactly how all that plays out.
The biggest mistakes, I have made in my job here is trying to forecast consumer long-term. So, I won’t make that mistake today.
Cody Acree
Alright, thank you.
Kathy Ta
Thanks, Cody.
Operator
Thank you. And our next question is a follow-up from the line of Tore Svanberg from Stifel.
Your question please.
Tore Svanberg
Yes, thank you. Just curious on the new tax policy and the ability to expense CapEx, just wondering if this kind of changes your strategy at all when it comes to outsource versus internal manufacturing?
Bruce Kiddoo
No, not really. I think we don't spend that much on CapEx to begin with, right, 2%, 3% of revenue, and it’s always been more demand driven, as far as supporting like if you look at where we’re spending today it’s some testers for automotive.
And so, I don't think the fact that we can immediately expense it will change that, our kind of capital budgeting process.
Tore Svanberg
Great. Thank you.
Bruce Kiddoo
Yes.
Kathy Ta
Thanks, Tore.
Operator
Thank you. And this does conclude the question-and-answer session of today's program.
I’d like to hand the program back for any further remarks.
Kathy Ta
All right. Well thank you Jonathan.
That concludes today's conference call, and 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.