Apr 26, 2018
Executives
Kathy Ta - Maxim Integrated Products, Inc. Tunç Doluca - Maxim Integrated Products, Inc.
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
Analysts
Jeriel Ong - Deutsche Bank Securities, Inc. Tore Egil Svanberg - Stifel, Nicolaus & Co., Inc.
Philip Lee - Citigroup Global Markets, Inc. Jamison Phillips-Crone - BMO Capital Markets (United States) Craig M.
Hettenbach - Morgan Stanley & Co. LLC Charles Kazarian - Credit Suisse Securities (USA) LLC Thomas Curran - B.
Riley FBR, Inc. Cody Acree - Drexel Hamilton LLC Jerry Zhang - Barclays Capital, Inc.
James Wang - KeyBanc Capital Markets, Inc.
Operator
Good day, ladies and gentlemen, and welcome to the Maxim Integrated Third Quarter of Fiscal 2018 Conference Call. At this time, all participants are in a listen-only mode.
Later, we'll conduct a question-and-answer session and instructions will be given at that time. 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 - Maxim Integrated Products, Inc.
Thank you, Jonathan. Welcome everyone, to Maxim Integrated's fiscal third quarter 2018 earnings conference call.
Joining me on the call today are Chief Executive Officer, Tunç Doluca; and 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 making some forward-looking statements.
In light of the Private Securities Litigation Reform Act, I'd like to remind you that these statements must be considered in conjunction with the cautionary warnings that appear in our SEC filings. Investors are cautioned that all forward-looking statements in this call involve risks and uncertainty and that future events may differ materially from the statements made.
For additional information, please refer to the company's Securities and Exchange Commission filings which are posted on our website. Now, I'll turn the call over to Tunç.
Tunç Doluca - Maxim Integrated Products, Inc.
Thank you, Kathy. Good afternoon to all our participants, and thank you for joining us today.
We appreciate your interest in Maxim Integrated. This quarter, Maxim is celebrating the 35-year anniversary of the company's founding.
Over the last 3.5 decades, we have built a durable business through our expertise in high-performance analog, particularly in power management products. We have built a strong brand with our customers in solving their toughest problems.
I really believe Maxim has one of the finest engineering teams in analog in the world. And our customers tell us that the performance of our products is what sets us apart from our competitors and what gives us lasting differentiation in each of our end markets.
Let me now turn to this quarter's results. As a reminder, during last year's June quarter, we transitioned one of our U.S.
distributors to sell-in accounting. During our commentary today, we will exclude that component of revenue from the June quarter of last year.
We are pleased with our performance in the March quarter. Compared to the same quarter last year, revenue grew strongly, driven by our power management products in Consumer, Automotive and Industrial with continued solid profitability.
Looking forward, we continue to expect significant growth drivers in Automotive, Industrial and Data Center. First, I will comment on Automotive.
We continue to see strong demand in battery management systems, or BMS, especially in China. In the March quarter, we introduced a high current version of our BMS product designed for electric buses.
This product has already earned a significant new design win in China. On a year-over-year basis, our Automotive design wins continue to grow in the double-digits.
This growth is led by power, battery management and serial link products, giving us confidence in year-over-year revenue growth in the low teens in Automotive. Quality and safety are paramount to Automotive customers.
Automotive safety certifications, called ASIL levels, address potential hazards that can occur when electrical systems in cars malfunction. It covers the entire automotive safety lifecycle, from management, development, production, operation, service and decommissioning of an electrical system.
Maxim has the highest-rated ASIL compliant battery management system in the industry, and our ASIL ratings in power management and serial link interface products differentiate us in the market as well. These safety certifications become increasingly important to our customers as driver-assist content continues to grow.
This higher safety trend plays to our strengths in product design for Automotive. In the March quarter, Automotive grew in the double digits from the same quarter last year.
In the June quarter, we expect strong sequential growth, driven by power management products for infotainment, continued momentum in our battery management system business and ADAS products. In fact, in the June quarter, we expect high-teens year-over-year growth in Automotive.
Let me next turn to the Industrial market. Our March quarter 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, content growth in medical and by progress we made in our broad market initiatives. We also closed a small acquisition in the industrial communications area.
In the June quarter, we expect Industrial to be strongly up, sequentially, and up in the mid-teens compared to the same period last year. This performance is again expected to be led by factory automation products and through our strategy to reach small and medium business customers with distribution partners.
We continue to broaden our customer engagements in factory automation across customers in Europe, the Americas, Japan and China. Although, these are early days in factory automation deployment, we estimate that in 2018, the industry's installed base of IO-Link communication will reach 10 million units globally, doubling last year's installed base.
Sensors, actuators and programmable logic controllers for a smart factory require efficient power management that is robust for harsh industrial environments, minimizes each animation and fits into small footprints. These requirements play to our strengths.
In the March quarter, we introduced a new line of 3x3 millimeter highly efficient power management modules that integrate the inductor and DC-to-DC converter. This remarkable size addresses the most space-constrained applications in the industrial market.
In medical, we are seeing double-digit year-over-year growth from a small revenue base in authentication products. These products ensure that only genuine components are used with medical electronics such as pulse oximeters, surgical staplers, dialysis machines and clinical dosimeters.
We expect growth on this business over the coming quarters. In our broad market business, we continue to grow resales through our distribution partners.
We have extended our global customer reach, particularly to small and medium business customers. In the March quarter, distribution channel resales grew 25% from the same period last year.
Let me next discuss Communications & Data Center. In the March quarter, Comms & Data Center was flat from the same period last year with strong growth in optical products for the Data Center offset by broad-based softness in Communications infrastructure.
In the June quarter, we anticipate Comms & Data Center revenue to be up sequentially and up from the same period last year. This growth is again driven by 100G optical products for high-speed rack to rack connectivity.
Finally, let me turn to Consumer. In the March quarter, our Consumer business was strongly up from the same period a year ago due to an above average flagship smartphone shipments and growth in our broad-based consumer business.
In the June quarter, we expect consumer to be strongly down sequentially due to significantly lower unit shipments of flagship smartphone products, partially offset by growth in tablets and wearables. We expect consumer to be flat in the June quarter from the same period last year.
As such, consumer is no longer a headwind to our growth. In Consumer, we continue to execute on our strategy to broaden our business into proliferation of smart devices with strong market acceptance of our products in hearables and peripherals.
To summarize, Maxim's priorities are to grow revenue, to do so profitably with continued financial stability. We are delivering on all three.
We have strong top line growth in Automotive, Industrial and Data Center and our Consumer business is now more broad-based. Through our distribution partnership initiatives, our broad market strategy is delivering growth, enhanced profitability and improved reach to small and medium business customers.
With that, I'll now turn the call over to Bruce.
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
Thanks, Tunç. We continue to successfully execute on our updated business model and grow our top line.
Our power management franchise in automotive and industrial is driving top line revenue growth. Operating margin exceeded 37% in the quarter due to our strong execution.
Free cash flow was on track to our $3.50 per share target. And finally, we are delivering on our commitment to return 100% of our free cash flow to shareholders.
Let me now discuss our third quarter financial results. Revenue for Q3 was $649 million, up 12% from the same quarter a year ago.
Our revenue mix by major markets in Q3 was approximately 31% Consumer; 27% from Industrial; 20%, Automotive; 19% Comms & Data Center; and 3% Computing. As expected, Consumer increased in Q3 due to an above average smartphone shipment ramp and we expect Consumer revenue to normalize in Q4.
Let me now turn to the distribution channel. Distribution comprise 43% of Maxim's revenue in the March quarter.
We ended Q3 with 56 days of inventory in the distribution channel, down 1-day from Q2. The decrease was driven by active management of channel inventory and continued strength in resales.
We are aware of reports of double ordering. So, we checked with our two largest distributors and they stated that, with our stable lead times, they are not aware of excess orders.
Our delivery lead times are five to seven weeks and have been in this range for over six years. Also, we do not have capacity constraints.
Thus, there is no need for customers to double order or build excess inventory. We will continue to monitor this issue closely.
Turning to the P&L, Maxim's gross margin, excluding special items, was 67.2%, down slightly from the prior quarter due to the transition to sell in accounting in Q2. Q3 gross margin is approximately 200 basis points higher than the same quarter last year, driven by strong operational execution.
Special items in Q3 gross margin included intangible asset amortization from acquisition. Operating expenses, excluding special items, were $196 million, down $5 million from the prior quarter due to a 14-week quarter in Q2.
Special items in Q3 operating expenses included acquisition-related charges and restructuring charges. Q3 GAAP operating income, excluding special items, was $240 million.
Operating margin at 37.1% of revenue is up 180 basis points from the prior quarter and up 410 basis points from the same quarter a year ago. This improvement in operating margin was driven by revenue growth, our manufacturing transformation and focused R&D investment strategy.
Q3 GAAP tax rate, excluding special items, was 12%. This rate is lower from our previous level of 14% due to tax reform.
GAAP earnings per share, excluding special items, was $0.73, up 32% from the same quarter a year ago. Turning to the balance sheet and cash flow; overall total cash, cash equivalents and short-term investments decreased by $99 million in the third quarter to $2.72 billion.
Q3 inventory days ended at 117, down 9 days from Q2. Inventory dollars were up 5% from the prior quarter.
Capital expenditures were $17 million in the quarter. Trailing 12-month free cash flow was $843 million, or 34% of revenue and up 15% 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 $128 million in Q3 as we bought back approximately 2.1 million shares.
This was up significantly from the prior quarter as we increased our return of capital policy from 80% to 100% of free cash flow. Dividends totaled $118 million in the quarter, or $0.42 a share.
This was a 17% increase from the prior quarter, also due to the increase in our return of capital policy from 80% to 100% of free cash flow. Our dividend yield is approximately 3% at yesterday's closing stock price.
Moving onto guidance, our beginning Q4 backlog was $436 million. Based on this beginning backlog and expected turns, we forecast Q4 revenue of $610 million to $650 million.
Q4 revenue is expected to be up approximately 8% at the midpoint of our guidance compared to the same quarter last year on a normalized basis driven by double-digit growth in Industrial and Automotive. We normalized last year's June quarter results for the transition to sell in accounting at one North American distributor, which delivered an incremental $20 million of revenue in the quarter.
Q4 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 Q4 gross margin are estimated at approximately $12 million, primarily for amortization of intangible assets.
Q4 operating expenses, excluding special items, are expected to be in the low to mid 190s, down from Q3, with continued tight cost controls consistent with our updated business model. Special items in Q4 operating expenses are estimated at approximately $1 million, primarily for amortization of intangible assets.
Our tax rate for Q4, excluding special items, is expected to be 12%, flat from Q3 and at a lower rate than prior estimates due to tax reform. For Q4, GAAP earnings per share excluding special items we expect a range of $0.67 to $0.73.
In summary, we expect growth in Q4 revenue compared to the same quarter last year, led by strength in Automotive and Industrial. We continue to execute to our updated financial model, resulting in stronger earnings and free cash flow growth, 100% of which we are returning to shareholders.
With that, I'll turn the call back to Kathy.
Kathy Ta - Maxim Integrated Products, Inc.
Thanks, Bruce. That concludes our prepared remarks and we will now open the call for questions.
We would like to continue the same Q&A process that we've used previously. We'll take one question from each caller so we can get to more people in the queue.
If you have more than one question, please hop back in the queue. Jonathan, could we please have our first question?
Operator
Certainly. Our first question comes from line of Ross Seymore from Deutsche Bank.
Your question, please.
Jeriel Ong - Deutsche Bank Securities, Inc.
This is Jeriel on behalf of Ross. Thanks for letting me ask question.
I want to clarify something you said in your prepared remarks. You mentioned that you guys no longer expect consumer to be a headwind to growth.
Now, does that mean that you expect to see positive year-on-year growth going forward from the Consumer segment? Or is that interpreted to mean that it won't be a drag on your top line, i.e.
it will grow in line with the corporate average going forward by your forecast? Thanks.
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
Yeah, our comment was attributable to our Q4 guidance, where we basically said Consumer would be flat year-over-year. Certainly, that's something we've talked about that we knew we would sort of lap the dual sourcing issue from a year ago in our fourth quarter.
And so, from that point of view, we've achieved that. And so, we don't expect that to be a headwind from a growth point of view.
We're not saying it's going to grow at the corporate average. So, from that point of view, it will still be a little bit of a headwind to the extent that we're trying to grow in mid-single digits, if that was your question.
But it will no longer – our view is, it won't be a drag. It won't be negative growth year-over-year, which is what we've seen throughout FY 2018 to-date.
Kathy Ta - Maxim Integrated Products, Inc.
Thanks, Jeriel.
Operator
Thank you. Our next question comes from the line of Tore Svanberg from Stifel.
Your question, please.
Tore Egil Svanberg - Stifel, Nicolaus & Co., Inc.
Yes. Thank you.
Bruce, I think you'd mentioned that distribution was about 42% of revenue this quarter. If I recall correctly, it was like 47% last quarter.
What's that 5% delta really attributed to?
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
Yeah. So, Tore, that's primarily due to just the strength that we had in Consumer in the third quarter.
So, we obviously had strong revenue due to the kind of early ramp of the smartphone shipments. If we look at distribution, overall, resales were up 25% year-over-year.
So, we're still seeing tremendous strength in that business, and it was really across the board. China and Japan were up around 30% year-over-year.
Europe, Korea were up 20%, and even the Americas were up around 10% year-over-year. And so, they've kind of recovered and shown that return to growth.
So that change is just solely due to kind of the early ramp in Consumer. That goes away in Q4.
That comes down, and you'll see distribution back to the normal trend line that we were on before.
Tore Egil Svanberg - Stifel, Nicolaus & Co., Inc.
That's great. Thank you.
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
Yeah.
Kathy Ta - Maxim Integrated Products, Inc.
Thanks, Tore.
Operator
Thank you. Our next question comes from the line of Chris Danley with Citi.
Your question, please.
Philip Lee - Citigroup Global Markets, Inc.
Hey. This is Philip Lee on behalf of Chris Danley.
I just want to get some more clarification around the Consumer end market. We understand that the ramp happened sooner than expected this year.
Is the decline steeper than expected next quarter? And is it mainly unit driven, or is there also some content involved there as well?
Thank you.
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
Yeah. Fundamentally, what our largest customer did was simply pull in their ramp, which is normally, for the most part, spread between our Q3 and Q4.
It was much more weighted into Q3. And so, from a unit point of view, it was much higher than traditional in Q3, and it's much lower than traditional in Q4.
And so, that is kind of what we expected when we gave our guidance. They actually, from a timing point of view, shifted even more revenue than we had expected from Q4 into Q3, and so now that's reflected in our guidance.
And so, if you look at the Q4 guidance, there's the issue on kind of that shipment timing. If you take that out, you have our Automotive business which is up in the high-teens year-over-year, you have our Industrial business which is up in the mid-teens year-over-year.
We have our cloud Data Center, which is in hyper growth phase, right, off of small base growing 40%, 50% year-over-year. And then you also have the Consumer business that we said basically flat year-over-year.
So, you end up at or midpoint of our guidance up year-over-year with very strong growth from Automotive, Industrial and the cloud Data Center, which is exactly where we wanted to be and feel very good about.
Kathy Ta - Maxim Integrated Products, Inc.
Thanks, Philip.
Operator
Thank you. Our next question comes from line of Ambrish Srivastava from BMO.
Your question, please.
Jamison Phillips-Crone - BMO Capital Markets (United States)
Hi. This is Jamison on for Ambrish.
Thanks for the question. I was wondering if you could just comment on receivables.
Looks like it's up 36% quarter-over-quarter, which is a little bit higher than the last three or four years. So, if you could just give us some commentary on the elevation of that and where you see that going ahead that would be helpful.
Thank you.
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
Yeah. Absolutely.
So that was all driven again by that large ramp of smartphone shipments, that were much stronger than normal in the February and March than they had been previously, and that customer has 60-day payment terms. So, much of those collections will fall into Q4.
We fully expect to see the receivables come back down and DSO come back under 40. And you'll see that benefit to cash flow in Q4.
Jamison Phillips-Crone - BMO Capital Markets (United States)
Thank you.
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
Yeah.
Kathy Ta - Maxim Integrated Products, Inc.
Thanks so much.
Tunç Doluca - Maxim Integrated Products, Inc.
Thank you.
Operator
Thank you. Our next question comes from the line of Craig Hettenbach from Morgan Stanley.
Your question, please.
Craig M. Hettenbach - Morgan Stanley & Co. LLC
Hello. Thank you.
Just wanted to – had a question on the Data Center piece, and in particular just any type of traction you're seeing for new power management architectures, how we should think about that?
Tunç Doluca - Maxim Integrated Products, Inc.
So, I'll take that one. So, on the Data Center side, I think we've commented quite a bit about the optical side, which is doing really well.
And I think Bruce said it right by saying it's in hyper-growth. On the power management side, what we're seeing is that from customers higher demands for power on the CPUs and GPUs, and essentially more requirements in terms of shrinking the space of its power management solution tapes on these servers.
And that actually bodes really well for Maxim. And it also bodes well for 48-volt or higher voltage distribution of power.
So, what we're seeing is that the direction the Data Center market is taking is in the favor of 48-volt distribution, but also goes into the sweet spot of Maxim solutions in terms of the end conversion. So, these things take multiple years to actually turn into revenue, but the leading indicators are essentially telling us that the market dynamics are beneficial for us.
And I think we see that as an opportunity for us in the future for good growth in Data Center.
Craig M. Hettenbach - Morgan Stanley & Co. LLC
Got it. And then just as a follow-up, just on the BMS side, I know there's a lot of activity focused in China.
Just how you're seeing that market broadly. And then, are you seeing it kind of beyond China?
Or are there things we should be looking for for the breadth of BMS?
Tunç Doluca - Maxim Integrated Products, Inc.
So, the BMS, I mean, we got a lot of revenue growth in the previous few quarters in China, but it's not just the China story. If you look at our design wins, they are spread to almost all the geographies.
We've got design wins at 28 OEMs in over 70 models. So, it's not just a one country story.
But in terms of the near-term needs and in terms of the growth, a lot of it is happening in China because their government incentives, they're essentially to be able to combat air pollution in the country. So that's a driver that makes them move faster than probably the rest of the world.
But in other parts of the world as well, there's a large commitment to electric vehicles deployment by consumers. So, I think it's a good opportunity story for us.
We talked about in the prepared comments, I mentioned why our products are in high demand, basically because they offer better safety or ASIL capabilities. And all of that is enabling us to get great design wins across everywhere.
But as you alluded, most of the revenue that we're getting with quick ramps is happening in China.
Craig M. Hettenbach - Morgan Stanley & Co. LLC
Okay. Thank you.
Tunç Doluca - Maxim Integrated Products, Inc.
You're welcome.
Kathy Ta - Maxim Integrated Products, Inc.
Thanks, Craig.
Operator
Thank you. Our next question comes from the line of John Pitzer from Credit Suisse.
Your question, please.
Charles Kazarian - Credit Suisse Securities (USA) LLC
Hi. This is Charlie Kazarian on behalf of John Pitzer, and thanks for letting me ask a question.
Congratulations on the strong results and particularly in the Auto segment. So, you've been kind of growing high teens to low 20 double-digits, and your June quarter implies very strong growth again.
You noted China as kind of a bucket of strength. And I was just kind of curious as to what dynamics you're seeing there.
I mean, there's a lot of conversation in the industry around accelerating electric vehicles and hybrid electric vehicles. And I was just kind of curious as to whether or not you're kind of seeing any pickup in there and how you would expect that to kind of impact your battery management business.
Thank you.
Tunç Doluca - Maxim Integrated Products, Inc.
Well, so let me make sure that I add a little bit more color there. So, the large growth that we're guiding to in Automotive in the high teens is not really just limited to China, first of all.
It is global. And in terms of dollars, we still have strong solid growth in infotainment.
But in terms of really large growth percentages, a lot of the large growth percentages are coming from ADAS applications and BMS applications. So, I want to make sure everybody understands that it's not really limited to one space.
It's all four of these segments are growing pretty rapidly, some faster than others from a smaller base. So, it's a global growth story for the company.
And in some of those segments, the growth is faster in one region or other, particularly in BMS it's faster in China. But infotainment and serial link products or ADAS products, those are global.
Charles Kazarian - Credit Suisse Securities (USA) LLC
Okay. Thank you.
Tunç Doluca - Maxim Integrated Products, Inc.
Thank you.
Kathy Ta - Maxim Integrated Products, Inc.
Thank you.
Operator
Thank you. Our next question comes from line of Craig Ellis from B.
Riley. Your question, please.
Thomas Curran - B. Riley FBR, Inc.
Hi, guys. This is actually Thomas here, calling in for Craig.
Thanks for taking my question and happy birthday to the company. I just wanted to follow up on the Auto commentary that you provided.
Can you dive a little bit deeper into the sub-segment of the Auto segment and maybe provide more commentary on kind of where are you seeing the steepest deflection in ADAS versus BMS?
Tunç Doluca - Maxim Integrated Products, Inc.
Okay. So, I think I'm just going to summarize what I said to the previous question, which is basically, we really have three growth segments in automotive; infotainment, ADAS or driver assist and BMS.
And of those segments, infotainment is the largest revenue generator today. And that's growing pretty solidly, but probably closer to the growth rate of the overall Automotive, but the pieces that are growing the fastest as a percentage are driver assist and BMS.
But just to give you some numbers, I think that the infotainment section of the business is the dominant piece. It's about two-thirds of the business and two-thirds of it there, and the other ones are divided of the small.
So, it's safety and security segment, which is ADAS, basically, that may be about 10% and powertrain is maybe about 10% or so. It's in that range, to give you an idea.
Those two 10% businesses are growing really fast. They're in hyper-growth, and then infotainment is kind of growing closer to the growth rate of the Automotive business.
So – basically, which is in the low teens. So that's kind of a background.
So we're happy with the investment. We're happy with the – and more importantly, customers are really happy with the performance of our products.
Therefore, they keep designing them in. And I think it's going to be a long-term growth driver for Maxim.
Thomas Curran - B. Riley FBR, Inc.
Thank you for that.
Tunç Doluca - Maxim Integrated Products, Inc.
You're welcome.
Kathy Ta - Maxim Integrated Products, Inc.
Thanks (32:55).
Operator
Thank you. Our next question comes from the line of Cody Acree from Drexel Hamilton.
Your question, please.
Cody Acree - Drexel Hamilton LLC
Thanks for taking my questions, and congrats on the progress. On the Consumer side, beyond the June quarter, what are your thoughts of percentage of revenue direction and knowing the diversification you're getting just in seasonality through the remainder of the year?
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
Sure. Our Consumer business had really been running at around 25% of revenue, 25%, 26% of revenue, over the last several quarters, before kind of this blip in Q3.
Our expectation is that it will kind of go back and normalize in Q4 to that range with the guidance that we've given of basically flat year-over-year. If we look out beyond June, if you just think about the normal seasonality, for our broad-based Consumer business, much of that is usually seasonally stronger in the second half of the calendar year.
And so, I think you'll see our seasonality on the broad-based business get more strength in the second half; and then, of course, to the extent that Samsung continues with their launches usually in the first half of the calendar year.
Cody Acree - Drexel Hamilton LLC
Great. Thank you, guys.
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
Yeah.
Kathy Ta - Maxim Integrated Products, Inc.
Thanks, Cody.
Operator
Thank you. Our next question comes from line of Blayne Curtis from Barclays.
Your question, please?
Jerry Zhang - Barclays Capital, Inc.
Hey, guys. This is Jerry Zhang on for Blayne.
Thanks for taking my question. I had something on the Comm and for Data Center portion.
So, obviously, the two pieces have very different growth trajectories and you guys have talked about how to think about that bucket long term. But looking out for the rest of the calendar year beyond June, I guess, what's the right way to think about the two pieces directionally?
And how does that interact to kind of form a blended rate? Thank you.
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
Yeah. So, if we think of our Comms & Data Center business, it's probably the one business that is not seasonal.
As you know better than us, the infrastructure business is lots of times tied to builds and CapEx in the telecom industry. That's not a strategic part of our business.
We have seen it – in the third quarter, it was still down slightly. And when we think about it for the June quarter, we think it probably flattens out.
But again, we don't have a lot of unique insights into the Comm infrastructure business and we have a very broad-based sort of catalog-driven business. Obviously, on the optical side, we're in kind of hyper-growth and, literally, there's nothing seasonal about that.
That is just, as people adopt 100-gig optical connectivity, that business is growing very, very fast. And as we've said, sort of around, off a small base, kind of this 50% kind of year-on-year growth rate.
And so, Comms & Data Center isn't really seasonal. The Comm infrastructure side is still about two-thirds of the business and the Data Center is still about one-third.
So that's still going to influence the overall growth rate. Obviously, as the Data Center continues to grow and becomes a larger percent, it'll have a larger impact on the overall growth rate of the company as that business continues to grow very strongly.
Jerry Zhang - Barclays Capital, Inc.
That's great. Thanks.
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
Yes.
Kathy Ta - Maxim Integrated Products, Inc.
Thanks, Jerry.
Operator
Thank you. Our next question comes from the line of James Wang from KeyBanc Markets (sic) [KeyBanc Capital Markets].
Your question, please?
James Wang - KeyBanc Capital Markets, Inc.
Hi. Thanks for letting me ask a question.
I was just wondering, so given the strong demand trends, especially in the Industrial and Automotive, how are you seeing pricing trends? I was wondering if you have anything to comment on that.
Thank you.
Tunç Doluca - Maxim Integrated Products, Inc.
I would say there's really nothing special happening on the pricing trends. We always find that when we develop products that give the performance that customers need and want, then you got more pricing power than when you make commodity-type prices.
So, in general, though, our view has been that the pricing in most of the markets, frankly, have stabilized a lot more because there's more demand for semiconductors and not us, but some other companies might be having difficulty producing everything. So that all help us.
And some of the consolidation, obviously, has helped as well. So, from a pricing standpoint, I think the trends are good, they're in favor of high-performance companies.
And we definitely are one of these companies. So, I think there's really not much special happening there.
James Wang - KeyBanc Capital Markets, Inc.
Thank you. And my follow-up question, I was wondering if there's any guidance how to think about like where the tax rate could go beyond from 12% beyond Q4.
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
Yeah. So, still a lot of work being done there.
Obviously, we took it from 14% to 12%, just simply on the fact that U.S. tax rate came down to 21% and more a fiscal year that straddles.
And so, if you look at the difference between the first half of our fiscal year will be at 35%; the second half will be at 21%. So, on a weighted average, you sort of come down to a 28%, so that's been the benefit there.
Tunç Doluca - Maxim Integrated Products, Inc.
That's just the U.S. tax.
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
That's just the U.S. tax rate, right.
And then so that allowed us to come down from kind of the 14% to a 12% ex-FDI tax rate. We're doing a tremendous amount of work to, obviously, look at tax reform and what that means.
It's a little too early to still talk about that. I think it's reasonable to expect in our July earnings call for Q4, we'll give you an update on that on what to use for FY 2019 and long-term.
James Wang - KeyBanc Capital Markets, Inc.
Thank you.
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
Yeah.
Kathy Ta - Maxim Integrated Products, Inc.
Thanks, James.
Operator
Thank you. Our next question is a follow-up from the line of Tore Svanberg from Stifel.
Your question, please.
Tore Egil Svanberg - Stifel, Nicolaus & Co., Inc.
Yeah. Thank you.
So, I know you usually only guide one quarter out. But this year, seasonality is off to a weird start, right, with March being stronger and June being seasonal.
So, what are some of the dynamics we should think about as you go into the September quarter?
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
Yeah. So I think, in general, if we think about our business, the Consumer business, as we become more broad-based, those parts of the business are usually stronger.
In the second half of the year, there's usually more product launches in that time of the year. And so, I think that is something we'll take a look at.
Usually Industrial is down and Automotive is flat. Both of those businesses are doing very well right now.
And so, I think, in general, right, that could be a little upward biased, but it's really too early to tell. And then, as I said, I think from the Comms & Data Center, we don't have insights on the infrastructure side.
And I think optical is going to continue to grow very strongly.
Tore Egil Svanberg - Stifel, Nicolaus & Co., Inc.
That's helpful, and congratulations on the 35 years.
Bruce E. Kiddoo - Maxim Integrated Products, Inc.
Great. Thanks, Tore.
Tunç Doluca - Maxim Integrated Products, Inc.
Thanks, Tore.
Kathy Ta - Maxim Integrated Products, Inc.
Thanks, Tore.
Operator
Thank you. This does conclude the question-and-answer session of today's program.
I'd like to hand the program back to Kathy for any closing remarks.
Kathy Ta - Maxim Integrated Products, Inc.
Thank you, Jonathan. With that, we will conclude today's conference call.
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.